Process: 679/2014-T

Date: February 28, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitration case (CAAD 679/2014-T) addresses whether construction land (terrenos para construção) is subject to stamp duty under Item 28.1 of the General Stamp Duty Table (TGIS), as amended by Law 55-A/2012. The taxpayer, a property owner, challenged stamp duty assessments totaling €63,877.60 for years 2012 and 2013 on urban land registered for construction purposes with no existing buildings. The core dispute centers on whether construction land qualifies as 'real property with residential use' under the stamp duty framework. The claimant argued that construction land cannot be considered residential property, asserting the Tax Authority's interpretation violated Article 1 of the Stamp Duty Code (CSD) and Item 28 of TGIS. The taxpayer contended there was an error in factual premises, as undeveloped land intended for future construction lacks residential character. The Tax Authority defended the assessments, arguing that Item 28 applies because construction land has the legal nature of residential property. The AT's position relied on the fact that when determining the property's tax patrimonial value (VPT), the residential coefficient under Article 41 of the Property Tax Code (CIMI) is applied. The AT distinguished between 'residential use' (a broader concept) and 'property intended for residential use,' suggesting the legislative intent was to capture land designated for residential development. The arbitral tribunal was constituted as a collective panel under CAAD procedures, with the case proceeding without oral hearing as no disputed factual issues required discussion. The legal questions focused on: (1) whether construction land falls within Item 28's scope when residential coefficients apply to its valuation and value exceeds €1,000,000; (2) grounds for annulment of the assessments; and (3) entitlement to restitution with compensatory interest if assessments are deemed unlawful. This case represents significant jurisprudence on the interpretation of stamp duty provisions affecting high-value development land.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 679/2014-T

I – REPORT

  1. A… – … Ltd., with registered office at Rua …, no. …- … – …, municipality of Sintra NPIC[1] …, filed a petition for constitution of the arbitral tribunal, pursuant to the provisions of subparagraph a) of no. 1 of article 2, of no. 1 of article 3, and of subparagraph a) of no. 1 of article 10, all of the LJAT[2], with the Tax and Customs Authority ("AT")[3] being the respondent, seeking the annulment of the tax assessment act imposing stamp duty on the ownership of a real property registered in the property register under urban article no. … of the parish and municipality of ..., relating to land for construction, in accordance with assessment notes nos. 2013 …, 2013 … and 2013 … relating to 2012 and 2014 … and 2014 … relating to the year 2013, in the total amount of €63,877.60, duly notified to the claimant who, not accepting such tax acts, filed the appropriate administrative complaints requesting their annulment.

  2. The petition for constitution of the arbitral tribunal was filed without exercising the option to designate an arbitrator, being accepted by the Honorable President of CAAD[4] and automatically notified to AT on 19/09/2014.

  3. Pursuant to the provisions of no. 2 of article 6 of the LJAT, by decision of the Honorable President of the Ethics Council, duly communicated to the parties within the legally applicable time periods, on 31/10/2014, the arbitrators of the collective tribunal were designated: the Honorable Counselor Jorge Lino Ribeiro Alves de Sousa (President) and Dr. Jorge Carita and Dr. Arlindo José Francisco (arbitrators), who communicated their acceptance of the appointment within the legally established time period.

  4. The tribunal was constituted on 25/11/2014 in accordance with the provisions contained in subparagraph c) of no. 1 of article 11 of the LJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December.

  5. By its petition, the claimant seeks the annulment of the assessment acts in question, as well as the express dismissal order of the Director of Finance of Faro of 16/06/2014 regarding the administrative complaint of the assessment acts relating to 2012, the implicit dismissal of the administrative complaint filed regarding the acts of 2013, and the recognition of its right to reimbursement of the amounts unduly paid plus compensatory interest, on the grounds that the assessment acts in question violate item 28.1 of the GTSD[10], in the wording in force at the date of the facts subject to taxation.

  6. It supports its position, in summary, by considering such acts to violate article 1 of the CSD and the aforementioned item 28.1, contending that land for construction in no way can be considered real property with residential use, there being an error in the factual premises in the AT's procedure.

  7. In its response, the respondent contends that item 28 of the GTSD in the wording of Law 55-A/2012 determines the taxation of land for construction, given that such property has the legal nature of real property with residential use, considering that in determining its TPV[5] the residential use coefficient provided for in article 41 of the MIPT[6] is taken into account.

  8. That the legislator does not speak of real property intended for residential use, but of residential use, an expression far broader, intended to integrate other realities beyond those identified in article 6, no. 1, subparagraph a) of the MIPT.

