Process: 77/2018-T

Date: July 13, 2018

Tax Type: Selo

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 77/2018-T) examines whether Stamp Tax under Clause 28.1 of the General Stamp Tax Table (TGIS) applies to undeveloped construction land. The claimant, A... S.A., challenged Stamp Tax assessments totaling approximately €40,000 on two building land plots valued over €1 million each, registered for commerce and collective housing. The taxpayer argued that Clause 28.1 applies exclusively to land designated solely for housing, not mixed-use land, and that the provision violates constitutional principles of contributory capacity and legality. The Tax Authority (AT) countered that the property registers showed housing allocation, asserting that Clause 28.1 was introduced during Portugal's economic adjustment program (2012-2013) to tax high-value property ownership as a manifestation of enhanced contributory capacity. The AT emphasized that this tax targets individual luxury properties valued at €1 million or more, regardless of whether they are developed or undeveloped land. The dispute centers on the interpretation of 'terrenos para construção exclusivamente para habitação' (land for construction exclusively for housing) and whether mixed-use designation exempts properties from this tax. The case also raises fundamental questions about the constitutionality of taxing undeveloped land based solely on assessed value, the proper scope of emergency fiscal measures introduced during economic crises, and whether such taxation respects the principle that tax should correspond to actual contributory capacity rather than potential future use.

Full Decision

ARBITRAL DECISION (see full version in PDF)

REPORT

A… S.A., taxpayer no.…, with tax domicile at Rua …, no. …/…, in Porto, submitted on 28/02/2018, a request for arbitral pronouncement, in which it petitions the declaration of illegality of the act of dismissal of the ex officio review procedure no. …2017… and of the tax acts assessing Stamp Tax for the year 2015, concerning item 28.1 of the General Table of Stamp Tax.

His Excellency the President of the Deontological Council of the Administrative Arbitration Centre (CAAD) designated, on 13/03/2018, as sole arbitrator the signatory of this decision.

On 11/05/2018 the arbitral tribunal was constituted.

In compliance with the provisions of article 17, paragraph 1 of the Legal Framework of Tax Arbitration (RJAT), the Tax and Customs Authority (AT) was notified on 14/05/2018 to, if it so wished, present a response and request the production of additional evidence.

On 12/06/2018 the AT presented its response, accompanied by the respective administrative file.

The arbitral tribunal on 15/06/2018 decided to dispense with the holding of the meeting referred to in article 18, paragraph 1 of the RJAT, on the basis of the principle of autonomy of the arbitral tribunal in conducting the proceedings, inviting both parties to, if they so wished, present optional written submissions and scheduled the date for pronouncement of the final decision.

The Claimant and the Respondent did not present optional written submissions.

CASE MANAGEMENT

The arbitral tribunal was duly constituted and is materially competent.

The parties have legal personality and capacity and are legitimate, with no defects in representation.

There are no nullities, exceptions or preliminary issues that prevent knowledge of the merits and which should be known ex officio.

Consequently, the conditions are met for pronouncement of the final decision.

POSITIONS OF THE PARTIES

There are two positions in confrontation: that of the Claimant, set forth in the request for arbitral pronouncement, and that of the AT in its response.

In summary, the Claimant contends that the assessment in question is affected by the following defects:

Illegality resulting from the erroneous interpretation of Item no. 28.1 of the General Table of Stamp Tax (General Table), in that it applies only to land for construction with exclusive allocation for housing, the legislature having chosen not to burden the productive sector; and furthermore

Illegality resulting from error regarding the legal presuppositions by application of a norm materially unconstitutional, on the basis of violation of the constitutional principles of contributive capacity and legality.

