Process: 567/2014-T

Date: January 5, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 567/2014-T addressed whether Stamp Duty under item 28.1 of the General Table (GTSD) applies to building land (terrenos para construção) with high tax values. The claimant challenged two 2014 assessments totaling €26,448.20 on building plots valued at €1,112,070.00 and €1,532,750.00, arguing that item 28.1 GTSD, which taxes properties with residential use exceeding €1,000,000, applies only to constructed buildings, not undeveloped land. The claimant contended that under CIMI article 6, 'property with residential use' presupposes an edifice or construction, while building land lacks a defined use until constructed. The claimant requested reimbursement of taxes paid plus compensatory interest, alternatively arguing the tax violated constitutional principles of taxation according to ability to pay and equality. The Tax Authority countered that building land qualifies as property under CIMI articles 2 and 6, and its intended residential use must be determined for assessment purposes per CIMI article 45(2), which references authorized constructions and classification coefficients. The Authority argued 'property with residential use' should be interpreted broadly to include building land designated for residential purposes, not restricted to completed habitations under CIMI article 6(1)(a). The arbitral tribunal at CAAD, constituted as a singular tribunal in October 2014, proceeded without oral hearing at the parties' request. The case presented fundamental questions about statutory interpretation of stamp duty provisions, the boundary between constructed property and building land classifications, and whether tax assessments on high-value undeveloped land exceed constitutional taxation principles when based on potential rather than actual residential use.

Full Decision

ADMINISTRATIVE AND TAX ARBITRATION CENTRE
ARBITRAL DECISION

Claimant: A

Respondent: Tax and Customs Authority

I. REPORT

A, tax identification number …, represented by B, NIPC …, with registered office at … (hereinafter referred to only as the Claimant), filed, on 29-07-2014, a request for constitution of a singular arbitral tribunal, pursuant to articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as LRATM), in conjunction with paragraph a) of article 99 of the Code of Tax Procedure (CPPT), in which the Tax and Customs Authority is the Respondent (hereinafter referred to only as the Respondent).

The Claimant requests the examination of the legality of the following acts of assessment of Stamp Duty, with reference to item 28.1 of the General Table of Stamp Duty (hereinafter GTSD) for the year 2013, in the total amount of € 26,448.20:

a) Assessment no. 2014 ..., of 17-03-2014, relating to the urban property registered in the cadastre under entry ... of the parish of ..., in the municipality of ..., in the total value of € 11,120.70 (doc. 1 of the case file); and

b) Assessment no. 2014 ..., of 17-03-2014, relating to the urban property registered in the cadastre under entry ... of the parish of ..., in the municipality of ..., in the total value of € 15,327.50 (doc. 2 of the case file).

The Claimant further requests the condemnation of the Respondent to reimburse the tax paid, corresponding to the first instalment of each of the assessments indicated, plus compensatory interest.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD on 30-07-2014 and notified to the Tax and Customs Authority on that same date.

Pursuant to paragraph a) of section 2 of article 6 and paragraph b) of section 1 of article 11 of the LRATM, the Deontological Council appointed the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the applicable deadline.

On 16-09-2014, the Parties were duly notified of this appointment, and they did not express any desire to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, section 1, paragraphs a) and b) of the LRATM and articles 6 and 7 of the Deontological Code.

In accordance with the provisions of paragraph c) of section 1 of article 11 of the LRATM, the singular arbitral tribunal was constituted on 01-10-2014.

Following requests submitted for this purpose by the Parties, by order of 08-12-2014, duly notified to the parties, the hearing provided for in article 18 of the LRATM was dispensed with, as well as the submission of oral or written arguments, and the proceedings proceeded to the issuance of a final decision.

