Process: 626/2014-T

Date: January 28, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD Process 626/2014-T addressed whether Stamp Tax under item 28.1 of the General Table of Stamp Tax (TGIS) applies to building land (terreno para construção) valued above €1 million. A construction company challenged a €9,436.42 tax assessment on land valued at €2.8 million, arguing that building land lacks 'residential designation' required by Law 55-A/2012. The arbitral tribunal analyzed the concept of 'property with residential designation' (prédio com afetação habitacional), concluding it differs from the CIMI definition of 'residential properties' which requires actual buildings or constructions licensed for housing. The term 'designation' (afetação) means assigning property to a particular use. Building land, classified under article 6(3) of CIMI as land with construction rights, has not yet been assigned to residential use. Following Supreme Administrative Court precedents (cases 0467/14, 0676/14, 0395/14) and previous CAAD decisions (53/2013-T, 49/2013-T), the tribunal ruled that item 28.1 GSTS was not intended to encompass properties without actual residential designation, particularly building land held by companies. The decision establishes that mere potential for residential construction does not constitute residential designation for Stamp Tax purposes, protecting taxpayers from taxation on undeveloped urban land despite high valuations.

Full Decision

ARBITRATION DECISION

CAAD: Tax Arbitration

Case No. 626/2014 – T

Subject: Stamp Tax – item 28.1 of the GSTS – land for construction

Claimants/Applicants: A... CONSTRUÇÕES, S.A.

Defendant: Tax Authority and Customs Authority (hereinafter ATA)

1. Report

On 21-08-2014, the corporation A... CONSTRUÇÕES, S.A., corporate person no. ..., with registered office at Avenue ..., Lisbon, hereinafter referred to as the Applicant, submitted to the Administrative Arbitration Center (CAAD) an application for the constitution of an arbitral tribunal with a view to annulling the tax act for assessment of Stamp Tax under item no. 28 of the General Table of Stamp Tax (GSTS), for the year 2013 and relating to the urban property registered in the property register under article ....

The Applicant alleges that the property to which the Stamp Tax assessment refers is land for construction and therefore does not have residential designation for purposes of taxation provided for in item 28.1 of the General Table of Stamp Tax.

Suzana Fernandes da Costa was appointed as sole arbitrator on 08-10-2014.

In accordance with the provisions of article 11, no. 1, subsection c) of the RJAT, the sole arbitral tribunal was constituted on 23-10-2014.

The Tax Authority and Customs Authority submitted a reply on 25-11-2014, arguing that the application for declaration of illegality and consequent annulment of the contested assessment should be judged unfounded, since the assessment in question constitutes a correct interpretation of item 28.1 of the General Table of Stamp Tax, as the said property has the legal nature of property with residential designation.

The ATA requested, on 25-11-2014, a waiver of the holding of the meeting provided for in article 18 of the Tax Arbitration Regime.

The Applicant was notified of this request from the ATA, and in the time allowed to comment it said nothing.

On 26-12-2014, an order was issued waiving the holding of the meeting, since there were no exceptions to consider. The submission of arguments was also waived. The date of 28-01-2015 was set for the rendering of the arbitral decision.

The parties possess juridical personality and capacity and are entitled to participate (articles 4 and 10, nos. 1 and 2 of the RJAT and article 1 of Order no. 112-A/2011 of 22 March).

The present request for arbitral decision was submitted in a timely manner, in accordance with article 10, no. 1, subsection a) of Decree-Law no. 10/2011 of 20 January.

The proceedings are free from nullities and no preliminary questions were raised.

2. Factual Matter

2.1. Proven Facts:

Upon analysis of the documentary evidence produced, the following facts are considered proven and of interest for the decision of the case:

  • The Applicant is the owner of the urban property registered in the urban property register under article ....

  • The property is land for construction and has a property value of €2,830,926.91, as per the Stamp Tax assessment attached to the arbitral application;

  • The Applicant was notified of Stamp Tax assessment no. 2014 ..., for the year 2013, in the amount of €9,436.42 to be paid by 31-07-2014, as per a copy thereof attached to the arbitral application.

No other facts with relevance for the decision of the case were proven.

2.2. Justification of the Proven Factual Matter:

With regard to the proven facts, the arbitrator's conviction was based on the documentary evidence attached to the file.

3. Legal Matter:

3.1. Object and Scope of the Present Proceedings

The question to be decided in the present case is whether the property that was the subject of the stamp tax assessment, being land for construction, has residential designation and whether item 28.1 of the General Table of Stamp Tax (GSTS) applies to it.

