Process: 80/2015-T

Date: September 14, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

Process 80/2015-T addresses whether Portuguese Stamp Tax (Imposto do Selo) under Entry 28.1 of the General Stamp Tax Table (TGIS) applies to building land (terrenos para construção) valued over €1,000,000. Fund A challenged stamp tax assessments for 2012 and 2013 on property classified as 'land for construction' with a taxable value of €1,824,500.

The claimant argued that Entry 28.1, which taxes properties with 'residential destination' exceeding €1,000,000, requires actual residential use, not merely potential future use. Key arguments included: (1) building land lacks the essential requirement of residential destination allowing human habitation; (2) residential properties and building land constitute different classes of urban property; (3) Law 83-C/2013, which explicitly added 'land for construction' to Entry 28.1, cannot apply retroactively to 2012-2013; and (4) licensed construction plans don't definitively indicate residential use since buildings often have mixed commercial/residential purposes.

The Tax Administration countered that 'residential destination' encompasses both completed residential properties and building land, emphasizing the legislator's choice of 'destination' rather than 'use.' They argued that establishing construction rights immediately increases property value and allows determination of land destination before actual construction.

The arbitral tribunal, constituted under CAAD (Centro de Arbitragem Administrativa) procedures, accepted jurisdiction over cumulated claims involving the same tax entry and legal principles. The parties waived the hearing, proceeding based on written submissions. The case centers on interpreting whether pre-2014 Entry 28.1 covered building land or only properties with actual residential use, with significant implications for high-value land taxation and the temporal scope of the 2014 legislative clarification.

Full Decision

ARBITRAL DECISION

  1. REPORT

1.1. Fund A, collective person no. ..., represented by B..., S.A., submitted on 09/02/2015 a request for arbitral pronouncement, in which it requests the declaration of illegality of the stamp tax assessment act for the years 2012 and 2013.

1.2. The Honourable President of the Ethics Council of the Administrative Arbitration Centre (CAAD) designated on 01/04/2015 as arbitrator, Francisco Nicolau Domingos.

1.3. On 17/04/2015 the arbitral tribunal was constituted.

1.4. Complying with the provision of art. 17, no. 1 of Decree-Law no. 10/2011, of 20 January (RJAT) the Tax Administration (AT) was notified on 05/05/2015 to, if it so wished, present a reply and request the production of additional evidence.

1.5. On 05/06/2015 the Respondent presented its reply and in an autonomous petition requested, given the absence of any exception that would prevent the examination of the merits, the waiver of the hearing referred to in art. 18 of the RJAT.

1.6. The Claimant on 09/06/2015 presented a petition in which it expressed its agreement with what was identified in section 1.5 of this decision.

1.7. The tribunal on 07/08/2015 decided to waive the holding of the hearing referred to in art. 18, no. 1 of the RJAT, based on the principle of the arbitral tribunal's autonomy in conducting the proceedings and in determining the rules to be observed with a view to obtaining, within a reasonable time, a pronouncement on the merits of the claims formulated, see art. 16, para. c) of the RJAT, and determined that the parties, if they so wished, present written submissions and scheduled the date for the rendering of the final decision for 14/09/2015.

1.8. Neither of the parties presented final written submissions.

  1. DISMISSAL OF OBJECTIONS

The cumulation of the claims that are the object of the present proceedings is admissible, in as much as it relates to assessment acts of the same tax and entry of the General Stamp Tax Table (TGIS). As there is also an identity between the matter of fact and because the success of the claim depends on the interpretation of the same principles and rules of law.

The proceedings do not suffer from any nullities, no issues were raised that prevent the examination of the merits of the case, the arbitral tribunal is properly constituted and is materially competent to know and decide on the claim, and consequently the conditions for the final decision to be rendered are met.

  1. OBJECT OF THE DISPUTE

The Claimant alleges that entry 28.1 does not apply to properties registered in the land registry as "land for construction" and, as such, the property registered under art. ..., of the parish of ... of which it is the owner and, classified as such, is not subject to the payment of stamp tax, despite having a property value subject to tax (VPT) exceeding €1,000,000.

To formulate such a conclusion, it argues that, first and foremost, the property does not meet an essential requirement for subjection, namely, the residential destination that allows for human use. It also alleges that in the wording of entry 28.1 of the TGIS, at the time of the tax facts, the Stamp Tax Code (CIS) did not clarify what should be understood as "residential destination" for the purposes of the rule in question.

