Process: 569/2014-T

Date: January 12, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Case 569/2014-T) addresses whether Stamp Duty under item 28.1 of the General Stamp Duty Table (TGIS) applies to construction land. A real estate company challenged a €12,253.08 Stamp Duty assessment for 2013 on urban land designated for construction in Oeiras. The central legal dispute concerns the interpretation of 'urban properties with residential use' in item 28.1 TGIS. The Tax Authority argued that this expression encompasses both constructed buildings and construction land, relying on the Municipal Property Tax Code (CIMI) definition that classifies construction land as a category of urban property. The AT contended that 'residential use' is broader than actual occupation and includes potential characteristics that substantiate property value. The Claimant countered that 'residential use' and construction land are distinct categories, arguing that residential use requires actual utilization or specific licensed purpose, which undeveloped land cannot possess. The company also raised procedural challenges including violation of the right to prior hearing (Article 60 LGT), defective notification lacking identification of the act's author, insufficient reasoning, alleged double taxation with IMI, and constitutional violations. The arbitral tribunal, constituted as a sole arbitrator under Decree-Law 10/2011, examined whether the tax provision's objective incidence extends to land lacking constructed buildings. This case illustrates the interpretative tension between expansive fiscal definitions and taxpayer protections, particularly regarding the taxation of real estate development assets versus completed residential properties.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 569/2014-T

Subject: Stamp Duty | Item 28.1 of TGIS (2013) | Land for Construction

The arbitral tribunal operating with a sole arbitrator constituted on 06-10-2014 at CAAD – Administrative Arbitration Centre pursuant to the legal regime established by Decree-Law No. 10/2011 of 20 January[1], for which the arbitrator from the Centre's list, Nuno Maldonado Sousa, was designated by the respective Ethics Council, hereby issues the following arbitral decision.

1. Report

1.1. Constitution of the arbitral tribunal

A… - Imobiliário Lda., a company registered at the Commercial Register Office in Lisbon under the single registration number and taxpayer identification number …, with registered office at Avenue … Lisbon, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of the RJAT and Articles 1 and 2 of Ordinance No. 112-A/2011 of 22 March, in which the Tax and Customs Authority is Respondent[2].

The request for constitution of the arbitral tribunal was accepted by the President of CAAD on 30-07-2014 and automatically notified to the Tax and Customs Authority on 01-08-2014.

Pursuant to the provisions of Article 6, No. 1 and Article 11, No. 1, paragraph b) of the RJAT, the Ethics Council designated as arbitrator of the sole arbitral tribunal the undersigned, who communicated acceptance of the assignment within the applicable deadline, and notified the parties of such designation on 21-09-2014. In accordance with the rule set out in Article 11, No. 1, paragraph c) of the RJAT, the arbitral tribunal was constituted on 06-10-2014.

1.2. The Claimant's Request

The Claimant requests that the "Stamp Duty levy for the year 2013, item 28.1 of TGIS, dated 18/03/2014, relating to the urban property registered in the registry under article ... of the Union of Civil Parishes of ... and …, municipality of Oeiras, in the amount of € 12,253.08" be declared null or that the levy be annulled, "due to violation of the legal provisions and constitutional principles cited, with all due legal consequences".

1.3. The AT's Position

The Tax and Customs Authority submitted a response upholding the levy and defending the dismissal of the request and its grounds, basing its position on the conformity of the act with the rules concerning: (i) the formation of the tax act in this specific case; (ii) the identification of the author of the contested act; (iii) the adequacy of its reasoning; (iv) the rules of objective tax incidence in question, in particular the application of item 28.1 of the TGIS[3] to land for construction. It concludes by defending its dismissal from the request.

1.4. Case Processing

On 02-12-2014, the hearing provided for in Article 18 of the RJAT was held, at which 12-01-2015 was set as the date for delivery of the arbitral decision.