  9. From this perspective, it considers that the challenged assessments should be upheld because they represent a correct interpretation and application of law to the facts, not violating the Law, whether the CRP[7] or the CSD[8].

II - PROCEDURAL MATTERS

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

The parties have legal personality and capacity, are legitimate, and are regularly represented in accordance with articles 4 and 10, no. 2 of the LJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

On 12/01/2015, the tribunal, considering that no issues susceptible to discussion had been raised at the hearing referred to in article 18 of the LJAT, and on the other hand, considering that it contained the factual elements necessary to decide on the law, dispensed with holding the hearing, setting the date of the decision for 28 February 2015.

On 04/02/2015, by order of the President of the Ethics Council, due to health reasons, Counselor Jorge Lino Alves de Sousa was replaced by Counselor Jorge Manuel Lopes de Sousa who assumed the presidency.

The substitution was duly notified to all parties to the proceedings, who raised no objections.

Thus, the proceedings do not suffer from any nullities and no issues have been raised that prevent the examination of the merits of the case; it is appropriate to decide.

III - GROUNDS

  1. The questions to be resolved, of interest to the record, are as follows:

a) Whether land for construction, to which the residential use coefficient was applied in determining its TPV and a value equal to or exceeding €1,000,000.00 was determined, falls within the scope of stamp duty ("IS")[9] taxation provided for in item 28 of the GTSD[10], added by Law no. 55-A/2012, of 29 October.

b) If the answer is negative, whether the stamp duty assessments at issue in the present proceedings should be annulled and, consequently, all administrative acts that followed and were related to them.

c) And if annulment occurs, whether restitution of the unduly paid amounts plus compensatory interest shall be ordered.

2 – Factual Matters

The relevant factual matter proven on the basis of the evidence in the record is as follows:

a) The claimant is the owner of the land for construction registered in the urban property register of the parish and municipality of ..., under article ….

b) On the said land there is no construction of any kind.

c) The Tax and Customs Authority issued, with respect to that land and based on item 28.1 of the GTSD, a stamp duty assessment for the year 2012, in the total amount of €31,938.80, referred to in the payment documents in three installments nos. 2013 …, 2013 … and 2013 …, dated 22-03-2013, attached to the petition for arbitration, whose contents are deemed reproduced;

d) The Tax and Customs Authority issued, with respect to that land and based on item 28.1 of the GTSD, a stamp duty assessment for the year 2013, in the total amount of €31,938.80, referred to in the payment documents in installments nos. 2014 … and 2014 …, attached to the petition for arbitration, whose contents are deemed reproduced;

e) The claimant did not make voluntary payment of the stamp duty and enforcement proceedings were initiated against it for coercive collection.

f) Regarding the enforcement proceedings ("PEF")[11] relating to the 2012 tax, a request for installment payment was made which was granted, and the claimant provided evidence of compliance with the payment plan up to the date of filing the petition.

g) The claimant filed, on 28-03-2014, an administrative complaint against the assessment for the year 2012, which was dismissed by order of 16-06-2014.

h) The claimant filed, on 30-04-2014, an administrative complaint against the assessment for the year 2013, on which no decision was rendered within the four-month period.

3 – Legal Matters

3.1 - Regarding Stamp Duty:

a) The claimant, in its petition for arbitration, contends, primarily and in summary, that item 28 of the GTSD, as amended by Law 55-A/2012 of 29 October, is inapplicable to land for construction.

b) It contends that land for construction cannot be considered real property with residential use, relying on the provisions contained in article 1, no. 1 of the CSD and item 28 of the GTSD, as amended by Law 55-A/2012, as mentioned above.

c) In its view, the interpretation made by the AT suffers from unconstitutionality due to violation of principles enshrined in the CRP.

d) It further states that the various decisions already rendered both in arbitral tribunals and in the Superior Tax Court support its position.

e) In turn, the respondent contends that land for construction has the legal nature of real property with "residential use" since the residential use coefficient provided for in article 41 of the MIPT is taken into account in determining its TPV, and cites, to this effect, the Decision 04950/11 of 14/02/2012 of the Central Tax Court ("TCA")[12] South which considers that the regime for valuation of the taxable value of land for construction is embodied in article 45 of the MIPT, being the same as for constructed buildings, although starting from the building to be constructed, based on the project.

