Process: 60/2014-T

Date: September 22, 2014

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 60/2014-T addressed whether Stamp Tax (Imposto de Selo) under Item 28.1 of the General Table of Stamp Duty (TGIS) applies to building land (terrenos para construção). The Tax Authority assessed €12,894.05 in Stamp Duty on undeveloped construction land valued over €1 million, arguing that Item 28.1 TGIS covers all urban properties including building land. The claimant contested this, asserting that building land cannot be considered 'property with residential use.' The arbitral tribunal ruled in favor of the taxpayer, holding that Item 28.1 TGIS requires actual residential use, not merely classification as urban property under CIMI. The tribunal distinguished between 'residential properties' (prédios habitacionais) defined in Article 6(2) CIMI and 'property with residential use' (prédios com afetação habitacional) in Item 28.1 TGIS. Crucially, the 2014 State Budget Law explicitly amended Item 28.1 to include building land from January 1, 2014, confirming such properties were excluded under the previous wording. Building land without constructed buildings lacks actual residential use and therefore falls outside Item 28.1's scope for periods before 2014. The tribunal declared the Stamp Duty assessments illegal due to violation of law (error in legal prerequisites) and ordered reimbursement with compensatory interest, establishing important precedent that Stamp Tax on high-value properties requires demonstrated residential utilization, not theoretical potential use.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case no. 60/2014-T

Subject: Land for Construction – Item 28 of the TGIS

The arbitrator Dr. Maria Antónia Torres, designated by the Deontological Council of the Administrative Arbitration Center ("CAAD") to form the Single Arbitral Tribunal, constituted on 28 March 2014, hereby decides as follows:

  1. REPORT

1.1. A, Lda., taxpayer no. …, hereinafter referred to as "Claimant", with registered office at …, no. …, …, …, requested the constitution of an arbitral tribunal, under article 2, no. 1, paragraph a), and article 10, both of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral pronouncement has as its object the illegality, and consequent annulment, of the tax assessment acts for Stamp Duty (IS), in the total amount of €12,894.05, issued by the Tax Office of …, under nos. …, … and …, and dated 22 March 2013, relating to the property located in the Municipality of …, and currently registered in the urban registry under no. …, as well as the condemnation of the Respondent to the restitution of the amounts unduly paid, plus compensatory interest.

1.3. To support its request, the Claimant alleges that the property to which the Stamp Duty assessments refer is land for construction and, for that reason, cannot be considered as a property "with residential use" for the purposes of applying item 28.1 of the General Table of Stamp Duty.

1.4. The Tax and Customs Authority argues that the request for a declaration of illegality, and consequent annulment, of the disputed assessments should be judged unfounded given that art. 6, no. 1 of the CIMI includes land for construction in the category of urban properties, and that item 28 of the TGIS refers to the "use" of the properties, making appeal to the use coefficient, a concept that applies indiscriminately to all urban properties.

1.5. It was further agreed by the parties to dispense with the meeting of the arbitral tribunal provided for in article 18 of the RJAT.

  1. PRELIMINARY ASSESSMENT

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, are legitimate parties and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Regulation no. 112-A/2011, of 22 March).

No procedural defects were identified in the case.

  1. QUESTIONS FOR DECISION

The question to be decided in these proceedings is whether the property that was the subject of the stamp duty assessments referred to above, being land for construction, has or does not have residential use and, consequently, whether or not item 28.1 of the General Table of Stamp Duty (TGIS) applies to it, as worded on the date to which the assessments relate.

  1. ESTABLISHED FACTS

With relevance to the assessment and decision on the merits, the following facts are hereby established as proven:

4.1 The Claimant is the owner of the urban property registered in the urban property registry under article …, of the union of parishes of …, …, Municipality of …;

4.2 The property is land for construction and has a patrimonial value of €898,950.00, (according to the registration certificate), with no building on the land at the date in question;

4.3 The Claimant was notified of the Stamp Duty assessments issued under nos. …, … and …, relating to the year 2012, and dated 22 March 2013, relating to the property referred to above;

4.4 The Claimant made full payment of the Stamp Duty assessments, in the total amount of €12,894.05;

4.5 All as per documents attached with the arbitral request and in the response presented by the Respondent;

4.6 On 24 February 2014 the Claimant filed a request for the constitution of the Arbitral Tribunal – cf. electronic request in the CAAD system.