The Claimant alleges, in summary, that there was an error of law in the assessment of the contested tax inasmuch as items 28 and 28.1 of the General Table of Stamp Duty (hereinafter only GTSD) refer to properties with residential use and not to land for construction. In the Claimant's view, the concept of "property with residential use" presupposes an edifice or construction, in accordance with section 2 of article 6 of the Property Tax Code (CIMI), and therefore cannot be included within the scope of land for construction, as defined in section 3 of article 6 of the CIMI. Land for construction does not have a use, whether residential or otherwise, and it follows from the law that such uses only apply to constructed buildings. This would also be the spirit of the legislature, as may be gathered from the statements made by the Secretary of State for Tax Affairs in the plenary session of Parliament on 10 October 2012 for consideration of draft law no. 96/XII that would result in Law no. 55-A/2012, of 29 October. Consequently, the contested assessment is illegal due to an error of law in the interpretation and application of item 28.1 of the GTSD. Should this view not prevail, the Claimant considers that the contested assessments would be invalid due to unconstitutionality of the underlying rule by violation of the principle of taxation of wealth and, consequently, of the principle of taxation of taxpaying capacity, and also by violation of the principle of equality. Concluding that the assessment acts are illegal, the Claimant must be reimbursed for the tax improperly paid, with the addition of compensatory interest in accordance with the legal provisions.

In response, the Respondent contends, in summary, that land for construction is classified as property under articles 2 and 6 of the CIMI, and it is possible and legally mandatory to determine its use for assessment purposes. Section 2 of article 45 of the CIMI, when referring to "(…) the value of authorized constructions (…)", refers to the rules for the assessment of constructions, provided for in articles 38 et seq. of the CIMI, thus including the consideration of the coefficients of use and quality and comfort (invoking here the judgment of the Supreme Administrative Court dated 14/02/2012, issued in case no. 04950/11). To that extent, the concept of "property with residential use" in item 28.1 of the GTSD should be interpreted in a broader and more comprehensive manner than that advocated by the Claimant, and should not be restricted to the category of properties intended for habitation referred to in paragraph a) of section 1 of article 6 of the CIMI; such concept shall therefore encompass land for construction provided that its respective use, determined for assessment purposes, is habitation. With regard to the unconstitutionality alleged by the Claimant, the same should not be considered well-founded because the taxation complies with the criterion of suitability, applying equally to all holders of properties with residential use of value exceeding € 1,000,000.00, affecting the wealth embodied and manifested in the value of the properties. To that extent, the tax assessment is valid and therefore the Claimant's request should be dismissed.

II. PROCEDURAL SANCTION

The Arbitral Tribunal has been properly constituted and is competent.

The parties have legal standing and capacity and are entitled (articles 4 and 10, section 2, of the same act and article 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities and there is no obstacle to the examination of the merits of the case, and the joinder of claims effected is legally admissible.

III. FACTUAL MATTER

A. Proven Facts

The following facts are considered proven:

  1. The Claimant appears as the holder of land for construction registered in the cadastre of the parish of ..., municipality of ..., under entry ..., with tax value of € 1,112,070.00 (doc. no. 3 of the case file);

  2. The Claimant appears as the holder of land for construction registered in the cadastre of the parish of ..., municipality of ..., under entry ..., with tax value of € 1,532,750.00 (doc. no. 3 of the case file);

  3. In March 2014, the Claimant was notified of the assessments of Stamp Duty, item 28.1 of the GTSD, for the year 2013, relating to the land for construction identified (docs. nos. 1 and 2 of the case file);

  4. The total value of the first instalments of Stamp Duty, payable during the month of April 2014, amounted to € 3,706.00 (doc. no. 1 of the case file) and € 5,109.18 (doc. no. 2 of the case file), respectively;

  5. The first instalments of the tax were paid on 11 July 2014 (doc. no. 4).

B. Unproven Facts

No other facts relevant to the arbitral decision were proven.

C. Basis of the Factual Matter

The factual matter given as proven is based on the documentary evidence presented and not contested.

IV. LEGAL MATTER

A. Of the Tax Assessed

The essential question to be decided concerns the determination of the taxable base item 28.1 of the GTSD, in particular regarding the inclusion of land for construction in the concept of "urban property with residential use".