In a different manner, the AT contends that:

In the property registers that form the basis of the assessments in question, it is verified that both building land plots are allocated to housing;

Law no. 55-A/2012, of 29 October, which amended article 1 of the Stamp Tax Code, added to the General Table of this tax Item no. 28, such that Stamp Tax now applies also to ownership, usufruct or right of superficies of urban properties whose tax-assessed value recorded in the respective property register in accordance with the Property Tax Code (CIMI) is equal to or exceeding €1,000,000.00;

The AT further argues that long before the actual building of the property, it is possible to ascertain and determine the allocation of the building land;

With regard to the alleged unconstitutionality of the assessments, the AT contends that Item no. 28.1 of the General Table does not violate any constitutional parameter, in particular the principles of equality and contributive capacity;

More recent decisions of the Constitutional Court correctly note that the principle of equality requires that what is necessarily equal be treated equally and what is essentially different be treated differently, not preventing differentiated treatment, but only arbitrary, unreasonable discriminations, that is, distinctions in treatment that lack sufficient material justification and basis;

Furthermore, Item no. 28.1 of the General Table arose in an exceptional context and one of evident difficulties that the country, especially its public accounts, faced during compliance with the adjustment programme to which the Portuguese Republic committed itself and which had as its guiding document the Memorandum of Understanding on the Conditions of Economic Policy, of 17 May 2011.

It follows further from the statement of reasons accompanying the Bill no. 96/XII (2nd), from the statements of His Excellency the State Secretary for Tax Affairs and from the Report accompanying the State Budget Proposal for 2013, the unambiguous intention of the legislature to integrate into the collective effort to combat budgetary deficit and compliance with the adjustment programme, those sectors of Portuguese society that revealed wealth through ownership of properties whose tax-assessed value was equal to or exceeding €1,000,000.00, thus equitably encompassing a broad set of sectors of Portuguese society, groups usually exempted from such burdens, which revealed wealth through ownership of properties whose tax-assessed value was equal to or exceeding €1,000,000.00, given that "it cannot always be the same ones – employees and pensioners bearing the tax burden";

It was thus intended to configure a taxation that would apply, in a specific manner, to individual property components of the taxpayer's assets deemed to be luxury (not on the overall assets themselves as a whole), as it was understood that ownership of such high-value residential real property reflected an enhanced contributive capacity capable of explaining the increased contribution of their respective owners to the common effort of budgetary consolidation.

In fact, the legal-factual reality selected by the legislature to constitute the base of tax incidence is the property itself, considered individually, in view of its allocation and its tax-assessed value, not the overall property assets of the taxable persons.

Now, the reference to the property individually considered results axiomatically from the legal definition and scope of this regulation which is the subject of Item no. 28.1 of the General Table, from which it is immediately observed that this is an analytical taxation on certain and determined urban properties whose taxable base is given by the tax-assessed value of each property.

And what results from the law itself, results a priori from the legislative choice itself, when the intention was exclusively to establish that ownership of residential properties of value exceeding the stated amount demonstrates that the respective owner has special contributive capacity, that is, can acquire a single property under these conditions.

FACTS

FACTS ESTABLISHED

In light of the documents placed on the record, it is established as proven that:

The Claimant is the owner and legitimate proprietor of the urban properties registered, respectively, in the competent urban property register under articles no. … and no. … of the Union of freguesias of … and ….

The aforementioned urban properties had no building or construction erected on their soil at the date of the assessments in question, being mere "building land", allocated to commerce and collective housing.

The tax-assessed value of the urban properties in question amounts, respectively, to €1,975,450.00 (one million, nine hundred and seventy-five thousand, four hundred and fifty euros) and €2,030,640.00 (two million, thirty thousand, six hundred and forty euros).

During the year 2016, the Claimant was notified by the AT of Stamp Tax assessed in accordance with Item 28.1 of the General Table, as amended by Law no. 83-C/2013, of 31 December, respectively, in the amounts of €19,754.50 (nineteen thousand, seven hundred and fifty-four euros and fifty cents) and €20,306.40 (twenty thousand, three hundred and six euros and forty cents), with reference to the instalments of April, July and November, in the total amount of €40,060.90, as detailed below:

Although not agreeing with the assessments in question, the Claimant proceeded to full payment of the instalments of April, July and November, in the total amount of €40,060.90.