1.5. Allegations

At the hearing provided for in Article 18 of the RJAT, the Claimant waived the right to present allegations, in accordance with the same position taken by AT in a request dated 19-11-2014.

1.6. Preliminary Assessment

The arbitral tribunal was regularly constituted and has jurisdiction ratione materiae pursuant to the rules of Article 2, No. 1, paragraph a) of the RJAT.

The Parties possess legal personality and capacity (that of AT being in accordance with the provisions of Article 4, No. 1 of the RJAT and Article 10, No. 2, of the same statute and Article 1, paragraph a) of Ordinance No. 112-A/2011 of 22 March), are legitimate and are regularly represented.

There are no nullities that taint the proceedings.

Therefore, there is no obstacle to the tribunal's examination of the merits of the case, and judgment must be rendered.

2. Decision

2.1. Matters of Fact

2.1.1. Facts Deemed Established

The following facts were established in these proceedings:

A. The Claimant carries on business in building construction and in the purchase and sale of real property (49th RI[4] and its doc. 5).

B. The Claimant's property is "land for construction" situated in plot …, at …, place …/…, parish of ... (extinguished), municipality of Oeiras, registered in the registry under article ... (48th RI and its doc. 3).

C. For the land, the subdivision permit specifies the construction of housing, commerce and services and parking (53rd RI and its doc. 3).

D. On 18-03-2014, AT levied Stamp Duty for the year 2013, based on item 28.1 of TGIS, relating to the urban property registered in the registry under article... of the parish of ..., in the amount of € 12,253.08 (preamble of RI and its doc. 1).

E. The property was subject to IMI with respect to the year 2013, an tax which was levied on the Claimant and the first instalment was paid by it on 30-04-2014 (112th RI and its doc. 6).

F. AT did not give the claimant the opportunity to comment before the levy (41st RI and 32nd of the Response).

2.1.2. Facts Deemed Not Established

No other facts with relevance to the resolution of the case were alleged.

2.1.3. Reasoning of Established Matters of Fact

The tribunal's conviction was based on the documentary evidence on the record and the position taken with respect to each fact in the pleadings by the Parties, duly identified.

2.2. Matters of Law

The following issues are raised in the proceedings, which shall be resolved below, to the extent necessary, according to a criterion of logical precedence:

  • Deficient characterization of the factual context implying erroneous application of the rule set out in item 28.1 of TGIS;

  • Omission of an essential formality in the formation of the act through violation of paragraph a) of No. 1 of Article 60 of the LGT;

  • Nullity of the notification due to lack of indication of the author of the act (Articles 36, Nos. 1 and 2, and 39, No. 12, of the CPPT);

  • Lack of reasoning for the levy;

  • Duplication of collection;

  • Unconstitutionality of the rule set out in item 28.1 of TGIS.

2.2.1. Main Issue

The main issue to be decided in these proceedings is whether the combined rules of Article 1-1 CIS[5] and item 28.1 TGIS, in the version that was in force until 31-12-2013, resulting from Law No. 55-A/2012 of 29 October, determine the incidence of the tax on land for construction or whether that rule only intended to tax already constructed buildings with residential use.

AT contends that the expression "urban properties with residential use" in item 28.1 of TGIS comprises both constructed properties and land for construction. In its argument it relies on the concepts of CIMI[6], which allow one to assert that property is any fraction of territory (Article 2-1) and that land for construction is in turn a species of urban properties (Article 6-1). It argues that residential use and residential purpose or destination are notions with different scope. As to the notion of use of an urban property, it understands that it is an expression broader than the concept that arises from the need to integrate other realities and to define it uses the rules proper to the valuation of real property and considers that use depends on the type of utilization of constructed properties or their potential characteristics, which allow to substantiate a certain value.

