Process: 584/2014-T

Date: March 30, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

In Process 584/2014-T, the CAAD arbitral tribunal examined whether building land plots (terrenos para construção) fall within the scope of Stamp Tax under item 28.1 of the General Table of Stamp Duty (TGIS). The claimant challenged a €14,755.30 Stamp Tax assessment on a building land plot valued at €1,475,530.00 in Porto. Item 28.1 of the TGIS, introduced by Law 55-A/2012, imposes a 1% annual tax on urban properties with tax-assessed values equal to or exceeding €1,000,000 that have 'residential allocation' (afetação habitacional). The claimant argued that building land plots constitute a distinct property category from residential properties and lack the requisite residential allocation, making the assessment unlawful and unconstitutional for violating principles of contributive capacity and equality. The Tax Authority contended that building land plots should be equated with residential properties for Stamp Tax purposes. The tribunal identified the central legal issue as whether the innovative concept of 'property with residential allocation' encompasses building land plots, noting this terminology appears nowhere in the Municipal Property Tax Code (CIMI) or other Portuguese tax legislation. The case highlights critical interpretative questions regarding the scope of item 28.1, the distinction between actual residential properties and developable land, and whether extensive interpretation of tax provisions is permissible when statutory language creates ambiguity. This decision has significant implications for taxpayers holding high-value building land and establishes important precedent regarding tax classification of undeveloped urban properties.

Full Decision

ARBITRAL DECISION

I. REPORT

A, LDA., with registered office in … Algés, holder of the unique registration and identification number for legal entities …, hereinafter simply designated as the Claimant, filed a request for the constitution of an arbitral tribunal in tax matters and a request for arbitral pronouncement, pursuant to articles 2º no. 1 a) and 10º no. 1 a), both of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, abbreviated as LRAT), petitioning for the annulment of the tax assessment act for Stamp Duty (SD), relating to the year 2013, in the total amount of € 14,755.30, as well as condemnation of the Tax Authority to pay compensatory interest.

To support its request, it alleges, in summary:

a) The Claimant was notified of the assessment note relating to Stamp Duty, for the year 2013;

b) The assessment referred to in the preceding paragraph concerns a plot of land for construction of which it is the owner, located in the municipality of Porto, Union of Parishes of …;

c) Such assessment was made pursuant to item 28.1 of the General Table of Stamp Duty (GTSD);

d) Under the terms of item 28.1 of the GTSD, there are three elements that constitute the taxable event: ownership, usufruct or the right of superficies over urban properties; the residential allocation of such properties and their tax-assessed value equal to or greater than € 1,000,000.00;

e) The property subject to assessment does not have residential allocation, whereby one of the prerequisites inherent to the verified taxable event fails;

f) Plots of land for construction constitute a species of properties distinct from properties classified as residential;

g) The plot of land for construction, over the ownership of which the Stamp Duty assessment at issue fell, does not fall within the provision of item 28.1 of the GTSD;

h) The assessment in question is unlawful, by violation of such item, and unconstitutional, by violation of the principles of taxation of contributive capacity and equality.

The Claimant attached three (3) documents and did not call any witnesses.

In the request for arbitral pronouncement, the Claimant chose not to appoint an arbitrator, whereby, pursuant to article 6º no. 1 of the LRAT, the signatory was appointed by the Deontological Council of the Administrative Arbitration Centre, with the appointment having been accepted as legally provided.

The arbitral tribunal was constituted on 1 October 2014.

Notified in accordance with article 17º of the LRAT, the Respondent presented a reply, invoking in summary that, for purposes of applying item 28.1 of the GTSD attached to SD, plots of land for construction are equivalent to properties with residential allocation.

It concludes by petitioning for the dismissal of the claim and, consequently, the maintenance of the assessment act at issue.

The Respondent did not attach a copy of the administrative file and did not call any witnesses.

Given the position assumed by the parties and the absence of any need for additional production of evidence, the holding of the meeting referred to in article 18º of the LRAT was dispensed with, as well as the submission of arguments.

II. ISSUES TO DECIDE:

In the present case the issue to be decided consists solely in determining whether, for purposes of applying item 28.1 of the GTSD attached to the CIS, in the wording given by Law no. 55-A/2012, of 29 October, a plot of land for construction is considered as a property with residential allocation.

