Process: 63/2017-T

Date: June 29, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 63/2017-T) examines the application of Stamp Tax under Verba 28.1 of the General Stamp Tax Table (TGIS) to building land valued above €1,000,000. The applicant, A... SA, challenged stamp duty assessments totaling €11,640.90 for 2015 on land for construction with a Tax Patrimonial Value (VPT) of €1,164,090.00. The central dispute concerns whether land designated for hotel development rather than residential housing falls within the scope of Verba 28.1 TGIS.

The applicant argued that the assessment was defective because the land was intended for a 4-star hotel and seven single-family dwellings, not residential purposes as contemplated by the provision. Approvals from the Institute for the Management of Architectural and Archaeological Heritage and Tourism Portugal supported the hotel project. Additionally, the applicant challenged the constitutionality of Verba 28.1, alleging violations of Article 13 of the Portuguese Constitution (equality principle) and the ability-to-pay principle.

The Tax and Customs Authority (AT) countered that the land retained a residential location coefficient in property assessments, and that hotel development remained merely an intention. The AT emphasized that Verba 28.1 was introduced as an extraordinary revenue measure during fiscal austerity to tax properties demonstrating special taxpaying capacity. The Constitutional Court's precedent has consistently upheld the constitutionality of this provision.

This case highlights critical issues in Portuguese tax law regarding the interpretation of 'land for construction' under Verba 28.1, the relevance of intended use versus official property classification, and constitutional limits on wealth taxation through stamp duty. The decision provides important guidance for property owners and tax advisors dealing with high-value real estate intended for commercial rather than residential development.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. A... SA, with Tax Identification Number [1]..., with registered office at ... Street ..., ... - ... Lisbon, filed a request for arbitral pronouncement, pursuant to the provisions of paragraph a) of no. 1 of article 2, no. 1 of article 3, and paragraph a) of no. 1 of article 10, all of the Legal Framework for Tax Arbitration [2], seeking the intervention of the Tax and Customs Authority [3], with a view to assessing the legality of the stamp duty tax assessment acts relating to the year 2015, affecting the ownership of land for construction registered in the property register of the parish of ... under article ..., area of the Finance Service of the municipality of ..., in accordance with collection documents 2016... in the amount of € 3,880.30, 2016... in the amount of € 3,880.30, and 2016... in the amount of € 3,880.30, respectively, all totaling € 11,640.90.

  2. The request was filed without exercising the option to appoint an arbitrator, and was accepted by His Excellency the President of the Administrative Arbitration Center [4] and automatically notified to the Tax and Customs Authority on 18/01/2017.

  3. Pursuant to the provisions of no. 2 of article 6 of the Legal Framework for Tax Arbitration, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the legally applicable time limits, on 13/03/2017, Arlindo José Francisco was appointed as arbitrator of the tribunal, who confirmed acceptance of the appointment within the legally established time limit.

  4. The tribunal was constituted on 28/03/2017 in accordance with the provisions of paragraph c) of no. 1 of article 11 of the Legal Framework for Tax Arbitration, as amended by article 228 of Law no. 66-B/2012 of 31 December.

  5. By its request, the applicant seeks the annulment of stamp duty tax relating to the year 2015, in accordance with the collection notes previously mentioned, concerning the real property also previously identified whose Tax Patrimonial Value [5] exceeds € 1,000,000.00, provided for in item 28.1 of the General Stamp Tax Table [6].

  6. It supports its position, in summary, on the understanding that the assessment is defective due to an error concerning the prerequisites for the application of item 28 of the General Stamp Tax Table, while simultaneously violating article 13 of the Constitution of the Portuguese Republic [7].

  7. It states that for the land in question no building is authorized or envisaged for residential purposes, and that on the same, since 2011, a hotel unit and 7 single-family dwellings with a project already approved by the Institute for the Management of Architectural and Archaeological Heritage [8] and submitted to the Municipal Council of ... are envisaged.