Furthermore, in the argumentative structure of its request for arbitral pronouncement it also states that: i) the amendment introduced by Law no. 83-C/2013, of 31 December and which modified the wording of entry 28.1 of the TGIS, in which "land for construction" now appears, does not have retroactive effects; ii) "residential" properties and "land for construction" are two different classes of urban properties; iii) as regards "land for construction", it cannot be said that they have, as such, residential destination, in as much as this destination must be effective and not merely potential and future; iv) not even the licensing of the work can be an indicator of the destination of the land for residential use, particularly because, in most situations, the authorized construction also provides for the same building the use for commercial purposes or services, and v) the fact that in determining the VPT of "land for construction" reference is made to the destination coefficient constitutes a mere indicator that the legislator understood to use to calculate such VPT.

The Claimant also petitions for compensation for the provision of improper guarantee, accrued with legal interest, regarding the tax enforcement proceedings instituted due to failure to pay voluntarily the stamp tax for the year 2012. Indeed, it alleges that to suspend the tax enforcement proceedings no. ... it presented a bank guarantee, stating that until the date of presentation of the request for arbitral pronouncement it incurred €1,055.16 of costs with such a source.

It concludes by claiming reimbursement of the amount of stamp tax paid (1st instalment of the year 2013), in the amount of €6,081.68 and requesting indemnity interest.

For its part, the Respondent argues that the concept of "property with residential destination", for the purposes of what is set out in entry 28 of the TGIS comprises, both built properties and land for construction, drawing attention to the literal element of the rule. That is, in its view, it is relevant that the legislator did not opt for "properties intended for residential use", but for "residential destination".

It further maintains that the mere establishment of a potential construction right immediately increases the value of the immovable in question and well before the effective construction of the property, it is possible to ascertain and determine the destination of the land for construction.

  1. MATTER OF FACT

4.1. FACTS CONSIDERED PROVED

4.1.1. The Claimant is the owner of the property registered in the urban property registry of the parish of ..., Lisbon, under art. no. ...

4.1.2. On 31/10/2012, the property (urban) was registered in the land registry as "land for construction", with its VPT of €1,824,500.00.

4.1.3. On 31/12/2013, the property (urban) was registered in the land registry as "land for construction", with its VPT of €1,824,500.00.

4.1.4. On 30/01/2014 the Claimant presented an administrative review complaint of the stamp tax assessment act for the year 2012 and concerning the property identified in section 4.1.1. of this decision.

4.1.5. On 02/12/2014 the Claimant was notified of the express dismissal of the administrative review complaint presented concerning the stamp tax assessment for the year 2012.

4.1.6. The value of the stamp tax assessment for the year 2013 is €18,245.

4.1.7. The period for voluntary payment of the last instalment of the stamp tax assessment for the year 2013 ended on 30/11/2014.

4.1.8. On 11/08/2014 the Claimant proceeded to pay the first instalment of stamp tax for the year 2013, in the amount of €6,223.45.

4.1.9. The Claimant on 09/02/2015 submitted the present request for arbitral pronouncement.

4.2. FACTS NOT CONSIDERED PROVED

4.2.1. The tax enforcement proceedings no. ... 2014 ... was instituted for collection of the amount assessed under stamp tax for the year 2012.

There are no other facts with relevance to the decision that have not been given as proved.

4.3. GROUNDS FOR THE MATTER OF FACT CONSIDERED PROVED

The matter of fact given as proved is sourced from the documents used for each of the alleged facts and whose authenticity was not called into question.

4.4. GROUNDS FOR THE MATTER OF FACT NOT CONSIDERED PROVED

No document was appended to the proceedings by the Claimant that attests that the tax enforcement proceedings no. ... 2014 ... was instituted for collection of the stamp tax for the year 2012.

  1. THE LAW

The first question that should be the subject of examination by the tribunal consists in delimiting the scope of application of entry no. 28.1 of the TGIS in its wording as of the date of the tax fact. That is, it must be inquired whether "land for construction" falls within the scope of the incidence rule, as the Respondent contends, or whether, on the contrary, they are excluded from it.

To accomplish such a task, it is first necessary to seek the rule whose parts disagree on its interpretation.

