Process: 791/2014-T

Date: November 27, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

CAAD arbitration process 791/2014-T addresses whether Verba 28.1 of the Portuguese Stamp Tax General Table (TGIS) applies to terrenos para construção (land for construction) without building permits. The claimant A... S.A. contested €37,392.01 in Stamp Tax assessments on five urban properties classified as building land, each valued above €1 million. Verba 28.1 imposes a 1% annual stamp tax on urban properties with residential use valued at €1 million or more. The core legal dispute centers on whether undeveloped land for construction, lacking habitation licenses and not yet configured for residential purposes, constitutes 'property with residential use' under the Stamp Tax Code. The claimant argued that terrenos para construção cannot be considered residential property under Article 1 of the Stamp Tax Code and Verba 28.1, citing error in factual assumptions and constitutional violations. The Tax Authority countered that 'use' serves as a coefficient for determining taxable property value, asserting that literal interpretation of Verba 28.1 encompasses land for construction, taking precedence over Property Tax Code classifications per Article 67(2) of the Stamp Tax Code. This case exemplifies critical interpretative challenges in Portuguese stamp duty law concerning the distinction between actual residential use versus potential future residential use of urban building plots, with significant implications for real estate developers and landowners holding high-value terrenos para construção subject to the austerity-era Stamp Tax provisions introduced by Law 55-A/2012.

Full Decision

ARBITRAL DECISION

Claimant: A… – …, S.A. (hereinafter "Claimant")

Respondent: Tax and Customs Authority (hereinafter "TA" and "Respondent")

  1. REPORT

A… – …, S.A., NIPC …, with registered office at Rua …, n.º …, ... …, … ..., submitted to the Administrative Arbitration Center (CAAD) a request for constitution of an arbitral tribunal with a view to the annulment of the tax assessment act relating to item n.º 28.1 of the General Stamp Tax Table (GSTT) of 2013, in the total amount of € 37,392.01 (which is subdivided into collection notes n.º 2014 …, 2014 …, 2014 …, 2014 … and 2014 …), concerning the urban properties registered in the urban property register under articles …, …, …, … and …, all in the municipality of …, council of ....

The Claimant bases the illegality of the tax assessment act by invoking the violation of article 1st of the Stamp Tax Code and item 28.1 of the GSTT, on account of error regarding the factual assumptions, since being land for construction and moreover without a building use permit, they cannot be considered property with residential use, and also invokes the violation of constitutional provisions.

The Tax and Customs Authority, in turn, argued, in summary, that no infra-constitutional or constitutional provision is violated, contrary to what was invoked by the Claimant, and sustains that the use of the property is a coefficient that contributes to the assessment of the taxable property value, where land for construction is included, by virtue of the literal meaning of Item 28.1 of the GSTT (article 9º of the Civil Code), which takes precedence over the classification adopted by the legislator in paragraph a) of article 1, n.º 1 of article 6º of the Property Tax Code, by referral to article 67º, n.º 2 of the Stamp Tax Code, concluding, consequently, for the dismissal of the request for annulment of the tax assessment act.

The sole arbitrator was appointed on 15.01.2015.

In accordance with the provisions of article 11º, n.º 1, paragraph c) of the RJAT, the sole arbitral tribunal was constituted on 30.01.2015.

Given the absence of opposition from the parties, the holding of a first arbitral hearing was dispensed with, as well as the formulation of arguments.

  1. SANITATION OF ISSUES

The cumulation of claims made in the present request for arbitral determination, in which assessment acts of the same tax (Stamp Tax) are at issue, based on the same factual foundation and applying the same rules of law, is fully justified in light of the principle of procedural economy enshrined in article 3º of the RJAT.

The arbitral tribunal is materially competent, under the terms of the provisions of articles 2.º, n.º 1, paragraph a) of the Legal Regime for Arbitration in Matters of Taxation.

The parties possess legal personality and capacity and have legal standing under the terms of art. 4º and n.º 2 of art. 10º of the Legal Regime for Arbitration in Matters of Taxation (RJAT), and art. 1º of Ordinance n.º 112-A/2011, of 22 March.

