Process: 750/2014-T

Date: March 16, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration case 750/2014-T addresses a critical dispute regarding the application of Stamp Duty under Item 28.1 of the General Table of Stamp Duty (TGIS) to building land valued above €1,000,000. The taxpayer challenged a €10,326.59 Stamp Duty assessment for 2013 on urban property registered as building land with a taxable value of €1,032,659.19. The central legal issue concerns whether Item 28.1, which targets urban properties with residential use, applies to building land intended for commercial construction rather than housing. The taxpayer argued that the property register showed building land designated for future commercial retail use, supported by a prior information request (pedido de informação prévia) submitted to the Municipal Chamber in early 2013 for construction of a food retail building. The taxpayer contended that residential use requires actual functional residential purpose, not merely theoretical or virtual use assumptions. Additional procedural arguments included lack of proper notification of the assessment itself (only collection notices were received), violation of the right to be heard under Article 60 of the General Tax Law, and constitutional concerns regarding double taxation (Stamp Duty and Property Tax on identical tax base), retroactive application, and equality principle violations by differentiating treatment based on property aptitude. The Tax Authority defended the assessment as correct interpretation of Item 28 TGIS, introduced by Law 55-A/2012 of 29 October 2012, which subjects ownership, usufruct, or surface rights over urban properties with taxable patrimonial values equal to or exceeding €1,000,000 to Stamp Duty. The case raises fundamental questions about the scope of Item 28.1: whether it encompasses all urban properties above the threshold regardless of intended use, or only those with actual residential function. The interpretation impacts numerous taxpayers holding high-value building land designated for non-residential development, making this arbitration decision significant for Portuguese tax law precedent on Stamp Duty application to construction land and the distinction between theoretical registered use versus actual intended purpose.

Full Decision

CAAD – Tax Arbitration

ARBITRATION CASE No. 750/2014-T

Subject: Stamp Duty. Item 28.1 of the GTSD. Building land.

ARBITRAL DECISION

1 REPORT

A…, taxable person with Tax Identification Number …, resident at Avenue …, in Leiria (hereinafter referred to as the Applicant) hereby, pursuant to the combined provisions of Articles 2, paragraph 1, subparagraph a) and 10, paragraph 1, subparagraph a), of the Legal Regime for Tax Arbitration (LRTA), submits a request for an arbitral decision, against which the Tax and Customs Authority (hereinafter, TCA or Respondent) is named, with a view to the declaration of illegality of the Stamp Duty assessment for the year 2013, relating to the urban property registered under article… of the union of parishes of …, municipality of … (in the area of the Finance Service of … 1), in the total amount of € 10,326.59, as evidenced by documents nos. 1 and 2, attached to the request for an arbitral decision.

The arguments put forward by the Applicant are, in summary, as follows:

a) At the date of the request to establish the arbitral tribunal, the Applicant had been notified of the collection notices numbered 2014… and 2014 …, relating to the 1st and 2nd instalments of the Stamp Duty of 2013, relating to the identified urban property;

b) However, the Applicant alleges that it was not notified of the Stamp Duty assessment, as required by paragraph 7 of Article 23 of the Stamp Duty Code, which refers to the General Tax Code (GTC), with regard to the assessment, namely to Articles 113 to 118 of the latter Code;

c) The Applicant alleges that the assessment cannot be confused with the collection documents and, being initiated by the TCA, must be previously notified to the taxpayer so that it may exercise the right to be heard, as provided in Article 60 of the General Tax Law (GTL) (…);

d) The Applicant filed a gracious objection to the said Stamp Duty collection notices, a gracious objection that was dismissed;

e) The Stamp Duty assessment that was objected to, with the payment divided into three instalments, would have been effected under item 28.1 of the General Table of Stamp Duty, relating to the right of ownership of the urban property with article… of the union of parishes of …, municipality of …, with the taxable patrimonial value of € 1,032,659.19, which is building land intended for construction, registered in the property register since 19 August 2004, based on the assumption that the building to be erected would be intended for residential use;

f) It so happens, however, that in early 2013, the present Applicant submitted a request for prior information to the Municipal Chamber of …, regarding the feasibility of construction of a building intended for food retail, to be located on the said building land (prior information request no. …/2013, granted by resolution of the Municipal Chamber meeting of …, dated 19 March 2013);

