Process: 760/2014-T

Date: April 20, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 760/2014-T) addresses whether building land (terreno para construção) is subject to Stamp Tax under Verba 28.1 of the TGIS, which was introduced by Law 55-A/2012 to tax 'urban properties with residential use' with VPT equal to or exceeding €1,000,000. The taxpayer challenged a stamp duty assessment of €5,725.73 on her 1/2 ownership of building land in Silves, arguing that undeveloped land cannot be classified as property with residential use merely because it is zoned for future residential construction. The Tax Authority contended that building land qualifies as having 'residential use' because the VPT calculation methodology applies the residential use coefficient from CIMI Article 41. The taxpayer emphasized that the legislative intent was to tax only actual residential properties, not vacant land, and cited the subsequent amendment by Law 83-C/2013 (Article 194) which expressly included building land in Verba 28.1—effectively confirming that the original 2012 wording did not cover such land. This legislative correction supports the interpretation that building land, despite its intended future use and the VPT calculation method employed, should not have been subject to stamp duty under the original Verba 28.1 framework. The case illustrates the importance of distinguishing between actual property use versus administrative classification methods when interpreting tax legislation, and demonstrates how CAAD arbitration provides taxpayers an efficient mechanism to challenge stamp duty assessments on real estate.

Full Decision

I – REPORT

  1. A..., resident at Rua... no... – E...-... ..., with Tax ID[1]... filed a request for arbitral award, pursuant to the provisions of point (a) of article 2(1), article 3(1) and point (a) of article 10(1), all of RJAT[2], requesting the AT[3], with a view to the annulment of a tax assessment act establishing stamp duty on the ownership of an immovable property registered in the property register under urban parcel no... of the parish of..., municipality of Silves, regarding land for construction, as per collection document 2014... in the amount of €5,725.73, duly notified, against which the petitioner filed a proper administrative complaint which was rejected, with notification to the petitioner on 13/08/2014, who, not accepting such decision and taxation, considering it manifestly illegal, filed the present petition.

  2. Which was filed without exercising the option of designating an arbitrator, and was accepted by the Esteemed President of CAAD[4] and automatically notified to AT on 06/11/2014.

  3. Under the terms and for the purposes of the provisions in article 6(2) of RJAT, by decision of the Esteemed President of the Ethics Council, duly communicated to the parties within the legally applicable timeframes, on 15/01/2015, Arlindo José Francisco was appointed as arbitrator of the tribunal, who communicated his acceptance of the assignment within the legally prescribed timeframe.

  4. The tribunal was constituted on 20/01/2015 in accordance with the provisions contained in point (c) of article 11(1) of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December.

  5. With her petition, the petitioner seeks the annulment of the stamp duty assessment act in question, considering it manifestly illegal, with all legal consequences flowing therefrom, namely the reimbursement of amounts improperly paid and compensatory interest in accordance with article 43 of the LGT[5].

  6. She supports her point of view, in summary, on the understanding that land for construction can in no way be considered properties with residential use, where no building that could be considered as such use has yet been constructed, and that the legislator only intended to tax residential properties with VPT[6] equal to or greater than €1,000,000.00 as determined by item 28 of TGIS[7], as amended by Law 55-A/2012 of 29 October.

  7. In her response, the respondent considers that item 28 of TGIS as amended by Law 55-A/2012 determines the taxation of land for construction, since these have the legal nature of properties with residential use, considering that in determining their VPT the coefficient of residential use provided for in article 41 of CIMI[8] is taken into account, citing Judgment no. 04950/11 of 14/02/2012 of the CAC[9] of the South.

  8. That the legislator does not speak of properties intended for residential use, but of residential use, an expression far broader, with a view to integrate other realities beyond those identified in article 6(1)(a) of CIMI.

  9. From this perspective, she considers that the assessment in question should be maintained as it embodies a correct interpretation and application of law to the facts, not being a violation of Law, either of the CRP[10] or of the CDS[11], therefore the petitioner's claim should be judged unfounded and the respondent absolved of the petition.

II - PRELIMINARY MATTERS

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

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

The respondent accompanied her response with a request in which she considered unnecessary the meeting to which article 18 of RJAT alludes, a position that came to be accepted by the petitioner on 26/02/2015.

Given the coincident positions of the parties and, the proceedings not being affected by any nullities nor having been raised questions that hinder the appraisal of the merits of the case, the tribunal considered the conditions to be met to render a decision.

