Process: 816/2014-T

Date: July 31, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

This arbitral decision addresses whether Stamp Tax under Verba 28.1 of the General Stamp Tax Table (TGIS) applies to construction land valued over one million euros. The claimant, a 50% co-owner of urban property classified as 'land for construction' with a tax asset value of €1,314,002.31, challenged a Stamp Tax assessment of €6,570.01 issued for 2013. The Tax Authority applied the 1% rate under Verba 28.1, arguing the property had residential designation because the land evaluation file indicated housing purposes. The claimant contested this through tax arbitration under Decree-Law 10/2011 (RJAT), arguing that Verba 28.1 only applies to actual residential properties—buildings or constructions licensed or used for housing—not to undeveloped construction land. The claimant relied on Article 6 of the Property Tax Code (CIMI), which distinguishes residential properties from land for construction as separate categories. Under CIMI Article 6(2), residential designation requires an actual building or construction licensed for or normally used for housing purposes. The claimant argued that extending Stamp Tax to construction land contradicts the statutory definition and violates principles of legality and typicality in tax law. The claimant also contended that the individual ownership share (50%) should be considered for the €1 million threshold, not the total property value. The claimant sought annulment of the assessment and reimbursement with compensatory interest under Article 43 of the General Tax Law (LGT). The case illustrates the critical distinction between developed residential property and undeveloped construction land for luxury property taxation purposes.

Full Decision

ARBITRAL DECISION

Claimant: A…

Respondent: AT - Tax and Customs Authority

I - REPORT

  1.  Petition

A…, taxpayer no. …, resident at … street, no. …, apt. …, postal code …-…, Rio de Janeiro, and with tax domicile at … street, no. …, …, …-…, …, hereinafter referred to as the Claimant, filed, on 12-12-2014, pursuant to the provisions of paragraph a) of article 2, no. 1 and article 10 of Decree-Law no. 10/2011, of 20 January, which approves the Legal Regime for Arbitration in Tax Matters (RJAT), a petition for arbitral decision, in which the AT - Tax and Customs Authority is the Respondent, with a view to:

  •      Annulment of the Stamp Tax assessment act number 2014 …, issued on 18-03-2014, pursuant to item 28.1 of the General Stamp Tax Table (TGIS), concerning the year 2013, and relating to the real property registered in the property tax registry under article … of the Union of Parishes of … and …, municipality of Aveiro;

  •      Condemning the Respondent to refund the entire tax and all additional charges paid by the claimant, plus compensatory interest due, as provided for in article 43 of the LGT, from the date of payment until effective reimbursement.

The Claimant alleges, in essence, the following:

  •      The Claimant is co-owner of the above-identified urban real property, intended for construction and with a tax asset value as of the date of assessment of 1,314,002.31 euros, with his ownership share of 50%;

  •      In April 2014 he was notified of a Stamp Tax (IS) assessment pursuant to item 28.1 of the General Stamp Tax Table (TGIS) issued on 13-3-2014 and concerning the year 2013, relating to the property registry article U-…, of the Parish of … and …, at the rate of 1% on the tax asset value of this property, and considering his ownership share of 1/3, which resulted in a tax liability of 6,570.01 euros, the document containing the reference for payment of the 1st installment of that assessment, in the amount of 1,190.01 euros;

  •      Against that Stamp Tax assessment, a request for administrative review was submitted on 4 July 2014, on the grounds that the property in question is land for construction, and not a property used for housing, as provided for in the applied item 28.1 of the TGIS, as well as on the grounds that the taxpayer's ownership share does not reach the tax asset value of one million euros, reasons for which the assessment in question was considered illegal;

  •      This request was rejected, on the grounds that it is land for residential construction, given that the designation appearing in the land evaluation file is for housing;

  •      Property with residential designation under item 28.1 of the TGIS is the building or construction licensed for housing or that has housing as its normal intended use, as defined in the CIMI;

  •      The Claimant does not accept the aforementioned decision because the property in question is land for construction and not a property with residential designation, to which item 28.1 of the TGIS refers;

  •      The equation on which the disputed assessment is based, between "property with residential designation" and "land with viability for construction" renders the assessment illegal, as does the decision on the administrative review request made in relation to it;

  •      Article 67, no. 2 of the Stamp Tax Code (CIS) provides for the subsidiary application of the provisions of the Property Tax Code (CIMI) to matters not regulated in that Code relating to item no. 28 of the TGIS, and no. 1 of the same provision provides for the subsidiary application of the General Tax Law (LGT);

  •      If the CIS appeals to the concepts of the CIMI in the context of the application and interpretation of item 28 of the TGIS, referring to the concept of property designation provided for in that Code, then the meaning that such concepts have within the context of the CIMI must be respected in the interpretation of the said provision;

  •      According to article 6 of the CIMI, urban real properties are divided into:

  • Residential;

  • Commercial, industrial or for services;

  • Land for construction;

  • Other.