The process does not suffer from any nullity, nor have the parties raised any exceptions that impede the substantive examination of the case, so the conditions for issuing the arbitral decision are in place.

  1. FINDINGS OF FACT

3.1. Facts Established:

Having analyzed the documentary evidence produced, the following facts are considered established and relevant to the decision of the case:

The Claimant is the owner of the urban properties situated in the municipality of …, council of ..., registered in the urban property register under the articles and with the following taxable property values:

  • article …: € 1,664,306.46;

  • article …: € 1,678,995.42;

  • article …: € 1,678,995.42;

  • article …: € 4,140,351.18;

  • article …: € 2,054,957.84;

All urban property articles in question have the typology of land for construction;

The Tax Authority notified the Claimant of the payment of Stamp Tax for 2013, Item n.º 28.1 of the General Stamp Tax Table (GSTT), through collection notes n.º 2014 …, 2014 …, 2014 …, 2014 … and 2014 …, with the voluntary payment deadline in November 2014, in the total amount of € 37,392.01;

The Claimant submitted, on 25 November 2014, a request for arbitral determination regarding the Stamp Tax assessment acts evidenced in the aforementioned collection notes, a request which gave rise to the present proceedings;

The Claimant proceeded on 25.11.2014 to the payment of the initial court fee.

No other facts were established with relevance to the decision of the case.

3.2. Justification of the Findings of Fact Established and Not Established:

The arbitrator's conviction was based on the documentary evidence attached to the proceedings, as well as on the positioning of the Claimant and Respondent regarding the factual matters brought before this arbitral tribunal.

  1. LEGAL MATTERS:

4.1. Object and Scope of the Present Process

The questions posed to the Tribunal concern only the interpretation and application of rules of law, given that as to the facts, neither the Claimant nor the Respondent showed any disagreement.

Thus, the question to be decided is limited to ascertaining the scope of the incidence provision contained in Item 28.1 of the GSTT and to the extent that this encompasses or does not encompass the legal-tax reality defined in law as "land for construction".

The request for arbitral determination has as its object the declaration of illegality of the stamp tax assessment act, in the total amount of € 37,392.01, subdivided under the collection documents above identified, effected pursuant to item 28.1 of the GSTT, with the Claimant pointing to the tax assessment act various defects, in the sense that the latter intend to call into question the essence of the foundation underlying the taxation carried out by the tax assessment act sub judice, in casu, the applicability or not of the legal rule already mentioned in light of the factual reality existing and, if affirmative, the conformity or not of that same provision in light of the Constitution of the Portuguese Republic.

Having regard to the provisions of article 124º of the Tax Procedure Code, applicable by virtue of paragraph a) of n.º 1 of Decree-Law 10/2011, of 20 January (RJAT), it is established that the aforementioned defects called "substantive" are those which, if upheld, determine more stable and effective protection of the interests violated, so it cannot fail to begin the examination of the defect pointed out by the Claimant relating to the violation of article 1st and Item 28.1 of the GSTT of the Stamp Tax Code (STC), on account of error regarding the assumptions, to the effect of applying such normative provisions to the urban properties – land for construction – already above identified.

4.2. Applicability to Urban Properties with the Typology of Land for Construction of the Norm Contained in Item 28.1 of the GSTT of the STC;

Law n.º 55-A/2012, of 29 October, added item 28.1 to the General Stamp Tax Table (GSTT), with the following wording:

"28 – Ownership, usufruct or right of surface of urban properties whose taxable property value contained in the register, pursuant to the Property Tax Code (PTC), is equal to or greater than € 1,000,000 – on the taxable property value used for the purposes of Property Tax:

28.1 – For property with residential use – 1% (…);"

In turn, article 67º, n.º 2 of the Stamp Tax Code, added by the aforementioned Law, provides that "to matters not regulated in the present code concerning item 28 of the General Table, the PTC shall apply subsidiarily."

The incidence provision refers to urban properties with residential use, whose basic concept of property is rooted in the provision of article 2º of the PTC, according to which:

"Article 2.

