Process: 767/2014-T

Date: June 30, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

This arbitration case concerns whether building land (terreno para construção) is subject to Stamp Tax under item 28.1 of the Portuguese General Stamp Tax Table (TGIS) in its 2013 version. The claimant challenged a Stamp Tax assessment on a property registered as building land, arguing that 'property with residential use' should be interpreted according to CIMI definitions as buildings or structures actually licensed for residential purposes, not mere potential future use. The claimant contended that including building land exceeded permissible interpretation limits and that subsequent legislative amendments expressly adding building land proved it was not originally included. The Tax Authority countered that CIMI's valuation methodology applies use coefficients to building land under Article 45(2), that 'properties with residential use' is broader than constructed properties, and that building rights and master plans establish residential use before construction occurs. The case highlights fundamental questions about whether tax liability should be based on actual present use versus potential future destination, the limits of legal interpretation when statutes lack explicit definitions, and whether treating building land differently from constructed properties violates constitutional equality principles. This arbitration illustrates the legal uncertainty that existed before legislative clarification regarding the scope of residential property taxation for Stamp Tax purposes.

Full Decision

ARBITRAL AWARD

Claimant: A… – Real Estate Investments, Ltd.

Respondent: AT - Tax and Customs Authority

I - REPORT

1. Claim

A... – Real Estate Investments, Ltd, legal entity No. …, with registered office at Avenida do …, No. …, …º Floor, …-… ..., hereinafter referred to as the Claimant, submitted, on 13-11-2014, pursuant to the provisions of paragraph a) of Article 2(1) and Article 10 of Decree-Law No. 10/2011, of 20 January, which approves the Legal Framework for Tax Arbitration (RJAT), a request for arbitral award, against the AT - Tax and Customs Authority, with a view to:

  • Annulment of the Stamp Tax assessment decision bearing number …, issued on 18-03-2014, pursuant to item 28.1 of the General Stamp Tax Table (TGIS), relating to the year 2013, and concerning the property described in the Property Registry of ..., under number …, and registered in the property matrix under article … of the Union of Parishes of … and …, … and …, municipality of ...;

The Claimant alleges, in substance, the following:

  • The expression "property with residential use," contained in item 28.1 of the General Stamp Tax Table, must be interpreted in such a manner as to correspond to the definition of "urban residential property" in Article 6(1), paragraph a) and Article 6(2) of the Municipal Property Tax Code (CIMI);

  • Property with residential use in item 28.1 of the TGIS is the building or structure licensed for residential purposes or which has residential use as its normal destination, as defined in the CIMI;

  • Building land does not fall within such a definition;

  • In the interpretation of the term "use," it is not possible to substitute the reference to the property's destination for a specific purpose with reference to the potential future destination of the property for that same purpose. Such an interpretation would disregard the legislative intent underlying the choice to limit taxation to residential properties;

  • An interpretation that includes building land in the expression "property with residential use" disregards the most elementary limits of legal interpretation and is therefore inadmissible;

  • From the historical element of interpretation, it follows that, for the actual author of the law, "properties with residential use" are only buildings or structures; it further follows that the legislator's intention was to tax residential properties that demonstrate a particularly high capacity to contribute, which is not the case with building land;

  • The amendment made to item 28.1 of the TGIS, which expressly included building land therein, shows the legislator's recognition of the difference between a property with residential use and building land;

2. Response of the Respondent

In response to the request for arbitral award submitted by the Claimant, the Respondent AT - Tax and Customs Authority opposed the request based on the following arguments:

  • Since the Stamp Tax Code does not define what should be understood by urban property, building land, or residential use, it is necessary to resort to the CIMI for this purpose, where the notion of use of the urban property is found in the section relating to the valuation of real properties;

  • As follows from the expression "(…) value of authorized buildings," contained in Article 45(2) of the CIMI, the legislator chose to determine the application of the valuation methodology for properties in general to the valuation of building land, thus making the use coefficient provided for in Article 41 of the CIMI applicable thereto. Thus, the use of the real property (capacity or purpose) is a coefficient that contributes to the valuation of the real property in the determination of the taxable asset value, applicable to building land;

  • Item 28 of the TGIS itself refers to the expression "properties with residential use," invoking a classification that overlaps the species provided for in Article 6(1) of the CIMI. Being an expression different and broader than that used in the CIMI, its meaning must be found in the need to integrate other realities beyond those identified in Article 6(1)(a) of the CIMI;

  • The concept of "properties with residential use," for the purposes of item 28 of the TGIS, comprises both constructed properties and building land, particularly taking into account the literal element of the norm;