  •      With no. 2 of article 6 of the CIMI providing that "residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of licensing, that have as their normal intended use each of these purposes";

  •      Therefore, the concept of property with residential designation mentioned in item 28.1 of the TGIS is not applicable to land for construction, but only to urban real properties that have actual use for residential purposes, either because they are licensed for that purpose or because they have that normal intended use;

  •      The case law of the Supreme Administrative Court (STA) and of arbitral courts corroborate this interpretation;

  •      The Tax Administration is bound by the decisions of superior courts and must observe them in cases similar to those in which they were decided, and is further obliged to review the general guidelines contained in administrative instructions taking into account, precisely, the case law of superior courts;

  •      Therefore, the position that the Respondent assumed in the case at hand constitutes a manifest abuse of rights, in the form of venire contra factum proprium, obliging taxpayers to resort to judicial or arbitral proceedings, when it was incumbent upon it to recognize the illegality of the assessment in question, as per the case law of the STA;

  •      Thus, the disputed assessment is illegal, due to error in the legal classification of facts and in the interpretation of law, violating the principles of legality and typicality, which is why it should be annulled, the same applying to the decision on the administrative review request filed.

  1.  Response of the Respondent

In response to the petition for decision presented by the Claimant, the Respondent AT - Tax and Customs Authority challenged the petition on the basis of the following arguments:

  •      It is the AT's understanding that the property on which the disputed assessment falls has the legal nature of property with residential designation, and therefore the assessment act that is the subject of this petition for arbitral decision should be upheld, as it embodies a correct interpretation of Item 28 of the General Table, amended by Law 55-A/2012, of 29/12;

  •      Law no. 55-A/2012, of 29/10/2012 amended article 1 of the CIS, and added item 28 to the TGIS. With this legislative amendment, the IS would now also apply to the ownership, usufruct or right of superficies of urban real properties whose tax asset value appearing in the registry, in accordance with the Property Tax Code (CIMI) is equal to or greater than €1,000,000.00;

  •      In the absence of any definition of the concepts of urban real property, land for construction and residential designation, in the context of IS, one must resort to the CIMI, in search of a definition that allows for determining the possible subjection to IS, in accordance with the provisions of article 67, no. 2 of the CIS as amended by Law no. 55-A/2012, of 29/10;

  •      Pursuant to the said legal provision, to matters not regulated in the Code, relating to item no. 28 of the TGIS, the provisions of the CIMI apply subsidiarily.

  •      Article 2, no. 1 of the CIMI provides that "real property is any fraction of territory, including waters, plantations, buildings and constructions of any nature incorporated or situated therein, 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 above circumstances, endowed with economic autonomy in relation to the land where they are situated, although located in a fraction of territory that constitutes an integral part of a different estate or does not have patrimonial nature";

  •      For its part, article 6, no. 1 of the CIMI provides concerning the types of existing urban real properties, integrating land for construction into this concept, that is, "land situated within or outside an urban settlement, for which a license or authorization has been granted, admitted prior communication or issued favorable prior information for a subdivision or construction operation, and also those that have been so in the acquisition title, with the exception of land in which the competent entities prohibit any of those operations...";

  •      The notion of designation of the urban real property is found in the part relating to the evaluation of real properties, which is well understood since the evaluation of the real property (purpose) incorporates value to the real property, constituting a determinative fact of distinction (coefficient) for evaluation purposes;

  •      As results from the expression "...value of authorized buildings", contained in article 45, no. 2 of the CIMI, the legislator chose to determine the application of the evaluation methodology for real properties in general, to the evaluation of land for construction, and consequently the designation coefficient provided for in article 41 of the CIMI is applicable to them;

  •      Thus, for purposes of determining the tax asset value of land for construction, the application of the designation coefficient for evaluation purposes is clear, and therefore its consideration for purposes of applying item 28 of the TGIS cannot be ignored;

  •      And in these terms, the Respondent understands that the concept of "properties with residential designation", for purposes of the provisions of item 28 of the TGIS, comprises both built properties and land for construction, particularly given the literal element of the provision;

