Process: 599/2014-T

Date: March 24, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 599/2014-T addresses a critical question in Portuguese tax law: whether Stamp Tax (Imposto do Selo) under item 28.1 of the General Stamp Tax Table (TGIS) applies to land for construction (terrenos para construção). The case involved A, S.A. challenging two 2013 stamp tax assessments totaling €6,796.34 on an urban property classified as land for construction with a taxable value of €1,019,450.00, exceeding the €1,000,000 threshold established by Law 55-A/2012. The claimant argued that item 28.1 TGIS, which taxes properties 'with residential use,' should only apply to properties with actual, present residential functionality, not undeveloped land where construction has not begun. They contended that under CIMI article 6, there is a clear distinction between residential properties and land for construction, and the latter cannot be deemed to have 'residential use' merely because residential buildings are authorized. The Tax Authority countered that 'residential use' (uso habitacional) should be interpreted broadly to encompass both built residential properties and land for construction. They argued that article 45(2) CIMI's reference to 'value of buildings authorized or foreseen' makes the use coefficient applicable to land for construction, and the legislator deliberately chose the broader term 'residential use' rather than 'properties intended for housing' to integrate realities beyond article 6(1) CIMI classifications. The CAAD arbitral tribunal accepted jurisdiction, admitted the joinder of claims for both assessment periods as they involved the same tax, identical material facts, and common legal principles under RJAT article 3(1). The proceedings highlight important interpretive questions about the scope of stamp tax on high-value properties and the interplay between CIMI valuation methodology and stamp tax incidence.

Full Decision

ARBITRAL DECISION

  1. REPORT

1.1. A, S.A., a legal entity no. …, filed on 31/07/2014 a request for arbitral ruling, in which it petitions the declaration of illegality of the stamp tax assessment acts for the year 2013 (1st and 2nd installment), to which correspond the documents numbered 2014... and 2014..., in the amounts of € 3,398.18 and € 3,398.16, respectively.

1.2. The Honourable President of the Deontological Council of the Administrative Arbitration Center (CAAD) designated on 16/09/2014 Francisco Nicolau Domingos as arbitrator.

1.3. On 01/10/2014 the court was constituted.

1.4. In compliance with the provision of article 17, no. 1 of the RJAT, the Tax Authority (AT) was notified on 13/10/2014 to, if willing, submit a response and request the production of additional evidence.

1.5. On 14/11/2014 the AT submitted its response, in which it requested the waiver of witness evidence production, the holding of the meeting described in article 18 of the RJAT, and the submission of oral arguments.

1.6. The court on 04/03/2015 invited the Claimant to indicate the facts concerning which it intended to examine the witness.

1.7. On 06/03/2015 the Claimant informed the court that it intended to produce evidence regarding the following matter: "The urban property remains as land intended for construction since the Claimant has not even begun the construction works of the building approved by the aforementioned subdivision".

1.8. The court, on 11/03/2015, dismissed the request for production of witness evidence on the grounds described in such ruling. Concurrently, it ordered the notification of the Claimant to state whether it intended the holding of the meeting referred to in article 18 of the RJAT.

1.9. The Claimant on 12/03/2015 filed a pleading in the proceedings in which it observes that it has no objection to the waiver of the holding of the meeting and submission of oral arguments.

1.10. The court on 17/03/2015 decided to waive the holding of the meeting referred to in article 18, no. 1 of the RJAT, on the ground of the principle of autonomy of the arbitral tribunal in the conduct of the proceedings and in the determination of the rules to be observed with a view to obtaining, within a reasonable timeframe, a substantive ruling on the claims formulated, see article 16, paragraph c) of the RJAT, and scheduled the date for rendering the final decision on 24/03/2015.

  1. PRELIMINARY OBJECTIONS

The joinder of claims underlying the request for arbitral ruling is admissible, in so far as it concerns assessment acts of the same tax, stamp tax. Furthermore, there is identity between the material facts and since the success of the claim depends on the interpretation of the same principles and rules of law, see article 3, no. 1 of the RJAT.

The proceedings do not suffer from nullities, no issues have been raised which prevent the examination of the merits of the case, the arbitral tribunal is regularly constituted and materially competent to hear and decide the claim, and consequently, the conditions for rendering the final decision are verified.

