Process: 817/2014-T

Date: July 20, 2015

Tax Type: Selo

Source: Original CAAD Decision

Summary

In Process 817/2014-T, a Portuguese arbitral tribunal examined whether construction land (terreno para construção) is subject to Stamp Tax under Verba 28.1 of the General Stamp Duty Table (TGIS). The claimant, a co-owner holding 2/10 undivided shares of construction land valued at €1,467,314.25, challenged a 2013 Stamp Tax assessment of €2,934.63. The central legal dispute concerned whether undeveloped construction land qualifies as 'property with residential affectation' under Verba 28.1 TGIS, introduced by Article 4 of Law 55-A/2012. The claimant argued that construction land without approved building projects cannot be classified as habitable residential property, and that applying residential affectation coefficients used for valuation purposes under the Municipal Property Tax Code (CIMI) does not automatically trigger Stamp Tax liability. Additional grounds included lack of proper notification, double taxation concerns with IMI, and constitutional issues regarding retroactivity and equality principles. The Tax Authority defended the assessment by interpreting 'residential affectation' through CIMI definitions pursuant to Article 67(2) of the Stamp Duty Code, arguing that since residential affectation coefficients were applied in determining taxable asset value, the property falls within Verba 28.1's scope. This case highlights critical questions about the intersection of property valuation methodology and tax liability, particularly whether classification for assessment purposes automatically determines tax incidence, and whether Stamp Tax on high-value properties extends to undeveloped construction land based solely on permitted use rather than actual construction or habitation.

Full Decision

ARBITRAL DECISION

  1. Report

A – General

1.1. A… – …, Lda., a company with registered office at Rua …, no. …, …, ..., with the sole registration number and collective person number … (hereinafter designated "Claimant"), filed, on 16.12.2014, a request for constitution of an arbitral tribunal in tax matters, seeking the declaration of illegality of a Stamp Duty assessment act relating to the year 2013, in the amount of € 2,934.63 (two thousand nine hundred and thirty-four euros and sixty-three cents), relating to a property for construction of which it is a co-owner, registered in the property register of the Union of Parishes of …, municipality of ..., under article … (hereinafter designated "Property").

1.2. The aforementioned assessment, which gave rise to three collection documents, copies of which were attached to the request for arbitral decision, was based on art. 1 of the Stamp Duty Code (hereinafter the "SDC"), in item 28.1 of the respective General Table (the "GTSDT"), added by art. 4 of Law no. 55-A/2012, of 29 October.

1.3. In accordance with the provisions of paragraph a) of no. 2 of art. 6 and paragraph b) of no. 1 of art. 11 of Decree-Law no. 10/2011, of 20 January, in the wording given to it by art. 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of the Administrative Arbitration Centre designated Nuno Pombo as arbitrator, and the Parties, after being duly notified, did not express opposition to this designation.

1.4. By order of 30.12.2014, the Tax and Customs Administration (hereinafter designated "Respondent") proceeded to designate Ms. Dr. B… to intervene in the present arbitral proceedings, in the name and representation of the Respondent.

1.5. In accordance with the provision in paragraph c) of no. 1 of art. 11 of Decree-Law no. 10/2011, of 20 January, in the wording given to it by art. 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 26.02.2015.

1.6. On 11.03.2015, the head of the Respondent's service was notified to, within 30 days, attach to the case file the administrative proceeding that may exist and, if it wishes, submit a reply and request the production of additional evidence.

1.7. On 24.04.2015, the Respondent submitted its reply.

B – Position of the Claimant

1.8. The Claimant grounds its claim, first of all, on the fact that it was not notified, as by law should have occurred, of the Stamp Duty assessment (hereinafter "SD") which gave rise to the issuance of the three collection documents of which it was notified relating to the first, second and third instalments, payable by the end of April, July and November, all of 2014, with the numbers, respectively: 2014 …; 2014 … and 2014 ….