  •      The legislator does not refer to "properties intended for housing", having opted for the notion "residential designation" - an expression different and broader, the meaning of which must be found in the need to integrate other realities beyond those identified in article 6, no. 1 subsection a) of the CIMI;

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

  •      The fact that the evaluation of land for construction takes into account residential designation, where applicable; the fact that the license for the carrying out of urban operations must contain, among other elements, the number of lots and the indication of the location area, purpose, implantation area, construction area, number of stories, number of units for each of the lots, with specification of units intended for subsidized housing; and all of this further associated with the fact that municipal master plans establish the strategy for municipal development, the municipal policy for territorial planning and urbanism and other urban policies, makes it possible, well before the actual building of the property, to establish and determine the designation of the land for construction;

  •      With regard to the alleged violation of constitutional principles, the Respondent notes that 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 do not have sufficient justification and material grounds;

  •      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 do not have sufficient justification and material grounds", which is not the case with the provision of item 28 of the TGIS;

  •      Thus, the Respondent understands 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.

  1.  Subsequent Proceedings

With the agreement of both parties, the Court decided to dispense with the holding of the meeting provided for in article 18 of the RJAT, as well as the pleading stage.

II – RULING ON ADMISSIBILITY

The singular Arbitral Court was regularly constituted on 25-02-2015, with the arbitrator designated by the Deontological Council of CAAD, having fulfilled the respective legal and regulatory formalities (articles 11, no. 1, subsections a) and b) of the RJAT and 6 and 7 of the Deontological Code of CAAD), and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have standing and capacity, are legitimate and are regularly represented.

No procedural defects were identified.

III – QUESTIONS TO BE DECIDED

The following are the questions to be decided by the Court:

  •    The applicability of item 28.1 of the TGIS to land for construction, as worded on 31 December 2013;

  •    In case of an affirmative answer to the previous question, the constitutionality of the provision concerning the scope of taxation contained in item 28.1 of the TGIS, if interpreted to encompass land for construction, in light of the constitutional principles of legality and typicality.

IV – FACTS FOUND

The following are the facts found to be relevant:

1st The Claimant was, as of the date of the facts that gave rise to the disputed assessment, co-owner, with a share of 1/2, of an urban real property described as land intended for construction, property registered in the property tax registry under article … of the Union of Parishes of … and …, municipality of Aveiro;

2nd The property was described in the registry as land for construction;

3rd The Claimant was notified of the tax act of Stamp Tax assessment number 2014 …, issued on 18-03-2014, pursuant to item 28.1 of the General Stamp Tax Table (TGIS), relating to the property referred to and concerning the year 2013;

4th The Claimant filed, on 4-7-2014, a request for administrative review against the mentioned assessment;

5th The administrative review request was rejected by dispatch of 8-10-2014 of the Head of Finance and Sintra Services;

The facts found were so established on the basis of the documentation submitted by the Claimant, the contents of which are reproduced herein.

V - REASONING

(i) Question of the applicability of item 28.1 of the TGIS to land for construction

On this matter, and in the exact terms in which it is presented here, the Supreme Administrative Court has pronounced itself repeatedly, mostly in a sense concordant with that argued by the Claimant (see the decisions of that Court handed down on 24/9/2014, proceedings nos. 01533/13, 0739/14 and 0825/14; of 10/9/2014, proceedings nos. 0503/14, 0707/14 and 0740/14; of 9/7/2014, proceeding no. 0676/14; of 2/7/2014, proceeding no. 0467/14; of 28/5/2014, proceedings nos. 0425/14, 0396/14, 0395/14; of 14/5/2014, proceedings nos. 055/14, 01871/13 and 0317/14; of 23/4/2014, proceedings nos. 270/14 and 272/14; and on 9/4/2014, proceedings nos. 1870/13 and 48/14).

The same question has also been addressed by arbitral courts, particularly 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, and arbitral case law is also largely preponderant in the sense that the provision of item 28.1 of the TGIS, as worded until 31 December 2013, did not encompass land for construction.

Among the many decisions rendered by the STA on this matter, the decision handed down in the proceeding referred to above is cited, in which it is stated:

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

This amendment - to which the legislator did not attribute an interpretative character, nor does it seem to us that it did – merely renders unequivocal for the future that land for construction whose construction, authorized or envisioned, is for housing is encompassed within the scope of item 28.1 of the General Stamp Tax Table (provided that its respective tax asset value is of value equal to or greater than 1 million euros), but clarifies nothing, however, in relation to past situations (assessments of 2012 and 2013), such as that which is at issue in the present case.