  1. POSITIONS OF THE PARTIES

There are two positions in confrontation, that of the Claimant, expressed in the request for arbitral ruling, and that of the AT in its response.

Summarizing:

The Claimant argues in particular that:

a) "The Claimant requests the constitution of the arbitral tribunal in tax matters, with a view to the declaration of illegality and consequent annulment of the Stamp Tax assessment acts no. 2014..., in the amount of 3,398.18 € and 2014... in the amount of 3,398.16 €, relating to the urban property of the type 'land for construction' registered in the respective property register of the parish of ... under article ... and the condemnation of the Respondent to reimburse to the Claimant the amounts unduly paid concerning these assessments, plus the compensatory interest owed concerning these payments.";

b) "The urban property resulting from this subdivision operation is described in the Property Register Office of ... under no. ... and registered in the competent urban property matrix under article ... of the parish of ..., municipality of ....";

c) "According to the respective subdivision permit, the building of properties intended for collective housing is authorized on the land in question.";

d) "For the purposes of property registration, in an assessment carried out under the pertinent standards of the Municipal Property Tax Code (CIMI), the taxable value of the property was fixed by the ATA at € 1,019,450.00 €.";

e) "The urban property remains as land intended for construction since the Claimant has not even begun the construction works of the building approved by the aforementioned subdivision.";

f) "The Tax and Customs Authority understood, nevertheless, that the presuppositions for the incidence of stamp tax provided for in item 28 of the respective Table were verified…";

g) "The expression 'with residential use' suggests, in a simple reading, an idea of real and present functionality.";

h) "…if the legislator intended to encompass within the scope of the tax other realities than those resulting from the classification governed by article 6 of the CIMI, it would have said so expressly. But it does not, instead referring, as a whole, to the concepts and procedures provided for in the aforementioned Code.";

i) "In the circumstances referred to, the fact that for a certain land for construction the building of property intended for housing, or for any other purpose, is authorized, although it should be taken into account in its assessment, does not determine any alteration in the classification of the land which, for tax purposes, continues to be considered as such.";

j) "Thus, resulting from article 6 of the CIMI a clear distinction between urban properties 'residential' and 'land for construction', the latter cannot be considered, for the purposes of the incidence of stamp tax, as 'properties with residential use…'.";

In a different manner, the AT argues that:

a) "Law no. 55-A/2012, of 29/10/2012 amended article 1 of the Stamp Tax Code, and added to the General Table of Stamp Tax, item 28.";

b) "With this legislative amendment, stamp tax would henceforth also be levied on ownership, usufruct or right of superficies of urban properties whose tax value recorded in the property matrix, under the terms of the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1,000,000.00.";

c) "The notion of use of an urban property will be found in the part relating to the assessment of properties, in so far as the use of the property (purpose) incorporates value into the property, constituting a determining factor of distinction (coefficient) for the purposes of assessment.";

d) "As results from the expression '…value of the buildings authorized or foreseen', contained in no. 2 of article 45 of the CIMI, the legislator opted for determining the application of the valuation methodology of properties in general, to the valuation of land for construction, being therefore applicable to them the use coefficient provided for in article 41 of the CIMI.";

e) "The reference to properties with residential use contained in item 28 of the CIS should be understood in a broad manner, encompassing both built residential properties and land for construction, notably due to the wording of the norm and the concept used itself.";

f) "Note that the legislator does not refer to 'properties intended for housing', having opted for the notion 'residential use'.";

g) "This is a different and broader expression whose meaning must be found in the need to integrate other realities beyond those identified in article 6, no. 1 of the CIMI.";

h) "On the other hand, tax law considers as an integrating element for the purposes of assessment of land for construction, the value of the building plot area, which varies between 15% and 45% of the value of the buildings authorized or foreseen on the basis of the urbanization and construction project.";

i) "…long before the actual construction of the property, it is possible to ascertain and determine the use of the land for construction.";

j) "Item 28 of the GTST is levied on the ownership, usufruct or right of superficies of urban properties with residential use, whose tax value recorded in the property matrix, under the terms of the CIMI, is equal to or exceeding € 1,000,000.00, that is, it is levied on the value of the property.";

k) "This is a general and abstract norm, applicable indiscriminately to all cases in which the material and legal presuppositions are verified.";

l) "Thus, taxation under stamp tax shall comply with the criterion of adequacy, being applied indiscriminately to all holders of properties with residential use of value exceeding € 1,000,000.00, being levied on the wealth evidenced in the value of properties.";

m) "The assessment in question embodies a correct interpretation and application of law to the facts, not suffering from the alleged vice of violation of law, and accordingly, the claim should be judged to be without merit and the Respondent should be absolved of the claim…".