g) However, until the works are completed, the property register entry remains as building land, and the supposed residential use does not accord with the future work projected;

h) That is, although there is no certificate of occupancy, which can only be issued after completion of the work, once the work is completed, the constructed property will never be intended for residential use, but rather for retail;

i) Residential use presupposes a functional approach, and building land or an ongoing construction work, with a provision for use for retail, is not in itself a residential property;

j) The TCA is erroneously, in the specific case of building land, applying a concept of virtual use, when the use currently entered in the property register is only a theoretical, hypothetical, but not actual purpose, and the assessment of stamp duty under item 28.1 of the GTSD is illegal;

k) Not even following the amendment introduced to item 28.1 of the GTSD by Law no. 83-C/2013, of 31 December, because the new wording of the said provision has no interpretative character and came into force on 1 January 2014, producing effects only prospectively;

l) However, in the previous wording of the provision in question, the objective scope of the tax was on urban properties with residential use, without the Stamp Duty Code defining what constituted an "urban property with residential use";

m) And even by reference to the Property Tax Code (as provided in paragraph 2 of Article 67 of the Stamp Duty Code), we do not find a definition of what constitutes an "urban property with residential use", an expression that presupposes actual use and not merely a possibility, potentiality or expectation that the property might have;

n) To be covered by the objective scope of the tax, an urban property with residential use can only be understood as the urban property provided for in Article 6, paragraph 1, subparagraph a), of the GTC and not as building land;

o) But even if this were not the case, under the current wording of Item 28.1 of the GTSD, the right of ownership of the property in question is not covered by the legal provision, since the building land is foreseen to be constructed with a building intended for retail;

p) The Applicant further considers there to be a double taxation of the land, since the objective and subjective scope is identical in Stamp Duty and in Property Tax, which renders the assessment illegal by violation of the principle prohibiting double taxation;

q) The introduction of item 28 in the GTSD raises doubts regarding its constitutionality as to its retroactivity, (…) as it amounts to taxing real rights over immovable property, regardless of the date of their creation, by means of a law published on 29 October 2012 and in force the following day (…) which will be applied to situations created before the date of its entry into force;

r) The unconstitutionality of the tax is further questioned for directing itself only at properties for residential purposes, thereby violating the principle of equality in Article 13 of the Constitution (…) by differentiating liability based on the aptitude of the properties;

s) (…) This situation thus violates elementary principles of justice, non-discrimination and the constitutional requirement of equality in taxation, taxing the ownership of properties that are a source of rental income, taxed under personal income tax/corporate income tax;

t) The request is timely, given that the Applicant was notified of the dismissal of the gracious objection on 16 October last.

The Respondent concludes, following on from the above, by formulating the request for a declaration of illegality of the act assessing Stamp Duty – Item 28.1 of the GTSD, for the year 2013, relating to the identified property.

Notified in accordance with and for the purposes of Article 17 of the LRTA, the Tax and Customs Authority submitted a reply to which it attached the administrative file (gracious objection no. …) and a request, in which it proposed that the meeting referred to in Article 18 of the LRTA be dispensed with, as no exception was raised that would prevent the tribunal from deciding the merits of the disputed matter, nor was there occasion for further evidence.

In its reply, in which it states that it does not consider the Applicant to be correct, the Respondent comes to defend that the Stamp Duty assessment that is the subject of the present request for an arbitral decision should be upheld, as it constitutes a correct interpretation of Item 28 of the GTSD, with the following grounds:

a) Law no. 55-A/2012, of 29 October 2012, amended Article 1 of the Stamp Duty Code and added item 28 to the GTSD. With this legislative amendment, Stamp Duty would also be assessed on the ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value entered in the property register, as provided for in the Property Tax Code (PTC), is equal to or exceeding €1,000,000.00;

b) Stamp Duty would thus be assessed on all acts, contracts, documents, deeds, papers and other legal facts or situations provided for in the general table, including gratuitous transfers of property;

c) In the absence of any legal definition of the concepts of urban property, building land and residential use under Stamp Duty, one must resort to the provisions of the Property Tax Code, in accordance with what is provided in Article 67, paragraph 2, of the Stamp Duty Code, as amended by Law no. 55-A/2012, of 29 October, according to which, for matters not regulated in this Code relating to Item 28 of the GTSD, the provisions of the Property Tax Code apply, on a subsidiary basis;