1.9. The Claimant also contends that there was an erroneous qualification of the taxable event insofar as the Property is a property intended for construction, with nothing built on it, which was valued taking into account the percentage of maximum building coverage area permitted by the municipal planning plan, assuming that the construction would be intended for residential purposes, without any project having been submitted to the Municipal Chamber of ..., request for feasibility, licence or authorisation approved by the competent municipal authority.

1.10. Consequently, the Property is not included within the scope of objective incidence of item 28.1 of the GTSDT since a property for construction is not in itself a habitable property, that is, cannot be subsumed under the concept of "property with residential affectation".

1.11. The Claimant further considers applicable to the case sub judice the wording that item 28.1 of the GTSDT knew before the amendment it underwent by Law no. 83-C/2013, of 31 December, which has effect only from 01.01.2014.

1.12. The Claimant also concludes that, if item 28.1 of the GTSDT were applicable to the case in question, this would represent an illegal double taxation, since "the objective and subjective incidence is identical to that of CIMI".

1.13. Finally, the Claimant raises "doubts of constitutionality as to its retroactivity", insofar as item 28.1 of the GTSDT, with the wording given to it in late 2012, seeks to apply to real rights acquired before its entry into force, also understanding that the norm violates the constitutional principle of equality, as it refers only to properties for residential purposes.

C – Position of the Respondent

1.14. The Respondent sustains the understanding according to which the Property has "legal nature of property with residential affectation", consequently defending the maintenance of the assessment act which is the subject of the request for arbitral decision.

1.15. The Respondent's understanding results from the fact that there is, in the context of Stamp Duty, no definition of the concepts of "urban property", "property for construction" and "residential affectation", which requires recourse to the Municipal Property Tax Code (the "MPTC"), in obedience to the provision in no. 2 of art. 67 of the SDC, in the wording given to it by Law no. 55-A/2012, of 29 October, resulting in the necessary conclusion that the notion of affectation of an urban property "finds its foundation in the part relating to the assessment of properties" and if for the purposes of determining the taxable asset value of properties for construction it is clear the application of the affectation coefficient in the context of assessment, then "its consideration for the purposes of applying item 28 of the GTSDT cannot be ignored".

1.16. The Respondent also rejects the alleged unconstitutionality of item 28.1 of the GTSDT, as it understands that this provision does not enshrine any arbitrary or unreasonable discrimination.

D – Conclusion of the Report and Case Management

1.17. The arbitral tribunal, by order of 20.06.2015, decided to dispense with the meeting provided for in art. 18 of the Legal Regime of Arbitration in Tax Matters (LRATM), in the absence of opposition from the Parties, as it considered there was no procedural usefulness in holding said meeting, since the parties had already brought to the proceedings the necessary and sufficient factual elements for the rendering of the decision.

1.18. The parties have legal personality and capacity and have standing under art. 4 and no. 2 of art. 10 of the LRATM, and art. 1 of Ordinance no. 112-A/2011, of 22 March.

1.19. The proceedings do not suffer from any nullity and no exceptions were raised by the Parties that prevent the examination of the merits of the case, so the conditions are met for the rendering of the arbitral decision.

  1. Factual Matters

2.1. Proven Facts

2.1.1. The Claimant is the owner of 2/10 undivided shares of the Property, (docs. nos. 1 to 3 attached with the request for arbitral decision, whose content is taken as reproduced).

2.1.2. The Property is described as property for construction (agreement of the Parties).

2.1.3. The Property was assigned the following taxable asset value: €1,467,314.25 (one million four hundred and sixty-seven thousand three hundred and fourteen euros) (docs. nos. 1 to 3 attached with the request for arbitral decision).

2.1.4. For the purposes of determining its taxable asset value, residential affectation was assigned to the Property (agreement of the Parties).

2.1.5. The Claimant was notified of collection documents nos. 2014 …; 2014 … and 2014 …, in the amount of € 2,934.63 (two thousand nine hundred and thirty-four euros and sixty-three cents), relating to the Property (docs. nos. 1 to 3 attached with the request for arbitral decision).

2.2. Unproven Facts

There are no facts relevant to the examination of the merits of the case that have been considered unproven.