  1. MATERIAL FACTS

4.1. FACTS THAT ARE CONSIDERED PROVED

4.1.1. The Claimant is the owner of the property registered in the urban property matrix of the Union of Parishes of ..., ... and ..., municipality of ..., under article no. ....

4.1.2. On 31 December 2013, the property (urban) was registered as "land for construction", with its tax value of € 1,019,450.00.

4.1.3. There is titled on such property a subdivision permit no. ../06/DMU from the Municipal Chamber of ....

4.1.4. There is no construction on the aforementioned property.

4.1.5. The voluntary payment period for the Stamp Tax assessment of 2013, 1st installment (document 2014...), in the amount of € 3,398.18, ended on 30 April 2014.

4.1.6. The voluntary payment period for the Stamp Tax assessment of 2013, 2nd installment (document 2014...), in the amount of € 3,398.16, ended on 31 July 2014.

4.1.7. The Claimant voluntarily paid the amount better described in 4.1.5. hereof, on 29/04/2014.

4.1.8. The Claimant voluntarily paid the amount better described in 4.1.6. hereof, on 30/07/2014.

4.2. FACTS THAT ARE NOT CONSIDERED PROVED

There are no facts with relevance to the decision that have not been established as proved.

4.3. JUSTIFICATION OF THE MATERIAL FACTS THAT ARE CONSIDERED PROVED

The facts established as proved are grounded in the documents used for each of the alleged facts and whose authenticity was not called into question. Similarly, facts that were not contested were also established as settled.

  1. THE LAW

5.1. ILLEGALITY OF THE STAMP TAX ASSESSMENT ACT OF 2013

In the case at hand, the first issue that must be examined by the tribunal concerns determining what is the scope of application of item no. 28.1 of the GTST in its wording at the date of the tax facts. That is, it is necessary to inquire whether land for construction falls within the scope of the tax provision, as the AT argues, or whether, on the contrary, it is excluded from it.

To accomplish such a task, one must first seek the provision whose interpretation is disputed by the parties.

Thus, item 28 of the GTST provides that the following are subject to taxation: "Ownership, usufruct or right of superficies of urban properties whose tax value recorded in the property matrix, under the terms of the Municipal Property Tax Code (CIMI), is equal to or exceeding € 1,000,000 – based on the tax value used for the purposes of the Property Tax:

28.1 - For property with residential use – 1%..."[1].

Thus it is necessary to examine the concept of "urban property with residential use" to which the provision under interpretation refers. Now, since it is not possible to resolve the issue by resorting to the Stamp Tax Code, it is by force of the provision of article 67, no. 2 of the same statute necessary to apply the provisions of the Municipal Property Tax Code (CIMI) as to the concept and types of urban properties.

Consequently, article 4 of the CIMI provides on the concept of urban property: "…are all those that should not be classified as rural…". And article 6, no. 1 continues: "Urban properties are divided into: a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Others". No. 2 provides that: "Residential, commercial, industrial or for services are the buildings or constructions licensed for such purpose or, in the absence of license, that have as their normal destination each of these purposes".

Thus, for the classification of a property within each of the enumerated categories, what is relevant is the nature of the use, that is, the purpose to which it is intended.

Now, those properties which are already bound to residential purposes fall within the stamp tax item under analysis, that is, those which have been given such a destination[2]. But it is legitimate to formulate the following question: and in relation to those properties (land for construction) with such a destination or, those in which the designation is unknown, do they fall under "properties with residential use"?

The answer to the aforementioned question cannot be other than negative. Indeed, the literal wording of the item under analysis allows excluding from the scope of application those lands for construction which have not realized any type of use, to the extent that they are not yet applied or intended for residential purposes. In other words, it is not possible to classify them as "properties with residential use", in so far as they do not yet have any use or other destination, except construction of unknown type[3].

Yet, one might ask: do land for construction which are not yet applied to residential purposes and already have a determined right, such as a subdivision permit, fall within the scope of application of item 28.1 of the GTST? We believe not. Indeed, article 6, no. 2 of the CIMI, subsidiarily applicable, points to the necessity of actual use.