  1. UNPROVEN FACTS

There are no facts with relevance to the decision on the merits that have not been proven, with the factual framework being consensually accepted by both parties.

  1. REASONING ON THE FACTUAL MATTERS

The Tribunal's conviction was based on the critical analysis of the documents indicated with respect to each of the points of the factual framework, with the dispute relating solely to questions of law.

  1. ON THE LAW

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

28 – Ownership, usufruct or right of superficies of urban properties whose patrimonial tax value recorded in the registry, under the terms of the Code for Municipal Tax on Real Property (CIMI), is equal to or greater than € 1,000,000 – on the patrimonial tax value used for the purpose of IMI:

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

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

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

f) The applicable rates are as follows:

i) Properties with residential use valued under the terms of the IMI Code: 0.5 %;

ii) Properties with residential use not yet valued under the terms of the IMI Code: 0.8 %;

Item 28.1 TGIS and sub-paragraphs i) and ii) of paragraph f) of no. 1 of article 6 of Law no. 55-A/2012 thus contain a concept that is not used in any other tax legislation, which is that of "property with residential use".

The concept most closely approximating the literal meaning of this expression used is that of "residential properties", which no. 2 of article 6 of the CIMI defines as comprising "buildings or constructions" licensed for residential purposes or, in the absence of a license, which have as their normal destination residential purposes.

However, the non-coincidence of the terms of the expression used in item no. 28.1 of the TGIS ("property with residential use") with that drawn from no. 2 of article 6 of the CIMI ("residential properties"), points towards the conclusion that it was not intended to use the same concept.

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

Following closely other CAAD awards handed down on the same matter, we understand that the word "use", in this context of the utilization of a property, should mean "the act of designating something for a particular use". Thus, "property with residential use" cannot be merely a property licensed for residential purposes or intended for that end (that is, it will not be sufficient that it is a "residential property"), but must be a property that already has actual use for that purpose.

Thus, "it can be concluded that the available interpretative elements, including the 'circumstances in which the law was elaborated and the specific conditions of the time in which it is applied', clearly point to the conclusion that it was not intended to encompass within the scope of application of item no. 28.1 situations of properties that are not yet used for residential purposes, namely land for construction held by companies".

Furthermore, with the State Budget Law for 2014, item 28.1 TGIS was expressly amended, so as to include, as from 01.01.2014, land for construction, which reinforces our conviction that such properties were not encompassed by the wording in force until 31.12.2013.

  1. DECISION

Now, the Claimant's property is land for construction, and we are not dealing with a property with current residential use, nor is there any building on the said land. There is therefore, as of the date in question, no use for residential purposes.

For this reason, we understand that the Stamp Duty assessments whose declaration of illegality is requested are vitiated by a defect of violation of that item no. 28.1 TGIS, by error regarding the legal prerequisites, which justifies the declaration of its illegality and consequent annulment (article 135 of the CPA).

In view of the foregoing, it is hereby determined:

(a) The declaration of illegality and annulment of the Stamp Duty assessment acts that are the subject of this request, all with the legal consequences thereof;

(b) The refund of the tax amount paid by the Claimant in the total amount of €12,894.05, and

(c) The payment of compensatory interest by the Respondent, calculated on the sum of €12,894.05, at the legal rate, until full payment.

With respect to compensatory interest, as already decided in the Arbitral Award handed down in case no. 14/2012-T, of 29 June 2012, it falls within the competence of tax arbitral tribunals to make condemnatory pronouncements which in proceedings of judicial challenge are admitted by state tax tribunals, and likewise the recognition of the right to compensatory interest in arbitral proceedings is admissible.