  1. Legal Matters

3.1. Question to be Decided

It follows from the foregoing that the question to be decided is, in essence, whether the Property, which is a property for construction, is a property "with residential affectation" for the purposes of applying art. 1 of the SDC and item 28.1 of the GTSDT, added by art. 4 of Law no. 55-A/2012, of 29 October.

3.2. Item 28.1 of the GTSDT

Law no. 55-A/2012, of 29 October, among several amendments it made to the SDC, added, by its art. 4, item 28 to the GTSDT, which has the following wording:

"28 - Ownership, usufruct or right of superficies of urban properties whose taxable asset value shown in the register, under the terms of the Municipal Property Tax Code (MPTC), is equal to or greater than € 1,000,000 - on the taxable asset value used for the purposes of MPT:

28.1 - For property with residential affectation - 1%;

28.2 - For property, when the taxable subjects who are not natural persons are residents in a country, territory or region subject to a clearly more favourable tax regime, appearing on the list approved by ordinance of the Minister of Finance - 7.5%."

As can be seen, item 28.1 refers to "properties with residential affectation". Now, not only does this concept not appear defined in any provision of the SDC, but neither is it used in the MPTC, a regulation to which art. 67 no. 2 of the SDC expressly refers when matters are at issue that are not regulated in the SDC regarding item 28.

3.3. The Meaning and Scope of the Concept of "Property with Residential Affectation"

The meaning and scope of the concept of "property with residential affectation" cannot be established without bearing in mind the significance of the word "affectation" itself. And that must be found in dictionaries, obtaining therefrom the benefit of the careful study of lexicographers. Thus, "affectation", according to the Dictionary of Contemporary Portuguese Language, of the Academy of Sciences of Lisbon, is the action of designating something for a particular use and "affect", consequently, is synonymous with designating for a specific use or function.

a) The Rules of Interpretation of Tax Norms

The question to be examined does not dispense with, rather it implies, capturing the meaning and scope of the concept of "property with residential affectation" to which item 28.1 of the GTSDT appeals. In the absence of a legal definition, either in the SDC or in any other regulation, the interpreter-applier of this provision has the duty to invoke the norms that govern the necessary hermeneutical exercise.

There is no truly special regime for the interpretation of tax norms. No. 1 of art. 11 of the General Tax Law mandates observance, "in determining the meaning of tax norms and in qualifying the facts to which they apply", "the general rules and principles of interpretation and application of laws".

The general principles of interpretation and application of laws are those established in art. 9 of the Civil Code:

ARTICLE 9

(Interpretation of the Law)

  1. Interpretation must not be limited to the letter of the law, but must reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.

  2. However, the interpreter cannot consider the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

  3. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator consecrated the most appropriate solutions and knew how to express its thought in adequate terms.

Note, however, that the interpretation of norms, including tax norms, is not exhausted in a lexical exercise. It does not involve only, nor even mainly, the dissection of vocabulary. What is at issue is not therefore to know exactly what "property with residential affectation" means, but rather to capture the meaning and scope of that concept within the provision of item 28.1 of the GTSDT. The same is to say, it is emphasised, that there will only be procedural usefulness to the hermeneutical effort, within the scope of this specific request for arbitral decision, if it is aimed at discerning whether the legislator, with the wording chosen for item 28.1 of the GTSDT, wished to encompass therein urban properties qualified as properties for construction.

b) "Residential Affectation" – Residential Properties and Properties with Residential Affectation

The Respondent contends that the affectation of the property is a coefficient that contributes to its assessment, which we believe to be indisputable. However, what is now at issue is whether item 28 of the GTSDT, in the wording that we must attend to, comprises both constructed properties and properties for construction.

No. 1 of art. 6 of the SDC, with taxonomic concern, distinguishes "residential properties" from "properties for construction". The former shall be, under the terms of the provision in no. 2 of the same article, buildings or constructions licensed for such purpose or, in the absence of that licence, those which have as their normal destination this purpose. Properties for construction, however, are clarified in no. 3 of the provision we have been referring to, those for which a licence or authorisation has been granted, admitted prior communication or issued favourable prior information of subdivision or construction operation, and also those which have thus been declared in the acquisition document, with some exceptions.