By not agreeing with the assessments embodied in the tax acts in question, the Claimant submitted, on 24/07/2017, a request for ex officio review to the Finance Office of Porto, which was dismissed.

However, by not agreeing with the dismissal order, the Claimant filed the present request for arbitral pronouncement.

FACTS NOT ESTABLISHED

There are no facts relevant to the decision that have not been established as proven.

THE LAW

In accordance with the wording in force at the date of the facts, as amended by Law no. 83-C/2013, of 31 December, Item no. 28.1 of the General Table establishes that Stamp Tax applies to:

"28 - Ownership, usufruct or right of superficies of urban properties whose tax-assessed value recorded in the register, in accordance with the Property Tax Code (CIMI), is equal to or exceeding (euro) 1,000,000 - on the tax-assessed value used for purposes of Property Tax:

28.1 - Per residential property or per building land whose authorized or planned construction is for housing, in accordance with the provisions of the Property Tax Code - 1%" [emphasis added];

In light of the letter of the law, it is verified that the rule of incidence, as regards building land, restricts the taxable event to building land whose authorized or planned construction is exclusively for housing.

Now, in the absence of a definition of "building land" in the Stamp Tax Code, it is necessary to determine the concept of "building land" as provided in article 6, paragraph 3 of the Property Tax Code.

Thus, building land is considered to be "(…) land situated within or outside an urban agglomeration, for which a licence or authorization has been granted, prior notification admitted or favourable preliminary information issued for a subdivision or construction operation, and also those declared as such in the acquisition title, except land where the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land use plans, are allocated to public spaces, infrastructure or facilities".

In fact, the concept of "building land" for tax purposes should not be understood as a concept of a formal nature, but rather as a concept of a material nature, especially reflected in the potential destination for construction.

In this sense, José Maria Fernandes Pires argues that "The value of building land corresponds fundamentally to a legal expectancy, embodied in a right to construct thereon a property with certain characteristics and a certain value." [1] [emphasis added].

In practice, prior to the exercise of the right to construct thereon, what exists is a mere expectancy of being able to erect a construction.

Thus, ownership of the right of property over building land, even if of value exceeding €1,000,000.00, on which no construction is erected, nor authorized or planned, cannot be considered a manifestation of wealth falling within Item no. 28.1 of the General Table.

In fact, "building land" is not, and cannot be considered as such, with a property allocated exclusively to housing.

In reality, the land may never be built upon; it may be built upon exclusively for commercial purposes; it may even be built upon simultaneously for commercial and residential purposes or still for collective housing.

Also argue João Ricardo Catarino and Vasco Branco Guimarães that "Stamp Tax on properties of high tax-assessed value was created in 2012, by Law no. 55-A/2012, of 29 October, and represents, in substantive terms, an additional Property Tax rate on such properties, despite being, from a legal standpoint, yet another fact subject to Stamp Tax."

"Generally subject to this tax are urban properties with tax-assessed value equal to or exceeding 1 million euros that are allocated to housing or are building land whose authorized or planned construction is for housing, in accordance with the provisions of the Stamp Tax Code." [emphasis added] [2].

On the other hand, argue António Santos Rocha and Eduardo José Martins Brás that "(…) first, (…) the stamp tax provided for in this item applies solely to urban property, such that all properties classified as rustic shall be excluded from it."

"In this manner, Item 28.1 shall cover urban properties that fall within the category of residential urban properties and building land whose authorized or planned construction is intended for housing (…) whose tax-assessed value recorded in the register is equal to or exceeding €1,000,000." [emphasis added] [3].

Andreia Gabriel Pereira, in turn, understands that "As far as objective incidence is concerned, the Tax Administration has maintained that the original provision of Item no. 28 of the General Table of Stamp Tax permitted, from the outset, the taxation of building land whose tax-assessed value reached or exceeded 1 million euros."