III - GROUNDS

1 – The issues to be decided, with interest for the case, are the following:

a) To determine whether land for construction, to which in the determination of its VPT the coefficient of residential use was applied and an amount equal to or greater than €1,000,000.00 was calculated, falls within the scope of stamp duty (SD) provided for in item 28 of TGIS, added by Law no. 55-A/2012, of 29 October.

b) If, in the negative, the assessment of SD in the present proceedings should be annulled for being affected by illegality and, consequently, the amounts improperly paid be reimbursed plus compensatory interest, as prescribed in article 43 of the LGT.

2 – Factual Matters

The factual matters considered relevant and proven based on the elements attached to the case are as follows:

a) The petitioner was, in the year 2013, co-owner (1/2) of land for construction registered, at the time, in the urban property register of the parish of... municipality of Silves, under parcel....

b) She was notified to proceed with payment of the SD in question here (€5,725.73) which corresponds to her share of the land for construction in question.

c) Against such assessment she filed an administrative complaint which was rejected.

d) The petitioner made payment of the 1st installment in the amount of €1,908.59 on 2014/05/12.

3 – Legal Matters

3.1 - Regarding Stamp Duty:

a) The petitioner, in her request for arbitral award considers, in the first place and in summary, the inapplicability of item 28 of TGIS, as amended by Law 55-A/2012 of 29 October, to land for construction.

b) She maintains that land for construction cannot be considered properties with residential use, resorting to its respective tax base rule (item 28 of TGIS), as amended by Law 55-A/2012, already mentioned.

c) The fact that on a given plot of land for construction the construction of a property intended for residential use is authorized does not determine, fiscally, any alteration to its destination.

d) She refers to decisions already rendered both by the arbitral tribunal and by administrative courts, to conclude, as in the corresponding learned decisions, that land for construction cannot be considered as urban properties with residential use.

e) She further emphasizes that the legislator himself had this understanding, by coming to establish the taxation in SD of land for construction, through article 194 of Law 83-C/2013 of 31 December, amending the wording of item 28.1 of TGIS, which had been given by Law 55-A/2012 of 29 October.

f) For her part, the respondent understands that land for construction has the legal nature of properties with "residential use" since in the determination of their VPT the coefficient of residential use provided for in article 41 of CIMI is taken into account, and cites, in this sense, Judgment 04950/11 of 14/02/2012 of the CAC of the South which considers that the regime for assessment of the patrimonial value of land for construction is enshrined in article 45 of CIMI, being equal to that of constructed buildings, although starting from the building to be constructed, based on the project.

g) She understands that the expression "residential use" of item 28 of TGIS appeals to a classification that overlays the species of urban properties provided for in article 6(1) of CIMI and that the legislator in using it intended to integrate other realities beyond those mentioned in the CIMI norm, concluding that the assessments in question should be maintained and AT be absolved of the petition.

h) Having summarized the positions of the petitioner and the respondent, we shall proceed below to an analysis of the tax base rule of SD on urban properties with residential use.

i) Item 28 of TGIS, added by Law no. 55-A/2012, subjects to SD urban properties with residential use whose VPT, determined in accordance with CIMI, is equal to or greater than €1,000,000.00.

j) The CDS refers to CIMI the regulation of the concept of property and of matters not regulated regarding item 28 of TGIS (see article 1(6) and article 67(2), both of CDS).

k) If we look at article 6 of CIMI, it is established there that urban properties are divided into residential, commercial, industrial or service properties, land for construction and others.

l) From its subsection 2 it follows that urban residential properties "are buildings or constructions licensed for such purpose or in the absence of a license, that have such purpose as their destination" and its subsection 3 tells us that land for construction "are those located within or outside an urban settlement, for which a license or authorization for subdivision or construction operations has been granted, and also those that have been thus declared in the title of acquisition...".

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

n) The SD legislator, in establishing the taxation of urban properties "with residential use", did not specify the concept, so we shall, by force of the referral, have to go to CIMI and this, as has already been seen, grants them autonomy with respect to land for construction.