Thus, entry no. 28 of the TGIS provides that the following are subject to taxation: "Ownership, usufruct or right of superficies of urban properties whose property value subject to tax as shown in the registry, in accordance with the Code of Municipal Property Tax (CIMI), is equal to or greater than €1,000,000 – on the property value subject to tax used for the purpose of IMI:

28.1 - For property with residential destination – 1%..."[1].

Thus, it is first necessary to define the concept of "urban property with residential destination" to which the rule under interpretation refers. However, since it is not possible to resolve the matter by resorting to the Stamp Tax Code (CIS), it is by force of the provision of art. 67, no. 2 of the same statute necessary to apply the rules of the CIMI regarding the concept and types of urban properties.

Consequently, art. 4 of the CIMI provides on the concept of urban property: "...are all those that should not be classified as rural...". And art. 6, no. 1 of such statute continues: "Urban properties are divided into: a) Residential; b) Commercial, industrial or for services; c) Land for construction; d) Others". No. 2 provides that: "Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal destination each of these purposes".

Thus, for the subsumption of a property in each of the enumerated categories, the nature of the use is relevant, that is, the purpose to which it is intended.

Now, fall within the stamp tax entry under analysis properties that are already bound to residential purposes, that is, those to which such destination has been given[2]. But it is legitimate to formulate the following question: and as regards those properties (land for construction) with such destination or, those in which the destination is unknown, are they subsumed as properties "...with residential destination"?

The answer to the aforementioned question cannot but be negative. Indeed, the literal tenor of the entry under analysis allows us to exclude from the scope of application those lands for construction that have not realized any type of use, in as much as they are not yet applied or intended for residential purposes. In other words, it is not possible to proceed to their subsumption as properties "...with residential destination", because they do not yet have any destination or other purpose, except the construction of unknown type[3].

Still, one can question: are included in the scope of application of entry no. 28.1 of the TGIS the lands for construction that are not yet applied to residential purposes and already have a determined right, such as in the case of a subdivision license? We believe not. In fact, art. 6, no. 2 of the CIMI, subsidiarily applicable, points to the need for an effective destination.

Indeed, the legislator did not use the expression "residential properties", but on the contrary "property with (our emphasis) residential destination", that is, the property must already have effective the destination for that purpose.

Now, such interpretative sense becomes clear with the mobilization of a summary of the words of the Honourable Secretary of State for Tax Affairs, when presenting and discussing in the Assembly of the Republic the draft law[4], in as much as he advocated that that: i) aimed to create a special rate on urban residential properties of higher value; ii) created a special taxation on high-value properties intended for residential use, and iii) the rate would apply to houses with a value equal to or greater than 1 million euros. Or, in other words, the category to which the legislator refers with the expression "property with residential destination" are "houses".

The same interpretative sense is maintained, even if one considers that in determining the VPT of urban properties, classified as "land for construction", one should take into account the destination that the construction authorized or provided for such land will have, with a view to ascertain the value of the implantation area. This does not mean that "land for construction" should be classified as properties with residential destination, since this destination refers, in the economy of the CIMI, to properties and constructions that can be inhabited[5].

It is also important to add that one of the assessments in question refers to the year 2012 and, consequently, it is necessary to apply what is set out in art. 6 of Law no. 55-A/2012, of 29 October. More specifically, such rule provides that: "1 - In 2012, the following rules must be observed by reference to the assessment of the stamp tax provided for in entry no. 28 of the respective General Table: a) The tax fact occurs on 31 October 2012; b) The taxpayer of the tax is the one mentioned in no. 4 of article 2 of the Stamp Tax Code on the date referred to in the preceding subparagraph; (...)". Thus, the tax fact in the case under consideration occurred on 31 October 2012.

Reverting the entirety of such interpretative sense to the proceedings, it is necessary to say that the land for construction that is the object of the present case is not subsumed in the category of "property with residential destination" and, as such, the stamp tax assessments for 2012 and 2013 must be declared illegal.