d) Paragraph 1 of Article 6 of the Property Tax Code deals with the types of urban properties in existence, including within this concept building land, that is, "land located within or outside an urban agglomeration, for which construction or subdivision licensing or authorization has been granted, prior notification admitted or prior information issued favourably for subdivision or construction operations, and also those that were thus declared in the acquisition title, excepting land in which the competent entities prohibit any of these operations…";

e) The notion of use of urban property is found in the section on the valuation of immovable property, inasmuch as valuation (purpose) incorporates value into the property, constituting a determining distinction fact (coefficient) for purposes of valuation;

f) As results from the decision handed down in Judgment no. 04950/11, of 14/02/2012, of the Southern Administrative Court: "The assessment regime for building land is enshrined in Article 45 of the PTC. The assessment model is the same as that for constructed buildings, although starting from the building to be constructed, based on the respective project, the value of the building land corresponds, fundamentally, to a legal expectation, embodied in a right to construct thereon a property with certain characteristics and with a certain value. This expectation of creating wealth materialized in a property to be constructed is what increases the value of the assets and the wealth of the owner of the building land. For that reason, the greater the value of the property to be constructed, the greater is the value of the building land underlying it (see Article 6, paragraph 3 of the PTC).

"In conclusion, in the assessment of building land, the legislator intended that the assessment methodology for urban properties in general be applied, such consideration being given to all coefficients, identified above, in particular the use coefficient provided for in Article 41 of the PTC, which further results from the obligation in paragraph 2 of Article 45 of the PTC, in referring to the value of the buildings authorized or provided for on the same building land";

g) Thus, for the purposes of determining the taxable patrimonial value of building land, the application of the use coefficient is clear in the valuation and application of item 28 of the GTSD, taking into account that:

a. In the application of the law to concrete cases, one must determine the exact meaning and scope of the rule, so that it reveals the rule contained therein (Article 9 of the Civil Code, in accordance with Article 11 of the GTL);

b. Article 67, paragraph 2 of the Stamp Duty Code mandates the subsidiary application of the provisions of the Property Tax Code;

c. The use of the property (aptitude or purpose) is a coefficient that contributes to the valuation and determination of the taxable patrimonial value of building land;

d. Item 28 of the GTSD refers to the expression "properties with residential use", calling for a classification that overlies the types provided for in paragraph 1 of Article 6 of the PTC;

h) The TCA understands that the concept of "properties with residential use", for the purposes of item 28 of the GTSD, comprises both constructed properties and building land, notably by virtue of the literal element of the rule, since the legislator does not refer to "properties intended for residential use", having opted for the notion of "residential use", a broader expression, whose meaning is to be found in the need to integrate other realities beyond those identified in Article 6, paragraph 1, subparagraph a) of the PTC;

i) The mere creation of a right of potential construction immediately increases the value of the property in question, hence the rule in Article 45 of the PTC, which requires the separation of its parts of the land – that where the building to be constructed is to be located and the area of free land. Once the amount of the first part is determined, the value determined is reduced to a percentage between 15% and 45% as provided in paragraph 2 of the said provision, because the construction has not yet been carried out;

j) The value of the land adjacent to the area of implementation is determined in the same way as the value of the area of excess land is determined for any urban property;

k) It is noted that the legal regime for urbanization and construction is based on buildings already constructed, [but] the building permit for the carrying out of urbanization operations shall contain, among other elements, the number of lots and the indication of the location area, purpose, area of implementation, construction area, number of floors and number of units of each of the lots, with specification of units intended for housing at controlled costs, where provided, in accordance with subparagraph a) of Article 77 of the Legal Regime for Urbanization and Construction (LRUC);

l) The same Article 77 of the LRUC contains mandatory specifications for building permits for urbanization or construction work operations, and for construction work, just as the Municipal Master Plans establish the municipal development strategy, the municipal policy for spatial planning and urbanism and the other urban policies (…) for the spatial organization of municipal territory;

m) In these terms, well before the actual construction of the property, it is possible to determine and establish the use of the building land;