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

p) We follow the position advocated in case 49/2013 which is transcribed: "The expression 'with residential use' inculcates, in a simple reading, an idea of real and present functionality. From the norm in question it is not possible to extract, by interpretation, that, as is stated in the respondent's response, the legislator's choice of that expression is intended to integrate 'other realities beyond those identified in article 6(1)(a) of CIMI.' Such interpretation has no legal support, 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 encompass within the scope of the tax other realities than those resulting from the classification governed by article 6 of CIMI, he would have said so expressly. But he does not, instead referring, in bulk, to the concepts and procedures provided for in the said Code. Furthermore, the respondent's understanding cannot also be accepted in the sense that the concept of 'residential use' derives from the norm of article 45 of CIMI. This article refers to the rules applicable in determining the patrimonial value of land for construction establishing that this is what results from the value of the area of the building's footprint added to 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 the authorized or planned buildings. According to the respondent, in fixing the value of the authorized or planned buildings on the land to be evaluated, the coefficients applicable in determining the patrimonial value for taxation purposes are used, namely the coefficient of use provided for in article 1 of that Code. Concluding from 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 determining for purposes of application of Item 28 of TGIS. This conclusion is supported on the premise that the expression 'properties with residential use' appeals to a classification that overlays the species provided for in article 6(1) of CIMI. It is not possible, however, to follow such conclusion. [...]. In these terms, resulting from article 6 of CIMI a clear distinction between urban properties 'residential' and 'land for construction', these cannot be considered, for purposes of incidence of stamp duty, as 'properties with residential use.'»

q) The legislator, when intending to tax in SD land for construction, revisited item 28 of TGIS, through Law no. 83-C/2013, of 31 December, and there introduced them, which proves that in the formulation of Law no. 55-A/2012, land for construction was excluded from taxation in SD by item 28 of TGIS and now, through Law no. 83-C/2013, they came to be taxed, so it seems clear to us that the legislator considers that the expression "residential use" did not include land for construction.

r) Nor should it be said that the fact that article 45 of CIMI provides for the application of a coefficient of residential use in determining the VPT of land for construction, will be a sufficient condition, in itself, to permit their inclusion in the tax base rule of item 28 added by Law no. 55-A/2012, nor indeed to alter its nature as land for construction, given that what is at issue here is solely to determine the VPT which will be influenced by the type of buildings to be carried out (which, it should be said, are not always materialized).

s) Judgment 04950/11 of 14/02/2012 of the CAC of the South cited by AT which considers that the regime for assessment of the patrimonial value of land for construction is enshrined in article 45 of CIMI, being equal to that of constructed buildings, although starting from the building to be constructed, based on the project, is a finding that is limited to determining the VPT and nothing more than that.

t) Now, as has already been seen, article 6 of CIMI results in an unmistakable distinction between residential properties and land for construction, which prevents these from being taxed in SD in the terms sought by the respondent.

u) In this sense various arbitral decisions have already been rendered, namely cases 42, 48, 49 and 75, all of 2013 and by the SAC[13].

v) The taxation in question here occurred only due to error attributable to AT's services, since item 28 of TGIS, as amended by Law 55-A/2012, did not permit taxation in SD of land for construction, therefore it should be annulled with all legal consequences flowing therefrom.

3.2 – Regarding the Reimbursement of Amounts Improperly Paid plus Compensatory Interest

a) Being declared the illegality of the debt and the consequent annulment, AT is obligated to restore the situation that would have existed if the annulled act had not been performed, in accordance with the provisions contained in article 100 of the LGT.

b) In this sense Diogo Leite Campos/Benjamim Silva Rodrigues/Jorge Lopes de Sousa pronounce themselves in annotation to the aforementioned article 100 of the LGT 2nd edition.

c) Thereby, verifying the illegality of the acts establishing SD assessment attributable to AT, given that it performed them without adequate legal support, and, in view of the proven payment, the petitioner has the right to payment of compensatory interest in the precise terms of article 43(1) of the LGT and article 61 of TCPC.

IV – DECISION

Given the foregoing, the tribunal decides as follows:

a) To declare that land for construction is excluded from taxation in SD provided for in item 28.1 of TGIS, as amended by Law 55-A/2012 of 29 October.

b) Consequently, to declare the petition for arbitral award well-founded, as there was error attributable to the services, annulling the acts establishing stamp duty assessment for the year 2013 in the amount of €5,725.73, with all legal consequences flowing therefrom, since the assessment in question is manifestly violative of the aforementioned tax base rule.

c) To declare the obligation of AT to reimburse the petitioner of the SD comprovably paid improperly, increased by compensatory interest, calculated at the legal rate, from the date the payment occurred to the date the reimbursement occurs.

d) To set the value of the case at €5,725.73 in accordance with the provisions contained in article 299(1) of the CPC[14], article 97-A of TCPC, and article 3(2) of RCTPA[15].

e) To set the costs, pursuant to article 22(4) of RJAT, in the amount of €612.00 in accordance with the provisions in Table I referred to in article 4 of RCTPA, to be borne by the respondent.