"However, on this point, there is already abundant jurisprudence from the Supreme Administrative Court and arbitral jurisprudence (issued by arbitral tribunals constituted with the CAAD under the Legal Framework of Tax Arbitration) to the contrary."

"In accordance with that jurisprudence, since the legislature has not defined the concept of 'urban property with residential allocation' on which the incidence of the aforementioned Item no. 28 of the General Table of Stamp Tax depends, it is necessary to resort to the rules of the Property Tax Code and, insofar as article 6 of the Property Tax Code sets forth a clear distinction between residential urban properties and building land, it is concluded that these cannot be considered for purposes of incidence of Stamp Tax as 'urban properties with residential allocation' – see, by way of example, the judgment of the Supreme Administrative Court of 29 October 2014, rendered in case no. 0505/14 or the arbitral decision issued in case no. 202/2014, on 16 October 2014." [emphasis added].

"To put an end to the growing litigation in this matter and recognizing the absence of a legal provision that previously permitted it, the legislature amended, through the State Budget for 2014, point 28.1 of Item no. 28 of the General Table of Stamp Tax, now expressly providing that, in addition to 'residential properties', included in the incidence of this Item are 'building land whose authorized or planned construction is for housing' – see, article 194 of the State Budget for 2014, approved by Law no. 83-C/2013, of 31 December." [emphasis and highlight added].

"Simply, as the Supreme Administrative Court has also maintained, said amendment does not have an interpretative character – see, judgment of the Supreme Administrative Court of 2 July 2014, rendered in case no. 0467/14 –, which determines that building land whose authorized or planned construction is intended for housing with value equal to or exceeding 1 million euros can only be subject to taxation by application of Item no. 28 of the General Table of Stamp Tax from 2014 onwards (…)" [emphasis added] [4]

In the case at hand, the authorized construction provides for the constructed properties to be used for commercial purposes.

On the other hand, licensing does not, in itself, guarantee the completion of the work, such that there exists an uncertainty as to the verification of effective residential use.

As, moreover, results from amendment no. …/07 to the subdivision permit no. …/91, it is provided that the urban property of the kind "building land" in question is allocated both to collective housing and to commerce.

Now, within the scope of application of Item no. 28.1 of the General Table, the jurisprudence has been consistent in considering that "(…) only properties that are actually allocated to housing fall within the scope of incidence (…), an interpretation which was based on the literal element 'allocation', which presupposes a concrete and actual use for housing, and on the 'ratio legis', resulting from the restriction of the scope of application of the rule to properties with residential allocation, in the circumstances in which the law was enacted." [5]

Now, the current wording of Item no. 28.1 of the General Table, introduced by Law no. 83-C/2013, of 31 December, expanded, in an innovative manner, the scope of the objective incidence of the rule, by including, in an explicit manner, "building land" for which authorization or planned construction for housing has been granted.

However, although the previous wording restricted the scope of incidence to actual use for housing, the current wording of Item no. 28.1 of the General Table, having come to include "building land", maintained the condition relating to the inclusion of construction, authorized or planned, being for housing.

In practice, the scope of incidence continues to be restricted, in the case of "building land", to construction authorized or planned to be for housing, in accordance with the provisions of the Property Tax Code.

For which reason, it cannot be considered the sole and exclusive condition for application of Item no. 28.1 of the General Table the fact that the "building land" has a tax-assessed value exceeding €1,000,000.00.

In this measure, subjection to Item no. 28.1 of the General Table depends on the cumulative fulfilment of the following requirements (in addition to property of the property):

the tax-assessed value recorded in the register, in accordance with the Property Tax Code, being equal to or exceeding €1,000,000.00;

being building land; and

the construction authorized and planned for it being for housing, in accordance with the Property Tax Code. [6]

It is therefore necessary to verify in the case at hand the fulfilment of these.