  • The establishment of a right of potential construction immediately increases the value of the real property;

  • The fact that the valuation of building land takes into account residential use, where applicable; the fact that the license authorization for the performance of urban development operations must contain, among other elements, the number of plots and the indication of the location area, purpose, built-up area, building area, number of floors, number of units for each of the plots, with specification of units intended for dwellings at controlled costs; and all this associated with the fact that municipal master plans establish the strategy for municipal development, the municipal policy for territorial planning and urban development and other urban policies, makes it possible, long before the actual construction of the property, to determine and ascertain the use of the building land;

  • Article 13 of the Constitution of the Republic "requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differentiation of treatment, but only arbitrary, unreasonable discriminations, that is, distinctions of treatment that lack sufficient material justification and foundation," which is not the case with the provision of item 28 of the TGIS;

  • Thus, the Respondent submits that the provision of item 28 of the TGIS does not constitute any violation of the principle of equality in Article 13 of the Constitution.

3. Subsequent Proceedings

By agreement of both parties, the Tribunal decided to dispense with the holding of the meeting provided for in Article 18 of the RJAT, as well as the pleading stage.

II – PRELIMINARY ASSESSMENT

The Single Arbitral Tribunal was duly constituted on 30-01-2015, with the arbitrator designated by the Ethics Council of the Center for Administrative Arbitration, all respective legal and regulatory formalities having been complied with (Articles 11(1), paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Code of Ethics of the Center for Administrative Arbitration), and is competent ratione materiae, in accordance with Article 2 of the RJAT.

The parties have legal capacity and standing, are legitimate, and are duly represented.

No procedural defects were identified.

III – ISSUES TO BE DECIDED

The following are the issues to be decided by the Tribunal:

  • The applicability of item 28.1 of the TGIS to building land, in the version in force on 31 December 2013;

  • In case of an affirmative answer to the previous issue, the constitutionality of the substantive tax rule contained in item 28.1 of the TGIS, if interpreted to encompass building land, in light of the constitutional principle of equality.

IV – ESTABLISHED FACTS

The following are the established facts considered relevant:

1st The Claimant was the owner, as of the date of the facts giving rise to the contested assessment, of a plot of land intended for construction, property described in the Property Registry of ..., under number … (Document 1 attached to the initial petition), and registered in the property matrix under article … of the Union of Parishes of … and …, … and …, municipality of ... (Document 2 attached to the initial petition);

2nd The property was described in the matrix as building land (Document 2 attached to the initial petition);

3rd The Claimant was notified of the Stamp Tax assessment decision bearing number …, issued on 18-03-2014, pursuant to item 28.1 of the General Stamp Tax Table (TGIS), relating to the aforementioned property and for the year 2013 (Document 3 attached to the initial petition);

4th The Claimant filed, on 5-6-2014, an administrative review against the aforementioned assessment (Document 6 attached to the initial petition);

5th The administrative review was dismissed by decision of 22-8-2014 of the Head of Tax Service and ... (Document 6 attached to the initial petition).

The established facts were established based on the documentation submitted by the Claimant.

V - REASONING

(i) Issue of the applicability of item 28.1 of the TGIS to building land

On this issue, and in the exact terms in which it is posed here, the Supreme Administrative Court has ruled repeatedly, predominantly in a sense consistent with the position of the Claimant (see the rulings of that Court delivered on 24/9/2014, case Nos. 01533/13, 0739/14 and 0825/14; of 10/9/2014, case Nos. 0503/14, 0707/14 and 0740/14; of 9/7/2014, case No. 0676/14; of 2/7/2014, case No. 0467/14; of 28/5/2014, case Nos. 0425/14, 0396/14, 0395/14; of 14/5/2014, case Nos. 055/14, 01871/13 and 0317/14; of 23/4/2014, case Nos. 270/14 and 272/14; and of 9/4/2014, case Nos. 1870/13 and 48/14).

The same issue was also addressed by arbitral tribunals, namely in proceedings Nos. 151/2014-T, 42/2013-T, 48/2014-T, 49/2013-T, 53/2014-T, 75/2013-T, 144/2013-T, 158/2013-T, 180/2013-T, 189/2013-T, among others, with arbitral jurisprudence also being overwhelmingly to the effect that the provision of item 28.1 of the TGIS, in the version in force until 31 December 2013, did not encompass building land.