In fact, the legislator did not use the expression "residential properties", but rather "properties with residential use", that is, the property must already have actual use for that purpose.

Now, such an interpretive sense becomes clear with the use of a summary of the words of the Honourable Secretary of State for Tax Affairs, at the time of presentation and discussion in the Assembly of the Republic of the draft law[4], in so far as he argued that such government proposal: i) aimed to create a special tax on high-value residential urban properties; ii) created special taxation on high-value properties intended for housing and iii) the tax would be levied on houses with a value equal to or exceeding 1 million euros. Or, in other words, the category to which the legislator refers with the expression "properties with residential use" are "houses".

The same interpretive sense is maintained, even if one considers that in determining the tax value of urban properties, classified as land for construction, account should be taken of the use that the building authorized or foreseen for them will have with a view to ascertaining the value of the building plot area. This does not mean that land for construction should be classified as "properties with residential use", to the extent that in the economy of the CIMI this designation refers to properties and buildings that can be inhabited[5].

Returning such an interpretive sense to the present proceedings, it must be said that the land for construction which is the object of these proceedings does not fall under the category of "properties with residential use" and, as such, the stamp tax assessments of 2013 should be declared illegal.

Yet one might think that this interpretation would be undermined by the entry into force of Law no. 83-C/2013, of 31 December (State Budget Law for 2014) in the segment in which it gave new wording to item 28.1 of the GTST, in which it now refers to the categories described in article 6 of the CIMI, that is, "residential property" and "land for construction". However, we believe not, because as sustained by Counsellor ISABEL MARQUES DA SILVA[6]: "…the legislator did not give it interpretive character (…), it merely makes it unambiguous for the future that land for construction whose authorized or foreseen building is for housing are encompassed within the scope of item 28.1 of the General Stamp Tax Table". That is, nothing is resolved in relation to acts practiced under the previous wording and a different legislative choice is demonstrated by the reference to the types of urban property, i) residential and ii) land for construction. Consequently, such legislative amendment does not in any way modify the decision expressed in the preceding paragraph.

For all these reasons, if the Claimant's property was registered as land for construction at the date of the tax fact relating to the year 2013, the provision on incidence in question cannot be applied to the case sub judice, on pain of illegality. For which reason, the stamp tax assessments of 2013 must be annulled, with all legal consequences.

5.1.2. COMPENSATORY INTEREST

Article 43, no. 1 of the LGT provides that: "Compensatory interest is due, when it is determined, in gracious reclamation or judicial contestation, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than that legally due". In other words, there are three requirements for the right to such interest: i) Existence of an error in a tax assessment act attributable to the services; ii) Determination of such error in a process of gracious reclamation or judicial contestation and iii) Payment of a tax debt in an amount higher than that legally due.

Thus, it is already possible to formulate a question: is it admissible to determine the payment of compensatory interest in a tax arbitration proceeding? The answer to the question is in the affirmative. Indeed, article 24, no. 5 of the RJAT provides that: "Payment of interest, regardless of its nature, is due, under the terms provided for in the General Tax Law and in the Code of Tax Procedure and Process".

Knowing the issue, the illegality of the assessments is attributable to the AT owing to the lack of normative support at the time of their making. Consequently, the request for compensatory interest is justified, to be calculated, in accordance with the provision of article 43, no. 4 of the LGT, between the date on which the unduly paid amounts were made and until full reimbursement.

  1. DECISION

In these terms and with the justification described above, the tribunal rules that the claim is well-founded, with the consequent annulment of the acts which are the subject of the arbitral ruling – 1st and 2nd installment. The AT is furthermore condemned to pay to the Claimant the compensatory interest, at the legal rate, from the date of each of the payments until the full reimbursement of such amounts.

  1. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at € 6,796.34, under the terms of article 97-A of the CPPT, applicable by force of the provision of article 29, no. 1, paragraphs a) and b) of the RJAT and of article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

  1. COSTS

Costs to be borne by the AT, in the amount of € 612, see article 22, no. 4 of the RJAT and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.

Notify.

Lisbon, 24 March 2015

The Arbitrator,

Francisco Nicolau Domingos

[1] In the wording in force at the date of the tax facts.