In turn, the Claimant defends an interpretation to the effect that urban property with residential use and land for construction are two distinct categories and that the latter is not subject to the incidence of the tax in question. It bases its conclusion on the definition it makes of the very notion of residential use, in the sense that this consists of "the use or specific purpose or determined end" to which the real property is intended, which depends normally on its licensing. It thus makes the notion of residential use correspond to the category of residential urban properties, already constructed, as opposed to land that is for construction but does not contain (yet) the construction.

It is therefore above all in the field of normative interpretation that the solution to the dispute must be found.

Law No. 55-A/2012 of 29 October introduced into the rule of Article 1 of CIS an amendment to the effect that this rule now contemplates also "legal situations" in addition to "acts, contracts, documents, securities, papers and other facts" provided for in TGIS. On the other hand, the same legislative amendment added to TGIS item 28, which provides for the taxation of the ownership right, usufruct or surface right of urban properties whose taxpayer-owned property value contained in the registry, pursuant to CIMI, is equal to or greater than € 1,000,000, with the tax inciding on the taxpayer-owned property value used for the purpose of IMI. The tax is calculated at the rate of 1% if the property in question has residential use and at the rate of 7.5% if it is a legal entity resident in a country, territory or region subject to a clearly more favorable tax regime.

The expression "residential use" does not appear evident when confronted with the terminology used by CIMI to make the objective definition of tax incidence and it is precisely there that the interpretive divergence resides. It should be noted that it is in CIMI that the basic concepts are enshrined that tax law uses for the taxation of property, as is evident both from Article 1-6 CIS itself and from Article 1-2 CIMT, so that when dealing with a concept common to several taxes, it is necessary to ensure proper treatment so that the unity of the system is guaranteed, as the rules of legal interpretation require (Article 9-1 CC).

For the taxation of property and using only its proper characteristics, property is ultimately any fraction of territory, including waters, plantations and constructions of any nature incorporated or founded on it, with a character of permanence, provided that it forms part of a person's assets and has economic value (Article 2 CIMI). In turn, properties can be rustic or urban.

Rustic properties are lands situated outside urban agglomerations that are not land for construction, intended or destined for agricultural activities, including constructions directly related to that activity, its waters and plantations (Article 3 CIMI).

Urban properties, which are all others and are divided into several species, namely (i) residential properties; (ii) commercial, industrial or service properties; (iii) land for construction; and (iv) others (Article 6-1 CIMI). The specification of urban properties is made according to their purpose, either because it is licensed for the purpose in question or because that is the purpose to which it is normally destined (Article 6-3). In turn, the qualification of land for construction includes (i) those for which a license or authorization has been granted, admitted prior notification or issued favorable prior information of subdivision or construction operation; (ii) those that have been declared as such in the title of acquisition (Article 6-3 CIMI).

In turn, classified as other urban properties are (i) lands within the limits of urban agglomerations in which the competent entities or territorial planning instruments prohibit subdivision or construction (ii) lands within an urban agglomeration that cannot have use generating any income and are not subject to use generating agricultural income; (iii) buildings and constructions licensed or, in the absence of a license, that have as their normal destination purposes other than residential, commercial, industrial or service purposes (Article 6-4 CIMI).

The classification of mixed property is also admitted, when the same property has both rustic and urban portions and neither of them can be classified as principal in relation to the other (Articles 5-1 and 2 CIMI).

It is believed that the conceptual constructions of CIMI should be understood as structuring the taxation of property, for several reasons. First, because the rules of the tax laws in this area of taxation express themselves in that sense, namely Article 1-6 CIS and Article 1-2 CIMT. Secondly, because CIMI is a true code in its legal sense, i.e., it contains the nuclear regime of the rules relating to a certain matter; it contains the fundamental discipline, treating it in a systematic and scientific manner[7]. Thirdly, the rules of CIMI in question were elaborated within the framework of the reform of property taxation, weighed in the regulatory complex in which they are integrated and have the function of "establishing the precise contours of the reality to be taxed" (preamble of CIMI). It is therefore taken as exhaustive, from a conceptual point of view, the treatment of property made by CIMI.