On this same question the Supreme Administrative Court has pronounced itself, namely in the judgments of cases no. 0467/14 of 02-07-2014, no. 0676/14 of 09-07-2014, no. 0395/14 of 28-05-2014, no. 01871/13 of 14-05-2014 and no. 055/14 of 14-05-2014, no. 0425/14 of 28-05-2014, no. 0396/14 of 28-05-2014, no. 0274/14 of 14-05-2014 and no. 046/14 of 14-05-2014.

And the judgments of the CAAD rendered in cases number 53/2013-T, 49/2013-T, 42/2013-T, 180/2013-T, 75/2013-T, 215/2013-T, 240/2013-T, 310/2013-T, 284/2013-T, 151/2014-T and 202/2014-T have also pronounced themselves, among others.

3.2. Question of the Classification of Land for Construction Within the Scope of Application of Item 28.1 of the GSTS

3.2.1. Regime of Law no. 55-A/2012, of 29 October

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

28 – Ownership, usufruct or right of surface of urban properties whose property value for tax purposes recorded in the register, in accordance with the Municipal Property Tax Code (CIMI), is equal to or greater than €1,000,000 – on the property value for tax purposes used for purposes of IMI:

28.1 – Per property with residential designation – 1% (...);

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

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

f) The applicable rates are as follows:

i) Properties with residential designation assessed in accordance with the IMI Code: 0.5%;

ii) Properties with residential designation not yet assessed in accordance with the IMI Code: 0.8%;

Item 28.1 GSTS and subitems i) and ii) of subsection f) of no. 1 of article 6 of Law no. 55-A/2012 contain a concept that is not used in any other tax legislation, which is that of "property with residential designation".

Let us examine this:

3.2.2. Concept of Properties Used in the CIMI

In the CIMI, the classes of properties are enumerated in its articles 3 to 6. The concept of "property with residential designation" is not found in any of these articles.

The concept closest to the literal meaning of this expression used is that of "residential properties," which no. 2 of article 6 of the CIMI defines as encompassing "buildings or constructions" licensed for residential purposes or, in the absence of a license, that 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 GSTS with that extracted from no. 2 of article 6 of the CIMI suggests that it was not intended to use the same concept.

Nor is this concept found, with this terminology, in any other statute.

3.2.3. Concept of "Property with Residential Designation"

Item 28.1 of the GSTS stated in 2013 that "per property with residential designation – 1%".

The word "designation" (afetação), in this context of use of a property, has the meaning of "the action of assigning something to a particular use."

As stated in the judgment of the CAAD rendered in case no. 53/2013-T, in which the arbitrators were Judge Counselor Jorge Lopes de Sousa, Dr. Conceição Pinto Rosa and Dr. Alberto Amorim Pereira:

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

Land for construction is classified, and given the provisions of article 6, no. 3 of the IMI Code, as those in which the owner has acquired the right to build or to carry out subdivision operations, as well as those that have been expressly acquired for that purpose. In this sense see JOSÉ MARIA FERNANDES PIRES in Lectures on Taxes on Assets and Stamp Tax, Almedina, 2010, page 97.

It should be noted that in the classification as land for construction, the designation that future constructions may have is irrelevant, namely residential, commercial, industrial or for services.

For its part, the judgment of the Supreme Administrative Court of 09-07-2014, case no. 0676/14, in which Dulce Neto is the Rapporteur, states that "residential designation always appears in the IMI Code referred to 'buildings' or 'constructions,' existing, authorized or planned, since only these can be inhabited, which does not occur in the case of land for construction, which do not have, in themselves, conditions for this, and are not capable of being used for housing unless and when on them the construction authorized and planned for them is built (but in that case they will no longer be 'land for construction' but another class of urban properties – 'residential,' 'commercial, industrial or for services' or 'other' – article 6 of the CIMI)."

Similarly, in the judgment of the Supreme Administrative Court, of 14-05-2014, case no. 046/14, in which Ascenção Lopes is the Rapporteur, it is stated that "having the legislator not defined the concept of 'urban properties with residential designation,' and resulting from article 6 of the IMI Code – subsidiarily applicable to the Stamp Tax provided for in the new item no. 28 of the General Table – a clear distinction between 'residential urban properties' and 'land for construction,' the latter cannot be considered, for purposes of the incidence of Stamp Tax (Item 28.1 of the GSTS, as worded in Law no. 55-A/2012, of 29 October), as urban properties with residential designation."

We can thus conclude that "land for construction" cannot be considered as "property with residential designation" for purposes of application of item 28.1 of the General Table of Stamp Tax.

Prohibition of Analogy and Extensive Interpretation

One could, on the other hand, raise the question of the possibility of applying analogy to the provision contained in item 28.1 of the GSTS. Now, on this matter, no. 4 of article 11 of the General Tax Law provides as follows:

"4. Gaps resulting from tax norms covered by the reservation of law of the Assembly of the Republic are not subject to analogical integration"

As to matters covered by the reservation of law, attention should be paid to article 103, no. 2 of the CRP and article 8 of the GTL. According to these norms the principle of tax legality encompasses incidence, the rate, tax benefits and the guarantees of taxpayers. This is also referred to in the work "The Principle of Tax Legality" by Ana Paula Dourado, Almedina, 2007, page 106.