Notify.

Lisbon, 20 April 2015

Text drawn up by computer, in accordance with article 131(5) of the CPC, applicable by referral of article 29(1)(e) of RJAT, with blank lines and revised by the tribunal.

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

The Arbitrator

Arlindo José Francisco

[1] Acronym for Tax Identification Number
[2] Acronym for Legal Regime of Tax Arbitration
[3] Acronym for Tax and Customs Authority
[4] Acronym for Administrative Arbitration Center
[5] Acronym for General Tax Law
[6] Acronym for Tax Patrimonial Value
[7] Acronym for General Stamp Duty Table
[8] Acronym for Municipal Property Tax Code
[9] Acronym for Central Administrative Court
[10] Acronym for Constitution of the Portuguese Republic
[11] Acronym for Stamp Duty Code
[12] Acronym for Stamp Duty
[13] Acronym for Supreme Administrative Court
[14] Acronym for Civil Procedure Code
[15] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

Is building land (terreno para construção) subject to Stamp Tax under Verba 28.1 of the TGIS?
Under the original wording of Verba 28.1 of the TGIS introduced by Law 55-A/2012 of 29 October, building land (terreno para construção) was generally not considered subject to Stamp Tax, as arbitral tribunals consistently interpreted 'urban properties with residential use' to mean properties actually used for housing, not vacant land zoned for future construction. This interpretation was later confirmed by the legislator through Law 83-C/2013 of 31 December (Article 194), which expressly amended Verba 28.1 to include building land, thereby acknowledging that such land was not originally covered by the 2012 provision.
Can land without any built structure be classified as having housing allocation (afectação habitacional) for Stamp Tax purposes?
No, land without any built structure cannot be classified as having housing allocation (afectação habitacional) for Stamp Tax purposes under Verba 28.1 in its original 2012 formulation. Although the Tax Authority argued that the use of the residential coefficient in calculating the VPT (patrimonial value) under CIMI Article 41 demonstrates residential character, arbitral tribunals rejected this reasoning, holding that the calculation methodology does not determine actual use. The fact that land is authorized for residential construction does not fiscally alter its classification as undeveloped land. Only after Law 83-C/2013 expressly included 'terrenos para construção' in the amended Verba 28.1 did such land become subject to the tax.
What is the VPT threshold that triggers Stamp Tax liability under Verba 28 of the TGIS?
The VPT (Valor Patrimonial Tributário) threshold that triggers Stamp Tax liability under Verba 28 of the TGIS is €1,000,000.00 (one million euros). This threshold applies to the total patrimonial value of the urban property with residential use. Properties with VPT equal to or exceeding this amount are subject to an annual stamp duty. For co-owned properties, each owner is liable for stamp duty proportional to their ownership share if the total property value meets or exceeds the €1,000,000 threshold.
How does the CAAD arbitration process work for challenging Stamp Tax assessments on real estate?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for challenging Stamp Tax assessments involves: (1) filing a request for arbitral award under RJAT Article 10(1)(a) after an administrative complaint has been rejected; (2) the CAAD President accepting the request and notifying the Tax Authority; (3) appointment of an arbitrator by the President of the Ethics Council; (4) constitution of the arbitral tribunal; (5) the Tax Authority filing a response; (6) optional hearing under RJAT Article 18 (which parties may waive); and (7) issuance of the arbitral award. The process provides a faster alternative to judicial courts, with the tribunal examining both factual and legal matters to determine whether the tax assessment should be annulled, with consequences including reimbursement of amounts improperly paid plus compensatory interest under LGT Article 43.
Does the housing allocation coefficient (coeficiente de afectação) in CIMI Article 41 apply to building land for Stamp Tax?
The housing allocation coefficient (coeficiente de afectação habitacional) in CIMI Article 41 is used administratively to calculate the VPT of building land, but this calculation methodology does not, by itself, classify the land as having residential use for Stamp Tax purposes under the original Verba 28.1. While the Tax Authority argued that applying the residential coefficient in VPT calculations demonstrates that building land has the 'legal nature' of residential property, arbitral tribunals rejected this interpretation, holding that a calculation technique cannot override the substantive legal classification of the property. The distinction is critical: CIMI Article 41 provides a valuation method for fiscal purposes, but Verba 28.1 (pre-2013 amendment) required actual residential use, not merely a residential valuation coefficient.