It is important to know whether in subjecting to Stamp Duty properties with residential use the legislator ultimately intended: (i) to tax a species of urban properties that was not previously made autonomous and that is constituted by all urban properties that are capable of having residential use, whether they are buildings with residential purpose or land for construction; (ii) whether it intended to tax urban properties that actually have use for residential purposes, i.e., those in which such use is not an expectation or potentiality but a reality.

At first sight it could be said that the system of classification of urban properties does not allow for the possibility that land for construction has in itself a specific purpose; urban lands are either for construction or are classified as other if, being located within an urban agglomeration, construction is prohibited on them or if they cannot have use generating any income. The destination or purpose – residential, commercial, industrial or service – thus appears in the system of tax incidence on property as a qualifier only applicable to already constructed properties and coinciding with the license for the purpose in question or in accordance with normal destination (Article 6-2 CIMI).

Of course, it is always possible to assert that the purpose to which the rule of Article 6-2 CIMI refers is not the same reality as the rule of Article 41, which regulates the use coefficient. Certainly it is not, for what this rule intends is to find a weighted element, in the form of a coefficient, that expresses the consolidated value of the various purposes (or uses, according to the title in the table of the article itself) existing, based on the three basic criteria: commerce, services and housing, combined with the class of other urban properties (in the case of parking, storage and storage spaces), also taking into account factors such as the type of housing (e.g. at controlled costs) or constructive characteristics (covered, enclosed, etc.). This weighted element that intends to express the consolidated value for valuation purposes is called by CIMI the "use coefficient". Now, to consider appropriate that the use of the word "use" in TGIS intends to qualify properties in which their valuation comprises the "residential use" in the calculation of the use coefficient does not help to preserve the conceptual unity of the system for its purity requires that each term be perfectly unambiguous and its meaning the same wherever it is used.

Furthermore, neither does the rule of Article 41 CIMI allow one to assert that the property whose purpose (recognized or potential) is housing has residential use, for the coefficient to which Article 41 refers will never be a coefficient of residential use; it will be a numerical coefficient that expresses a weighted value and which may contemplate in its calculation use for housing, to a certain extent. Article 41 of CIMI does not establish "residential use", "commercial use" or "use for services"; it establishes a use coefficient that will synthesize the weight of all in the aggregate.

Moreover, in the original version of CIMI, resulting from Decree-Law No. 287/2003 of 12 November, the term use was exclusively used with the meaning of actual utilization for a certain purpose or destination, in the rules of Articles 3-1-a) and b), 3-2, 9-4, 27-3 and 29-3 or as the proper name of the use coefficient in the rules of Articles 38-1 and 41. Neither was it confused with purpose or normal destination for its use had implicitly actual utilization, as must necessarily be inferred from the rule of Article 3-1-a) where properties with use and properties lacking concrete use are referred to but which also have normal destination or utilization. Use thus appeared as the characteristic resulting from actual utilization and not from mere qualification or attribute.

Only with Law No. 53-A/2006 of 29 December (State Budget for 2007), through its Articles 77 and 78, was Article 40-A introduced and in its wording the term use for housing was used. Without disrespect to the revision, made in the typical heat of State Budget elaboration, it seems that this only intended to introduce amendments in valuation matters and no longer in the conceptual system created (or renewed) by CIMI, as is apparent from the very scope of the amendment which only dealt with Articles 33, 39, 40, 41, 43, 44 and 62 which it amended and Article 40-A which it added, all dealing with this subject[8], without taking care to maintain intact the initial terminology.

The use of the term use for a certain purpose has been historically linked in CIMI to the actual utilization for a certain purpose and the Code uses the concept with due consistency. More recently the term is associated with the purpose of properties for the purposes of application of valuation criteria. However, no case is known in which the expression is used to designate a broader legal situation that encompasses both the sense of purpose provided for in Article 6-1-a) CIMI (which it never actually had) and its use in the sense of utilization referred to in Article 40-A.