Now, as to these, it does not appear possible to adopt the interpretation of the respondent, since it does not result unequivocally either from the letter or from the spirit of the law that the intention of the latter has been, from the outset, to encompass within its objective scope of taxation land for construction for which authorization has been granted or construction of residential buildings has been envisioned, as results today unequivocally from item 28.1 of the General Stamp Tax Table.

From the letter of the law nothing unequivocal results, furthermore, as it itself, upon using a concept which it did not define and which was also not defined in the statute to which it referred on a subsidiary basis, lent itself, unnecessarily, to ambiguities, on a matter – of scope of taxation – in which certainty and legal security should also be paramount concerns of the legislator.

And from its "spirit", ascertainable in the statement of reasons of the bill of law that is the origin of Law no. 55-A/2012 (…) nothing else results than the concern to raise new tax revenue, from sources of wealth "more sheltered" in the past from the reach of the Treasury than income from work, in particular income from capital, capital gains and real property, reasons which contribute nothing relevant to the clarification of the concept of "properties (urban) with residential designation", as they take it as established, without any concern to clarify it. Such clarification will, however, have emerged (…) upon the submission and discussion in the Assembly of the Republic of that bill of law, in the words of the Minister of State for Tax Affairs, who apparently referred expressly, (…) that: «The Government proposes the creation of a special tax on high-value urban residential properties. It is the first time in Portugal that a special taxation has been created on high-value properties intended for housing. 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 intended to be taxed is, in fact, and notwithstanding the terminological imprecision of the law, "properties (urban) for housing purposes", in common language "homes", and not other realities.

The fact that it can be considered that in determining the tax asset value of urban real properties classified as land for construction one must take into account the designation that the building authorized or envisioned for it will have for determining the respective value of the implantation area (see nos. 1 and 2 of article 45 of the CIMI), does not determine that land for construction can be classified as "properties with residential designation", as the "residential designation" always appears in the Property Tax Code referred to "buildings" or "constructions", existing, authorized or envisioned, since only these can be inhabited, which does not occur in the case of land for construction, which does not have, in themselves, conditions for such, not being susceptible to be used for housing except if and when the construction authorized and envisioned for them is built upon them (but in that case they will no longer be "land for construction" but another type of urban real property – "residential", "commercial, industrial or for services" or "other" – article 6 of the CIMI).

It would be strange, moreover, if the determination of the scope of the provision concerning objective scope of taxation of item no. 28 of the General Stamp Tax Table were to be found, in the end, in the provisions for determining the tax asset value of the Property Tax Code, and if the terminological imprecision of the legislator in drafting that rule were, after all, clarified and finally explained by means of an indirect and ambiguous reference to the designation coefficient established by the legislator in relation to built properties (article 41 of the Property Tax Code).

Thus, considering that land for construction – whatever the type and purpose of the building that will be, or could be, erected on it – does not satisfy, by itself alone, any condition to be licensed as such or for it to be possible to define housing as its normal intended use, and referring the provision concerning the scope of Stamp Tax to urban real properties with "residential designation", without any specific concept being established for that purpose, nothing can be extracted from it suggesting that it contains a future potentiality, inherent in a distinct property that may possibly come to be built on the land.

It is therefore concluded, in accordance with what was decided in the judgment under appeal, that, resulting from article 6 of the Property Tax Code a clear distinction between urban real properties "residential" and "land for construction", the latter cannot be considered as "properties with residential designation" for purposes of the provisions of item no. 28.1 of the General Stamp Tax Table, in its original wording, as given to it by Law no. 55-A/2012, of 29 October."

Relying on this case law, which is entirely adopted, it is concluded that the alleged defect of illegality of the disputed assessment is well-founded, due to error in the prerequisites of the application of the provision of item 28.1 of the TGIS.

(ii) Question of the unconstitutionality of the provision concerning objective scope of taxation contained in item 28.1 of the TGIS, if interpreted to encompass land for construction, in light of the constitutional principle of equality

Considering well-founded the alleged illegality of the disputed assessments due to error in the prerequisites of the application of item 28.1 of the TGIS, it becomes superfluous to analyze the question of the unconstitutionality of the same provision when interpreted to encompass land for construction, in light of the constitutional principles of legality and typicality of taxes.