Concept of Property

1 - For the purposes of this Code, property is any portion of territory, including waters, plantations, buildings and constructions of any nature incorporated or situated thereon, with a character of permanence, provided that it forms part of the assets of a natural or legal person and, in normal circumstances, has economic value, as well as waters, plantations, buildings or constructions, in the previous circumstances, endowed with economic autonomy in relation to the land where they are located, although situated in a portion of territory which constitutes an integral part of a different patrimony or does not have patrimonial nature.

2 - Buildings or constructions, although movable by nature, are deemed to have a character of permanence when devoted to non-transitory purposes.

3 - The character of permanence is presumed when buildings or constructions are situated in the same location for a period exceeding one year.

4 - For the purposes of this tax, each autonomous unit, in the horizontal property regime, is deemed to constitute a property.

In turn, article 6º of the Property Tax Code lists the following types of urban properties:

"Article 6.

Types of Urban Properties

1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Other.

2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, which have as their normal destination each of these purposes.

3 - Land for construction is considered to be land situated within or outside an urban agglomeration, for which a license or authorization has been granted, admitted prior notification or issued favorable prior information of a subdivision or construction operation, and also those which have been declared as such in the acquisition title, excluding land on which 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 devoted to public spaces, infrastructure or facilities. (Wording of Law n.º 64-A/2008, of 31 December)

4 - The provision of paragraph d) of n.º 1 encompasses land situated within an urban agglomeration which are neither land for construction nor are covered by the provision of n.º 2 of article 3. and also buildings and constructions licensed or, in the absence of a Property Tax Code (PTC) Last update: Laws 82-B/2014 and 82-D/2014, both of 31/12 26 license, which have as their normal destination other purposes than those referred to in n.º 2 and also those of the exception of n.º 3."

It results from the concatenated reading of the legal provisions cited above that the immovable properties in question fall within the concept of urban property for purposes of PTC and, consequently, for purposes of STC, integrating into the subspecies "land for construction".

With respect to this, the land for construction owned by the Claimant subsumed into the provision contained in Item 28.1 of the GSTT, in the segment in which it delimits the incidence to all urban properties.

But this exercise of subsuming the norm to the immovable reality in question requires to be continued, insofar as the legislator expressly refers that only urban properties with residential use (with taxable property value exceeding € 1,000,000.00) are subject to such taxation under Stamp Tax.

The question thus now becomes ascertaining whether land for construction should be considered as integrated into the concept of residential use to which the legislator refers in the aforementioned provision.

Land for construction - whatever the type and purpose of the building that will or could be erected thereon - does not, by itself, satisfy any condition for being licensed as such or for defining housing as its normal destination.

The incidence provision of the stamp tax now under analysis refers to urban properties with "residential use", without any specific concept being established for this purpose, and it does not result from its literal meaning that it refers to future potentiality, such as, for example, a different property that might possibly be erected on the land.

On the contrary, it appears to us that from the expression "with residential use" there emerges a notion of actual and present functionality of the underlying immovable reality.

Furthermore, it is not possible to extract from the reference contained in item 28.1 of the GSTT any legislative intent that would allow one to interpret it as referring to other immovable realities that go beyond the nomenclature and distinction of urban properties made by article 6., n.º 1, paragraph a), of the PTC.

That is, even appealing to the principles of interpretation of norms, such as that contained in article 11º of the Civil Code, it does not appear possible to conclude that the legislator intended in Item 28.1 of the GSTT to refer to residential use in terms not coinciding with the typological distinction contained in article 6º of the PTC.

And thus it cannot fail to be stated that: residential use is had only by the urban properties referred to in paragraph a) of n.º 1 of article 6º of the PTC, with the definition that is conferred by n.º 2 of the said legal provision.

As they are, the land for construction provided for in paragraph c) and with the (distinct) definition that is drawn from n.º 3 and without from that same definition resulting as a characterizing element, any present and effective residential use, it is not apparent, contrary to what the Respondent TA sustains, how "land for construction" can integrate the incidence norm of Item 28.1 of the GSTT, which always presupposes that the urban property to be taxed has residential use.

