Process: 564/2014-T

Date: December 3, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 564/2014-T) addresses whether Stamp Tax under Item 28.1 of the General Stamp Tax Table (TGIS) applies to high-value land for construction. The estate challenged two Stamp Tax assessments totaling €84,043.17 on urban properties registered as 'land for construction' (terrenos para construção) in Porto, with patrimonial values exceeding €4 million and €3.9 million respectively. Item 28.1, introduced by Law 55-A/2012, imposes a 1% annual Stamp Tax on urban properties with residential use valued at €1 million or more. The claimant argued that vacant land for construction, lacking buildings or residential use licenses, falls outside the scope of Item 28.1, which explicitly requires 'residential use' (uso habitacional). The Tax Authority contended that land with residential construction potential qualifies under the provision and defended the assessments as properly substantiated 'mass acts.' The central legal issue involves strict interpretation of tax law: whether 'residential use' encompasses potential future use or requires actual current residential utilization. The tribunal must determine if the AT correctly applied Item 28.1 to properties that are merely designated for future construction rather than properties currently used for residential purposes. This case has significant implications for owners of high-value development land throughout Portugal regarding Stamp Tax liability on undeveloped plots.

Full Decision

ARBITRAL DECISION

The arbitrators José Pedro Carvalho (chairman arbitrator), Carlos Lobo and Guilherme Waldemar d'Oliveira Martins, appointed by the Deontological Council of Administrative Arbitration to form the Arbitral Tribunal, hereby agree to the following:

ARBITRAL DECISION

I – REPORT

On 29 July 2014, the INDIVISIBLE ESTATE BY DEATH OF A, NIF …, legally represented by the head of household B, domiciled at Rua … Porto, filed a petition for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2nd and 10th of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, as amended by article 228th of Law no. 66-B/2012, of 31 December (hereinafter, briefly designated as RJAT), seeking the declaration of illegality of the tax acts assessing STAMP TAX (IS) provided in Item 28 of TGIS relating to the year 2013 and concerning urban properties registered in the land register under articles … and …, of the parish of …, municipality of Porto, corresponding to collection documents no. 2014…, relating to property …, in the amount of €44,562.36, and no. 2014…, relating to property …, in the amount of €39,480.81.

To substantiate its petition, the Claimant alleges, in summary, that land for construction, such as those to which the aforementioned assessments refer, do not fall within the scope of application of the norm applied, and that the impugned tax acts do not meet the level of substantiation legally required.

On 30 July, the petition for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Claimant did not proceed to appoint an arbitrator, and therefore, pursuant to item (a) of paragraph 2 of article 6th and item (a) of paragraph 1 of article 11th of the RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the mandate within the applicable period.

On 16 September 2014, the parties were notified of these appointments and did not manifest any intention to refuse any of them.

In accordance with the provision of item (c) of paragraph 1 of article 11th of the RJAT, the collective Arbitral Tribunal was constituted on 1 October 2014.

On 29 October 2014, the Respondent, after being notified to that effect and within the prescribed period, submitted its response defending itself by impugnation, and arguing, in summary, that the tax acts in question in the case are "mass acts" and that, from that perspective, they comply with the substantiation required of them. Further, the AT contends that land "for construction" with residential potential would fall within the scope of application of the norm applied.

Subsequently, notified to that effect, both parties communicated to the case that they dispensed with the convocation to which article 18th of the RJAT alludes, as well as the presentation of further submissions, and therefore the holding of the first meeting of the Arbitral Tribunal, in accordance with the terms and for the purposes of article 18th of the RJAT, was dispensed with, given that, in the case, none of the purposes legally incumbent upon it were present, and that the arbitral proceeding is governed by the principles of procedural economy and prohibition of useless acts, having been fixed a period of 30 days for the issuance of decision.

The Arbitral Tribunal is substantively competent and is regularly constituted, pursuant to articles 2nd, paragraph 1, item (a), 5th and 6th, paragraph 1, of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to articles 4th and 10th of the RJAT and article 1st of Order no. 112-A/2011, of 22 March.

The proceeding does not suffer from nullities.

Accordingly, there is no obstacle to the merits of the case.

All considered, it is necessary to render

II. DECISION

A. MATTER OF FACT

A.1. Facts established as proven

1 – The Claimant was, on 31 December 2013, the sole owner of the urban properties registered in the land register under articles … and …, of the parish of …, municipality of Porto.