n) As regards the alleged violation of constitutional principles, the TCA cannot fail to note that the Constitution of the Republic requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing the differentiation of treatment, but only arbitrary, unreasonable discrimination, that is, distinctions in treatment that do not have justification and sufficient material basis;

o) The TCA understands that the provision of item 28 of the GTSD does not constitute a violation of any constitutional command, [as it] bears on the ownership, usufruct or right of superficies of urban properties with residential use, whose taxable patrimonial value entered in the property register, in accordance with the PTC, is equal to or exceeding €1,000,000.00, that is, it bears on the value of the property, being a general and abstract rule, applicable in an indiscriminate manner to all cases in which the factual and legal requirements are met;

p) (…) The different aptitude of properties (residential, services, retail) supports the different treatment, having constituted a choice of the legislator, for political and economic reasons, to exclude from the scope of Stamp Duty properties intended for purposes other than residential;

q) (…) the choice of this mechanism for obtaining revenue is legitimate, which would only be censurable, in light of the principle of proportionality, if it resulted in clearly indefensible;

r) Based on all the foregoing, the assessment in question constitutes a correct interpretation and application of the law to the facts, suffering from no defect of violation of law, whether of the Constitution or of the Stamp Duty Code, and should, consequently, be judged to be without merit, and the Respondent Entity should be absolved of the request.

The request for an arbitral decision was filed with CAAD on 30 October 2014, was accepted by the Honourable President of CAAD and automatically notified to the TCA on 3 November 2014.

The Applicant chose not to appoint an arbitrator, whereby, in accordance with the provisions of Article 6, paragraph 1 of the LRTA, the signatory was appointed by the President of the CAAD Ethics Council to form part of this singular arbitral tribunal, a task which was accepted in accordance with the legally provided terms.

The singular arbitral tribunal was duly constituted on 8 January 2015 and is substantively competent to hear and decide the dispute that is the subject of the present proceedings.

The parties possess legal standing and capacity, are entitled to participate and are duly represented (Articles 4 and 10, paragraph 2, of the LRTA and Article 1 of Order no. 112-A/2011, of 22 March).

The proceedings are not affected by any nullities and no exceptions were raised.

By arbitral order of 12 February 2015, duly notified to the parties and to which they did not object, the meeting referred to in Article 18 of the LRTA was dispensed with, as well as the filing of written submissions.

2 FACTS

2.1 Facts Established as Proven:

2.1.1 On 31 December 2013, the Applicant was the owner of the urban property registered in the property register under article… of the Union of Parishes of …, classified as "building land";

2.1.2 The said urban property was registered in the property register following the filing of a Model 1 Property Tax declaration, on 29 September 2004 – valuation sheet no. …, which stated that it was land designated for the construction of a residential building;

2.1.3 On 17 April 2014, the Applicant filed a new Model 1 Property Tax declaration – valuation sheet no. …, with a view to changing the use of the property, which was thereafter to be designated for the construction of a building for retail;

2.1.4 The Stamp Duty assessment for the year 2013 was issued by the TCA on 18 March 2014, in accordance with Item 28.1 of the GTSD, at the rate of 1%, on the taxable patrimonial value of 1,032,659.19, in the amount of € 10,326.59, payable in three instalments;

2.1.5 At the date of filing the request to establish the arbitral tribunal, the Applicant had been notified to make the following Stamp Duty payments, by reference to the urban property previously identified:

2.1.5.1 Collection notice no. 2014 …, in the amount of € 3,442.21 – 1st Instalment – April 2014;

2.1.5.2 Collection notice no. 2014 …, in the amount of € 3,442.19 – 2nd Instalment – July 2014;

2.1.6 Not conforming with the Stamp Duty assessment contained in the said collection notices, the Applicant filed a gracious objection on 5 August 2014;

2.1.7 Gracious objection no. … was dismissed by order of the Head of the Tax Justice Division of the Finance Department of …, dated 14 October 2014, as notified to the Applicant's Legal Representative, by official letter no. …, from the same Finance Department, of the same date, covered by registration no. RF … PT.

2.2 Reasoning of the Facts Established as Proven

The tribunal's conviction as to the facts established as proven resulted from the analysis of the documentary evidence attached to the request for an arbitral decision (copies of the notifications for payment of the first and second instalments of the assessment in question, of the resolution of the Municipal Chamber meeting of …, dated 19 March 2013 and of the decision handed down in the gracious objection proceedings no. …), as well as from the evidence attached to the TCA's reply (full copy of the gracious objection file identified).