For CIMI and concomitantly for CIS, residential use does not have the meaning of comprising land for construction on which construction with that purpose may come to be built but only residential urban properties, defined in Article 6-1-a) CIMI.

Only this interpretation allows to maintain the unity of the legal system and surely the legislator knew how to express his thought using the terminology appropriate and consistent for the various codes regulating taxation of property, which has its roots in the respective 2003 reform, a solution that seems more correct to the coherence of tax law.

Other issues arise on this subject, namely that of knowing at what point a urban property intended for housing but not yet constructed actually has residential use, but their analysis is not necessary for the solution of the case before this tribunal for the real property in question has not yet even acquired this classification for it is only land for construction.

The prevailing case law has established solutions to the effect that land for construction is not comprised in the relevant rules of CIS, as can be seen in the review made on this matter in the Decision of the Single Arbitral Tribunal constituted at CAAD of 16-10-2014, in case 202/2014-T [Álvaro Caneira][9].

Let us now see to what extent this understanding is applicable to the factuality brought by the Claimant.

It was established that the Claimant's property is "land for construction" for which the subdivision permit specifies the construction of housing, commerce and services and parking. It was also established that on 18-03-2014 AT levied Stamp Duty for the year 2013, based on item 28.1 of TGIS, relating to the Claimant's urban property.

From the matter of law set out above it clearly follows that the ownership right of land for construction, such as the Claimant's, is not subject to payment of Stamp Duty, pursuant to item 28.1 of TGIS. Thus, it must be concluded that the levy is illegal and that the Claimant's request is well-founded.

2.2.2. Issues Whose Resolution is Rendered Moot

Concluding that the Stamp Duty levy is illegal due to violation of applicable legal rules, its respective annulment is required, which constitutes in itself the object of the request. Therefore, given this solution, the tribunal is barred from examining the other issues raised by the Claimant relating to the same tax act (Article 608-2 CPC[10], by virtue of Article 29-1-e RJAT).

3. Final Decision

Considering the elements of fact and law collected and set out, the arbitral tribunal decides to render judgment in favor of the request for arbitral ruling, declaring the illegality of the Stamp Duty levy for the year 2013, dated 18-03-2014, relating to the urban property registered in the registry under article ...º of the parish of ..., municipality of Oeiras, in the amount of € 12,253.08 and annuls this levy.

4. Value of the Case

In accordance with the provision of Article 306-2 of the CPC, by virtue of Article 29-1-e) RJAT and Article 97-A, No. 1-a) of the CPPT, by virtue of Article 3-2 of the Rules of Costs in Tax Arbitration Proceedings, the value of the case is set at € 12,253.08.

5. Costs

Pursuant to Article 22-4 RJAT, the amount of costs is set at € 918.00, pursuant to Table I attached to the Rules of Costs in Tax Arbitration Proceedings, which shall be borne by the Tax and Customs Authority.

Lisbon, 12 January 2015

The Arbitrator

(Nuno Maldonado Sousa)

[1] In this decision designated by the abbreviated form in common use "RJAT" (Legal Regime for Arbitration in Tax Matters).

[2] In this decision designated by the abbreviated form "AT" as is in general use.

[3] In this document the acronym TGIS is used to designate the General Table of Stamp Duty.

[4] In this document "RI" designates the initial request containing the request for arbitral ruling of the tribunal.

[5] In this document the acronym CIS is used to designate the Stamp Duty Code.

[6] In this document the acronym CIMI is used to designate the Municipal Tax Code on Real Property.

[7] Cf. José de Oliveira Ascensão – The Law – Introduction and General Theory. 3rd ed., Lisbon, Calouste Gulbenkian Foundation, 1983, pp. 282-283.

[8] Article 112 containing the tax rates was also updated.