Still, this interpretation could be thought to be undermined by the entry into force of Law no. 83-C/2013, of 31 December (State Budget Law for 2014) in the section in which it gave new wording to entry 28.1 of the TGIS, in which reference is now made to the categories described in art. 6 of the CIMI, that is, "residential property" and "land for construction". However, we understand it does not, because, as advocated by counselor ISABEL MARQUES DA SILVA[6]: "... the legislator did not give it interpretative character (...), merely makes it unequivocal for the future that lands for construction whose authorized or envisaged construction is for residential purposes are included within the scope of entry 28.1 of the General Table of Stamp Tax...". That is, nothing is implemented in relation to acts carried out under the previous wording and another legislative choice is demonstrated with the reference to the types of urban property, i) "residential" and ii) "land for construction". Consequently, such legislative amendment in no way modifies the decision set out in the preceding paragraph.

For such a sum of reasons, if the Claimant's property was registered in the land registry as "land for construction" as of the date of the tax fact for the years 2012 and 2013, the incidence rule under examination cannot be applicable to the case sub judice, under penalty of illegality. For which reason, the stamp tax assessments for 2012 and 2013 must be annulled, with all legal consequences.

As regards the request for compensation for the provision of improper guarantee, art. 53, no. 1 of the General Tax Law (LGT) provides that: "The debtor who, to suspend enforcement, offers a bank guarantee or equivalent will be indemnified totally or partially for the damages resulting from its provision, if he has maintained it for a period exceeding three years in proportion to the success in administrative appeal, impugnation or opposition to enforcement that have as their object the guaranteed debt". No. 2 and 3 of such rule add that: "The period referred to in the preceding number does not apply when it is verified, in administrative review or judicial impugnation, that there was error attributable to the services in the assessment of the tax" (our emphasis) and "The indemnification referred to in no. 1 has as its maximum limit the amount resulting from the application to the value guaranteed of the rate of indemnity interest provided for in this law and can be requested in the administrative review or judicial impugnation proceedings themselves, or autonomously".

Preliminarily, in the case sub judice it is possible to conclude that there is "error attributable to the services", because: i) the claimant obtained success in the request for annulment and ii) the ground for annulment is not attributable to it, in as much as it was the services of the Respondent that applied the law to the facts. Or, in other words, it was the services that carried out the assessment.

However, the Claimant maintains that to suspend tax enforcement proceedings no. ... 2014 ... it incurred €1,055.16 of costs. However, although there is reference to such enforcement proceedings in the content of the bank guarantee provided, the truth is that the Claimant did not prove that such amount refers to the tax enforcement proceedings instituted for collection of stamp tax for the year 2012, which was precisely the burden of proof that fell on it.

Thus, such a request must be denied, absolving the Respondent of the instance.

Finally, art. 43, no. 1 of the LGT provides that: "Indemnity interest is due, when it is determined, in administrative review or judicial impugnation, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due". In other words, there are three requirements for the right to such interest: i) existence of an error in a tax assessment act attributable to the services; ii) determination of such error in administrative review or judicial impugnation proceedings and iii) payment of a tax debt in an amount exceeding that legally due.

Thus, it is possible to question: is it permissible to determine the payment of indemnity interest in tax arbitral proceedings? The answer to the aforementioned question is affirmative. Indeed, art. 24, no. 5 of the RJAT provides that: "Payment of interest, regardless of its nature, is due, in accordance with the terms provided for in the General Tax Law and in the Code of Tax Procedure and Process".

Knowing the matter, the illegality of the assessments is attributable to the Respondent, in face of the lack of normative support at the time of their practice. Consequently, the request for indemnity interest proceeds, calculated at the rate ascertained, in accordance with what is provided for in art. 43, no. 4 of the LGT, between the date on which the improper payment was made and until full reimbursement.

  1. DECISION

In these terms and with the reasoning described above, it is decided that the claim is well-founded, with the consequent annulment of the acts that are the object of arbitral pronouncement, with all legal consequences, including the restitution of the amount paid under stamp tax (1st instalment of the year 2013) and indemnity interest until full reimbursement. Furthermore, the Respondent is absolved of the instance regarding the request for compensation for the provision of improper guarantee.

  1. VALUE OF THE CASE

The value of the case is set at €36,490 (the value of the assessments that are the object of arbitral pronouncement), in accordance with art. 97-A of the CPPT, applicable by force of the provision of art. 29, no. 1, para. a) of the RJAT and of art. 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

  1. COSTS

Costs to be borne entirely by the Respondent, in the amount of €1,836, see art. 22, no. 4 of the RJAT and Table I attached to the RCPAT.