It is thus clear that a property for construction is not, according to this classification, a residential property. The question is now whether "property with residential affectation", a concept used by item 28.1 of the GTSDT, corresponds, notwithstanding the literal diversity, to "residential property", a notion employed in the classification just visited.

Affectation, as we have learned from the lexicographers, invokes the destination given to a certain asset. Now, "residential" is relative to dwelling, this being, in turn, and according to the Dictionary we have been using, a place or house in which one lives or resides. Now, residential affectation cannot suggest any other meaning than the action of giving to a certain asset – in this case the Property, which is, recall, a property for construction – the destination of a house or place where one lives.

It is known that the MPTC makes, in various provisions, use of the expression "affectation". It does so, for example:

· In art. 3, when it refers, with respect to rustic properties, to use generating agricultural income;
· In art. 9, when it imposes on taxable subjects the duty to communicate to the finance services that a property for construction has come to appear in the inventory of a company whose object is the construction of buildings for sale or that a property has come to appear in the inventory of a company whose object is its sale;
· In art. 27, when it relates certain buildings and constructions to the generation of agricultural income.

In all the situations presented, as can be seen, affectation is not referred to in potential terms, of vocation or expectation. It is quite the opposite. It suggests an actual or direct destination, to use an expression to which the legislator appeals in art. 27.

However, the MPTC also makes abundant use of the expression "affectation" when it sets forth the rules that should be applied to the determination of the taxable asset value of urban properties (articles 38 et seq. of the MPTC). It is thus important to see if we can extract from the rules of determination of the taxable asset value some useful element that permits us to grasp the meaning and scope of the concept of "property with residential affectation".

c) The Relevance of the Rules for Determination of Taxable Asset Value

The Respondent contends that the "notion of affectation of the urban property finds its foundation in the part relating to the assessment of properties" and, moreover, that "for the purposes of determining the taxable asset value of properties for construction it is clear the application of the affectation coefficient in the context of assessment, whereby its consideration for the purposes of applying item 28 of the GTSDT cannot be ignored".

It is true that for the determination of the taxable asset value of properties for construction, account has been taken, not without difficulties, of the "affectation" of what on it might be built.

However, as the Respondent rightly notes, "the mere constitution of a right of potential construction immediately increases the value of the property in question", precisely as a function of what might be built on it. Therefore, as the Respondent very well explains, art. 45 of the MPTC "orders the separation of the two parts of the land": on the one hand, we must consider "the part of the land where the building to be constructed is to be implanted [rectius, where it may come to be implanted], and on the other the area of free land. Once the amount of the first part is calculated, the value determined is reduced to a percentage between 15% and 45% (…), because the construction is not yet effectuated". It is clear that the application of that percentage permits precisely taking into account the circumstance that there is not yet construction, but it does not authorise the legislator to ignore that the economic, or market, value of a property for construction is related to its building capacity.

To say the foregoing does not mean, however, that the legislator feels the need to impose automatic and necessary taxation, in the context of Municipal Property Tax, to all properties for construction. One has only to read what is provided in paragraph d) of the aforementioned art. 9 of the MPTC:

ARTICLE 9

(Commencement of Taxation)

  1. The tax is due from:

(…)

d) The fourth year following, inclusive, that in which a property for construction came to appear in the inventory of a company whose object is the construction of buildings for sale;

(…)

That is, even though the legislator understands it to be reasonable, as it seems to be, to determine the taxable asset value of a property for construction by taking into account its building capacity and, let us grant for the sake of argument, the nature or vocation of what might be built on it, it remains symptomatic that it has opted, at the same time, to suspend that taxation in cases where those properties for construction appear in the inventory of a company whose object is the construction of buildings for sale. In cases where, one could also say, those urban properties form part of a productive process that tends to continue and to produce, downstream, fruits also capable of being taxed.