As item 28.1 GSTS is a norm of incidence, covered by the principle of tax legality, the application of analogy to situations not expressly provided therein is prohibited.

Similarly, neither will it be admissible to interpret extensively the aforementioned item in a manner that would allow land for construction to be included in the expression contained in the law. Interpretation is governed by article 11, nos. 1 to 3 of the GTL and article 9 of the Civil Code. We understand that an extensive interpretation of the aforementioned item is not possible that includes land for construction therein, since the same would always have to have a minimum correspondence in the letter of the law, which does not occur.

With regard to the historical element, the fact that item 28.1 GSTS was subsequently expressly amended, by the State Budget Law for 2014, in order to include, as of 01.01.2014, properties for construction, also permits the conclusion that these properties were not taxed in the wording in force until 31.12.2013.

Application of the Regime to the Applicant's Situation

The Applicant's property is land for construction held by a company. By what has been stated, this is not a property with residential designation, and therefore Stamp Tax provided for in item 28.1 of the GSTS does not apply to that property.

For this reason, the assessment whose declaration of illegality is requested suffers from a defect of violation of item no. 28.1 GSTS, due to error as to the legal prerequisites, which justifies the declaration of its illegality and annulment (article 135 of the CPA).

4. Decision

In view of the foregoing, it is determined that the application filed by the Applicant in the present tax arbitral proceedings is granted as to the illegality of Stamp Tax assessment no. 2014 ..., for the year 2013, in the amount of €9,436.42.

5. Value of the Case:

In accordance with the provisions of article 315, no. 2 of the CPC and 97-A, no. 1, subsection a) of the CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the action is set at €9,436.42.

6. Costs:

In accordance with article 22, no. 4 of the RJAT and Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €918.00, to be paid by the Tax Authority and Customs Authority.

Notify.

Lisbon, 28 January 2015.

Text prepared by computer, in accordance with article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by remission of article 29, no. 1, subsection e) of the Tax Arbitration Regime, with blank lines and revised by me.

The sole arbitrator,

Suzana Fernandes da Costa

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Verba 28.1 of the TGIS apply to building land (terrenos para construção) in Portugal?
No, Stamp Tax under Verba 28.1 of TGIS does not apply to building land (terrenos para construção) in Portugal. CAAD Process 626/2014-T established that building land lacks the 'residential designation' (afetação habitacional) required by Law 55-A/2012. The tax applies only to properties actually assigned to residential use, not land with mere construction potential, even when valued above €1 million.
What is the legal distinction between building land and housing-designated property for Stamp Tax purposes?
The legal distinction lies in actual use versus potential use. Building land, classified under article 6(3) of the CIMI, consists of land where the owner has construction or subdivision rights but has not yet assigned it to specific use. Housing-designated property refers to buildings or constructions licensed for or actually used for residential purposes under article 6(2) of CIMI. The term 'designation' (afetação) requires active assignment to residential use, which building land lacks.
How did CAAD Process 626/2014-T rule on the taxation of urban land valued above €1 million?
CAAD Process 626/2014-T ruled in favor of the taxpayer, annulling the Stamp Tax assessment on building land valued at €2.8 million. The tribunal followed Supreme Administrative Court precedents and previous CAAD decisions, determining that item 28.1 of TGIS does not encompass building land held by companies, as such land has not been designated for residential use and therefore falls outside the scope of taxation on 'properties with residential designation.'
Can a taxpayer challenge a Stamp Tax assessment on building land through tax arbitration at CAAD?
Yes, taxpayers can challenge Stamp Tax assessments on building land through tax arbitration at CAAD (Centro de Arbitragem Administrativa). Process 626/2014-T demonstrates this procedure: the construction company submitted an arbitration request on August 21, 2014, a sole arbitrator was appointed, the Tax Authority submitted a reply, and a final decision was rendered. Tax arbitration provides an alternative to judicial courts for resolving tax disputes efficiently.
What conditions must a property meet to be subject to Verba 28.1 of the Tabela Geral do Imposto de Selo?
To be subject to Verba 28.1 of the Tabela Geral do Imposto de Selo, a property must meet three cumulative conditions: (1) be an urban property (prédio urbano); (2) have a tax property value (valor patrimonial tributário) equal to or greater than €1,000,000 under the CIMI register; and (3) have 'residential designation' (afetação habitacional), meaning it must be actually assigned, licensed, or used for residential purposes. Building land without constructed residential buildings does not meet the third requirement.