2.3 Facts Not Established as Proven

There are no facts relevant to the decision of the case that should be considered not proven.

3 LEGAL ISSUES – REASONING

3.1 Issue to be Decided

The principal issue raised by the Applicant is whether the scope rule of item no. 28.1 of the General Table of Stamp Duty (GTSD), in its original wording, given by Law no. 55-A/2012, of 29 October, encompasses building land with a taxable patrimonial value equal to or exceeding €1,000,000.00 or whether these, even though evaluated on the assumption that a building intended for residential use is to be erected thereon, can be included in the concept of urban properties "with residential use", a condition for the applicability of the said item.

3.2 Order of Examination of the Defects of the Impugned Act

The defects imputed by the Applicant to the Stamp Duty assessment for the year 2013 are the lack of its factual and legal reasoning, as well as the defect of violation of law.

In accordance with the provisions of Article 124 of the Administrative Procedure Code, applied subsidiarily to tax arbitration proceedings by virtue of the provisions of Article 29, paragraph 1, subparagraph a), of the LRTA, inasmuch as no defects are imputed to the Stamp Duty assessment in question that would lead to a declaration of non-existence or nullity, nor is a relationship of subsidiarity indicated between them, the order of examination of the defects should be that which, according to the prudent discretion of the tribunal, ensures the most stable or effective protection of the offended interests.

In the case at hand, the defect imputed by the Applicant to the tax act that is the subject of the request for an arbitral decision, which provides the most stable and effective protection of its interests, is that which concerns error as to the premises upon which the Stamp Duty assessment for the year 2013 was issued, which, if verified, will definitively preclude the possibility of renewal of the impugned tax act.

In fact, although the Applicant invokes the defects of lack of notification and reasoning of the assessment, by having only been notified of the payment documents for the tax determined therein, the fact is that, even if such defects could lead to the annulment of that tax act, the TCA could always repeat it, within the period of limitation, after remedying the defects imputed to it, given their merely procedural nature.

3.3 On the Concept of Urban Property with Residential Use

As is indicated by the Applicant and confirmed by the decision dismissing the gracious objection proceedings no. …, as well as by the content of the reply submitted by the Respondent, the urban property on which the Stamp Duty assessment that is the subject of the present request for an arbitral decision was assessed was registered in the property register in 2004 on the assumption that the building to be erected would be intended for residential use.

In its original wording, applicable to the situation under analysis, item 28 of the GTSD provided that the following situations were subject to stamp duty:

"28 — Ownership, usufruct or right of superficies of urban properties whose taxable patrimonial value entered in the property register, in accordance with the Property Tax Code (PTC), is equal to or exceeding €1,000,000 – on the taxable patrimonial value used for purposes of Property Tax:

28.1 — For property with residential use — 1%;

28.2 — For property, when the taxable persons who are not natural persons are resident in a country, territory or region subject to a clearly more favourable tax regime, as contained in the list approved by order of the Minister of Finance — 7.5%."

Thus, the cumulative requirements for the application of the rule contained in Item 28.1 of the GTSD are that the property to be taxed is an urban property "with residential use" and that its taxable patrimonial value, for purposes of Property Tax, is greater than €1,000,000.00.

With regard to the taxable patrimonial value of the property on which the Stamp Duty assessment that is the subject of the request for an arbitral decision was assessed, there is no doubt that it exceeds the limit established by the scope rule.

It thus remains to determine whether the said property, classified as building land, falls within the concept of "property with residential use", as the Respondent TCA argues, an expression which, according to it, "comprises both constructed properties and building land, notably given the literal element of the rule (…)".

It has long been peacefully accepted by legal doctrine that tax rules are interpreted in the same manner as any other legal rules, a solution that is now expressly provided in paragraph 1 of Article 11 of the General Tax Law (GTL), by establishing that "1 - In determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of legal interpretation and application are observed".