If the primary meaning of "affectation", as we have said, suggests an actual, direct destination given to a particular asset, we do not see how this understanding can be undermined by the observation that the legislator, in the context of the assessment of properties for construction, authorises (assuming it does authorise) the use of the affectation coefficient, with a view to what might be built on it. In truth, it does not seem reasonable to admit in this scenario the recourse to norms of determination of taxable matter to broaden the provision of norms of incidence.

d) Position Adopted

In light of the foregoing, the arbitral tribunal judges that it is necessary, in the interpretation of the provision in item 28.1 of the GTSDT with the wording applicable to the case at hand, to adopt the understanding according to which the residential affectation of an urban property suggests that it be given that actual destination, or that it may directly be given that destination. Being as it appears to us, a property for construction is not included in that item, in terms of objective incidence. It thus appears to us that a property for construction, by its very nature, cannot be associated with residential affectation such as that suggested by item 28.1 of the GTSDT.

It should not be said that this judgment conflicts with the possibility of applying to a construction property the affectation coefficient to which reference is made in Section II of Chapter VI of the SDC. In truth, one thing is the rules that the legislator imposes to determine the taxable asset value of properties for construction, it not being strange that account should be taken of its building capacity and the nature and vocation of what might be built on them, another, quite different, is to claim that those rules be invoked to define the field of the normative provision of incidence rules.

Moreover, the interpretation adopted here is in harmony with what appears to have been the Government's intention, author of the proposal that resulted in this imprecise legislative intervention.

When the bill no. 96/XII (2nd) was presented and discussed in Parliament, the Secretary of State for Tax Affairs expressly stated[1]:

"The Government proposes the creation of a special tax on high-value residential urban properties. It is the first time that Portugal has created a special taxation on high-value properties intended for residence. This tax will be 0.5% to 0.8% in 2012 and 1% in 2013, and will apply to houses worth equal to or greater than 1 million euros."

Now, the Secretary of State for Tax Affairs presents this bill referring to the expressions "residential urban properties", which are those contained in paragraph a) of no. 1 of art. 6 of the SDC and "houses", it being manifest that, in one case and the other, properties for construction, referred to in paragraph c) of the cited provision, do not fall within those concepts without more.

Thus, despite the imprecision of the legislative technique and without prejudice to the wording now in force, it follows with meridian clarity that item 28.1 of the GTSDT, at the date of the facts, cannot be interpreted to mean that properties for construction are encompassed therein, for the reasons stated above. Rather, it appears that the meaning and scope of the concept of "properties with residential affectation" is the equivalent of "residential properties" mentioned in paragraph a) of no. 1 of art. 6 of the SDC.

3.1.5. Lack of Substantiation and Unconstitutionality

The Claimant raised the questions of lack of substantiation of the assessment act and of unconstitutionality of item 28.1 of the GTSDT, for violation of the principles of non-retroactivity of tax law and tax equality.

Since the arbitral tribunal does not consider that item applicable to the case sub judice, the examination of those questions becomes moot and procedurally futile.

  1. Decision

In the terms and with the grounds set forth above, the arbitral tribunal decides to uphold the request for arbitral decision with the consequent annulment of the contested assessment, with all legal consequences.

  1. Value of the Case

In accordance with the provisions of no. 2 of art. 315 of the CPC, in paragraph a) of no. 1 of art. 97-A of the CPPT and also no. 2 of art. 3 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 2,934.63 (two thousand nine hundred and thirty-four euros and sixty-three cents).

  1. Costs

For the purposes of the provisions in no. 2 of art. 12 and no. 4 of art. 22 of the LRATM and no. 4 of art. 4 of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 612.00 (six hundred and twelve euros), in accordance with Table I appended to said Regulation, to be borne entirely by the Respondent.

Lisbon, 20 July 2015

The Arbitrator

(Nuno Pombo)

Text prepared by computer, in accordance with no. 5 of art. 131 of the CPC, made applicable by remission of paragraph e) of no. 1 of Decree-Law no. 10/2011, of 20 January and with the spelling prior to the 1990 Orthographic Agreement.

[1] See DAR I Series no. 9/XII -2, of 11 October, p. 32.