Among the many rulings handed down by the Supreme Administrative Court on this issue, the following ruling in the aforementioned case is cited, in which it is stated:

"The concept of 'property (urban) with residential use' was not defined by the legislator. Neither in Law No. 55-A/2012, which introduced it, nor in the IMI Code, to which Article 67(2) of the Stamp Tax Code (also introduced by that Law) refers on a subsidiary basis. And it is a concept which, probably due to its imprecision – a fact all the more serious as it is in function of it that the scope of the objective tax rule of the new taxation is defined – had a short life, as it was abandoned when Law No. 83-C/2013, of 31 December, entered into force (the State Budget Law for 2014), which gave new wording to item 28 of the General Table, and which now defines the scope of its objective tax rule through the use of concepts that are legally defined in Article 6 of the IMI Code.

This amendment – to which the legislator did not attribute an interpretive character, nor does it appear to us that it did – merely makes it unambiguous for the future that building land whose construction, authorized or planned, is for residential purposes is encompassed within the scope of item 28.1 of the General Stamp Tax Table (provided that its respective taxable asset value is equal to or greater than 1 million euros), while clarifying nothing, however, regarding past situations (assessments for 2012 and 2013), such as the one at issue in the present proceedings.

Now, as to these, it does not appear possible to adopt the interpretation of the claimant, as it does not follow unambiguously either from the letter or from the spirit of the law that the intention thereof was, ab initio, to encompass within the scope of its objective tax rule building land for which the construction of residential buildings was authorized or planned, as follows unambiguously today from item 28.1 of the General Stamp Tax Table.

From the letter of the law nothing unambiguous follows, indeed, as it itself, in using a concept which it did not define and which also was not defined in the statute to which it referred on a subsidiary basis, unnecessarily lent itself to ambiguities, in a matter – tax incidence – in which certainty and legal security should also be paramount concerns of the legislator.

And from its 'spirit,' discernible in the statement of reasons of the legislative proposal which is the origin of Law No. 55-A/2012 (…) nothing more follows than the concern to raise new tax revenue, from sources of wealth "spared" in the past from the tax authority compared with labor income, in particular capital income, securities gains and property, reasons which bring no relevant contribution to the clarification of the concept of 'properties (urban) with residential use,' as they take it for granted, without any concern to clarify it. Such clarification, however, appears to have emerged (…), when the legislative proposal was presented and discussed in the National Assembly, in the words of the Secretary of State for Tax Affairs, who is reported to have expressly stated, (…) that: 'The Government proposes the creation of a special tax on high-value urban residential properties. It is the first time that Portugal has created special taxation on high-value properties intended for residential use. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses with a value equal to or greater than 1 million euros' (…) from which it follows that the reality to be taxed envisaged is, after all, and despite the terminological imprecision of the law, 'properties (urban) residential,' in current language 'houses,' and not other realities.

The fact that it may be considered that in determining the taxable asset value of urban properties classified as building land, one should take into account the use that the construction authorized or planned for it will have for determining the respective value of the built-up area (cf. Articles 45(1) and (2) of the CIMI), does not determine that building land may be classified as 'properties with residential use,' as the 'residential use' in the IMI Code is always referred to 'buildings' or 'structures,' existing, authorized, or planned, as only these can be inhabited, which does not occur in the case of building land, which does not have, in itself, conditions for such, and is not susceptible of being used for residential purposes unless and until thereon the structure authorized and planned for it is built (but in that case they will no longer be 'building land' but another species of urban properties – 'residential,' 'commercial, industrial or for services,' or 'other' – Article 6 of the CIMI).

It would be strange, indeed, if the determination of the scope of the substantive tax rule of item 28 of the General Stamp Tax Table were found, after all, in the rules for determining the taxable asset value of the IMI Code, and if the terminological imprecision of the legislator in the wording of that rule were, after all, elucidated and finally clarified through an indirect and ambiguous reference to the use coefficient established by the legislator in relation to constructed properties (Article 41 of the IMI Code).

Thus, taking into account that building land – whatever the type and purpose of the structure that will be, or may be, erected thereon – does not by itself satisfy any condition to be so licensed or for residential use to be defined as its normal destination, and the substantive tax rule of the Stamp Tax referring to urban properties with 'residential use,' without any specific concept being established therefor, one cannot extract from it that it contains a future potential, inherent to a distinct property that may possibly be built on the land.

It is concluded, therefore, in accordance with the decision of the court below, that, as it follows from Article 6 of the IMI Code that there is a clear distinction between 'residential' urban properties and 'building land,' the latter cannot be considered as 'properties with residential use' for the purposes of item 28.1 of the General Stamp Tax Table, in its original wording, as given by Law No. 55-A/2012, of 29 October."