[9] Accessible at http://www.caad.org.pt/

[10] In this document the acronym CPC is used to designate the Code of Civil Procedure.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS applicable to construction land (terrenos para construção)?
The applicability of Stamp Tax under Verba 28.1 of TGIS to construction land is the central issue in this dispute. The Tax Authority interprets 'urban properties with residential use' to include construction land based on CIMI provisions that classify such land as urban property. However, the taxpayer argues that 'residential use' requires actual utilization or specific purpose that undeveloped land cannot possess. The interpretation hinges on whether 'use' means actual occupation of constructed buildings or includes potential future use. This distinction is critical because construction land, while designated for residential development, does not yet contain habitable structures and therefore arguably lacks the 'residential use' required by the literal text of item 28.1 TGIS.
What are the legal grounds for challenging a Stamp Tax assessment on urban property in Portugal?
Legal grounds for challenging Stamp Tax assessments on urban property in Portugal include: (1) violation of objective tax incidence rules - arguing the property doesn't fall within the legal definition subject to tax; (2) procedural defects such as omission of the right to prior hearing under Article 60(1)(a) LGT; (3) notification nullities including failure to identify the author of the act (Articles 36 and 39 CPPT); (4) insufficient reasoning for the assessment; (5) double taxation claims where the same property is subject to multiple taxes like IMI and Stamp Duty; and (6) constitutional challenges based on principles such as prohibition of confiscatory taxation, equality, and legal certainty. Taxpayers can seek annulment or declaration of nullity of the assessment through CAAD arbitration.
How does the CAAD arbitration process work for disputes involving Imposto do Selo on real estate?
The CAAD arbitration process for Imposto do Selo disputes on real estate follows the Legal Regime for Tax Arbitration (RJAT - Decree-Law 10/2011). The taxpayer files a request for constitution of an arbitral tribunal identifying the contested act and legal grounds. The CAAD President accepts the request and notifies the Tax Authority. The Ethics Council designates an arbitrator (sole arbitrator for disputes under €10,000; three arbitrators for higher values). The tribunal is constituted when the arbitrator accepts. Both parties submit written pleadings - the initial request and the AT's response. A hearing under Article 18 RJAT is held where parties may present oral arguments and evidence. The tribunal then issues a binding arbitral decision within the statutory deadline, resolving the legality of the tax assessment.
Can a taxpayer request annulment of a Stamp Tax liquidation based on constitutional principles?
Yes, taxpayers can request annulment of Stamp Tax assessments based on constitutional principles. Common constitutional grounds include: violation of the principle of prohibition of confiscatory taxation (Article 104(3) Portuguese Constitution); breach of the principle of equality and tax capacity (Articles 13 and 104(1)); violation of legal certainty and protection of legitimate expectations; and infringement of property rights (Article 62). In this case, the claimant explicitly invoked constitutional violations as grounds for annulment. The CAAD arbitral tribunal has jurisdiction to appreciate constitutional issues and can declare tax acts null or annul them when they violate constitutional principles. However, the tribunal cannot declare legislative provisions unconstitutional - that power belongs to the Constitutional Court - but can interpret provisions in conformity with the Constitution.
What is the objective incidence of Verba 28.1 da Tabela Geral do Imposto do Selo on construction plots?
The objective incidence of Verba 28.1 of the General Stamp Duty Table on construction plots is disputed and depends on interpreting 'prédios urbanos com afetação habitacional' (urban properties with residential use). Two interpretations exist: (1) Broad interpretation (Tax Authority): construction land qualifies as urban property under CIMI Article 6(1), and 'residential use' includes potential residential destination or characteristics that determine property value, not just actual occupation. Under this view, land designated for residential construction through subdivision permits falls within the tax scope. (2) Restrictive interpretation (Taxpayer): 'residential use' requires actual utilization of constructed buildings for housing purposes. Construction land, lacking buildings, cannot have 'use' in the operative sense - only future destination. Under this interpretation, Verba 28.1 applies exclusively to already-constructed residential buildings, not undeveloped plots, avoiding taxation of unrealized development potential.