[2] See in this sense, in particular, the decision of the Supreme Administrative Court, delivered in the context of appeal 048/14, of 09/04/2014, in which Counsellor ISABEL MARQUES DA SILVA was the reporter; the decision of the Supreme Administrative Court, delivered in appeal 046/14, of 14/05/2014, in which Counsellor ASCENSÃO LOPES was the reporter and the arbitral decision delivered in the context of proceedings 53/2013-T, of 02/10/2013, in which Counsellor JORGE LOPES DE SOUSA assumed the function of arbitrator-president.

[3] See decision delivered in the context of proceedings 53/2013-T, of 02/10/2013, in which Counsellor JORGE LOPES DE SOUSA assumed the function of arbitrator-president.

[4] Assembly of the Republic Journal, Series I, no. 9/XII – 2, of 11 October, page 32.

[5] Decision of the Supreme Administrative Court, delivered in the context of appeal 048/14, of 09/04/2014 in which this was reported by Counsellor ISABEL MARQUES DA SILVA.

[6] In the context of decision 048/14, of 09/04/2014 reported by her.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the General Stamp Tax Table (TGIS) apply to land classified as terrenos para construção?
The applicability of item 28.1 TGIS to land for construction (terrenos para construção) is the central dispute in this case. The claimant argues that terrenos para construção cannot be considered properties 'with residential use' under item 28.1 because they lack actual residential functionality and CIMI article 6 clearly distinguishes between residential properties and land for construction. However, the Tax Authority contends that 'residential use' should be interpreted broadly to include land for construction where residential buildings are authorized or foreseen, as the valuation methodology under CIMI article 45(2) incorporates the use coefficient for such land based on authorized buildings.
How is Imposto do Selo (Stamp Tax) calculated on urban land intended for construction in Portugal?
Stamp Tax on urban land intended for construction with taxable value equal to or exceeding €1,000,000 is calculated under item 28.1 TGIS, introduced by Law 55-A/2012. The taxable value is determined according to CIMI provisions and recorded in the property matrix. For land for construction, article 45(2) CIMI establishes that valuation considers 'the value of buildings authorized or foreseen,' applying the general property valuation methodology including use coefficients from article 41 CIMI. The stamp tax assessment is based on this matricial taxable value, which in this case was €1,019,450.00, resulting in assessments of €3,398.18 and €3,398.16 for the two 2013 installments.
Can taxpayers challenge Stamp Tax assessments on building land through CAAD arbitration?
Yes, taxpayers can challenge Stamp Tax assessments on building land through CAAD (Centro de Arbitragem Administrativa) arbitration under the RJAT framework. In this case, A, S.A. successfully initiated arbitral proceedings by filing a request on 31/07/2014 seeking declaration of illegality and annulment of the stamp tax assessment acts. The CAAD arbitral tribunal was constituted, with an arbitrator designated by the President of the Deontological Council. The tribunal confirmed its material competence to hear and decide the claim, and the proceedings followed the standard RJAT procedural rules including notification of the Tax Authority for response and evidence production opportunities.
What are the legal grounds for contesting Imposto do Selo liquidation acts under the RJAT framework?
Legal grounds for contesting Imposto do Selo liquidation acts under RJAT include challenging the legal interpretation of tax incidence rules, arguing incorrect classification of property for tax purposes, and disputing the application of specific TGIS provisions. In this case, the claimant based its challenge on the interpretation of 'residential use' in item 28.1 TGIS, arguing that land for construction without commenced construction works cannot be deemed to have residential use. The challenge involves statutory interpretation of CIMI provisions (particularly articles 6, 41, and 45) and their interaction with stamp tax incidence rules, seeking annulment of the assessment acts and reimbursement of amounts paid plus compensatory interest.
How does CAAD handle joinder of claims involving multiple Stamp Tax assessment periods?
CAAD handles joinder of claims involving multiple Stamp Tax assessment periods by applying article 3(1) RJAT, which permits joinder when claims concern the same tax and there is identity of material facts with success depending on interpretation of the same legal principles. In this case, the tribunal admitted the joinder of two stamp tax assessments for 2013 (1st and 2nd installments) as they both involved stamp tax on the same urban property, with identical factual circumstances (property classification, taxable value, authorized use) and the resolution depending on the same legal question: whether item 28.1 TGIS applies to land for construction. This procedural efficiency allows unified resolution of related disputes in a single arbitral proceeding.