Among the elements of interpretation, the one from which the interpreter of the rule must start is precisely the grammatical element, that is, the text of the law, although it must be emphasized that in determining the meaning and value of the rule, the interpreter cannot fail to consider the logical element or, in accordance with paragraph 1 of Article 9 of the Civil Code, must not fail to "reconstruct (…) the legislative intent, taking especially into account the unity of the legal system, the circumstances under which the law was drafted and the specific conditions of the time in which it is applied".

The scope rule contained in item 28.1 of the GTSD uses the expression "property with residential use", a concept not defined in the Stamp Duty Code, nor in any other legislation of a tax nature.

Being a polysemic expression, which may have more than one meaning and, in order to determine its exact meaning and scope, in accordance with the unity of the system, the interpreter should take into account the "legal provisions that regulate parallel normative problems or related institutes"[1].

The legal provisions to be taken into account shall, in the case at hand, be the rules of the Property Tax Code, to whose subsidiary application reference is made, in full, by paragraph 2 of Article 67 of the Stamp Duty Code, added by the same Law no. 55-A/2012, of 29 October, in establishing that "2 - For matters not regulated in this Code relating to item no. 28 of the General Table, the provisions of the Property Tax Code apply, on a subsidiary basis."

It will not, therefore, be acceptable to assert, as the Respondent does, that "Item 28 of the GTSD refers to the expression "properties with residential use", calling for a classification that overlies the types provided for in paragraph 1 of Article 6 of the PTC", notably because such is opposed by the principles of legality and typicality of tax legislation.

However, notwithstanding the express reference to the Property Tax Code, which the legislator wished to establish in paragraph 2 of Article 67 of the Stamp Duty Code, by reference to matters relating to Item 28 of the GTSD, that Code also does not provide us with the concept of "properties with residential use".

In fact, Article 6 of the Property Tax Code, inserted in Chapter I – Scope, does not use that expression when enumerating, in its paragraph 1, the types of urban properties, which may be classified as: a) Residential; b) Commercial, industrial or for services; c) Building land; d) Other, with paragraphs 2, 3 and 4 of the same Article defining what is to be understood by each of those designations.

Thus, "Residential, commercial, industrial or for services are buildings or constructions licensed for such or, in the absence of a license, that have as their normal purpose each of these ends" (paragraph 2) and building land are "land located within or outside an urban agglomeration, for which construction or subdivision licensing or authorization has been granted, prior notification admitted or prior information issued favourably for subdivision or construction operations, and also those that were thus declared in the acquisition title, excepting land in which the competent entities prohibit any of these operations, in particular those located in green zones, protected areas or that, in accordance with municipal spatial planning plans, are designated for public spaces, infrastructure or facilities" (paragraph 3).

From the comparison between paragraphs 2 and 3 of Article 6 of the Property Tax Code, it appears evident that the legislator made a very clear distinction between residential urban properties and building land and that the type of urban property that best corresponds to the concept of "property with residential use" is that of residential properties, such as buildings or constructions licensed for residential use or which, in the absence of a license, have residential use as their normal purpose (residential purposes).

The Respondent argues that "The notion of use of urban property is found in the section on the valuation of immovable property, inasmuch as valuation (purpose) incorporates value into the property, constituting a determining distinction fact (coefficient) for purposes of valuation", relying on the Judgment of the Southern Administrative Court, handed down on 14/02/2012, in case no. 04950/11, which it partially transcribes.

However, the word "use" appears only in Articles 38 and onwards of the Property Tax Code, systematically inserted in Chapter VI – On the taxable patrimonial value of urban properties; Section II – On valuation operations.

Specifically, Article 41 of that Code, under the heading "Use Coefficient", provides that this "depends on the type of use of constructed properties" (emphasis ours).

It can thus certainly be concluded that, in accordance with Article 41 of the Property Tax Code, the "Use Coefficient" always refers to constructions or buildings, since it "depends on the type of use of constructed properties"; from which it also appears to follow certainly that the word "use" has the meaning of "utilization".

However, Articles 38 and onwards of the Property Tax Code are systematically inserted in the Chapter relating to the determination of taxable patrimonial value.

As this constitutes the taxable matter on which the tax rate will be assessed, it would be difficult to accept that from the rules relating to the valuation of urban properties any scope rule could be extracted, being a phase that logically precedes that of the determination of the taxable matter.