As to the first requirement, the Claimant does not contest the tax-assessed value of the property, such that the same is verified: the property considered as a whole has tax-assessed value exceeding €1,000,000.00.

As to the second requirement, neither does the Claimant contest the classification of the property as "building land" nor its inclusion in the definition contained in article 6, paragraph 3 of the Property Tax Code [7], such that the same is also verified.

The fulfilment of these two requirements not being sufficient, it is necessary to analyze the third requirement: that the construction, authorized and planned, be for housing, in accordance with the provisions of the Property Tax Code.

Now, as results from the subdivision permit, the properties in question are not intended solely for housing, having mixed allocation: commerce and collective housing.

Moreover, and without it being necessary to enter into the discussion of what constitutes "authorization or planned construction for housing", both in urban planning and tax terms [8], there is no doubt in this concrete case: even if it were considered that the Subdivision Permit permits the property to be the planned construction of a building, the fact is that, in this case, the subdivision permit is clear: the destination of the "building land" is commerce and collective housing.

Being, for that reason, evident that the third requirement contained in the rule of tax incidence is not verified, in that the "building land" does not have construction, authorized or planned, allocated exclusively to housing.

In the same sense, see also the provision in the arbitral decision rendered in case no. 578/2015-T, in accordance with which:

"(…) What is proven by the property register certificate, issued in 2015, attached to the file, in which the property in question is, still at that date, described as 'building land'.

Furthermore, in addition to this, we are dealing with a property in which one part is potentially allocated to services and another to housing, such that it does not have construction planned exclusively for housing. It is, therefore, a situation not provided for, taking as reference, both the literal element and the reason for the rule of tax incidence." [highlight and emphasis added].

See also the provision in the arbitral decision rendered in case no. 522/2015-T, in accordance with which:

"(…) In light of the foregoing, on the urban property in question – 'building land, with an area of 667 m2, for which the Lisbon City Council authorized the construction of a building with 17 storeys (5 of which underground) and a total construction area of 7,511 m2, of which 2,668 m2 intended for parking, 1,363 m2 intended for commerce/offices and 3,480 m2 intended for housing' – Stamp Tax as provided for in the rule of tax incidence contained in item 28.1 of the TGIS does not apply." [highlight and emphasis added].

From all the foregoing, it is demonstrated that the cumulative requirements on which Item no. 28.1 of the General Table makes its application dependent are not met. Reason for which, the Claimant's request is upheld.

The consideration of the other questions raised by the Claimant is thus rendered moot, as the illegality of the assessments above identified has been declared, due to a substantive defect which prevents the renewal of the acts, effectively ensuring the protection of the Claimant's rights, in accordance with the provision of article 124 of the CPPT. [9]

DECISION

With the grounds set forth above, the arbitral tribunal decides:

To uphold entirely the request for declaration of illegality of the Stamp Tax assessment, concerning the year 2015, in the total amount of €40,060.90, with all legal consequences;

To order the AT to reimburse the amounts paid unduly, plus the respective legal interest; and

To order the AT to bear the costs of the present proceedings, as the losing party.

VALUE OF THE CASE

The value of the case is fixed at €40,060.90 (forty thousand and sixty euros and ninety cents), in accordance with article 97-A of the Code of Procedure and Tax Process (CPPT), applicable by virtue of items a) and b) of article 29, paragraph 1 of the RJAT and article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

COSTS

Costs to be borne by the AT, in the amount of €2,142.00 (two thousand one hundred and forty-two euros), in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, in accordance with article 22, paragraph 2 of the RJAT.

Let notification be made.

Lisbon, 13 July 2018

The Arbitrator,

(Hélder Filipe Faustino)

Text prepared by computer, in accordance with article 131, paragraph 5 of the Code of Civil Procedure, made applicable by referral from article 29, paragraph 1, item e) of the RJAT.

The wording of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] See "Lessons on Property Taxes and Stamp Tax", 2nd edition, 2013, p. 104.