VI. DECISION

For the reasons set out above, this Court decides:

1st: To annul the disputed Stamp Tax assessment act.

2nd: To condemn the Respondent AT – Tax and Customs Authority to refund the entirety of the tax and all additional charges paid by the claimant, relating to the disputed assessment, plus compensatory interest due, as provided for in article 43 of the LGT, from the date of payment until effective reimbursement.

Value of the proceedings: The value of the proceedings is fixed at 6,570.01 euros.

Costs: Pursuant to article 22, no. 4 of the RJAT, the amount of costs is fixed at 612.00 euros, in accordance with Table I attached to the Costs Regulation in Tax Arbitration Proceedings, to be borne by the Respondent.

Let this arbitral decision be registered and served on the parties.

Lisbon, Administrative Arbitration Centre, 31 July 2015.

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 of the TGIS applicable to construction land (terrenos para construção) valued over one million euros?
No, Stamp Tax under Verba 28.1 of the TGIS is not applicable to construction land (terrenos para construção), even if valued over one million euros. Verba 28.1 applies only to urban properties with residential designation, meaning actual buildings or constructions licensed for or normally used for housing purposes under Article 6(2) of the CIMI. Construction land is a separate category under Article 6 of the CIMI and does not constitute residential property until actual construction occurs. The subsidiary application of CIMI definitions pursuant to Article 67(2) of the Stamp Tax Code requires respecting the distinction between residential properties and land for construction as established in property tax legislation.
What is the legal distinction between housing property and construction land for purposes of Verba 28.1 of the Tabela Geral do Imposto do Selo?
The legal distinction between housing property and construction land for Verba 28.1 purposes derives from Article 6 of the Property Tax Code (CIMI). Residential properties are buildings or constructions licensed for housing purposes or having housing as their normal intended use, as defined in Article 6(2) of CIMI. Construction land (terrenos para construção) is a distinct category under Article 6(1)(c) of CIMI, consisting of undeveloped land suitable for building but without existing habitable structures. Verba 28.1 applies only to properties with actual residential designation—meaning completed or occupied housing—not to vacant land awaiting development, even if zoned or designated for future residential construction.
Can a taxpayer challenge an unlawful Stamp Tax assessment through tax arbitration (arbitragem tributária) at CAAD under Decreto-Lei 10/2011?
Yes, a taxpayer can challenge an unlawful Stamp Tax assessment through tax arbitration at CAAD (Centro de Arbitragem Administrativa) under Decreto-Lei 10/2011, which establishes the Legal Regime for Arbitration in Tax Matters (RJAT). Article 2(1)(a) and Article 10 of the RJAT provide jurisdiction for arbitral tribunals to review the legality of tax assessment acts, including annulment of illegal Stamp Tax liquidations under Verba 28 of the TGIS. Tax arbitration offers an alternative to judicial review in administrative courts, providing taxpayers with a faster, specialized forum for resolving tax disputes with the Tax and Customs Authority.
How is the patrimonial tax value (valor patrimonial tributário) of co-owned property calculated for Imposto do Selo Verba 28.1 purposes?
For Imposto do Selo Verba 28.1 purposes, each co-owner's individual share of the patrimonial tax value should be considered separately when determining whether the €1 million threshold is met. The tax applies to ownership, usufruct, or surface rights of urban properties whose tax asset value equals or exceeds €1,000,000. When property is co-owned, the relevant value for each taxpayer is their proportionate share of the total tax asset value, not the aggregate property value. Therefore, if a taxpayer owns 50% of property valued at €1,314,002.31, their individual share of €657,001.16 would not meet the €1 million threshold for Stamp Tax liability under Verba 28.1.
Is the taxpayer entitled to compensatory interest (juros indemnizatórios) under Article 43 of the LGT when a Stamp Tax liquidation on construction land is annulled?
Yes, the taxpayer is entitled to compensatory interest (juros indemnizatórios) under Article 43 of the General Tax Law (LGT) when a Stamp Tax liquidation on construction land is annulled. Article 43 of the LGT establishes the right to compensatory interest when taxes are paid in excess due to illegal assessments or errors attributable to tax services. Interest accrues from the date of payment until the date of effective reimbursement. When an arbitral tribunal or court annuls an unlawful Stamp Tax assessment and orders reimbursement, the Tax Authority must refund not only the principal amount paid but also compensatory interest calculated at the applicable legal rate for the entire period the taxpayer was deprived of those funds.