As a consequence of the substantive illegality of the Stamp Duty assessments that are the subject of this action, the Claimant paid tax that was not due, necessitating not only its reimbursement, under the terms of articles 24, no. 1, paragraph b) of the RJAT and 100 of the LGT, but also the payment of compensatory interest as the respective constitutive conditions are met, in accordance with the provision of articles 43 of the LGT and 61 of the CPPT, calculated on the amount paid in excess and counted from the dates of the payments made until full restitution.

The value of the case is set at €12,894.05, in accordance with the provisions of articles 3, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings ("RCPAT"), 97-A, no. 1, paragraph a) of the CPPT and 306, no. 2 of the Code of Civil Procedure.

The amount of costs is set at €918 at the expense of the Tax and Customs Authority, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

It is hereby recorded and all parties shall be notified.

Lisbon, 22 September 2014

Document drawn up by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure (CPC), applicable by referral of article 29, no. 1, paragraph e) of the RJAT, with blank spaces.

The wording of this arbitral award follows the old spelling convention.

The arbitrator,

Maria Antónia Torres

[1] Acronym for the Legal Regime of Tax Arbitration.

Frequently Asked Questions

Automatically Created

Does Clause 28.1 of the Portuguese Stamp Tax General Table (TGIS) apply to building land (terrenos para construção)?
No, Item 28.1 of the TGIS did not apply to building land (terrenos para construção) before 2014. The CAAD tribunal in Process 60/2014-T held that 'property with residential use' requires actual residential utilization, which undeveloped construction land lacks. The term 'use' (afetação) means designation for a particular purpose, not mere classification as urban property under CIMI. The 2014 State Budget Law subsequently amended Item 28.1 to explicitly include building land from January 1, 2014, confirming that such properties were excluded under the prior wording applicable to tax year 2012.
Can a construction plot be classified as a property with housing designation for Stamp Tax purposes under Portuguese law?
No, construction plots cannot be classified as properties with housing designation (afetação habitacional) for Stamp Tax purposes under Item 28.1 TGIS as it existed before 2014. The tribunal distinguished between 'residential properties' (prédios habitacionais) defined in Article 6(2) CIMI—buildings licensed or intended for residential purposes—and 'property with residential use' in Item 28.1 TGIS, which requires actual use. Building land without constructed buildings has no actual residential use, regardless of its urban classification or intended future development. The Tax Authority's argument that CIMI's classification system determines Stamp Tax liability was rejected.
What was the CAAD arbitral tribunal's decision in Process 60/2014-T regarding Stamp Tax on building land?
The CAAD arbitral tribunal in Process 60/2014-T ruled in favor of the taxpayer, declaring the Stamp Duty assessments totaling €12,894.05 illegal and ordering their annulment. The tribunal held that Item 28.1 TGIS did not apply to the claimant's building land because it lacked actual residential use. The assessments were vitiated by violation of law due to error regarding legal prerequisites. The tribunal ordered the Tax Authority to reimburse the amounts unduly paid plus compensatory interest (juros indemnizatórios). This decision established that before 2014, building land held by companies was outside Item 28.1's scope.
How does the IMI coefficient of allocation (coeficiente de afetação) relate to Stamp Tax liability on urban properties in Portugal?
The Tax Authority argued that Item 28 TGIS refers to property 'use' by appealing to the use coefficient (coeficiente de afetação), a concept applying to all urban properties under CIMI. However, the tribunal rejected this interpretation. While CIMI Article 6(1) includes building land as urban property, and IMI coefficients apply indiscriminately to all urban properties, this does not determine Stamp Tax liability under Item 28.1 TGIS. The tribunal held that 'property with residential use' requires actual utilization, not theoretical classification. The IMI system's categorization does not automatically extend to Stamp Tax applications, particularly where the legislation uses distinct terminology.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when Stamp Tax is unlawfully levied on construction land?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when Stamp Tax is unlawfully levied on construction land. In Process 60/2014-T, the tribunal not only declared the assessments illegal and ordered their annulment, but also condemned the Tax Authority to restitution of amounts unduly paid plus compensatory interest. This follows the general principle that when taxes are collected without legal basis and the taxpayer has been deprived of funds, the State must compensate for the financial loss through interest payments from the date of undue payment until restitution.