Based on this jurisprudence, which is entirely adopted herein, it is concluded that the challenge to the illegality of the contested assessment is well-founded, due to an error in the prerequisites for the application of the provision of item 28.1 of the TGIS.

(ii) Issue of the unconstitutionality of the substantive tax rule contained in item 28.1 of the TGIS, if interpreted to encompass building land, in light of the constitutional principle of equality

Given that the challenge to the illegality of the contested assessments due to an error in the prerequisites for the application of item 28.1 of the TGIS is well-founded, the analysis of the issue of the unconstitutionality of that rule when interpreted to encompass building land, in light of the constitutional principle of equality, becomes unnecessary.

VI. DECISION

For the reasons stated, this Tribunal decides the annulment of the contested Stamp Tax assessment decision.

Case value: The case value is set at 17,635.48 euros.

Costs: Pursuant to Article 22(4) of the RJAT, the amount of costs is set at 1,224.00 euros, in accordance with Schedule I attached to the Costs Regulation in Tax Arbitration Proceedings, to be borne by the Respondent.

Let this arbitral award be registered and notice thereof given to the parties.

Lisbon, Center for Administrative Arbitration, 30 June 2015.

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

Is construction land subject to Stamp Tax under Verba 28.1 of the Portuguese General Stamp Tax Table?
Under the 2013 version of item 28.1 of the General Stamp Tax Table (TGIS), there was significant legal controversy over whether building land (terreno para construção) was subject to Stamp Tax. The Tax Authority argued that building land with residential destination should be taxed based on CIMI valuation rules that apply use coefficients to building land. However, taxpayers contended that only actual buildings or structures with residential use qualified for taxation. This ambiguity was later resolved through legislative amendment that expressly included building land, suggesting the original provision's scope was unclear and likely did not clearly encompass undeveloped plots.
How is 'property with housing allocation' interpreted for Stamp Tax purposes on land for construction?
For Stamp Tax purposes, 'property with residential use' under item 28.1 TGIS was disputed between two interpretations. Taxpayers argued it should align with CIMI Article 6 definitions requiring actual buildings or structures licensed for residential purposes, meaning present use not potential future destination. The Tax Authority advocated a broader interpretation encompassing building land where residential use is determined through urban planning licenses, master plans, and CIMI valuation methodologies that apply residential use coefficients under Article 45(2). The interpretation centered on whether 'use' means current physical utilization or legally authorized future purpose embedded in property valuation and planning permissions.
Can a taxpayer challenge Stamp Tax assessments on construction land through CAAD arbitration?
Yes, taxpayers can challenge Stamp Tax assessments on construction land through CAAD (Centro de Arbitragem Administrativa) arbitration under the Legal Framework for Tax Arbitration (RJAT). This case demonstrates the arbitration process: the claimant filed under Article 2(1)(a) and Article 10 of Decree-Law 10/2011 seeking annulment of the Stamp Tax assessment on building land. The arbitral tribunal has jurisdiction over disputes concerning the legality of tax assessments, including interpretation of item 28.1 TGIS and constitutional challenges based on equality principles. Arbitration provides an alternative to judicial courts for resolving tax disputes efficiently.
What legislative changes clarified the scope of Verba 28.1 TGIS regarding construction land taxation?
Legislative changes to item 28.1 of the General Stamp Tax Table clarified that building land (terreno para construção) is expressly included within the scope of Stamp Tax on properties with residential use. The claimant in this case specifically referenced an amendment that added building land explicitly to the provision, arguing this demonstrated the legislator's recognition that building land and residential properties were originally distinct categories. This subsequent legislative clarification resolved the interpretative controversy about whether undeveloped plots destined for residential construction fell within the original statutory language, confirming that express inclusion was necessary because the prior text was ambiguous or did not clearly encompass such land.
Does the CIMI definition of residential urban property apply to Stamp Tax on building plots?
The relationship between CIMI (Municipal Property Tax Code) definitions and Stamp Tax on building plots was central to this dispute. The Tax Authority argued that since the Stamp Tax Code lacks specific definitions, CIMI provisions apply, particularly Article 45(2) which extends property valuation methodology including residential use coefficients to building land. However, taxpayers contended that CIMI Article 6 definitions of 'urban residential property' require actual buildings or structures, and that valuation rules (which consider potential use for assessment purposes) differ from substantive tax liability rules. The case reveals tension between using CIMI as an interpretative reference versus recognizing fundamental differences between property tax and stamp tax purposes.