Process: 554/2014-T

Date: March 17, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 554/2014-T addressed whether construction land (terrenos para construção) qualifies as 'properties with residential purpose' subject to Stamp Tax under Item 28.1 of the General Stamp Duty Table (TGIS). The claimant, A, S.A., challenged Stamp Duty assessments totaling €47,956.35 on three urban properties classified as construction land, seeking annulment and refund of €31,970.91 already paid for 2013. The claimant argued that Item 28.1 TGIS, in its version until December 31, 2013, only taxed residential properties, not construction land. They contended that construction land, despite being urban property, cannot be considered residential since it lacks residential characteristics and serves only construction purposes. A building license merely permits construction without guaranteeing realization. The claimant asserted the legislature intended to tax luxury homes, not undeveloped land, citing favorable arbitral and Supreme Administrative Court jurisprudence. The Tax Authority countered that 'residential purpose' encompasses both built properties and construction land, arguing this broader interpretation reflects legislative intent beyond properties 'intended for' residential use. They emphasized that construction rights immediately increase land value, and a property's purpose can be determined before actual construction occurs. The case centered on interpreting whether the fiscal classification for property valuation purposes automatically subjects construction land to Stamp Tax as residential property, raising fundamental questions about the scope of Item 28.1 TGIS and whether tax authorities can impute residential purpose to undeveloped land based solely on permitted future use rather than current characteristics.

Full Decision

ARBITRAL DECISION

  1. REPORT

1.1 A, S.A. – Branch in Portugal, NIF …, with registered office at Av …, in Lisbon, hereinafter also referred to as "Claimant", filed a request for arbitral determination, in accordance with the provisions of article 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework of Tax Arbitration, hereinafter "RJAT"), with "Respondent" being the Tax and Customs Authority (hereinafter "TA").

The Claimant seeks the declaration of illegality and the consequent annulment of the Stamp Duty assessments dated 17/03/2014, issued in accordance with Item 28.1 of the General Stamp Duty Table, regarding urban properties of the type "land for construction", registered in the cadastre under the articles …, … and …, which amount to a total value of € 47,956.35.

The Claimant further seeks the condemnation of the TA to refund the Claimant with the amount of € 31,970.91, concerning the undue payment of collection notes nos. 2014 …, 2014 …, 2014 …, 2014 …, 2014 … and 2014 …, relating to the 1st and 2nd installments of Stamp Duty for 2013, concerning the aforementioned properties, and to the payment of compensatory interest, owed for the undue payment of illegally issued collection notes.

1.2 As the basis for its request, the Claimant alleges in summary that:

(a) It is the owner of the properties registered in the urban property cadastre of the parish of …, under cadastral article no. …, with tax property value of €2,243,673.76; no. …, with tax property value of € 1,348,494.11; and no. …, with tax property value of € 1,203,466.73;

(b) The aforementioned urban properties are land for construction.

(c) On 17/03/2014, in accordance with Item 28.1 of the General Stamp Duty Table, the TA proceeded with the Stamp Duty assessment on urban properties of the type "land for construction" in the amount of €22,436.74, regarding the property with cadastral article …; in the amount of €13,484.94, regarding the property with cadastral article …; and in the amount of €12,034.67, regarding the property with cadastral article ….

(d) The Claimant paid the collection notes nos. 2014 …, 2014 …, 2014 …, 2014 …, 2014 … and 2014 …, relating to the 1st and 2nd installments of Stamp Duty for 2013, concerning the aforementioned properties.

(e) Item 28.1 of the General Stamp Duty Table, in the version in force until 31 December 2013, only subjected to Stamp Duty properties with residential purpose.

(f) We are not dealing with residential urban properties, but rather with urban properties of land for construction, therefore the assessments in question lack legal basis.

(g) Land for construction, although considered urban properties, cannot be considered as being devoted to any purpose other than construction.

(h) Land for construction cannot be considered as being devoted to residential purposes, since it does not constitute nor has the characteristics of a residential property.

(i) A building license is not a guarantee that the construction will be realized, being merely a license to carry out the construction.

(j) The TA cannot, because it needs to fictively assign a purpose for the purposes of property valuation, consider properties with residential purpose those in whose valuation such purpose was considered.

(k) Such interpretation is contrary to the law and its spirit, since the legislature did not intend to tax land for construction, but rather and only the so-called "luxury homes".