2 – In the respective property record, and on that referred date, the immovable properties referred to are described as land for construction, and they contain no buildings or constructions, and therefore do not possess, nor could possess, a license of use for residential purposes.

3 – Also on 31 December 2013, the aforementioned properties had, in their respective registers, the following Tax Patrimonial Values:

i. Article … – €4,456,236.19;

ii. Article … – €3,948,080.67.

4 – The Claimant was notified of collection documents no. 2014…, relating to property …, in the amount of €44,562.36, and no. 2014…, relating to property …, in the amount of €39,480.81, having as the deadline for payment of the 1st installment the month of April 2014.

5 – The Claimant paid, in the month of April 2014, the first installment of the IMI (Municipal Property Tax) assessed in respect of each of the aforementioned properties, in the total amount of €28,014.39.

A.2. Facts established as not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Justification of the matter of fact proven and not proven

Regarding the matter of fact, the Tribunal does not have to rule on everything that was alleged by the parties; rather, it falls to it to select the facts that matter for the decision and to distinguish the proven matter from the unproven (cf. art. 123rd, paragraph 2, of the CPPT and article 607th, paragraph 3 of the CPC, applicable ex vi article 29th, paragraph 1, items (a) and (e), of the RJAT).

Thus, the facts pertinent to the judgment of the case are selected and delimited according to their legal relevance, which is established in consideration of the various plausible solutions of the legal question(s) (cf. former article 511th, paragraph 1, of the CPC, corresponding to the current article 596th, applicable ex vi article 29th, paragraph 1, item (e), of the RJAT).

Thus, taking into account the positions taken by the parties, the documentary evidence and the procedural file attached to the case, the above-listed facts were considered proven, with relevance to the decision, which were moreover consensually recognized and accepted by the parties.

B. ON THE LAW

Having not been raised defects that would lead to the nullity or non-existence of the impugned acts, nor having it been expressly requested that, in the examination of the issues raised, the Tribunal follow a determined order, it is incumbent to rule, pursuant to article 124th of the CPPT, on the defect "whose merit determines, according to the prudent discretion of the judge, more stable or effective protection of the offended interests", which in the case will be the alleged error in the assumptions of the impugned acts.

Law no. 55-A/2012, of 29 October, added Item 28 to the General Table of Stamp Tax (TGIS), with the following wording:

"28 – Ownership, usufruct or right of superficies of urban properties whose tax patrimonial value contained in the register, pursuant to the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 – on the tax patrimonial value used for purposes of IMI:

28.1 – For property with residential use – 1% (…);

In the transitional provisions contained in article 6th of that Law no. 55-A/2012, the following rules were established:

c) The tax patrimonial value to be used in the assessment of the tax corresponds to that which results from the rules provided in the Code of Municipal Property Tax by reference to the year 2011; (…)

f) The applicable rates are the following:

i) Properties with residential use assessed pursuant to the Code of IMI: 0.5%;

ii) Properties with residential use not yet assessed pursuant to the Code of IMI: 0.8%;"

The question that arises in the case, in light of the referred regime, is whether properties, such as those of the Claimant, which in their respective register are listed as land for construction, and which, in fact, contain no construction devoted to residential use, fall, or do not fall, within the scope of the referred norm.

Now, the above referred provisions contain a concept that is not used in any other tax legislation, which is the concept of "property with residential use".

In paragraph 2 of article 6th of the CIMI, the expression "residential properties" is used, defining them as comprising "buildings or constructions" licensed for residential purposes or which, in the absence of a license, have as their normal destination residential purposes.

However, the non-coincidence of the terms of the expression used in Item 28.1 of the TGIS ("property with residential use") with that which can be extracted from paragraph 2 of article 6th of the CIMI ("residential properties") points to the sense that it was not intended to use the same concept.

Furthermore, in the same article, a clear distinction is made between residential urban properties and land for construction.

Following closely other decisions of CAAD rendered on this same matter, as well as jurisprudence of the STA[1], it is understood here that the word "use" (afectação), in this context of the use of a property, should mean "action of destining something to a determined use". Thus, "property with residential use", cannot be merely a property licensed for residential use or destined for that purpose (that is, it will not be sufficient that it can be considered a "residential property"), but rather must be a property that already has effective residential use.

Thus, it is to be concluded that the available interpretive elements, including the "circumstances in which the law was elaborated and the specific conditions of the time in which it is applied", clearly point to the sense that it was not intended to include within the scope of application of Item 28.1 situations of properties that are not yet devoted to residential use, namely land for construction.

