Process: 632/2014-T

Date: March 19, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 632/2014-T) addresses whether building plots (terrenos para construção) are subject to Stamp Tax under item 28.1 of the General Table of Stamp Duty (TGIS), as amended by Law 55-A/2012. The dispute arose when A... SA was assessed €3,676.37 in stamp duty on its 26% ownership share of a building plot in Funchal with a tax property value exceeding €1,000,000. The Tax Authority argued that building plots constitute real property with residential use because Article 41 of the Municipal Property Tax Code (CIMI) applies a residential use coefficient when determining their tax property value. The claimant contended that building plots cannot be classified as property with residential allocation, arguing that authorization to construct residential property does not alter the land's current tax destination. After an unsuccessful administrative review (reclamação graciosa), the taxpayer initiated arbitration proceedings at CAAD, seeking annulment of the stamp duty assessment, the related tax enforcement proceedings, and reimbursement of €495.00 in notarial expenses for establishing a voluntary mortgage as security. The case examines the distinction between property intended for housing use versus land merely designated for future construction, raising constitutional concerns about extensive tax interpretations. The tribunal was properly constituted under the Legal Regime for Tax Arbitration, with both parties agreeing that witness testimony was unnecessary as the issues were purely legal matters requiring documentary evidence already in the record.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. A… SA, with registered office at …, municipality of Vila Verde, with the Personal/Corporate Identification Number [1] …, filed a request for the constitution of an arbitral tribunal, 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 Regime for Tax Arbitration [2], with the Tax Authority [3] being summoned, for the purposes of annulling a tax collection act relating to stamp duty on the property of a real estate property registered in the land registry under urban article no. … of the parish of Santo António in Funchal, concerning a plot of land for construction, in accordance with collection document 2013 … in the amount of € 3,676.37, duly notified, against which the claimant submitted a proper administrative review request which was dismissed, with notification to the claimant on 02/06/2014, and not accepting the taxation as manifestly unlawful, filed the present request.

  2. The request was filed without exercising the option to designate an arbitrator, and was accepted by the esteemed President of the Administrative Arbitration Centre [4] and automatically notified to the Tax Authority on 28/08/2014.

  3. Pursuant to the provisions of no. 2 of Article 6 of the Legal Regime for Tax Arbitration, by decision of the esteemed President of the Deontological Council, duly communicated to the parties within the legally applicable time limits, on 10/10/2014, Arlindo José Francisco was appointed as arbitrator of the tribunal, who communicated acceptance of the appointment within the legally prescribed period.

  4. The tribunal was constituted on 19/11/2014 in accordance with the provisions contained in paragraph c) of no. 1 of Article 11 of the Legal Regime for Tax Arbitration, as amended by Article 228 of Law no. 66-B/2012, of 31 December.

  5. With its request, the claimant seeks the annulment of the stamp duty assessment act in question and of the Fiscal Execution Process initiated and of the other subsequent acts, on the grounds that it is unlawful, as it violates Article 1 of the Stamp Duty Code [6] and item 28.1 of the General Table of Stamp Duty [7], as amended by Law 55-A/2012 of 29 October.

  6. It supports its position, in summary, on the grounds that plots of land for construction can in no way be considered real property with residential use, and such interpretation would be unconstitutional due to violation of principles embodied in the Portuguese Constitution [8].

  7. Should the request be deemed well-founded, the tribunal is asked to declare the claimant's right to compensation in the amount of € 495.00 relating to expenses with a voluntary mortgage, duly substantiated, plus costs.

  8. In its response, the respondent considers that item 28 of the General Table of Stamp Duty as amended by Law 55-A/2012 determines the taxation of plots of land for construction, since these have the legal nature of real property with residential use, considering that in determining their Tax Property Value [9] the residential use coefficient is taken into account, as provided in Article 41 of the Municipal Property Tax Code [10], citing Court of Appeal ruling no. 04950/11 of 14/02/2012 of the Central Administrative Court [11] of the South.

  9. That the legislator does not speak of properties intended for housing, but of residential use, an expression that is much broader, with a view to integrating other realities beyond those identified in Article 6, no. 1, paragraph a) of the Municipal Property Tax Code.

  10. From this perspective, it considers that the assessment in question should be upheld as it constitutes a correct interpretation and application of law to the facts, and is not in violation of the Law, whether the General Tax Law or the Stamp Duty Code, and therefore the claimant's claim should be deemed unfounded and the respondent absolved of the request.

II - PRELIMINARY MATTERS

The tribunal was properly constituted and is competent ratione materiae, in accordance with Article 2 of the Legal Regime for Tax Arbitration.