(l) It is in this sense that the jurisprudence of the Arbitral Tribunal has decided.

(m) It is, equally, in this sense that the Supreme Administrative Court has decided.

(n) Compensatory interest is owed for the undue payment of the identified Stamp Duty assessments, in accordance with article 43, no. 1 of the General Tax Law and article 61 of the Tax Procedure and Process Code.

1.3 The Tax and Customs Authority contested, alleging in summary that:

(a) The properties subject to the contested assessments have the legal nature of properties with residential purpose, therefore the assessment acts subject to this request for arbitral determination should be upheld, as they embody the correct interpretation of Item 28 of the General Table, amended by Law 55-A/2012, of 29/12.

(b) The TA understands that the concept of "properties with residential purpose", for the purposes of Item 28 of the General Stamp Duty Table comprises both built properties and land for construction, first and foremost taking into account the literal element of the norm.

(c) The legislature does not refer to "properties intended for residential purposes", having opted for the notion of "residential purpose" - a different and broader expression whose meaning must be found in the need to integrate other realities beyond those identified in article 6, no. 1 letter a) of the Property Transfer Tax Code.

(d) The mere constitution of a potential construction right immediately increases the value of the property in question, hence the rule contained in article 45 of the Property Transfer Tax Code that requires the separation of the two parts of the land.

(e) Much before the actual construction of the property, it is possible to determine and establish the purpose of the land for construction.

(f) Concluding by rejecting the declaration of illegality and consequent annulment of the contested assessments.

1.4 The Arbitral Tribunal is regularly constituted, is materially competent, the proceedings do not suffer from defects that would invalidate it, and the Parties have legal personality and capacity, showed themselves to be legitimate, the Claimant is regularly represented by Counsel, and no exceptions were raised, therefore it is appropriate to appreciate and decide.

  1. MATTER OF FACT

2.1 Facts Considered Proven

(a) The Claimant is the owner of the properties registered in the urban property cadastre of the parish of …, under cadastral articles no. …, with tax property value of €2,243,673.76; no. …, with tax property value of €1,348,494.10; and no. …, with tax property value of € 1,203,466.73;

(b) The aforementioned urban properties are land for construction;

(c) The tax property value of the identified urban properties was determined in 2013;

(d) In accordance with Item 28.1 of the General Stamp Duty Table, the TA proceeded with the Stamp Duty assessment on urban properties of the type "land for construction":

i. in the amount of €22,436.74, regarding the property with cadastral article …;

ii. in the amount of €13,484.94, regarding the property with cadastral article …; and

iii. in the amount of €12,034.67, regarding the property with cadastral article ….

(e) The Claimant paid the collection notes:

i. nos. 2014 …, 2014 …, relating to the 1st and 2nd installments of Stamp Duty for 2013, concerning the urban property with cadastral article …, in the amounts of €7,478.92 and €7,478.91, respectively;

ii. nos. 2014 …, 2014 …, relating to the 1st and 2nd installments of Stamp Duty for 2013, concerning the urban property with cadastral article …, both in the amount of €4,494.98; and

iii. nos. 2014 … and 2014 …, relating to the 1st and 2nd installments of Stamp Duty for 2013, concerning the urban property with cadastral article …, in the amounts of € 4,011.57 and €4,011.55, respectively.

2.2 Facts Not Considered Proven and Respective Grounds

There are no facts relevant to the decision that are considered not proven.

2.3 Grounds for the Proven Facts

The proven facts are based on the documents attached to the file, whose authenticity and accuracy were not questioned.

  1. MATTER OF LAW

3.1 Issue of the Classification of Land for Construction within the Scope of Item 28 of the General Stamp Duty Table

The disputed issue is reduced to the classification, or not, of land for construction, within the concept of property with residential purpose, as stated in Item no. 28.1 of the General Stamp Duty Table.

Law No. 55-A/2012, which entered into force on 30/10/2012, did not provide a qualification of the concepts contained in said Item no. 28, specifically the concept of "property with residential purpose".

It is an innovative concept in tax legislation that requires clarification in the Stamp Duty Code (CIS).

However, observing what article 67, no. 2, of the Stamp Duty Code (CIS), also amended by said Law No. 55-A/2012, provides, it is found that "to matters not regulated in the present code relating to Item 28 of the General Table, the Property Transfer Tax Code applies subsidiarily".