III. FACTUAL MATTERS:

a. Proven Facts:

With relevance for the decision to be rendered in the present case, the following facts were proven:

  1. Registered in the property register in favour of the Claimant is the urban property located in Rua …, parish of …, municipality of Porto, registered in the urban property register under article …;

  2. The property referred to in 1 is a plot of land for construction, with a tax-assessed value of € 1,475,530.00;

  3. On 17/03/2014, the Tax Authority assessed, pursuant to item 28.1 of the GTSD attached to the CIS, stamp duty on the property referred to in 1, relating to the year 2013;

  4. The Claimant was notified of the 1st and 2nd instalments to be paid, in the amounts of, respectively, € 4,918.44 and € 4,918.43, of the SD assessed by the Tax Authority;

  5. On 06/07/2014, enforcement proceedings no. … were initiated against the Claimant, with a view to the coercive collection of the 1st instalment of the SD assessed by the Tax Authority, plus default interest and procedural costs, following which the Claimant proceeded to pay the amount of € 5,042.98;

  6. On 29/07/2014, the Claimant proceeded to pay the 2nd instalment of SD assessed, in the amount of € 4,918.43.

b. Unproven Facts:

With interest for the case, there is no factual matter unproven.

c. Reasoning on Factual Matters:

The conviction regarding the facts proven was founded on the documentary evidence attached by the Claimant, indicated in relation to each of the points, the authenticity and accuracy of which was not questioned by the Respondent.

IV. SANITATION:

The Arbitral Tribunal is regularly constituted and materially competent.

The parties have legal personality and capacity, are legitimate and are regularly represented.

The proceedings do not suffer from defects affecting their validity, there being no exceptions or prior issues preventing knowledge of the merits and which it behoves to know ex officio.

V. ON THE LAW:

The factual matters being now established, it falls to determine the applicable law by reference thereto.

The Claimant invokes that plots of land for construction cannot be considered, for purposes of being subject to Stamp Duty, as properties with residential allocation.

In its understanding, the provision of item 28.1 of the GTSD attached to the CIS does not permit any extensive interpretation, so that plots of land for construction can be equated to properties with residential allocation, and therefore the said item 28.1 is not applicable to them.

Conversely, the Respondent alleges that the property on which the disputed assessment falls has the legal nature of a property with residential allocation, suffering from no unlawfulness or unconstitutionality.

As to the objective scope, article 1º no. 1 of the CIS provides that stamp duty is levied on all acts, contracts, documents, titles, papers and other facts or legal situations provided for in the General Table.

Article 4º of Law no. 55-A/2012, of 29 October added to the GTSD, attached to the CIS, approved by Law no. 150/99, of 11 September, item no. 28, with the following wording:

"28 - Ownership, usufruct or right of superficies of urban properties whose tax-assessed value contained in the register, in accordance with the Code of Municipal Property Tax (CMPT), is equal to or greater than € 1 000 000 - on the tax-assessed value used for purposes of CMPT:

28.1 - For property with residential allocation - 1%;

28.2 - For property, when non-individual taxable persons are residents of a country, territory or region subject to a clearly more favourable tax regime, listed in the approval by order of the Minister of Finance - 7.5%."

That said,

In item 28.1 of the GTSD added by Law no. 55-A/2012, of 29 October, an innovative concept was used, which is not used by any other tax legislation: the concept of property with residential allocation.

Neither in the CMPT, indicated by the said Law no. 55-A/2012 as a law of subsidiary application with respect to the tax introduced by the addition of item 28 to the GTSD, is any such defined concept used.

Indeed, the CMPT defines the concept of property, defines the various types of properties and identifies the species of urban properties.

Thus,

Pursuant to article 2º of the CMPT, "property is every fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated or set in it, with a character of permanence, provided that it forms part of the patrimony of a natural or legal person and, in normal circumstances, has economic value."

Properties are divided into rural (article 3º), urban (article 4º) or mixed (article 5º), with urban properties subdividing into 4 species: residential, commercial, industrial or for services; plots of land for construction and others (article 6º).

No. 3 of article 6º of the CMPT clarifies that plots of land for construction are considered to be "lands situated inside or outside an urban settlement, for which a licence or authorization has been granted, admissibility of prior notification or favourable prior information issued for a subdivision or construction operation, and also those which have been thus declared in the acquisition title."

Combining the indicated provisions, it appears that there is no reference, in any of the indicated rules, to property with residential allocation.