f) It argues that the expression "residential use" in item 28 of the GTSD appeals to a classification that overlaps the categories of urban real property provided for in no. 1 of article 6 of the MIPT and that the legislator, in using it, intended to integrate other realities beyond those mentioned in the MIPT provisions, concluding that the assessments in question should be upheld and AT should be absolved of the claim.

g) Having summarized the positions of the claimant and the respondent, we shall proceed to analyze the rule governing the incidence of stamp duty on urban real property with residential use.

h) Item 28 of the GTSD, added by Law no. 55-A/2012, subjects to stamp duty urban real property with residential use whose TPV, determined according to the MIPT, is equal to or exceeding €1,000,000.00.

i) The CSD refers to the MIPT for the regulation of the concept of real property and matters not regulated regarding item 28 of the GTSD (see no. 6 of article 1 and no. 2 of article 67, both of the CSD).

j) If we look at article 6 of the MIPT, it establishes that urban real property is divided into residential, commercial, industrial or for services, land for construction, and others.

k) From its no. 2, it appears that residential urban real property "are buildings or constructions licensed for that purpose or in the absence of a license, which have that purpose as their destination" and its no. 3 tells us that land for construction "are those located within or outside an urban agglomeration, for which a license or authorization for subdivision or construction operation has been granted, and also those which have been declared as such in the acquisition deed...".

l) From these concepts, we can already conclude that there is a distinction between urban real property "residential" and urban real property "land for construction".

m) The legislator of stamp duty, in establishing the taxation of urban real property "with residential use", did not specify the concept, so we must, by virtue of the referral, turn to the MIPT and this, as we have seen, distinguishes them from land for construction.

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

o) We agree with the position set forth in case 49/2013 of CAAD which is transcribed as follows: "The expression 'with residential use' conveys, on a simple reading, an idea of actual and present functionality. It is not possible to extract from the norm in question, by interpretation, that, as stated in the respondent's response, the legislator's choice of that expression was intended to integrate 'other realities beyond those identified in article 6, no. 1, subparagraph a), of the MIPT.' Such interpretation has no legal basis, in light of the principles contained in articles 9 of the Civil Code and 11 of the General Tax Law. Indeed, if the legislator intended to include within the scope of tax incidence realities other than those resulting from the classification governed by article 6 of the MIPT, it would have said so expressly. But it does not, instead referring, as a whole, to the concepts and procedures provided for in that Code. On the other hand, the respondent's view that the concept of 'residential use' derives from the rule of article 45 of the MIPT cannot be accepted either. This article refers to the rules applicable in determining the taxable value of land for construction, establishing that this is what results from the value of the area of the building to be constructed added to the land adjacent to the building. In fixing the value of that area, a variable percentage between 15% and 45% of the value of authorized or planned buildings is considered. According to the respondent, in fixing the value of buildings authorized or planned on the land to be valued, the coefficients applicable in determining taxable property value are used, namely the use coefficient provided for in article 1 of that Code. Concluding from this that the consideration of such a coefficient, dependent on the type of use planned for the property to be built on the land, will be decisive for purposes of applying Item 28 of the GTSD. This conclusion is supported by the assumption that the expression 'real property with residential use' appeals to a classification that overlaps the categories provided for in no. 1 of article 6 of the MIPT. It is not possible, however, to agree with such conclusion. [...]. Thus, resulting from article 6 of the MIPT a clear distinction between urban real property 'residential' and 'land for construction', the latter cannot be considered, for purposes of the incidence of stamp duty, as 'real property with residential use'."

p) When the legislator intended to subject land for construction to stamp duty taxation, it revisited item 28 of the GTSD through Law no. 83-C/2013, of 31 December, and introduced them there, which proves that in the formulation of Law no. 55-A/2012, land for construction was excluded from stamp duty taxation under item 28 of the GTSD, and now, through Law no. 83-C/2013, they became subject to taxation, which makes it clear to us that the legislator considered that the expression "residential use" did not include land for construction.

q) Nor should it be said that the fact that article 45 of the MIPT provides for the application of a residential use coefficient in determining the TPV of land for construction will, by itself, be a sufficient condition to allow their inclusion in the rule governing item 28 as amended by Law no. 55-A/2012, nor alter its nature as land for construction, given that what is at issue here is only determining the TPV which will be influenced by the type of buildings to be carried out (which, it should be noted, are not always realized).

r) The Decision 04950/11 of 14/02/2012 of the Central Tax Court South cited by AT which considers that the regime for valuation of the taxable value of land for construction is embodied in article 45 of the MIPT, being the same as for constructed buildings, although starting from the building to be constructed, based on the project, is merely an observation that is limited to the determination of TPV and nothing more.