Thus, given doubt as to the scope of said concept, it is justified to observe what the Property Tax Code says.

From a careful reading of the norms of the Property Tax Code (cf. articles 2, 4 and 6), the concept of "property with residential purpose" is not found in the classification of "properties".

In the absence of exact terminological correspondence of this concept, therefore, there is no alternative but to raise interpretive hypotheses, in light of what is provided in article 9, no. 1, of the Civil Code.

As for this matter – concept of property with residential purpose - there are several Decisions issued by the CAAD and by the Supreme Administrative Court (SAC), whose understanding is followed.

By way of example, for all purposes, reference is made to arbitral decision no. 53/2013-T, of 2/10/2013, which is followed in its entirety, which, referring to the concept of property with residential purpose as relating to residential properties, states that "The concept closest to the literal meaning of this expression used is manifestly that of «residential properties», defined in no. 2 of article 6 of the Property Transfer Tax Code as encompassing «buildings or constructions» licensed for residential purposes or, in the absence of a license, which have as their normal purpose residential purposes.

If it is understood that the expression «property with residential purpose» coincides with that of «residential properties», it is clear that the assessments will suffer from error regarding the facts and law, since all properties regarding which Stamp Duty was assessed under said Item no. 28.1 are land for construction, without any building or construction, required to fulfill that concept of «residential properties».

Therefore, if it is adopted that the interpretation of «property with residential purpose» means «residential property», the assessments for whose declaration of illegality is sought will be illegal, because there is no building or construction on any of the lands".

However, it must also be analyzed the concept of property with residential purpose as a concept distinct from residential properties, but what concept would this be?

Also with reference to this matter, for all purposes, we resort to arbitral decision no. 231/2013-T, of 03/02/2014, which is followed in its entirety and states that, there being no coherent meaning in Item no. 28.1, only the path of interpretation of the legal text remains, framed by article 9, no. 3, of the Civil Code.

And it continues by stating that "in light of those meanings of the words «purpose» and «to purpose», which are «to give purpose» or «to apply», the formula used in that Item no. 28.1 of the General Stamp Duty Table, manifestly encompasses, properties that have already been given the purpose of residential use, properties that are already applied to residential purposes, which is why it is important to inquire whether it will also encompass properties that, although not yet applied to residential purposes, are destined for these, notably in a subdivision license. To do so, it will be necessary to clarify when it can be understood that a property is devoted to a residential purpose, specifically whether it is when that purpose is assigned to it in a subdivision license or licensing act or similar, or only when the actual assignment of that purpose is realized. [...]. The text of the law, by adopting the formula «property with residential purpose», instead of «urban properties with residential purpose», which appears in [...] the «Statement of Reasons», strongly points to the fact that it is required that the residential purpose is already realized, since only then will the property have that purpose."

And it continues by stating that "one is faced with a reality even more distant from residential purpose that is the fact that there is no building or construction and, therefore, one cannot consider there to be a purpose that presupposes its existence. On the other hand, as the Claimant [and the now claimant, in the exact same terms] correctly states, the legislative intention of not extending the scope to construction land was expressly mentioned by the Government when presenting Bill 96-XII to the Plenary of the National Assembly, saying, through the voice of the Secretary of State for Tax Affairs: «First, the Government proposes the creation of a special rate to tax high-value residential urban properties. It is the first time in Portugal that a special taxation on high-value properties intended for residential purposes is created. This rate will be 0.5% to 0.8%, in 2012, and 1%, in 2013, and will apply to homes with a value equal to or greater than 1 million euros. With the creation of this additional rate, the tax burden required of these owners will be significantly increased in 2012 and 2013». The express reference to «homes» as the target of the scope of the new tax leaves no room for doubt about legislative intention. On the other hand, no reference to «land for construction» is found in the discussion of the aforementioned Bill."

In order to leave no doubt as to this matter, yet another reference to the jurisprudence of the CAAD as to the matter disputed here, making reference, this time, to Arbitral Decision no. 49/2013-T, of 18/9/2013, which, likewise, is followed in its entirety in stating that: "A land for construction - whatever the type and purpose of the building that will be, or could be, erected on it - does not, by itself, satisfy any condition to be licensed as such or to be able to define as being its normal purpose residential use. Therefore, referring the norm of incidence of stamp duty to urban properties with «residential purpose», without any specific concept being established for that purpose, it cannot be extracted therefrom that it contains a future potentiality, inherent to a distinct property that may possibly be built on the land."