The parties have legal personality and capacity, are legitimate and are properly represented in accordance with Articles 4 and 10, no. 2 of the Legal Regime for Tax Arbitration and Article 1 of Ordinance no. 112-A/2011, of 22 March.

The respondent in its response considered the production of any witness testimony unnecessary, as the facts are documentarily proven in the proceedings and what is at issue are matters of law, a position that met with the agreement of the claimant.

The tribunal deemed, without opposition from the parties, the hearing referred to in Article 18 of the Legal Regime for Tax Arbitration unnecessary, as well as the production of written or oral submissions, and, as the proceedings contain no nullities and no issues have been raised that prevent consideration of the merits of the case, the tribunal shall proceed to decide.

III - REASONING

1 – The issues to be resolved, of interest to the proceedings, are as follows:

a) Whether plots of land for construction, to which the residential use coefficient was applied in determining their Tax Property Value and for which a value equal to or greater than € 1,000,000.00 was calculated, fall within the scope of Stamp Duty as provided in item 28 of the General Table of Stamp Duty, as amended by Law no. 55-A/2012, of 29 October.

b) If in the negative, whether the Stamp Duty assessment in the present proceedings should be annulled as being tainted by illegality.

c) If consequently, there is a basis for annulment of the Fiscal Execution Process and the consequent compensation of expenses incurred of € 495.00, for the constitution of a voluntary mortgage, plus costs of representation due to unwarranted security.

2 – Factual Matter

The factual matter considered relevant and proven on the basis of documents attached to the proceedings is as follows:

a) The claimant was, in the year 2012, co-owner (26%) of a plot of land for construction registered, at that time, in the urban land registry of the parish of Santo António, municipality of Funchal, under article no. …

b) She was notified to proceed with payment of the Stamp Duty here in question (€ 3,676.37) which corresponds to her share of ownership.

c) Against such assessment she submitted an administrative review request which was dismissed.

d) As she did not make payment within the voluntary payment period, a Fiscal Execution Process was initiated ….

e) With a view to obtaining a certificate of no debt, she provided adequate security in the Fiscal Execution Process in question, by means of a voluntary mortgage, which incurred notarial and registration expenses in the total amount of € 495.00.

3 – Matters of Law

3.1 - Regarding Stamp Duty:

a) The claimant, in its request for arbitral pronouncement, considers, in the first place and in summary, the inapplicability of item 28 of the General Table of Stamp Duty, as amended by Law 55-A/2012 of 29 October, to plots of land for construction.

b) It sustains that plots of land for construction cannot be considered real property with residential use, relying on the provisions contained in Article 1 no. 1 of the Stamp Duty Code and in item 28 of the General Table of Stamp Duty, as amended by Law 55-A/2012, already referred to.

c) The fact that construction of property intended for housing is authorized on a given plot of land does not, for tax purposes, determine any alteration to its destination.

d) It refers to decisions already handed down both by the arbitral tribunal and by administrative courts, to conclude that, just as in the corresponding expert decisions, plots of land for construction cannot be considered urban real property with residential use.

e) It also points out that the legislator itself had this understanding, in coming to establish the taxation in Stamp Duty of plots of land for construction, through Article 194 of Law 83-C/2013 of 31 December, altering the wording of item 28.1 of the General Table of Stamp Duty, as it had been given by Law 55-A/2012 of 29 October.

f) For its part, the respondent considers that plots of land for construction have the legal nature of real property with "residential use" since in determining their Tax Property Value the residential use coefficient is taken into account, as provided in Article 41 of the Municipal Property Tax Code, and cites in this respect the Court of Appeal ruling 04950/11 of 14/02/2012 of the Central Administrative Court South, which considers that the valuation regime for the Tax Property Value of plots of land for construction is enshrined in Article 45 of the Municipal Property Tax Code, being the same as that of constructed buildings, although starting from the building to be constructed, based on the project.

g) It understands that the expression "residential use" of item 28 of the General Table of Stamp Duty calls for a classification that overlays the types of urban real property provided for in no. 1 of Article 6 of the Municipal Property Tax Code, and that the legislator in using it intended to integrate other realities beyond those mentioned in the Municipal Property Tax Code provision, concluding that the assessments in question should be upheld and the Tax Authority absolved of the request.

h) Having summarized the positions of the claimant and the respondent, we proceed below to an analysis of the norm of incidence of Stamp Duty on urban real property with residential use.