Moreover, with the State Budget Law for 2014, Item 28.1 TGIS was expressly altered, so as to include, as from 01.01.2014, properties for construction, which reinforces the said conviction that such properties were not covered by the wording in force until 31.12.2013.

Thus, the Claimant's properties, being land for construction, will not, therefore, be properties with current residential use. That is, there is not thus verified, at the date of the tax event, the use for a residential purpose.

Accordingly, it is understood that the assessments whose declaration of illegality is sought suffer from a defect of violation of Item 28.1 TGIS, by error regarding the assumptions of law, which justifies the declaration of their illegality and consequent annulment (article 135th of the CPA).

In light of what has been decided, the examination of the question relating to the substantiation of the tax acts now annulled is rendered moot.

In light of the merit of the annulment petition, the installments unduly paid by the Claimant should be refunded, namely that of April 2014, as well as any others that are verified as having been paid, if necessary in execution of judgment.

The Claimant couples with the petition for annulment of the tax act that is the subject of the present case, the petition for condemnation of the AT in the payment of compensatory interest.

In the case at issue, it is manifest that the illegality of the collection acts, the amount of which the Claimant paid, is imputable to the Tax Administration, which, on its own initiative, performed them without legal support.

Consequently, the Claimant is entitled to compensatory interest, pursuant to article 43rd, paragraph 1, of the LGT and 61st of the CPPT.

Compensatory interest is due from the date of payments made, and calculated on the basis of the respective amount, until its full refund to the Claimant, at the legal rate, pursuant to articles 43rd, paragraphs 1 and 4, and 35th, paragraph 10, of the LGT, 61st of the CPPT and 559th of the Civil Code and Order no. 291/2003, of 8 April (without prejudice to any subsequent alterations of the legal rate).

C. DECISION

In these terms, this Arbitral Tribunal decides:

a) Judgment in favor of the arbitral petition formulated and, in consequence, annul the tax acts that are the subject of the present case and condemn the AT to refund to the Claimant the tax paid, together with compensatory interest, counted from the date of payments until the full refund of the amounts paid;

b) Condemn the AT in the costs of the proceeding, in the amount of €2,754.00, having taken into account the already paid.

D. Value of the proceeding

The value of the proceeding is fixed at €84,043.17, pursuant to article 97-A, paragraph 1, (a), of the Code of Procedure and Tax Proceeding, applicable by force of items (a) and (b) of paragraph 1 of article 29th of the RJAT and paragraph 2 of article 3rd of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is fixed at €2,754.00, pursuant to Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Respondent, since the petition was fully meritorious, pursuant to articles 12th, paragraph 2, and 22nd, paragraph 4, both of the RJAT, and article 4th, paragraph 4, of the cited Regulation.

Let it be notified.

Lisbon

3 December 2014

The Presiding Arbitrator

(José Pedro Carvalho - Rapporteur)

The Member Arbitrator

(Carlos Lobo)

The Member Arbitrator

(Guilherme Waldemar d'Oliveira Martins)

[1] Cf. for example the Decision of 29-10-2014, rendered in proceeding 0505/14, available for consultation at www.dgsi.pt, which reads: "Given that the legislator has not defined the concept of urban property with residential use, but resulting from article 6th of the CIMI a clear distinction between residential urban properties and land for construction, these cannot be considered for purposes of the incidence of Stamp Tax as urban properties with residential use."