Now, on this matter there are already numerous decisions from the Administrative and Tax Arbitration Centre, examples of which are the decisions of 18/09/2013, case no. 49/2013-T, of 02/10/2013, case no. 53/2013-T, of 09/10/2013, case no. 48/2013-T, of 18/10/2013, case no. 42/2013 and of 01/11/2013, case no. 75/2013-T. There are also numerous decisions of the Supreme Administrative Court on this matter, examples of which are the judgments issued on 24/9/2014, in cases nos. 01533/13, 0739/14 and 0825/14; on 10/9/2014, in cases nos. 0503/14, 0707/14 and 0740/14; on 9/7/2014, in case no. 0676/14; on 2/7/2014, in case no. 0467/14; on 28/5/2014, in cases nos. 0425/14, 0396/14, 0395/14; on 14/5/2014, in cases nos. 055/14, 01871/13 and 0317/14; on 23/4/2014, in cases nos. 270/14 and 272/14; and on 9/4/2014, in cases nos. 1870/13 and 48/14.

Given the identity of the factual question and the identity of the legal matter, the Tribunal also adopts this jurisprudence here, and therefore, following what was stated in the cited judgment of 9/4/2014, case no. 01870/13, it is stated, fully subscribing to the reasoning presented:

"The concept of 'property (urban) with residential use' was not defined by the legislature. Neither in Law no. 55-A/2012, which introduced it, nor in the Property Tax Code, to which section 2 of article 67 of the Stamp Duty Code (also introduced by that Law) refers on a subsidiary basis. And it is a concept that, probably due to its imprecision – a fact all the more serious given that it is based on this that the scope of the objective incidence of the new taxation is defined – had a short life, inasmuch as it was abandoned when Law no. 83-C/2013, of 31 December (State Budget Law for 2014), came into force, which gave new wording to item no. 28 of the General Table, and which now defines the scope of its objective incidence through the use of concepts that are legally defined in article 6 of the Property Tax Code. This amendment – to which the legislature did not attribute an interpretive character, nor does it appear to us that it did – merely makes it unequivocal for the future that land for construction whose construction, authorized or planned, is for habitation is included within the scope of item 28.1 of the General Table of Stamp Duty (provided that its respective tax value is equal to or greater than 1 million euros), but clarifies nothing, however, in relation to past situations (assessments of 2012 and 2013), such as the one at issue in the present proceedings. Now, regarding these, it does not appear that the interpretation of the recourse can be upheld, inasmuch as it does not clearly result either from the letter or from the spirit of the law that its intention was, ab initio, to include within its objective scope of incidence land for construction for which the construction of residential buildings has been authorized or planned, as now clearly results from item 28.1 of the General Table of Stamp Duty. Nothing unequivocal flows from the letter of the law, in fact, for while it itself uses a concept that it did not define and that was also not defined in the statute to which it referred on a subsidiary basis, it lent itself, unnecessarily, to ambiguities, in a matter – of tax incidence – in which certainty and legal security should also be paramount concerns of the legislature. And from its 'spirit', ascertainable in the statement of reasons of the draft law that is the origin of Law no. 55-A/2012 (Draft Law no. 96/XII – 2nd, Parliamentary Gazette, series A, no. 3, 21/09/2012, p. 44, available at www.parlamento.pt) nothing more follows than the concern of generating new tax revenues, on sources of wealth 'more sheltered' in the past from the tax authority's reach than labor income, in particular capital income, securities gains and property, reasons which bring no relevant contribution to the clarification of the concept of 'properties (urban) with residential use', inasmuch as they take it for granted, without any concern to clarify it. Such clarification appears to have emerged – as reported in the Arbitral Decision issued on 12 December 2013, in case no. 144/2013-T, available in the CAAD database – when the draft law was presented and discussed in Parliament, in the words of the Secretary of State for Tax Affairs, who apparently referred expressly, as gathered from the Parliamentary Gazette (PAG I Series no. 9/XII – 2, of 11 October, p. 32) that: 'The Government proposes the creation of a special tax on high-value urban residential properties. This is the first time in Portugal that special taxation is created on high-value properties intended for habitation. This rate will be 0.5% to 0.8% in 2012 and 1% in 2013, and shall apply to houses of value equal to or greater than 1 million euros' (underlined), from which it follows that the reality to be taxed that was envisaged is, after all, and notwithstanding the terminological imprecision of the law, '(urban) residential properties', in common language 'houses', and not other realities. The fact that it may be considered that in determining the tax value of urban properties classified as land for construction, account must be taken of the use that the construction authorized or planned for it will have for determination of the respective value of the area of implementation (cf. sections 1 and 2 of article 45 of the CIMI), does not determine that land for construction can be classified as 'properties with residential use', inasmuch as 'residential use' always appears in the Property Tax Code referred to 'buildings' or 'constructions', existing, authorized or planned, inasmuch as only these can be inhabited, which is not the case with land for construction, which does not have, in itself, conditions for such, and is not capable of being used for habitation except if and when the construction authorized and planned for it is erected thereon (but in that case it will no longer be 'land for construction' but another type of urban property – 'residential', 'commercial, industrial or service' or 'other' – article 6 of the CIMI). It would be strange, in fact, if the determination of the scope of the tax incidence rule of item no. 28 of the General Table of Stamp Duty were to be found, after all, in the rules for determining the tax value of the Property Tax Code, and that the terminological imprecision of the legislature in drafting that rule were, ultimately, clarified and finally explained by way of an indirect and ambiguous reference to the use coefficient established by the legislature in relation to constructed properties (article 41 of the Property Tax Code). Thus, given that a plot of land for construction – whatever the type and purpose of the construction that will be, or could be, erected thereon – does not satisfy, by itself, any condition to be licensed as such or to be defined as having habitation as its normal destination, and the tax incidence rule of stamp duty referring to urban properties with 'residential use', without any specific concept being established for this purpose, cannot be extracted from it that it contains a future potentiality, inherent to a different property that might possibly be built on the land.