A characteristic which land for construction, whether by virtue of the legal definition, or by its own material or substantive immovable nature, does not possess.

A question similar to that here under consideration was previously raised before the Supreme Administrative Court, which has come to understand and in summary that:

"The legislator having not defined the concept of 'urban properties with residential use', and resulting from article 6. of the Property Tax Code - subsidiarily applicable to the Stamp Tax provided for in the new item n.º 28 of the General Table - a clear distinction between 'residential urban properties' and 'land for construction', these cannot be considered, for the purposes of incidence of Stamp Tax (Item 28.1 of the GSTT, in the wording of Law n.º 55-A/2012, of 29 October), as urban properties with residential use." – see. Judgment of the Supreme Administrative Court, of 23-04-2014, case n.º 0272/14.

A doctrine emanating from this which we absolutely agree with and now endorse.

Finally and appealing to the very succession of wording that the still recent legal provision has already undergone since its entry into force, we cannot fail to confirm the conclusion that we have been consolidating above.

Thus, if the legislator had initially intended the inclusion of "land for construction" in the incidence norm of Item 28.1, it would be expected that it would do so in the terms and literal manner that took place only with the legislative amendment brought by Law 83-C/2013, of 31.12, according to which:

"28.1. For residential property or for land for construction whose building, authorized or envisaged, is for residential purposes, pursuant to the provisions of the Property Tax Code."

In this context, the very succession of wording conferred on Item 28.1 of the GSTT makes clear the understanding now explained, that is, that the concept of "residential use" must be found according to the rules established within the scope of the Property Tax Code and more specifically in what that same legal compendium provides regarding the concept and definition of the various types of urban properties – article 6º of the PTC.

Finally, it should only be noted that in casu the question of the applicability to the assessment of Stamp Tax in the present arbitral instance under examination of the wording brought by Law 83-C/2013, of 31.12 does not even arise, since the norm does not have an interpretive nature, as is evident from the same statute according to which the norm entered into force only on 01.01.2014, whereas the tax assessment acts object of these proceedings relate to the year 2013, reason for which the question relating to tax incidence cannot fail to be assessed through the wording of Item 28.1 of the GSTT conferred by Law 55-A/2012, of 29.10.

In light of the foregoing, it is concluded that the Tax Authority's interpretation is in legal non-conformity in subjecting land for construction, more clearly identified in 1. of the findings of fact established, to Item 28.1 of the GSTT, and such judgment of censure cannot fail to determine, consequently, the annulment of the tax assessment act object of the present proceedings – Stamp Tax Assessment (subdivided into the collection notes also identified above).

4.3. Other Defects Invoked by the Claimant:

Having the sole arbitral tribunal accepted the understanding of the non-applicability of Item 28.1 of the GSTT to the case at hand, the examination of the remaining defects alleged and from which the contested assessment may suffer is rendered moot by procedural futility.

Thus the examination of all other questions raised for the purposes of annulment of the tax assessment act examined in arbitration is rendered moot.

  1. DECISION:

In these terms and with the justification set out above, this arbitral tribunal decides:

To uphold the claim for a declaration of illegality of the Stamp Tax assessment acts of the year 2013, to which correspond the collection notes identified in 3., for the defect of violation of law as to the norm contained in item 28.1 of the GSTT and consequent annulment of such Stamp Tax assessments in question.

Value of the claim: € 37,392.01 – articles 97º-A of the Tax Procedure Code, 12º of the RJAT (Decree-Law 10/2011), 3º-2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Costs in accordance with Table I of the RCPTA, calculated on the basis of the aforementioned value of the claim, to be borne by the respondent - articles 4º-1 of the RCPTA and 6º-2/a) and 22º-4 of the RJAT.

Let this arbitral decision be notified to the parties and, in due course, let the case be filed.