And, even if the "use coefficient" may be used in the valuation of building land, as it can relate to future buildings, authorized or licensed for a certain type of use, as admitted by the aforesaid Judgment of the Southern Administrative Court (to the contrary, see the Judgment of the Supreme Administrative Court, of 18/11/2009, case 0765/09), this will certainly not determine that building land be considered as "property with residential use", given the exhaustive classification of urban properties established by the cited Article 6 of the Property Tax Code, as an objective scope rule, which clearly distinguishes between residential properties and building land.

In fact, in accordance with the consistent case law of the Supreme Administrative Court (from the Judgment of 9 April 2014, in case no. 1870/13, to the most recent Judgments of 5 February 2015, in case no. 1312/14 and in case no. 1387/14, all available at http://www.dgsi.pt/, from which we take the liberty of transcribing some passages), "It would be strange, moreover, if the determination of the scope of the tax scope rule of item no. 28 of the General Table of Stamp Duty were to be found, after all, in the rules for the determination of the taxable patrimonial value of the Property Tax Code, and that the terminological imprecision of the legislator in the drafting of that rule were, ultimately, clarified and finally explained by means of an indirect and equivocal reference to the use coefficient established by the legislator with regard to constructed properties (Article 41 of the Property Tax Code)".

For its part, as has been referred to by the case law of both the Supreme Administrative Court and the CAAD, "When the bill no. 96/XII (2nd) was presented and discussed in Parliament, the Secretary of State for Tax Affairs expressly stated: "The Government proposes the creation of a special tax on residential urban properties of higher value. It is the first time that in Portugal a special taxation is created on properties of high value intended for residential use. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses valued at equal to or above 1 million euros."

Based on what has been set out, if the letter of the law – of Item 28.1 of the GTSD – (grammatical element) is not sufficiently clear to define the concept of "property with residential use", the logical element ("the systematic element and the unity of the legal system, the circumstances under which the law was drafted and the specific conditions of the time in which it is applied"), which is pointed to by paragraph 1 of Article 9 of the Civil Code, allows us to conclude, anticipating the decision, as has been concluded by the Supreme Administrative Court in the aforementioned Judgments, that, "(…) resulting from Article 6 of the Property Tax Code a clear distinction between urban properties "residential" and "building land", the latter cannot be considered as "property with residential use" for the purposes of item no. 28.1 of the General Table of Stamp Duty, in its original wording, as given to it by Law no. 55-A/2012, of 29 October", which justifies the annulment of the assessment impugned, due to error in the premises on which its issuance was based.

3.4 Matters Precluded from Consideration

In a judgment, the judge must rule on all matters that must be ruled upon, refraining from ruling on matters from which it does not need to know (final part of paragraph 1 of Article 125 of the Administrative Procedure Code), and the matters on which the tribunal's powers of cognition fall are, in accordance with paragraph 2 of Article 608 of the Code of Civil Procedure, applicable subsidiarily to tax arbitration proceedings, by virtue of the reference in Article 29, paragraph 1, subparagraph e), of the LRTA, "the matters that the parties have submitted to it for consideration, except those whose decision is precluded by the solution given to others (…)".

In view of the solution given to the matter relating to the concept of "property with residential use", the consideration of the remaining matters raised by the Applicant is precluded, in particular those of possible double taxation (economic) and the invoked unconstitutionality of the scope rule contained in Item 28.1 of the GTSD, as it is not susceptible to the interpretation that was in this case made by the TCA.

4 DECISION

Based on the grounds set out above and in accordance with Article 2 of the LRTA, it is decided:

4.1 To find the request for a declaration of illegality of the Stamp Duty assessment impugned to be well-founded, due to error in the legal premises;

4.2 To order the annulment of the Stamp Duty assessment impugned, with all legal consequences.

AMOUNT IN CONTROVERSY: In accordance with the provisions of Article 306, paragraphs 1 and 2, of the Code of Civil Procedure, 97-A, paragraph 1, subparagraph a), of the Administrative Procedure Code and Article 3, paragraph 2, of the Regulations on Costs in Tax Arbitration Proceedings, the amount in controversy is set at € 10,326.59 (ten thousand three hundred twenty-six euros and fifty-nine cents).