It is concluded therefore, in accordance with what was decided in the judgment under appeal, that, as it results from article 6 of the Property Tax Code a clear distinction between urban properties 'residential' and 'land for construction', these cannot be considered as 'properties with residential use' for purposes of the provision in item no. 28.1 of the General Table of Stamp Duty, in its original wording, as given by Law no. 55-A/2012, of 29 October" (bold ours).

In view of all that has been stated above, it is concluded that the Claimant's petition should be granted and thus the illegality of the contested assessment acts is declared due to violation of items 28 and 28.1 of the GTSD.

As the assessments identified are annulled on these grounds, the examination of the unconstitutionality defect that the Claimant imputes to the GTSD rules indicated becomes unnecessary and is therefore moot.

B. Of Compensatory Interest

It follows from the proven facts that the first instalments of Stamp Duty assessed, in the total amount of € 8,816.08, were paid on 11 July 2014.

Pursuant to section 1 of article 43 of the General Tax Law "Compensatory interest is due when it is determined, in administrative reclamation or judicial challenge, that there was an error attributable to the services that resulted in payment of the tax debt in an amount greater than that legally due".

As stated by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, General Tax Law - Annotated and Commented, Encontro da Escrita Publisher, 4th Edition, 2012, p. 342, note 2 "The error attributable to the services that carried out the assessment is demonstrated when an administrative reclamation or challenge of that assessment is made and the error is not attributable to the taxpayer (for example, there will be annulment due to error attributable to the taxpayer when the assessment is based on incorrect assumptions of fact, but the error is based on an incorrect indication in the statement that the taxpayer submitted)".

Now, in the concrete case, the Claimant's request for payment of compensatory interest is unequivocally justified since the contested tax assessments are illegal and therefore should be annulled. In addition to the reimbursement, the Claimant is also entitled to the payment of compensatory interest, at the legal rate in force, on the amount of € 8,816.08, calculated from the date of payment until the date of processing of the respective credit note, in which shall be included – cf. article 43 of the General Tax Law and section 4 of article 61 of the Code of Tax Procedure.