  8. According to the technical opinion of the Municipal Council, the land has potential to be classified as urban space or cultural space, thereby eliminating the possibility of construction for residential purposes and consequently eliminating the stamp duty tax [9] provided for in item 28.1 of the General Stamp Tax Table.

  9. Furthermore, the provision of item 28.1 of the General Stamp Tax Table violates the principles of equality, taxpaying capacity, and coherence of the tax system.

  10. For its part, and also in summary, the Tax and Customs Authority considers that the applicant's arguments lack merit, insofar as the land in question was assigned residential use classification in the context of the respective assessments, and that despite the applicant alleging that it is intended for hotel construction, this is merely an intention, and since its Tax Patrimonial Value exceeds € 1,000,000.00, it meets the provision of the norm (item 28.1 of the General Stamp Tax Table) for stamp duty taxation.

  11. As to the alleged violation of the constitutional principles invoked, it considers that the applicant's arguments likewise lack merit, insofar as item 28.1 of the General Stamp Tax Table arose in an exceptional context of public finance difficulties, included among extraordinary revenue collection measures aimed at strengthening the principle of social equity in austerity and ensuring an effective distribution of burdens.

  12. It further considers that the legislator intended to tax real properties with a Tax Patrimonial Value equal to or greater than € 1,000,000.00 which in themselves demonstrate special taxpaying capacity and not the overall patrimony of each taxpayer, concluding that the Constitutional Court [10], in its most recent case law, has been proclaiming the constitutionality of said item 28.1 of the General Stamp Tax Table, as no violation of the principles of equality and taxpaying capacity is verified.

II - CASE MANAGEMENT

The tribunal was regularly constituted, the parties have legal personality and capacity, show themselves to be legitimate, and are regularly represented in accordance with articles 4 and 10, no. 2 of the Legal Framework for Tax Arbitration and article 1 of Ordinance no. 112-A/2011 of 22 March.

In its reply, the Tax and Customs Authority declared that it found no interest in holding the hearing provided for in article 18 of the Legal Framework for Tax Arbitration and confirmed the lack of necessity for the submission of oral or written pleadings.

On 05/05/2017, the tribunal issued the following order: "In the reply, the waiver of the hearing provided for in article 18 of the Legal Framework for Tax Arbitration is raised, as well as the submission of pleadings. Thus, let the applicant be notified to, within 10 days, if it so wishes, pronounce itself regarding the allegations made by the respondent."

On 26/05/2017, the following order was issued: "In view of the silence of the applicant, the tribunal considers unnecessary the hearing of article 18 of the Legal Framework for Tax Arbitration, as well as the submission of pleadings, whether oral or written, and given that the conditions are met for the issuance of the decision, fixing 27 June next for that purpose, the applicant must, by that date, provide proof to the Administrative Arbitration Center of payment of the subsequent court fee. Notify."

Therefore, as the proceedings are not affected by any nullities, it is appropriate to decide.

III - REASONING

1 – The issues to be resolved with relevance to this case are as follows:

a) To assess whether the stamp duty tax assessment act in question is unlawful due to violation of ordinary law.

b) To also assess whether the same act violates the Constitution of the Portuguese Republic.

2 - Factual Matter

a) The applicant, on 31/12/2015, was the owner of the urban real property "land for construction", registered in the property register under article ... of the parish and municipality of....

b) The Tax Patrimonial Value of the property in question is € 1,164,090.00, on which stamp duty fell in the total amount of € 11,640.90, divided into three installments, in accordance with collection notes 2016... of € 3,880.30, 2016... of € 3,880.30, and 2016... of € 3,880.30.

c) In the property record, in the item "property description" it states: Type of property: land for construction; Description: plot of land for construction. In the Assessment Data item it states: Percentage for calculation of the building area: 24.00%; Type of location coefficient: residential. On 28 April 2014, the applicant was notified by the Institute for the Management of Architectural and Archaeological Heritage of the approval of the 4-star hotel project.

d) On 25/06/2014, a favorable opinion was issued for the construction of the hotel by Tourism Portugal, in accordance with the order of the same date from the Coordinating Director of Development and Supply Enhancement.

e) According to the technical opinion of the Municipal Council of..., the land in question has potential to be classified as Urban Space or Cultural Space, with no building authorized or envisaged on the same for residential purposes.