[2] See "Tax Law Lessons Vol. I – General Principles and Internal Taxation", 4th edition, 2015, p. 430.

[3] See "Taxation of Property – Property Tax, Property Transfer Tax and Stamp Tax (Annotated and Commented)", 1st edition, 2015, p. 730.

[4] See "The 'Luxury Houses' and Stamp Tax. Commentary on the judgment of the Supreme Administrative Court (2nd Section), of 5 February 2015, rendered in case no. 0993/14, Rapporteur Cons. Francisco Rothes", Journal of Public Finance and Tax Law, Year VII, No. 4, July 2015, pp. 237 et seq.

[5] See, Judgment of the Supreme Administrative Court of 28 January 2015, rendered in case no. 0419/14, available at http://www.dgsi.pt.

[6] See arbitral decision rendered in case no. 116/2016-T.

[7] "Building land is considered to be land situated within or outside an urban agglomeration, for which a licence or authorization has been granted, prior notification admitted or favourable preliminary information issued for a subdivision or construction operation".

[8] See, the arbitral decision rendered in case no. 467/2015-T.

[9] Subsidiarily applicable by virtue of the provision in item a) of article 29, paragraph 1 of the RJAT.

Frequently Asked Questions

Automatically Created

Does Stamp Tax under Clause 28.1 of the TGIS apply to construction land intended exclusively for housing?
Yes, Stamp Tax under Clause 28.1 of the TGIS applies to construction land intended exclusively for housing when the tax-assessed value equals or exceeds €1,000,000. This provision was introduced by Law 55-A/2012 and applies to ownership, usufruct, or surface rights of urban properties. The key interpretative question is whether 'exclusively for housing' means only residential designation or includes mixed-use properties with a housing component.
Can construction land with mixed-use designation be subject to Stamp Tax under Clause 28.1 of the General Stamp Tax Table?
The application of Stamp Tax to mixed-use construction land under Clause 28.1 TGIS depends on property register classification. The Tax Authority argues that if property registers indicate housing allocation (even alongside commerce), the tax applies. However, taxpayers contend that 'exclusivamente para habitação' (exclusively for housing) requires pure residential designation, exempting productive sector land. The exact designation in the property register proves decisive for tax liability determination.
Is the application of Clause 28.1 of the TGIS to construction land unconstitutional under the principles of contributory capacity and legality?
The constitutionality challenge argues that Clause 28.1 TGIS violates contributory capacity principles by taxing undeveloped land without actual income generation. The Tax Authority defends constitutionality based on the 2011-2013 economic crisis context and the Memorandum of Understanding compliance. The Constitutional Court precedent cited indicates that equality principles permit differentiated treatment when materially justified, particularly during exceptional economic circumstances requiring broader societal participation in fiscal consolidation efforts.
What is the procedure for challenging Stamp Tax assessments on construction land through CAAD arbitration in Portugal?
Challenging Stamp Tax assessments on construction land through CAAD involves: (1) filing a request for ex officio review (revisão oficiosa) with the Tax Authority; (2) if dismissed, submitting an arbitration request to CAAD within the legal deadline; (3) paying required fees; (4) providing documentation including property registers, tax assessments, and dismissal decisions; (5) clearly articulating legal grounds (interpretation errors, unconstitutionality, procedural defects). The arbitral tribunal is constituted within approximately two months, with the Tax Authority responding within 30 days.
Can a taxpayer request a review (revisão oficiosa) of Stamp Tax assessments on construction land classified under Clause 28.1 TGIS?
Yes, taxpayers can request ex officio review (revisão oficiosa) of Stamp Tax assessments on construction land under Clause 28.1 TGIS. This administrative remedy must be exhausted before arbitration. The review request should identify alleged errors (incorrect legal interpretation, improper property classification, constitutional violations). If the Tax Authority dismisses the review—as occurred in this case—the taxpayer may then challenge both the dismissal decision and underlying tax assessments through CAAD arbitration, presenting substantive and constitutional arguments.