V. DECISION

In accordance with what has been stated, this Arbitral Tribunal decides:

A) To declare the illegality of the assessments that are the subject of these proceedings, due to lack of legal basis and violation of items 28 and 28.1 of the GTSD, in the terms set out above, and, consequently, deeming the claim well-founded on this basis, it annuls the assessment acts that are the subject of these proceedings;

B) To condemn the Respondent to reimburse the tax improperly paid, in the amount of € 8,816.08, plus compensatory interest at the legal rate in force, calculated from the date of payment (11 July 2014) until the date of processing of the respective credit note, in which shall be included, pursuant to articles 43 of the General Tax Law and 61 of the Code of Tax Procedure.

Value of the case: In accordance with the provisions of article 306, section 2, of the Code of Civil Procedure and 97-A, section 1, paragraph a), of the Code of Tax Procedure and 3, section 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 26,448.20.

Costs: Pursuant to section 4 of article 22 of the LRATM, the amount of costs is fixed at € 1,530.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, charged to the Tax and Customs Authority.

Let this arbitral decision be recorded and notified to the parties.

Lisbon, 05-01-2015

The Singular Arbitrator

(Maria Forte Vaz)

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Portuguese Stamp Tax General Table apply to building land (terrenos para construção)?
The applicability of Verba 28.1 GTSD to building land was disputed in Process 567/2014-T. The claimant argued that item 28.1, which imposes Stamp Duty on properties with residential use valued over €1,000,000, applies only to constructed buildings under CIMI article 6(2), not to terrenos para construção which lack actual residential use. The Tax Authority contended that building land qualifies as property under CIMI and its residential use designation for assessment purposes brings it within item 28.1's scope, interpreting 'property with residential use' broadly to include land authorized for residential construction under CIMI article 45(2).
What is the legal distinction between residential-use property and building land under Portuguese Stamp Tax law?
Under Portuguese tax law, residential-use property (prédio com afetação habitacional) refers to constructed buildings classified for habitation purposes under CIMI article 6(1)(a) and section 2, possessing actual residential use. Building land (terrenos para construção), defined in CIMI article 6(3), constitutes undeveloped property designated for future construction without current residential use. The critical distinction for Stamp Duty purposes is whether 'residential use' requires an existing edifice or whether intended use determined for property tax assessment suffices to trigger item 28.1 GTSD taxation on high-value properties.
How did CAAD rule on the Stamp Tax (Imposto do Selo) liquidation for vertical property in Process 567/2014-T?
Process 567/2014-T involved CAAD arbitration of Stamp Duty assessments under item 28.1 GTSD on two building plots valued at €1,112,070.00 and €1,532,750.00. The claimant challenged the €26,448.20 total assessment, arguing the tax applies only to constructed residential properties, not undeveloped land, and alternatively claiming unconstitutionality. The Tax Authority defended the assessments, arguing building land with residential designation falls within item 28.1's scope. The singular arbitral tribunal was constituted in October 2014 and proceeded to decision without hearing. The text provided does not include the final ruling.
Can taxpayers claim reimbursement and compensatory interest for unlawful Stamp Tax assessments under Verba 28.1 TGIS?
Yes, taxpayers can claim reimbursement and compensatory interest for unlawful Stamp Duty assessments under Portuguese law. In Process 567/2014-T, the claimant requested reimbursement of improperly paid tax plus compensatory interest (juros indemnizatórios) after paying the first instalments totaling €8,815.18 in July 2014. Under CPPT article 43, when tax assessments are annulled as illegal, the Tax Authority must reimburse amounts paid with compensatory interest calculated from payment date until reimbursement, compensating taxpayers for the State's unlawful retention of funds during the administrative or arbitral challenge period.
What is the arbitration procedure at CAAD for challenging Stamp Tax liquidations by the Portuguese Tax Authority?
The CAAD arbitration procedure for challenging Stamp Tax liquidations follows RJATM (Decree-Law 10/2011). Taxpayers file a request for singular or collective arbitral tribunal constitution under articles 2 and 10 RJATM, invoking CPPT article 99(a). After acceptance, the President appoints an arbitrator (article 6 and 11), and the tribunal is constituted upon notification to parties. The parties may request to dispense with oral hearings under article 18, proceeding directly to written decision. The process provides an alternative to judicial courts with specialized tax arbitrators, typically resolving disputes within 6-12 months from request filing to final arbitral decision.