s) Now, as we have seen, article 6 of the MIPT results in an unmistakable distinction between residential real property and land for construction, which prevents the latter from being taxed under stamp duty in the terms sought by the respondent.

t) To this effect, various arbitral decisions have already been rendered, namely, cases 42, 48, 49, and 75, all from 2013, and by the Superior Tax Court.

u) The taxation challenged here only occurred due to an error attributable to the AT's services, since item 28 of the GTSD, as amended by Law 55-A/2012, did not permit the stamp duty taxation of land for construction, which is why it must be annulled with the consequent reimbursement of the unduly paid amounts.

v) Since the assessment acts are illegal, the decisions on the administrative complaints that upheld them are also illegal, as they suffer from the same illegality.

3.2 – Regarding Compensatory Interest

a) It is proven in the record that a request for installment payment was made which was granted, as well as its compliance up to the filing of this petition, with the claimant requesting, in addition to the reimbursement of the amounts unduly paid, that the same be increased by compensatory interest.

b) Article 43, no. 1 of the General Tax Law ("LGT")[13] provides: "compensatory interest is due when it is determined, in an administrative complaint or judicial challenge, that there was an error attributable to the tax authorities resulting in the payment of tax debt in an amount exceeding that legally due."

c) Since arbitral proceedings are an alternative to judicial challenge proceedings, as provided for in Legislative Authorization Law 3-B/2010 of 28 April, it has been settled in tax arbitration decisions that the right to compensatory interest is declared in cases where it is concluded, as in the present case, that there was an error attributable to the AT's services resulting in unduly paid tax obligations.

IV – DECISION

Based on the above, the tribunal decides as follows:

a) To uphold the petition for arbitration, on the grounds that there was an error attributable to the services, and to annul the stamp duty assessment acts for the years 2012 and 2013 in the total amount of €63,877.60, given that the assessments in question are illegal for violating the rule governing item 28.1 of the GTSD.

b) To uphold the request for annulment of the order of 16-06-2014 that dismissed the administrative complaint for the year 2012 and to annul that order on the grounds of violation of the same rule.

c) To uphold the request for annulment of the implicit dismissal of the administrative complaint for the year 2013 on the grounds of violation of the same rule, and to annul that implicit dismissal.

d) To order the Tax and Customs Authority to reimburse the claimant the amounts unduly paid, plus compensatory interest in accordance with no. 1 of article 43 of the General Tax Law, calculated at the legal rate from the date of the payments until the date of reimbursement.

e) To fix the value of the case at €63,877.60 in accordance with the provisions contained in article 299, no. 1 of the Code of Civil Procedure ("CPC")[14], article 97-A of the Code of Tax Procedure and Process ("CPPT")[15], and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings ("RCPAT")[16].

Costs to be borne by the respondent, pursuant to no. 4 of article 22 of the LJAT, fixing the said amount at €2,448.00, in accordance with the provisions of Table I referred to in article 4 of the RCPAT.

Let notice be given.

Lisbon, 28 February 2015

Document prepared by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure, applicable by referral in article 29, no. 1, subparagraph e) of the LJAT, with blank lines and reviewed by the tribunal.

The wording of this decision is governed by pre-reform Portuguese spelling.

The Arbitrators,

Counselor Jorge Manuel Lopes de Sousa
(President)

Dr. Jorge Carita
(Arbitrator)

Dr. Arlindo José Francisco
(Arbitrator)

[1] Acronym for Number for Identification of Legal Entity.

[2] Acronym for Legal Regime for Tax Arbitration.

[3] Acronym for Tax and Customs Authority.

[4] Acronym for Center for Administrative Arbitration.

[5] Acronym for Taxable Property Value.

[6] Acronym for Municipal Property Tax Code.

[7] Acronym for Constitution of the Portuguese Republic.

[8] Acronym for Stamp Duty Code.

[9] Acronym for Stamp Duty.

[10] Acronym for General Table of Stamp Duty.

[11] Acronym for Enforcement Proceedings.

[12] Acronym for Central Tax Court.

[13] Acronym for General Tax Law.

[14] Acronym for Code of Civil Procedure.

[15] Acronym for Code of Tax Procedure and Process.

[16] Acronym for Regulation of Costs in Tax Arbitration Proceedings.

