The controversial application of Stamp Duty (SD) to construction land has recently had new developments with several decisions of the Supreme Administrative Court favorable to the taxpayers.

We recall that at the end of 2012 the Portuguese Government approved a new SD applicable to buildings for residential property ("prédio com afetação habitacional") with a tax value equal to or higher than one million euros (at the rate of 1%).

Although not foreseen in the law, the Portuguese Tax Authority (PTA) also started to apply the new SD to construction land with a tax value equal to or higher than one million euros.

This decision of the PTA was grounded on the following: (i) the tax value of construction land is determined based on the affectation allowed or planned; (ii) the allocation of the construction land is determinable on the basis of building permits and Municipal Master Plans; (iii) thus, the term "afetação habitacional" includes buildings and construction lands allocated to residential property.

These arguments were rejected by the Arbitral Court (in the context of processes submitted to CAAD), whose decisions have been confirmed by the Supreme Administrative Court.

It should be noted that with the State Budget of 2014 the Portuguese Government reviewed the ST General Chart which now expressly foresee the application of the SD to buildings for residential property and construction land with residential allocation, either authorised or projected.

However, according to recent news, the legal services of the PTA do not advice the application of the ST to construction land due to the lack of legal grounds.

In addition, the taxpayers are also contesting the application of the SD to urban buildings divided in fractions ("propriedade em regime vertical"). In practice, the Portuguese Tax Authority applies the ST to all the buildings whose sum of the tax value of the several fractions are equal to or exceed one million euros.

On this point the Arbitral Court rejected the arguments of the Portuguese Tax Authority based on the violation of the principle of legality and tax equality.

AMM recommends all real estate owners with a tax value exceeding one million euros to find legal advice in order to protect its interests and rights.