i) Item 28 of the General Table of Stamp Duty, as amended by Law no. 55-A/2012, subjects to Stamp Duty urban real property with residential use whose Tax Property Value, determined in accordance with the Municipal Property Tax Code, is equal to or greater than € 1,000,000.00.

j) The Stamp Duty Code refers to the Municipal Property Tax Code for regulation of the concept of property and of matters not regulated regarding item 28 of the General Table of Stamp Duty (see no. 6 of Article 1 and no. 2 of Article 67 both of the Stamp Duty Code).

k) If we examine Article 6 of the Municipal Property Tax Code, it is established therein that urban real property is divided into residential, commercial, industrial or service properties, plots of land for construction, and others.

l) From its no. 2 it follows that urban residential real property "are buildings or constructions licensed for such purpose or in the absence of a license, which are intended for such purpose" and its no. 3 tells us that plots of land for construction "are those situated within or outside an urban area, for which authorization for subdivision or construction operation has been granted, and also those that have been declared as such in the title of acquisition…"

m) From these concepts we can already conclude the existence of autonomy between urban real property "residential" and urban real property "plots of land for construction."

n) The legislator of Stamp Duty, in establishing the taxation of urban real property "with residential use," did not specify the concept, and therefore we must, by virtue of the referral, go to the Municipal Property Tax Code, and this, as already seen, makes them autonomous, in relation to plots of land for construction.

o) The expression "residential use" is in no way evident in plots of land for construction, nor can it, as the respondent claims, be understood as an expression integrating other realities.

p) We agree with the position advocated in proceedings 49/2013 which is transcribed: "The expression 'with residential use' conveys, in a simple reading, an idea of actual and present functionality. From the norm in question it is not possible to extract, by interpretation, that, as stated in the respondent's response, the legislator's choice of that expression is aimed at integrating 'other realities beyond those identified in Article 6, no. 1, paragraph a) of the Municipal Property Tax Code.' Such interpretation has no legal support, given the principles contained in Articles 9 of the Civil Code and 11 of the General Tax Law. Indeed, if the legislator intended to encompass within the scope of incidence of the tax other realities than those resulting from the classification governed by Article 6 of the Municipal Property Tax Code, it would have said so expressly. But it does not, instead referring, in bulk, to the concepts and procedures provided for in the said Code. On the other hand, the respondent's understanding that the concept of 'residential use' derives from the provision of Article 45 of the Municipal Property Tax Code cannot be accepted. This article refers to the rules applicable in determining the Tax Property Value of plots of land for construction, establishing that this is the value resulting from the value of the building footprint area to be constructed plus the land adjacent to the footprint. In fixing the value of that area a percentage is considered varying between 15% and 45% of the value of authorized or planned buildings. According to the respondent, in fixing the value of the buildings authorized or planned on the land being evaluated, the coefficients applicable in determining the Tax Property Value are used, namely the use coefficient provided for in Article 1 of that Code. Concluding therefrom that the consideration of such a coefficient, dependent on the type of use envisaged for the property to be built on the land, will be determinative for purposes of application of Item 28 of the General Table of Stamp Duty. This conclusion is supported on the assumption that the expression 'real property with residential use' calls for a classification that overlays the types provided for in no. 1 of Article 6 of the Municipal Property Tax Code. It is not possible, however, to support such a conclusion. [...]. In these terms, resulting from Article 6 of the Municipal Property Tax Code a clear distinction between urban real property "residential" and "plots of land for construction," these cannot be considered, for purposes of the incidence of Stamp Duty, as "real property with residential use."

q) The legislator in seeking to tax in Stamp Duty plots of land for construction revisited item 28 of the General Table of Stamp Duty, through Law no. 83-C/2013, of 31 December, and introduced them therein, which proves that in the formulation of Law no. 55-A/2012, plots of land for construction were excluded from Stamp Duty taxation by item 28 of the General Table of Stamp Duty and now, through Law no. 83-C/2013, they have become taxable, which is why it seems clear to us that the legislator considers that the expression "residential use" did not include plots of land for construction.

r) Nor should it be said that the fact that Article 45 of the Municipal Property Tax Code provides for the application of a residential use coefficient in determining the Tax Property Value of plots of land for construction will be a sufficient condition, in itself, to allow their inclusion in the norm of incidence of item 28 as amended by Law no. 55-A/2012, nor yet to alter their nature as a plot of land for construction, given that what is at issue here is only to ascertain the Tax Property Value which will be influenced by the type of buildings to be carried out (which, it may be said, are not always materialized).