Frequently Asked Questions

Automatically Created

Is construction land subject to Stamp Tax under Verba 28 of the Tabela Geral do Imposto do Selo?
Under Item 28 of the TGIS (added by Law 55-A/2012), construction land may be subject to stamp duty if it meets specific criteria. The Tax Authority's position is that construction land (terrenos para construção) falls within the scope of stamp duty taxation when its patrimonial tax value (VPT) equals or exceeds €1,000,000 and a residential coefficient is applied in determining that value under Article 41 of the Property Tax Code (CIMI). However, taxpayers have successfully challenged this interpretation, arguing that undeveloped land for construction cannot be classified as 'real property with residential use' since it lacks actual residential character. The central legal dispute concerns whether the legislative term 'residential use' encompasses land designated for future residential development or only completed residential properties.
Can terrenos para construção be classified as residential properties for Stamp Tax purposes?
The classification of terrenos para construção as residential properties for stamp duty purposes is highly contested. The Tax Authority argues that construction land has residential use nature when the residential coefficient (coeficiente de afetação habitacional) under Article 41 of CIMI is applied in calculating its patrimonial tax value. The AT distinguishes between 'residential use' (uso habitacional) - a broader concept - and 'property intended for residential use,' suggesting Item 28 of TGIS was designed to capture properties where residential coefficients apply to valuation. Conversely, taxpayers contend that construction land with no existing buildings cannot be considered residential property under Article 1 of the Stamp Duty Code and Item 28. The classification fundamentally depends on whether 'residential use' requires actual residential occupation or merely designation/valuation for residential purposes. This interpretative question has constitutional implications regarding legal certainty and the principle that tax obligations must be clearly defined.
What is the arbitration procedure at CAAD for challenging Stamp Tax assessments on real estate?
The CAAD (Centro de Arbitragem Administrativa) arbitration procedure for challenging stamp duty assessments on real estate follows specific steps under the LJAT (Legal Framework for Tax Arbitration). First, taxpayers must file administrative complaints with the Tax Authority, which were either expressly dismissed or implicitly rejected through administrative silence. After exhausting administrative remedies, taxpayers can petition for arbitral tribunal constitution under Articles 2 and 10 of LJAT. The petition can be filed with or without designating an arbitrator; if no arbitrator is chosen, the President of CAAD designates a collective tribunal (three arbitrators). The tribunal must be constituted within legally prescribed timeframes, with parties notified of arbitrator appointments and able to raise objections. Once constituted, the tribunal determines whether an oral hearing is necessary or whether the case can be decided on written submissions. For stamp duty real estate cases, if no disputed factual issues exist, the hearing may be dispensed with and the case decided on the merits based on documentary evidence and legal arguments submitted by both parties.
What are the grounds for annulment of Stamp Tax liquidation on construction land in Portugal?
Grounds for annulment of stamp duty liquidation on construction land in Portugal include: (1) Violation of Article 1 of the Stamp Duty Code (CSD) and Item 28 of TGIS - arguing that the legal provisions do not encompass construction land without existing residential buildings; (2) Error in factual premises (erro sobre os pressupostos de facto) - claiming the Tax Authority incorrectly classified undeveloped land as residential property; (3) Incorrect interpretation and application of law - contending that 'residential use' requires actual residential character, not merely application of residential coefficients in property valuation; (4) Constitutional violations - including arguments that expansive interpretation of stamp duty provisions violates legal certainty principles and constitutional requirements for clear definition of tax obligations; (5) Violation of the principle that tax laws must be strictly interpreted and cannot be applied by analogy to extend tax burdens beyond explicitly defined taxable events. Successful annulment results in elimination of the assessment acts and all related administrative decisions, with entitlement to restitution of amounts paid.
Are taxpayers entitled to compensatory interest when Stamp Tax on construction land is unlawfully charged?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when stamp duty on construction land is unlawfully charged and subsequently annulled. Under Portuguese tax law, when tax assessments are declared illegal and amounts have been paid (whether voluntarily or through enforcement proceedings), the Tax Authority must reimburse not only the principal amounts unduly collected but also compensatory interest from the date of payment until restitution. This compensatory interest compensates taxpayers for the loss of use of funds that were improperly collected. The right to compensatory interest is a legal consequence of annulment of tax acts and does not require separate proof of damages. In cases involving enforcement proceedings (processos de execução fiscal) where payment was made under coercion or through installment plans, the interest calculation begins from each payment date. The arbitral tribunal has authority under Article 24 of LJAT to order both reimbursement of unduly paid amounts and payment of compensatory interest as part of the relief granted when annulling unlawful stamp duty assessments.