Wherefore, to determine what is a property with residential allocation, an exercise of interpretation must be undertaken, resorting to the general rules of legal hermeneutics contained in article 9º of the Civil Code.

Thus, the interpretative activity must begin with an analysis of the letter of the law, which constitutes the limit of interpretation, and an interpretation cannot be considered if it does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

Now, as appears from the legal provisions already cited, the concept of property with residential allocation is absolutely innovative in the CIS, not existing in any other tax law.

The closest concept is that of "residential property", defined in no. 2 of article 6º of the CMPT as being the building or construction licenced for such purpose or, in the absence of a licence, which has as its normal destination this purpose.

The truth, however, is that the legislator, in item 28.1 of the GTSD attached to the CIS, did not use the expression "residential property" but rather "property with residential allocation".

Wherefore, proceeding from the principle – which is taken as certain – that the legislator knew how to express himself in adequate terms, it cannot be maintained that these distinct expressions have the same meaning. Rather, by application of the principles enshrined in nos. 2 and 3 of article 9º of the Civil Code, it must necessarily be held that, by using distinct expressions, the legislator intended to encompass different realities.

Let us attend, then, to the word "allocation", noun form of the verb "to allocate".

This concept has already been exhaustively analysed by diverse and learned case law handed down by this arbitration centre[1], and we shall therefore spare ourselves from dissecting such concept, accepting and maintaining that it consists in the action of designating something for a determined use.

Thus, property with "residential allocation" will be that which is designated for habitation.

Indeed, the same conclusion is reached through the reconstitution of legislative intent, having regard to the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied, as required by the said article 9º of the Civil Code.

First and foremost, it is important to bear in mind that the introduction of item 28 into the GTSD took place at a time when, given the absolute necessity of facing the crisis that had developed, it was imperative to collect the maximum revenue possible, which was intended to be achieved, in particular, through the taxation of so-called "luxury" properties.

It was intended, then, with the introduction of the taxation provided for in item 28 of the GTSD, to tax wealth, exteriorized in the ownership, usufruct or right of superficies of "luxury" urban properties with residential allocation.

That only properties with residential allocation are included in this new taxation results expressly from the Explanatory Memorandum of Bill no. 96/XII, in which it is stated that, with a view to strengthening the "principle of social equity in austerity, ensuring an effective distribution of the sacrifices necessary to comply with the adjustment programme", the legal bill to be approved "broadens the taxation of capital income and property, encompassing equitably a broad set of sectors of Portuguese society".

Thus, one can further read in the said Explanatory Memorandum that a "rate is created under Stamp Duty applicable to urban properties of residential allocation whose tax-assessed value is equal to or greater than one million euros" (emphasis ours).

Already in the context of the general debate on the said Bill, one can read:

"First, the Government proposes the creation of a special rate to tax urban residential properties of higher value. It is the first time that in Portugal a special taxation on high-value properties intended for habitation has been created. This rate will be 0.5% to 0.8% in 2012, and 1% in 2013, and will apply to houses with a value equal to or greater than 1 million euros" (emphasis ours).

There is no doubt, therefore, that the legislator's intention was to tax houses, urban residential properties, properties intended for habitation, that is, properties that are already effectively designated for a residential purpose.

It being established that the concept of "property with residential allocation" is a property effectively designated for, allocated to habitation, it now becomes important to analyse the actual scope of such concept. In other words, it is necessary to ascertain whether such residential allocation, for purposes of applying item 28.1 of the GTSD, must be present or may be future, that is, whether it will cover only properties already effectively allocated to habitation or also properties that, being land for construction, do not yet have any defined destination.

The distinction assumes special acuity if we note that a plot of land for construction may be intended for constructing, in the future, one or more dwellings, whereby, if future allocations that may come to be given to the property are included in the concept of "residential allocation", one could, in this case, defend the application of item 28.1 of the GTSD to plots of land for construction.

This understanding, however, has, in our view, no adherence whatsoever to the letter and spirit of the law.

Indeed, analysed the literal wording of item 28.1 of the GTSD, it seems manifest that its application should be ruled out for properties whose destination is unknown, as these, manifestly and from any point of view, cannot be considered to be intended for residential purpose.

That is, the destination of the property in question not being known, it may be intended for habitation, commerce, industry or services, and it is certain that item 28.1 will only be applicable to properties with residential allocation and not to properties with any other allocation, in particular economic.