Lisbon, 27 November 2015

The Sole Arbitrator

(Luís Ricardo Farinha Sequeira)

Text produced by computer, pursuant to article 138º, n.º 5 of the Code of Civil Procedure (CCP), applicable by referral to article 29º, n.º 1, paragraph e) of the Regime of Tax Arbitration, with blank lines and reviewed by me.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Stamp Tax General Table apply to land for construction without a habitation license?
The application of Verba 28.1 of the TGIS to land for construction without a habitation license is the central dispute in Process 791/2014-T. The claimant argued that terrenos para construção, particularly without building permits, cannot be classified as 'property with residential use' as required by Verba 28.1, which imposes 1% stamp tax on residential properties valued above €1 million. The Tax Authority maintained that the literal interpretation of Verba 28.1 encompasses land for construction, with 'use' serving as a coefficient for taxable value determination. The legal question hinges on whether residential 'use' requires actual current residential purpose or includes land designated for future residential development under the Property Tax Code classification system.
Can land for construction be classified as residential property for Stamp Tax purposes under Portuguese law?
Under Portuguese tax law, the classification of terrenos para construção as residential property for Stamp Tax purposes involves interpreting Verba 28.1 of the TGIS in conjunction with the Property Tax Code (CIMI). The Tax Authority argued that land for construction falls within Verba 28.1's scope based on literal statutory interpretation, which they contend takes precedence over Property Tax Code classifications pursuant to Article 67(2) of the Stamp Tax Code. However, the claimant contended that without actual residential use or building permits, such properties cannot be considered residential for Stamp Tax purposes. The dispute highlights the tension between formalistic property classifications and functional use definitions, with the Property Tax Code defining property broadly under Article 2 but not necessarily determining Stamp Tax incidence.
What is the legal basis for challenging Stamp Tax assessments on undeveloped urban land in Portugal?
Challenging Stamp Tax assessments on undeveloped urban land in Portugal involves multiple legal bases. First, taxpayers can invoke error regarding factual assumptions under Article 1 of the Stamp Tax Code and Verba 28.1, arguing that terrenos para construção do not meet the 'residential use' requirement. Second, constitutional challenges may be raised concerning equality principles, proportionality, and property rights under the Portuguese Constitution. Third, taxpayers can argue for subsidiary application of the Property Tax Code via Article 67(2) of the Stamp Tax Code, which may provide different property classifications. CAAD arbitration under the RJAT (Legal Regime for Tax Arbitration) provides an efficient forum for these disputes, as demonstrated in Process 791/2014-T, where cumulative claims involving multiple assessment acts based on identical legal grounds are permitted under procedural economy principles (Article 3 RJAT).
How does CAAD arbitration handle disputes over Imposto do Selo on terrenos para construção?
CAAD arbitration handles Imposto do Selo disputes on terrenos para construção through structured proceedings under the RJAT. In Process 791/2014-T, the sole arbitrator tribunal was constituted following the claimant's request for annulment of five stamp tax assessment acts totaling €37,392.01. The procedure allows cumulation of claims involving the same tax, factual foundation, and legal rules under procedural economy principles. CAAD has material competence under Article 2(1)(a) of the RJAT for stamp tax assessment disputes. The tribunal examines whether properties classified as land for construction fall within Verba 28.1's scope, applying Article 124 of the Tax Procedure Code to prioritize substantive defects that provide more stable protection of violated interests. Parties may dispense with hearings by agreement, streamlining resolution of purely legal interpretation questions.
What constitutional principles are relevant when contesting Verba 28.1 Stamp Tax on building plots?
Constitutional principles relevant to contesting Verba 28.1 Stamp Tax on building plots include equality and non-discrimination (Article 13 of the Portuguese Constitution), requiring similar taxation of similar situations and prohibiting arbitrary distinctions between actual residential properties and undeveloped land. The proportionality principle limits state interference with property rights (Article 62), questioning whether 1% annual taxation on unrealized development potential exceeds reasonable limits. The principle of legal certainty and protection of legitimate expectations requires clear, predictable tax rules, which becomes problematic when 'residential use' encompasses properties without residential configuration. Additionally, the prohibition of confiscatory taxation prevents excessive tax burdens that effectively expropriate property value. These constitutional safeguards provide grounds for challenging overly broad interpretations of Verba 28.1 that extend stamp duty beyond properties actually used for residential purposes to mere building plots with uncertain development timelines.