The facts described are proven by documents attached to the case file and are considered relevant for the assessment of the merits of the case.

3 – Legal Matter

3.1 – Assessment whether the stamp duty tax assessment act in question is unlawful due to violation of ordinary law.

Let us examine what item 28 of the General Stamp Tax Table states in the wording given to it by Law 83-C/2013 of 31 December: "28 – Ownership, usufruct, or right of surface of urban real properties whose patrimonial value contained in the register, in accordance with the Code of the Municipal Tax on Real Property (CMRP), is equal to or greater than € 1,000,000.00 – on the tax patrimonial value used for purposes of the Municipal Tax on Real Property:

28.1 – For residential real property or for land for construction whose authorized or envisaged building is for residential purposes, in accordance with the provisions of the Code of the Municipal Tax on Real Property... 1%..."

For the tribunal it is clear that the law requires that there is ownership, usufruct, or right of surface, that the Tax Patrimonial Value is equal to or greater than € 1,000,000.00, and in the case of land for construction, there is authorized or envisaged building and the same is intended for residential purposes.

From the documents submitted by the applicant, it is verified that on the land for construction no building is authorized, nor is any envisaged whose destination is residential. There is a favorable opinion from the Institute for the Management of Architectural and Archaeological Heritage and from Tourism Portugal for the construction of a 4-star hotel unit. The Municipal Council of..., in its technical opinion communicated to the applicant, considers that the land in question has potential to be classified as Urban Space or Cultural Space.

From the applicant's perspective, item 28 of the General Stamp Tax Table will only apply to land for construction when the building to be implemented thereon is authorized or envisaged and is intended for residential purposes.

Conversely, the respondent understands that it applies to land for construction that in the respective assessment has been assigned residential use classification.

For the tribunal it is clear that for the land in question in the present case, no building is authorized nor envisaged with residential use classification, as is concluded from the documents issued by the official entities involved in the proceedings. In the property record itself, its description is limited to "land for construction" without specifying its intended use; it was assigned the residential use coefficient only in the respective assessment, which, in the opinion of this tribunal, is contradicted by the official entities that have the responsibility for deciding on the buildings to be carried out thereon.

Thus, we consider that the prerequisites for taxation contained in the provision of item 28 of the General Stamp Tax Table are not satisfied, whereby the taxation placed in issue here is unlawful and as such should be annulled, such that the applicant's understanding regarding the violation of ordinary law is well-founded.

3.2 – Assessment whether the stamp duty tax assessment act in question violates the Constitution of the Portuguese Republic

Taking into account the understanding expressed in point 3.1, we consider it unnecessary to rule on the allegations of the applicant regarding this matter.

IV DECISION

Given the foregoing, the tribunal decides as follows:

a) To declare the request for arbitral pronouncement entirely well-founded with the consequent annulment of the stamp duty tax assessment act relating to the year 2015 in the total amount of € 11,640.90.

b) To fix the value of the case at € 11,640.90 in accordance with the provisions of article 299, no. 1, of the Civil Procedure Code [11], article 97-A of the Tax Procedure and Process Code [12], and article 3, no. 2, of the Rules for Costs in Tax Arbitration Proceedings [13].

c) To fix the costs, pursuant to no. 4 of article 22 of the Legal Framework for Tax Arbitration, in the amount of € 918.00 in accordance with the provisions of Table I referred to in article 4 of the Rules for Costs in Tax Arbitration Proceedings, which shall be borne by the respondent.

Notify.