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Tabela Geral do Imposto de Selo apply to land for construction (terrenos para construção)?
No, Verba 28.1 of the Tabela Geral do Imposto de Selo does not apply to land for construction (terrenos para construção). This provision specifically requires 'property with residential use' (prédios urbanos de uso habitacional). Land for construction, by definition, has no actual residential use—it consists of vacant plots without buildings, constructions, or residential use licenses. Under Portuguese tax law principles, tax provisions must be strictly interpreted and cannot be extended by analogy. The phrase 'residential use' refers to actual, current use rather than potential future use. Therefore, even if land is zoned or intended for future residential development, it cannot be taxed under Verba 28.1 until it actually contains residential property in use. The distinction between land with residential potential and property with actual residential use is legally significant and determinative for Stamp Tax purposes under Item 28.1.
Can Imposto de Selo be levied on urban land plots classified as terrenos para construção with a value exceeding €1,000,000?
No, Imposto de Selo cannot be levied under Verba 28.1 on urban land plots classified as terrenos para construção, even when their patrimonial value exceeds €1,000,000. While Item 28 of the TGIS applies to high-value urban properties, Item 28.1 specifically requires 'residential use' (uso habitacional). Vacant land for construction lacks the essential characteristic of actual residential use. The Tax Authority may argue that land with residential construction potential falls within the provision's scope, but this interpretation conflicts with strict construction principles applicable to tax law. The legislator distinguished between different types of urban properties in the TGIS, and terrenos para construção constitute a distinct category from built properties with residential use. Until such land is actually developed with residential buildings that obtain use licenses and are occupied or available for residential purposes, Item 28.1 does not apply. Property owners can challenge such erroneous assessments through CAAD arbitration under the RJAT framework.
What are the legal grounds to challenge a Stamp Tax assessment on land for construction before CAAD?
Taxpayers can challenge Stamp Tax assessments on land for construction before CAAD (Centro de Arbitragem Administrativa) on multiple legal grounds. First, substantive illegality (ilegalidade por erro sobre os pressupostos de direito): arguing that Verba 28.1 was incorrectly applied to property lacking actual residential use, as the law requires strict interpretation. Second, insufficient substantiation (fundamentação insuficiente): even 'mass acts' must comply with Article 77 of the Lei Geral Tributária, providing reasoning that allows taxpayers to understand the factual and legal basis for assessment. Third, violation of legality principle: the assessment must demonstrate that the specific property meets all legal requirements of Item 28.1. The petition must be filed under Decree-Law 10/2011 (RJAT), identifying the challenged tax acts, stating the illegality claimed, and presenting supporting facts and law. Taxpayers should submit evidence proving the property's classification as land for construction without residential use (property registry extracts, absence of use licenses). The arbitral tribunal has jurisdiction to review both factual determinations and legal interpretations, providing an effective alternative to judicial courts for resolving Stamp Tax disputes.
Is the tax authority required to provide detailed reasoning when issuing mass Stamp Tax assessments under Verba 28?
Yes, the Tax Authority must provide adequate reasoning even when issuing mass Stamp Tax assessments under Verba 28, though the substantiation requirements differ from individual acts. Article 77 of the Lei Geral Tributária establishes that all administrative tax acts must be substantiated, indicating the factual and legal grounds supporting the decision. While mass acts (atos de liquidação em massa) allow for more summary or standardized reasoning due to their automated nature and high volume, they cannot entirely dispense with substantiation. The reasoning must enable taxpayers to understand why the tax was assessed and the legal provision applied, allowing them to effectively exercise their right to challenge the assessment. In Stamp Tax cases under Item 28, the AT must at minimum identify: (1) the specific property, (2) its patrimonial value, (3) the applicable TGIS provision (e.g., Item 28.1 for residential use), and (4) the rate applied. When the legal characterization is disputed—such as whether land constitutes 'property with residential use'—the AT's substantiation becomes critical. Insufficient substantiation constitutes an independent ground for challenging the assessment's legality, even if the substantive taxation would otherwise be correct.
How does CAAD arbitral procedure work for disputes involving Imposto de Selo on high-value urban properties?
CAAD arbitral procedure for Imposto de Selo disputes on high-value urban properties follows the Legal Regime of Arbitration in Tax Matters (RJAT, Decree-Law 10/2011). The taxpayer files a petition for constitution of an arbitral tribunal within the legal deadline (generally 90 days from notification of the tax assessment), identifying the challenged acts, stating claimed illegalities, and presenting supporting facts and law. The petition is automatically notified to the Tax Authority. If the taxpayer doesn't appoint an arbitrator, the CAAD Deontological Council appoints a collective tribunal (typically three arbitrators). After constitution, the AT submits its response defending the assessment. Parties may waive the preliminary hearing under Article 18 RJAT if no clarifications or settlement are sought. The tribunal examines its own jurisdiction, parties' legitimacy, and procedural regularity before addressing merits. It evaluates evidence, establishes proven facts, and applies relevant law (TGIS, CIMI, LGT, transitional provisions). The tribunal must issue a decision within statutory deadlines (typically 6 months from constitution, extendable). The arbitral decision has the same effects as a judicial judgment, is binding on both parties, and can be challenged only through limited annulment proceedings. This procedure offers faster resolution than judicial courts for Portuguese tax disputes.