s) The Court of Appeal ruling 04950/11 of 14/02/2012 of the Central Administrative Court South cited by the Tax Authority, which considers that the valuation regime for the Tax Property Value of plots of land for construction is enshrined in Article 45 of the Municipal Property Tax Code, being the same as that of constructed buildings, although starting from the building to be constructed, based on the project, is a finding that is confined to determining the Tax Property Value and nothing more than that.

t) Now, as already seen, it follows from Article 6 of the Municipal Property Tax Code a clear distinction between residential real property and plots of land for construction, which prevents these from being taxed in Stamp Duty in the manner sought by the respondent.

u) In this sense, several arbitral decisions have already been handed down, namely proceedings 42, 48, 49, and 75, all of 2013, and by the Supreme Administrative Court [13].

v) The taxation here in question only occurred due to an error attributable to the Tax Authority services, since item 28 of the General Table of Stamp Duty, as amended by Law 55-A/2012, did not permit Stamp Duty taxation of plots of land for construction, and therefore should be annulled with all legal consequences arising therefrom.

3.2 – Regarding Extinction of the Fiscal Execution Process

The fiscal execution process shall be extinguished ex officio pursuant to the provisions of Article 270 of the Code of Tax Procedure and Process [14], whenever there is annulment of the debt, and therefore no declaration by the tribunal is necessary for such purpose.

3.3 - Recognition of the Right to Compensation for the Amount of € 495.00 for Expenses Due to Unwarranted Security

a) As the illegality of the debt is declared and the consequent annulment occurs, the Tax Authority is obliged to restore the situation that would have existed if the annulled act had not been carried out, in accordance with the provisions contained in Article 100 of the General Tax Law [15].

b) However, the expenses in question occurred within the scope of a Fiscal Execution Process, with a view to its suspension and passage to a certificate of no debt.

c) In addition to the voluntary mortgage there are other means of security that would have the same effect, namely attachment or legal mortgage.

d) Without prejudice to admitting that the claimant incurred a cost to suspend the Fiscal Execution Process in question, initiated due to a manifestly unlawful debt, the tribunal considers that the restitution of such values (€ 495.00) should be questioned within the scope of the respective Fiscal Execution Process, in accordance with the provision of no. 2 of Article 103 of the General Tax Law, and not in the present proceedings.

IV – DECISION

In view of the foregoing, the tribunal decides as follows:

a) To declare that plots of land for construction are excluded from Stamp Duty taxation provided for in item 28.1 of the General Table of Stamp Duty, as amended by Law 55-A/2012 of 29 October.

b) Consequently, to declare the request for arbitral pronouncement well-founded, as there was an error attributable to the services of the Tax Authority, annulling the Stamp Duty assessment acts relating to the year 2012 in the amount of € 3,676.37, with all legal consequences arising therefrom, as the assessment in question manifestly violates the said norm of incidence.

c) As regards the request for restitution of the amount of € 495.00 relating to expenses with the constitution of a voluntary mortgage, this should be questioned within the scope of the Fiscal Execution Process, in accordance with Article 103 no. 2 of the General Tax Law.

d) To forego consideration of any possible unconstitutionality of the taxation in question here.

e) To fix the value of the proceedings at € 4,171.37 in accordance with the provisions contained in Article 299, no. 1, of the Civil Procedure Code [16], Article 97-A of the Code of Tax Procedure and Process, and Article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings [17].

f) To fix the costs, pursuant to no. 4 of Article 22 of the Legal Regime for Tax Arbitration, at the total amount of € 612.00 in accordance with the provisions of Table I referred to in Article 4 of the Regulation of Costs in Tax Arbitration Proceedings, being € 72.62 at the cost of the claimant and € 539.38 at the cost of the respondent, apportioned proportionally to their respective losses.

Notify.

Lisbon, 19 March 2015

Text prepared by computer, in accordance with Article 131, no. 5 of the Civil Procedure Code, applicable by referral of Article 29, no. 1, paragraph e) of the Legal Regime for Tax Arbitration, with blank verses and reviewed by the tribunal.

The drafting of this decision is governed by the orthography prior to the orthographic agreement.