Finally, the jurisprudence of the Supreme Administrative Court (SAC) fully adheres to the above-stated thesis, with reference being made by way of example to Decisions issued in the scope of cases no. 1870/13, of 9 April 2014, no. 48/14 also of 9 April 2014, no. 272/14 of 23 April 2014, no. 317/2014 of 14 May 2014, and no. 467/14 of 2 July 2014.

It is therefore concluded that the Stamp Duty assessments, relating to the fiscal year 2013, concerning the application of Item 28.1 of the General Stamp Duty Table to properties of the type "land for construction", registered in the urban property cadastre of the parish of …, under cadastral articles no. …, with tax property value of €2,243,673.76; no. …, with tax property value of € 1,348,494.11; and no. …, with tax property value of € 1,203,466.73, for whose declaration of illegality is sought, suffer from a defect of violation of that Item no. 28.1, due to error regarding the legal prerequisites, which justifies the declaration of their illegality and annulment (article 135 of the Code of Administrative Procedure).

3.2 Refund of Amounts Paid and Compensatory Interest

The Claimant further seeks the refund of the amounts paid, totaling € 31,970.91, plus compensatory interest for the undue payment of such amounts.

As arbitral decision no. 53/2013-T correctly states, "Although article 2, no. 1, letters a) and b), of the RJAT uses the expression «declaration of illegality» to define the competence of the arbitral tribunals functioning in the CAAD, not referring to condemnatory decisions, it should be understood that its competencies comprise the powers that in judicial challenge proceedings are attributed to tax tribunals, this being the interpretation that is in harmony with the sense of the legislative authorization upon which the Government based itself to approve the RJAT, in which it is proclaimed, as a first guideline, that «the tax arbitral process should constitute an alternative procedural means to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters»".

It follows from the provisions of article 43, no. 1, of the General Tax Law that the judicial challenge process, although it is essentially a process of annulment of tax acts, admits the condemnation of the TA to pay compensatory interest.

Indeed, said article states that "compensatory interest is owed when it is determined, in administrative complaint or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than legally owed".

As for this matter, article 61, no. 4 of the Tax Procedure and Process Code (in the version given by Law No. 55-A/2010, of 31 December, which corresponds to no. 2 in the original version) further states that "if the decision that recognized the right to compensatory interest is judicial, the payment period is counted from the beginning of the period of its spontaneous execution".

Thus, no. 5 of article 24 of the RJAT, in stating that «payment of interest is owed, regardless of its nature, in accordance with the provisions of the general tax law and the Tax Procedure and Process Code», should be understood as permitting the recognition of the right to compensatory interest in the arbitral process.

It is now appropriate to consider the request for refund of the amount unduly paid, plus compensatory interest.

In the case in question, it is clear that, following the illegality of the assessment acts, there is ground for refund of the tax unduly paid, by virtue of the aforementioned articles 24, no. 1, letter b), of the RJAT and 100 of the General Tax Law.

This proves essential to restore the situation that would have existed if the tax act subject to the arbitral decision had not been carried out.

In turn, as far as compensatory interest is concerned, it is also clear that the illegality of the assessment acts is attributable to the TA, which, on its own initiative, carried them out without legal support.

Consequently, the Claimant is entitled to compensatory interest, in accordance with article 43, no. 1, of the General Tax Law and article 61 of the Tax Procedure and Process Code.

Compensatory interest will be paid at the legal rate, from the date on which the respective payment or payments were made until the full refund of the amount or amounts unduly paid.

  1. DECISION

In light of the foregoing, the Arbitral Tribunal decides:

To uphold the request for the declaration of illegality and the consequent annulment of the Stamp Duty assessments, issued in accordance with Item 28.1 of the General Stamp Duty Table, regarding urban properties of the type "land for construction", registered in the cadastre under the articles …, … and …, which amount to a total value of € 47,956.35;

To condemn the TA to refund the Claimant the amount of € 31,970.91, concerning the undue payment of collection notes nos. 2014 …, 2014 …, 2014 …, 2014 …, 2014 … and 2014 …, relating to the 1st and 2nd installments of Stamp Duty for 2013, concerning the aforementioned properties; and

To condemn the Tax and Customs Authority to pay the Claimant compensatory interest, at the legal rate, calculated from the date on which each Stamp Duty payment was made until the date of full refund of such amounts.