In the case at hand, analysing the proven facts, it appears that the property in question does not yet have any known destination, whereby it is manifest that item 28.1 of the GTSD should not be applied.

But even if the property in the present case already had a known, though not effective, destination, and that destination were residential, it would not be covered by the application of item 28.1 of the GTSD.

This is because, from the combination of the norms contained in item 28.1 of the GTSD and no. 3 of article 6º of the CMPT, it results, without any margin for doubt, that the allocation must be effective and not merely future or probable.

In sum, a plot of land for construction whose destination is unknown, as is the case with the property in the present proceedings, cannot be considered as property with residential allocation for purposes of applying item 28.1 of the GTSD attached to the CIS.

Nor should it be said, as the Respondent does, that the legal identity, for purposes of applying item 28.1 of the GTSD, between plots of land for construction and properties with residential allocation results clearly from the fact that the legislator determined the application to plots of land for construction of the assessment methodology applicable to properties in general.

It is true that article 45º of the CMPT determines the application to plots of land for construction of the same assessment methods applicable to properties in general.

However, it cannot be overlooked that such identity is limited to assessment methodology and not to its classification.

As regards assessment, there is no doubt that the legislator orders the application of the same rules to both plots of land for construction and to residential properties.

But as regards the classification of the property, nothing in the law or in general legislative intent permits us to conclude to the existence of such identity.

Indeed, as we believe is well stated in a judgment handed down by the Supreme Court of Justice, "it would be strange, moreover, if the determination of the scope of the norm of tax incidence of item no. 28 of the General Table of Stamp Duty were found, after all, in the norms of determination of the tax-assessed value of the Code of the CMPT, and that the terminological imprecision of the legislator in the wording of that rule were, in fact, elucidated and finally clarified through an indirect and equivocal reference to the allocation coefficient established by the legislator in relation to built properties (article 41º of the Code of the CMPT)"[2].

For this reason, and following closely case law already fixed by this arbitration centre[3], it is to be concluded that "the available interpretative elements, including the «circumstances in which the law was enacted and the specific conditions of the time in which it is applied», point clearly to the fact that it was not intended to encompass within the scope of item 28.1 situations of properties that are not yet allocated to habitation, in particular plots of land for construction held by companies", as is the case in the present proceedings.

But not only has the case law of this arbitration tribunal pronounced itself in this sense. In judgments handed down very recently, the Supreme Administrative Court decided that "as the legislator did not define the concept of «properties (urban) with residential allocation», and resulting from article 6º of the Code of the CMPT – subsidiarily applicable to the Stamp Duty provided for in the new item no. 28 of the General Table – a clear distinction between «urban residential properties» and «plots of land for construction», these cannot be considered, for purposes of incidence of Stamp Duty (Item 28.1 of the GTSD, in the wording of Law no. 55-A/2012, of 29 October), as urban properties with residential allocation"[4].

And that this is so results clearly from the fact that, in the last amendment made to item 28.1 of the GTSD attached to the CIS, by Law no. 83-C/2013, of 31 December, which approved the State Budget for 2014, plots of land for construction were here expressly included. Note, however, that even with this amendment, not all plots of land for construction become subject to taxation by effect of the application of item 28.1 of the GTSD attached to the CIS, but only and exclusively those plots of land for construction whose construction, authorized or planned, is for habitation.

As the said 2014 State Budget Law is not in any way an interpretive law, it seems evident that, if the legislator felt the need to include in item 28.1 plots of land for construction, it is because previously such land was not included therein.

Any other interpretation of item 28.1 of the GTSD attached to the CIS, in the wording given by Law no. 55-A/2012, of 29 October, has not the slightest legal basis and cannot be maintained.

It appears, therefore, that the assessment in question in the present proceedings is clearly unlawful, as it has no legal foundation or support.

Thus, not appearing in item 28.1 of the GTSD attached to the CIS, in the wording given by Law no. 55-A/2012, of 29 October, plots of land for construction, and these being unable to be classified, for this purpose, as properties with residential allocation, it is evident that these cannot be subject to taxation under this item.

Wherefore, there being no legal foundation for the assessment act carried out, its annulment is imperative.

VI. OPERATIVE PART:

In view of the foregoing, it is decided to find the petition for a declaration of unlawfulness of the Stamp Duty assessment act in the total amount of € 14,755.30 to be well-founded, with the consequent annulment thereof and of the payment slips issued, as well as the petition for condemnation to payment of compensatory interest.