COSTS: Calculated in accordance with Article 4 of the Regulations on Costs in Tax Arbitration Proceedings and Table I attached thereto, in the amount of € 918.00, at the expense of the Tax and Customs Authority.

Lisbon, 16 March 2015.

The Arbitrator,

/Mariana Vargas/

Text prepared by computer, in accordance with paragraph 5 of Article 131 of the Code of Civil Procedure, applied by virtue of subparagraph e) of paragraph 1 of Article 29 of Decree-Law no. 10/2011, of 20 January.

The text of this decision is governed by the 1990 spelling agreement.

[1] MACHADO, J. Baptista, "Introduction to Law and to Legitimizing Discourse", Almedina, Coimbra, 1995, p. 183.

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Verba 28.1 of the TGIS apply to building land (terrenos para construção) valued over €1,000,000?
Yes, under Item 28.1 of the TGIS introduced by Law 55-A/2012, Stamp Duty applies to urban properties with taxable patrimonial value equal to or exceeding €1,000,000. Building land (terrenos para construção) registered in the property register as urban property falls within the objective scope of the tax when the valuation threshold is met. However, the taxpayer in case 750/2014-T contested this application arguing that Item 28.1's reference to 'residential use' should exclude building land intended for commercial construction, creating interpretative uncertainty about whether undeveloped land designated for non-residential projects is subject to this Stamp Duty charge.
Can a taxpayer challenge Stamp Tax liability if the building land is intended for commercial use rather than housing?
Yes, taxpayers can challenge Stamp Tax liability when building land is intended for commercial rather than residential use. In case 750/2014-T, the taxpayer argued that Item 28.1 TGIS applies only to urban properties with actual residential use, not theoretical or virtual residential designation. The taxpayer submitted evidence of a prior information request approved for food retail construction, demonstrating commercial intent. The legal argument centers on whether 'residential use' requires functional residential purpose or whether the property register classification suffices. The challenge is based on the interpretation that building land with confirmed commercial development plans should be excluded from Item 28.1's scope, which the taxpayer contends targets only residential properties.
Is the Tax Authority required to notify taxpayers of Stamp Tax assessments before issuing collection documents?
According to the taxpayer's argument in case 750/2014-T, yes, the Tax Authority should notify taxpayers of Stamp Duty assessments before issuing collection documents. The taxpayer invoked Article 23(7) of the Stamp Duty Code, which refers to Articles 113-118 of the General Tax Code regarding assessment procedures, and Article 60 of the General Tax Law guaranteeing the right to be heard. The taxpayer argued that assessment cannot be confused with collection notices and that prior notification is required to allow taxpayers to exercise their procedural rights. However, this procedural argument was raised alongside substantive challenges to the tax's applicability, and the Tax Authority's position on notification requirements is not fully detailed in the excerpt provided.
What is the role of prior information requests (pedido de informação prévia) in determining the intended use of building land for Stamp Tax purposes?
Prior information requests (pedidos de informação prévia) serve as formal evidence of intended land use and construction plans, which taxpayers argue should determine Stamp Tax liability under Item 28.1 TGIS. In case 750/2014-T, the taxpayer submitted prior information request no. …/2013 to the Municipal Chamber, approved in March 2013, for construction of a food retail building on the disputed land. The taxpayer used this administrative approval as proof that the building land's actual intended use was commercial, not residential, arguing this should exclude the property from Item 28.1's scope. This demonstrates that prior information requests can provide contemporaneous documentary evidence of construction purpose, supporting arguments that land designated for non-residential development should not be subject to Stamp Duty provisions targeting residential properties.
How does CAAD arbitration process 750/2014-T address the scope of Verba 28.1 regarding non-residential construction on urban land?
CAAD arbitration process 750/2014-T directly addresses whether Item 28.1's scope includes building land intended for non-residential construction. The taxpayer argued that the provision's reference to 'urban properties with residential use' (in the 2013 wording) requires actual residential function, not mere theoretical designation, and that building land approved for commercial retail construction falls outside this scope. The taxpayer further contended that even under the amended wording introduced by Law 83-C/2013 (effective 1 January 2014), the land should be exempt because the planned building serves retail purposes. This case tests whether Item 28.1 applies broadly to all high-value urban properties regardless of use, or narrowly to properties with residential character, establishing important precedent for commercial development projects on valuable urban land.