Lisbon, 29 June 2017

Text prepared by computer, in accordance with article 131, no. 5 of the Civil Procedure Code, applicable by reference from article 29, no. 1, paragraph e) of the Legal Framework for Tax Arbitration, with blank lines and reviewed by the tribunal.

The Arbitrator

Arlindo José Francisco

[1] Acronym for Tax Identification Number of a Legal Person
[2] Acronym for Legal Framework for Tax Arbitration
[3] Acronym for Tax and Customs Authority
[4] Acronym for Administrative Arbitration Center
[5] Acronym for Tax Patrimonial Value
[6] Acronym for General Stamp Tax Table
[7] Acronym for Constitution of the Portuguese Republic
[8] Acronym for Institute for the Management of Architectural and Archaeological Heritage
[9] Acronym for Stamp Duty Tax
[10] Acronym for Constitutional Court
[11] Acronym for Civil Procedure Code
[12] Acronym for Tax Procedure and Process Code
[13] Acronym for Rules for Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

Does Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS apply to building land (terrenos para construção) with a tax value exceeding €1,000,000?
Yes, Verba 28.1 of the TGIS applies to building land (terrenos para construção) with a Tax Patrimonial Value (VPT) equal to or exceeding €1,000,000. The provision was introduced as an extraordinary revenue measure and taxes properties demonstrating special taxpaying capacity regardless of whether they are developed or undeveloped land. The key factor is the VPT threshold and the property's classification in official records, not solely its intended future use.
Can a property owner challenge Stamp Tax assessments on land not designated for residential housing under Verba 28.1 of the TGIS?
Yes, property owners can challenge Stamp Tax assessments under Verba 28.1 through CAAD tax arbitration proceedings under the RJAT (Legal Framework for Tax Arbitration). Grounds for challenge include arguing that the property does not meet the legal requirements for taxation (e.g., disputing property classification or intended use), or alleging constitutional violations such as breach of equality principles under Article 13 CRP. However, success depends on demonstrating that the property's official classification or the tax provision itself violates legal or constitutional norms, not merely showing a different intended use.
Does applying Verba 28.1 of the TGIS to building land violate the constitutional principle of equality (Article 13 CRP) and ability-to-pay principle?
According to the Tax Authority and Constitutional Court precedent cited in this case, applying Verba 28.1 to building land does not violate constitutional principles. The provision was enacted during exceptional fiscal circumstances to ensure equitable burden distribution. The tax targets properties with high VPT that inherently demonstrate special taxpaying capacity, rather than the taxpayer's overall wealth. The Constitutional Court has consistently ruled that Verba 28.1 does not breach equality or ability-to-pay principles, as it applies uniformly to all properties meeting the VPT threshold regardless of owner characteristics.
What is the CAAD arbitral procedure for contesting Stamp Tax (Imposto do Selo) liquidation acts under the RJAT?
The CAAD arbitral procedure under RJAT for contesting Stamp Tax liquidation acts involves: (1) filing a request for arbitral pronouncement under Articles 2(1)(a), 3(1), and 10(1)(a) RJAT; (2) notification to the Tax Authority; (3) appointment of an arbitrator by the President of the Deontological Council if parties don't agree; (4) constitution of the arbitral tribunal; (5) exchange of submissions (request and reply); (6) optional hearing under Article 18 RJAT; (7) issuance of arbitral decision. The applicant must prove payment of court fees. The procedure provides an alternative to judicial appeals for tax assessment challenges.
How does the property's intended use (hotel vs. housing) affect Stamp Tax liability under Verba 28.1 of the TGIS?
Under Verba 28.1 TGIS, the property's intended use (hotel versus housing) has limited effect if the official property classification indicates residential potential. In this case, despite approved hotel project plans, the land retained a 'residential location coefficient' in property assessments. The Tax Authority argued that hotel development was merely an 'intention' while the official classification governed tax liability. The decisive factors are the VPT threshold (€1M+) and the property's formal classification in tax records, not necessarily the owner's stated intentions or pending development projects, though municipal opinions on permitted uses may be considered.