Notify.

Lisbon, 14 September 2015

The arbitrator,

(Francisco Nicolau Domingos)

[1] In the wording in force as of the date of the tax fact.

[2] See in this sense, in particular, the judgment of the Supreme Administrative Court, rendered in the course of appeal 048/14, of 09/04/2014, in which the counselor ISABEL MARQUES DA SILVA was the rapporteur; the judgment of the Supreme Administrative Court, rendered in the course of appeal 046/14, of 14/05/2014, in which the counselor ASCENSÃO LOPES was the rapporteur, and the arbitral judgment rendered in the course of proceedings 53/2013-T, of 02/10/2013, in which the counselor JORGE LOPES DE SOUSA assumed the function of arbitrator-president.

[3] See judgment rendered in the course of proceedings 53/2013-T, of 02/10/2013, in which the counselor JORGE LOPES DE SOUSA assumed the function of arbitrator-president.

[4] Journal of the Assembly of the Republic, I Series, no. 9/XII – 2, of 11 October, p. 32.

[5] Judgment of the Supreme Administrative Court, rendered in the course of appeal 048/14, of 09/04/2014, in which the counselor ISABEL MARQUES DA SILVA was the rapporteur.

[6] In the course of the judgment of the Supreme Administrative Court no. 048/14, of 09/04/2014 rendered by her.

Frequently Asked Questions

Automatically Created

Does Verba 28.1 of the Portuguese Stamp Tax Table (TGIS) apply to building land (terrenos para construção) valued over €1,000,000?
Prior to the 2014 amendment by Law 83-C/2013, the application of Entry 28.1 TGIS to building land was disputed. The claimant in Process 80/2015-T argued that Entry 28.1 only applied to properties with actual residential use, not building land with merely potential future residential destination. The Tax Administration maintained that 'residential destination' included building land. The 2014 amendment explicitly added 'land for construction' to Entry 28.1, but this change was not retroactive to the 2012-2013 tax years in dispute.
Can a property classified as building land be subject to Stamp Tax (Imposto do Selo) if it lacks residential use?
The central issue in Process 80/2015-T was whether property classified as 'land for construction' without actual residential use could be subject to Stamp Tax under Entry 28.1 TGIS. The claimant argued that residential destination requires effective human habitation, not potential future use. The property, valued at €1,824,500, was classified as building land without any constructed residential buildings, making it fundamentally different from residential property according to the claimant's interpretation.
What was the CAAD arbitral tribunal's decision in Process 80/2015-T regarding Stamp Tax on building land?
While the full decision reasoning is not provided in the excerpt, Process 80/2015-T involved CAAD arbitral tribunal review of stamp tax assessments totaling €18,245 for 2013 on building land valued at €1,824,500. The tribunal was constituted with arbitrator Francisco Nicolau Domingos, and parties waived the oral hearing, proceeding with written submissions. The case required interpretation of whether pre-2014 Entry 28.1 TGIS covered building land or only completed residential properties.
How does the Portuguese tax system distinguish between residential property and building land for Stamp Tax purposes?
The dispute in Process 80/2015-T highlighted the distinction between residential property and building land for Stamp Tax purposes. Portuguese law classifies these as different categories of urban property. The claimant argued that residential property requires actual habitation capability, while building land has only potential future use. The Tax Administration emphasized that 'residential destination' (not 'residential use') encompasses both categories. The 2014 legislative amendment explicitly adding 'land for construction' to Entry 28.1 confirmed this distinction existed and required clarification.
What is the procedure for challenging a Stamp Tax assessment through CAAD arbitration in Portugal?
Process 80/2015-T demonstrates the CAAD arbitration procedure for challenging Stamp Tax assessments: (1) The claimant first filed administrative review on January 30, 2014, which was dismissed on December 2, 2014; (2) The arbitration request was filed on February 9, 2015; (3) The CAAD President designated an arbitrator on April 1, 2015; (4) The tribunal was constituted on April 17, 2015; (5) Tax Administration was notified to respond; (6) The respondent filed its reply on June 5, 2015; (7) Parties agreed to waive the oral hearing; (8) The tribunal set a decision deadline, allowing parties to submit written conclusions. This streamlined procedure allows taxpayers to challenge stamp tax assessments through binding arbitration.