  1. VALUE OF THE CASE

In accordance with the provisions of article 315, no. 2, of the Code of Civil Procedure and article 97-A, no. 1, letter a), of the Tax Procedure and Process Code and article 3, no. 2, of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is fixed at € 47,956.35.

  1. COSTS

The arbitration fee is fixed at €2,142.00, in accordance with Table I of the Costs Regulation for Tax Arbitration Proceedings, to be paid by the Respondent, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of said Regulation.

Notify the parties.

Lisbon, Centre for Administrative Arbitration, 17 March 2015

The Arbitrator,

André Gonçalves

Frequently Asked Questions

Automatically Created

Are construction land plots subject to Stamp Tax under Verba 28.1 of the TGIS in Portugal?
Based on the taxpayer's arguments in Process 554/2014-T, construction land plots should not be subject to Stamp Tax under Verba 28.1 of the TGIS. The claimant successfully argued that Item 28.1, in its version until December 31, 2013, only applied to properties with residential purpose, meaning actual residential properties rather than land for construction. Construction land, while classified as urban property, cannot be considered residential since it lacks residential characteristics and serves only construction purposes. The taxpayer cited favorable arbitral tribunal and Supreme Administrative Court jurisprudence supporting this interpretation, though the Tax Authority maintained that 'residential purpose' should encompass construction land with residential building permits.
Does Verba 28.1 of the TGIS apply to urban properties that are not classified as residential?
No, Verba 28.1 of the TGIS should not apply to urban properties not classified as residential, according to the taxpayer's position in Process 554/2014-T. The claimant argued that the legislature specifically intended Item 28.1 to tax residential properties (particularly luxury homes), not all urban property categories. Construction land, despite being urban property for cadastral purposes, cannot be assimilated to residential property merely because tax authorities consider a residential purpose for property valuation. The literal and purposive interpretation of Item 28.1 limits its scope to properties with actual residential characteristics, not undeveloped land that might eventually be used for residential construction.
Can a construction license qualify a land plot as having a residential purpose for Stamp Tax purposes?
According to the claimant's arguments in Process 554/2014-T, a construction license should not qualify land as having residential purpose for Stamp Tax purposes. The taxpayer contended that a building license is merely authorization to construct, not a guarantee that construction will occur or that the property currently serves residential purposes. The Tax Authority cannot fictitiously assign residential purpose to land for construction based solely on valuation criteria or permitted future use. The property's current nature and characteristics determine tax treatment, not hypothetical future developments. A construction license represents potential, not actualized residential use, and this distinction is crucial for determining whether Item 28.1 TGIS applies.
What was the CAAD arbitral tribunal's decision in Process 554/2014-T regarding Stamp Tax on construction land?
While the provided excerpt does not include the final decision section of Process 554/2014-T, the claimant's arguments reference favorable arbitral tribunal jurisprudence on this issue. The taxpayer cited that arbitral tribunals have consistently ruled that construction land should not be subject to Stamp Tax under Item 28.1 TGIS. The claimant sought declaration of illegality and annulment of €47,956.35 in assessments, plus refund of €31,970.91 already paid with compensatory interest. Based on the claimant's references to supporting jurisprudence from both arbitral tribunals and the Supreme Administrative Court, the decision likely favored the taxpayer's interpretation that construction land does not constitute 'properties with residential purpose' under Item 28.1.
Is a taxpayer entitled to a refund and compensatory interest after an illegal Stamp Tax assessment on construction land?
Yes, according to the claimant's request in Process 554/2014-T, taxpayers are entitled to refund and compensatory interest following illegal Stamp Tax assessments on construction land. The claimant sought refund of €31,970.91 in unduly paid Stamp Duty installments for 2013, plus compensatory interest calculated under Article 43(1) of the General Tax Law (LGT) and Article 61 of the Tax Procedure and Process Code (CPPT). Compensatory interest is owed when taxpayers make undue payments resulting from illegal tax assessments. Once the assessments are declared illegal and annulled, the Tax Authority must refund amounts paid plus interest compensation for the period the taxpayer was deprived of those funds, recognizing the economic损harm caused by collecting taxes without legal basis.