Frequently Asked Questions

Automatically Created

Is Stamp Tax (Imposto do Selo) under Verba 28.1 TGIS applicable to construction land (terrenos para construção)?
Whether Stamp Tax under Verba 28.1 TGIS applies to construction land is the central issue in this arbitral decision. The claimant argued that terreno para construção (construction land) without any built structures or approved construction projects cannot qualify as 'property with residential affectation' under Verba 28.1. The property was merely vacant land with building potential based on municipal planning regulations. The Tax Authority countered that residential affectation should be determined by the classification used for Municipal Property Tax valuation purposes, where residential coefficients were applied. The claimant maintained that construction land is fundamentally different from habitable residential property and cannot be subsumed under the concept of residential affectation merely because of its permitted future use. This interpretation dispute centers on whether Verba 28.1's scope extends to undeveloped land or only to actual residential properties.
What are the notification requirements for Stamp Tax assessments on high-value properties in Portugal?
Notification requirements for Stamp Tax assessments were a procedural issue raised in this case. The claimant argued they were not properly notified of the Stamp Tax assessment itself, only receiving notifications of three collection documents (numbered 2014...) for instalments due in April, July, and November 2014. According to Portuguese tax procedure law, taxpayers must be formally notified of assessment acts before collection. The claimant contended this notification deficiency violated legal requirements and constituted grounds for challenging the assessment's validity. This procedural irregularity was raised alongside substantive arguments about whether the property qualified for taxation under Verba 28.1 TGIS.
Can a co-owner challenge a Stamp Tax assessment through CAAD arbitration proceedings?
Yes, a co-owner can challenge Stamp Tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings, as demonstrated in this case. The claimant, owning 2/10 (20%) undivided shares of the construction property, filed a request for constitution of an arbitral tribunal on December 16, 2014, challenging the Stamp Tax assessment relating to the entire property for 2013. The arbitral tribunal accepted jurisdiction under Article 4 and Article 10(2) of the Legal Regime of Arbitration in Tax Matters (LRATM) and Ordinance 112-A/2011. The tribunal confirmed the claimant had legal personality, capacity, and standing to bring the action. Co-ownership does not prevent individual co-owners from challenging tax assessments affecting their proportional interests in jointly-owned property subject to Stamp Tax under Verba 28.1 TGIS on high-value real estate.
What was the legal basis for contesting the 2013 Stamp Tax assessment under Article 4 of Law 55-A/2012?
The legal basis for contesting the 2013 Stamp Tax assessment centered on Article 4 of Law 55-A/2012 of October 29, which added Verba 28.1 to the General Stamp Duty Table (TGIS). This provision, effective from late 2012, introduced Stamp Tax on high-value properties with residential affectation. The claimant challenged both the applicability and interpretation of this new provision. Key contestation grounds included: (1) whether construction land falls within Verba 28.1's scope; (2) which version of Verba 28.1 applies - the original 2012 version or the amended version under Law 83-C/2013 effective January 1, 2014; (3) constitutional concerns about retroactive application to property rights acquired before the law's enactment; (4) alleged violation of equality principles by taxing only residential properties; and (5) potential double taxation issues since Municipal Property Tax (IMI) already taxes the same property with identical objective and subjective incidence.
How does incorrect classification of the taxable event affect the validity of a Stamp Tax assessment?
Incorrect classification of the taxable event fundamentally affects Stamp Tax assessment validity. The claimant argued erroneous qualification occurred because the Tax Authority classified undeveloped construction land as 'property with residential affectation' without any actual construction, approved projects, or permits from municipal authorities. The property's taxable asset value of €1,467,314.25 was calculated using residential affectation coefficients based on maximum building coverage percentages permitted by municipal planning regulations, assuming future residential construction. However, the claimant maintained that applying valuation methodologies for assessment purposes does not transform the legal nature of construction land into habitable residential property. This misclassification was critical because Verba 28.1 TGIS specifically targets properties 'with residential affectation,' and if construction land does not meet this definition, the entire assessment lacks legal foundation and the taxable event does not exist, rendering the Stamp Tax demand illegal and unenforceable.