The amount in controversy is fixed at € 14,755.30, in accordance with item a) of no. 1 of article 97-A of the Code of Tax Procedure and Process, applicable by virtue of items a) and b) of no. 1 of article 29º of the LRAT and of no. 2 of article 3º of the Regulation of Costs in Tax Arbitration Proceedings.

The arbitration fee is fixed at € 918.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, as well as the provision of no. 2 of article 12º and no. 4 of article 22º, both of the LRAT, and of no. 3 of article 4º of the said Regulation, to be paid by the Respondent as the unsuccessful party.

Record and notify.

Lisbon, 30 March 2015.

The Arbitrator,

Alberto Amorim Pereira

Text prepared by computer, in accordance with no. 5 of article 131º of the Code of Civil Procedure, applicable by referral of item e) of no. 1 of article 29º of Decree-Law no. 10/2011, of 20/01, governed in its wording by the old orthography.

[1] See, inter alia, the decisions handed down in the context of proceedings 48/2013-T; 50/2013-T and 132/2013-T, all available at www.caad.org.pt.

[2] Judgment of 09/04/2014, proceeding no. 1870/13, available at www.dgsi.pt.

[3] Proceeding no. 53/2013-T, available at www.caad.org.pt.

[4] Judgments of 23/04/2014, proceeding no. 0272/14, and of 09/04/2014, proceedings nos. 1870/13, already cited, and 48/14, all at www.dgsi.pt.

Frequently Asked Questions

Automatically Created

Are building land plots (terrenos para construção) subject to Stamp Tax under clause 28.1 of the TGIS?
The central issue in Process 584/2014-T is whether building land plots (terrenos para construção) qualify as properties with 'residential allocation' under item 28.1 of the TGIS. The claimant argued that building land plots are legally distinct from residential properties and therefore not subject to the 1% Stamp Tax. The tribunal noted that 'residential allocation' is an innovative concept not defined in the Municipal Property Tax Code (CIMI) or other tax legislation, requiring interpretation of whether undeveloped land intended for future construction can be equated with actual residential properties for tax purposes.
What are the three requirements for Stamp Tax liability under clause 28.1 of the Portuguese General Stamp Tax Table?
Item 28.1 of the TGIS requires three cumulative elements for Stamp Tax liability: (1) ownership, usufruct, or right of superficies over urban properties; (2) residential allocation (afetação habitacional) of such properties; and (3) a tax-assessed value equal to or greater than €1,000,000. The tax is levied annually at 1% on the property's tax-assessed value as determined for Municipal Property Tax (IMI) purposes. The claimant challenged the assessment on grounds that the second requirement—residential allocation—was not satisfied by a building land plot.
Can the tax authority equate building land with housing-purpose properties for Stamp Tax purposes?
The Tax Authority argued that building land plots for construction should be considered equivalent to properties with residential allocation for purposes of applying item 28.1 of the TGIS. However, the claimant contested this position, asserting that the provision does not permit extensive interpretation to equate building land with residential properties. The tribunal recognized that 'property with residential allocation' is a novel concept in Portuguese tax law, raising questions about whether tax authorities can expand its scope beyond properties actually allocated for housing purposes through administrative interpretation.
Is a Stamp Tax assessment on building land valued over €1,000,000 unconstitutional under Portuguese law?
The claimant alleged the Stamp Tax assessment was unconstitutional on grounds it violated the constitutional principles of taxation according to contributive capacity and equality. The argument centered on whether taxing undeveloped building land at the same rate as luxury residential properties respects ability-to-pay principles, given that building land generates no rental income and represents potential rather than actual residential use. The constitutional challenge questioned whether the legislative classification in item 28.1 creates arbitrary distinctions or improperly extends tax liability beyond properties genuinely allocated for housing.
How can taxpayers challenge unlawful Stamp Tax assessments through CAAD arbitration proceedings?
Taxpayers can challenge unlawful Stamp Tax assessments by filing a request for arbitration with CAAD (Centro de Arbitragem Administrativa) under the Legal Regime of Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). The process involves submitting a request for constitution of an arbitral tribunal within the applicable deadline, paying the required fee, and presenting legal arguments and supporting documentation. As demonstrated in Process 584/2014-T, taxpayers can seek annulment of the assessment act and claim compensatory interest. The arbitral tribunal examines the legality of the assessment, applying relevant tax law and constitutional principles, and issues a binding decision typically within six months.