The Arbitrator

Arlindo José Francisco

[1] Acronym for Personal/Corporate Identification Number
[2] Acronym for Legal Regime for Tax Arbitration
[3] Acronym for Tax Authority and Customs Authority
[4] Acronym for Administrative Arbitration Centre
[5] Acronym for Fiscal Execution Process
[6] Acronym for Stamp Duty Code
[7] Acronym for General Table of Stamp Duty
[8] Acronym for Portuguese Constitution
[9] Acronym for Tax Property Value
[10] Acronym for Municipal Property Tax Code
[11] Acronym for Central Administrative Court
[12] Acronym for Stamp Duty
[13] Acronym for Supreme Administrative Court
[14] Acronym for Code of Tax Procedure and Process
[15] Acronym for General Tax Law
[16] Acronym for Civil Procedure Code
[17] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

Is land for construction subject to Stamp Tax (Imposto do Selo) under Verba 28 of the TGIS in Portugal?
Under Portuguese law, whether building plots are subject to Stamp Tax under item 28 of the TGIS is contested. The Tax Authority argues that building plots with a tax property value equal to or exceeding €1,000,000 fall within item 28.1 as amended by Law 55-A/2012, because they are considered real property with residential use when the residential use coefficient under Article 41 of CIMI is applied in calculating their tax property value. However, taxpayers argue that building plots cannot be classified as property with residential allocation since they are not yet constructed for housing purposes, and the mere authorization to build residential property does not alter their current legal status for tax purposes. This interpretation dispute has led to numerous CAAD arbitration cases.
Can land for construction be classified as property with housing allocation (afectação habitacional) for Stamp Tax purposes?
The classification of building plots as property with housing allocation (afetação habitacional) is disputed in Portuguese tax law. The Tax Authority maintains that building plots have residential use character because Article 41 of the Municipal Property Tax Code applies a residential use coefficient when determining their tax property value (VPT). The Authority argues that the legislator used the broader term 'residential use' rather than 'property intended for housing' to encompass realities beyond those strictly defined in Article 6(1)(a) of CIMI. Conversely, taxpayers argue that residential allocation requires actual use for housing purposes, not merely potential future use, and that applying item 28 of the TGIS to undeveloped land exceeds the legal scope of the stamp duty provisions and may violate constitutional principles of tax legality and certainty.
What are the grounds for challenging a Stamp Tax assessment on land for construction at CAAD?
To challenge a Stamp Tax assessment on building plots at CAAD, taxpayers must first exhaust the administrative review process by filing a reclamação graciosa with the Tax Authority. If this administrative complaint is dismissed, taxpayers can then file an arbitration request at the Administrative Arbitration Centre (CAAD) under Article 2(1)(a) and Article 10(1)(a) of the Legal Regime for Tax Arbitration (RJAT). The grounds for challenge typically include: (1) arguing that building plots do not constitute real property with residential use under Article 1 of the Stamp Duty Code and item 28 of the TGIS; (2) contending that the assessment violates the principle of tax legality; (3) claiming the interpretation is unconstitutional; and (4) demonstrating that the land's current status as undeveloped does not warrant residential use taxation. The arbitration request should seek annulment of the stamp duty assessment and any subsequent enforcement proceedings.
How does the housing allocation coefficient under Article 41 of CIMI affect Stamp Tax liability on building plots?
The housing allocation coefficient under Article 41 of CIMI plays a central role in the Tax Authority's position on Stamp Tax liability for building plots. When calculating the tax property value (VPT) of a building plot, Article 41 of CIMI applies a residential use coefficient (coeficiente de afetação) to determine the property's taxable value for municipal property tax purposes. The Tax Authority argues that this application of the residential coefficient demonstrates that the land has residential use character, thereby bringing it within the scope of item 28 of the TGIS for properties with tax values equal to or exceeding €1,000,000. However, taxpayers contest this reasoning, arguing that the use of a residential coefficient for VPT calculation purposes under CIMI does not automatically transform undeveloped land into property with residential allocation for Stamp Tax purposes under a different tax code, as these are distinct legal regimes with different objectives and definitions.
What is the procedure for filing an arbitration request at CAAD after an unsuccessful gracious complaint (reclamação graciosa)?
The procedure for filing an arbitration request at CAAD after an unsuccessful gracious complaint involves several steps. First, the taxpayer must file a reclamação graciosa (administrative review request) with the Tax Authority challenging the stamp duty assessment. After receiving notification of the dismissal decision (as occurred on 02/06/2014 in this case), the taxpayer can file an arbitration request with CAAD pursuant to Articles 2, 3, and 10 of the Legal Regime for Tax Arbitration. The taxpayer may choose to designate an arbitrator or allow automatic appointment by the President of the Deontological Council. Once accepted by the President of the Administrative Arbitration Centre, the request is automatically notified to the Tax Authority. The arbitral tribunal is then constituted according to Article 11 of RJAT (constituted on 19/11/2014 in this case). The arbitration request should clearly identify the contested act, the legal grounds for annulment, and any claims for compensation (such as expenses for providing security in enforcement proceedings).