Process: 2/2017-T

Date: June 9, 2017

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 2/2017-T) addresses the critical classification dispute of a fuel service station for IMI (Municipal Property Tax) purposes in Portugal. The taxpayer challenged the Tax Authority's classification of the property as 'other' urban property under Article 6(4) of CIMI, arguing it should be classified as 'commercial' property under Article 6(2)(b). This classification distinction carries significant valuation implications: commercial properties are assessed using the formula in Article 38 of CIMI, while 'other' properties use the Article 46(2) method (market value of land plus construction cost). The applicant contested both the initial and second assessment, asserting that equipment assets should not be included in the real property concept and that the construction costs applied were arbitrary. The Tax Authority defended its position that service stations, given their primary purpose of retail fuel sales and their unique composition, constitute urban properties for 'other' purposes rather than commercial use. The tribunal noted this issue has been extensively addressed in previous CAAD jurisprudence, citing decisions 62/2013-T, 348/2015-T, 604/2015-T, 218/2015-T, 271/2015-T, and 244/2016-T, suggesting an established line of case law. The decision emphasizes that property classification under CIMI requires analysis of three elements: physical (fraction of territory with permanent constructions), legal (patrimony integration), and economic (economic value). This case illustrates the importance of proper urban property classification for IMI purposes and the availability of CAAD arbitration as a remedy for taxpayers disputing patrimonial tax valuations based on alleged classification errors.

Full Decision

ARBITRAL DECISION

The application for constitution of the arbitral tribunal was accepted by the Honorable President of CAAD and automatically notified to the Tax and Customs Authority on 13-01-2017. In accordance with the provisions of paragraph a) of article 6, no. 2 and paragraph b) of article 11, no. 1 of Decree-Law no. 10/2011, of January 20, as amended by article 228 of Law no. 66-B/2012, of December 31, the Ethics Council appointed the undersigned as arbitrator of the sole arbitral tribunal and notified the parties of this appointment on 27-02-2017. Thus, in accordance with the provisions of paragraph c) of article 11, no. 1 of Decree-Law no. 10/2011, of January 20, as amended by article 228 of Law no. 66-B/2012 of December 31, the sole arbitral tribunal was constituted on 16-03-2017, following the relevant legal procedures.

I – REPORT

1- On 30-12-2016, the company A… S.A., NIPC…, filed an application for constitution of a sole arbitral tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of January 20 (Legal Framework for Tax Arbitration, hereinafter referred to only as RJAT), in which the Tax and Customs Authority is named as the Respondent…

2- …Seeking the annulment of the act fixing the tax property value relating to the real property registered under article … of the urban property matrix of the Union of Parishes of … and …, municipality of Cascais, which was assessed as corresponding to a fuel service station and other facilities, with the consequent repetition of the assessment procedures, based on the classification of the property as "commercial" and consequent application of the formula provided in article 38 of CIMI, given that equipment assets do not fall within the concept of real property.

3- As grounds for the application filed, the Applicant invokes the existence of errors of law in the act of fixing the tax property value, both in the first assessment and in the second. Both proceeded from incorrect premises that classified the property as "other" rather than "commercial".

The Applicant further alleges that, even in the case of a property qualified as "other," article 38 of CIMI was applicable. Additionally, the construction cost used is arbitrary and disorderly.

It cites in its favor jurisprudence of CAAD, produced in similar cases (some its own).

4. The position of the Respondent ATA is, in essence, that set forth in the act fixing the tax property value, whose legality it defends, with the arguments contained in the Response. From its point of view, a service station constitutes an urban property – other, and not a commercial property, as the Applicant claims, considering the composition of the property and the primary purpose for which it is intended, which is naturally the retail sale of fuel. Hence its classification under article 6, no. 4 of CIMI.

Furthermore, it adds…

It is a property that is not intended for residential, commercial, industrial, or service purposes, and therefore should be qualified as a property for another purpose. In the assessments carried out, the law in force and the Manual for Assessment of Urban Properties were applied, with the legal basis of the assessment resting on the provisions of article 36, no. 2 of CIMI, in detriment to the provisions of article 38 of the same code, because it is a property which must be qualified as an urban property for "other" purposes as to its intended use.

The proceedings contain no nullities.

There is no obstacle to the consideration of the merits of the case.

II - MATERIAL FACTS

1- The Applicant submitted a declaration form 1, requesting the assessment of the urban property no.…, located in the parish of … and …, municipality of Cascais. This assessment resulted in a tax property value of €484,930.00.

2- The Applicant filed a request for 2nd assessment, centering its disagreement on the classification of the urban property as "other" and consequent fixing of the property value based on the method provided in no. 2 of article 46 of CIMI.

3- The second assessment maintained the classification of the property as "other," proceeding to determine the tax property value based on the method stated in no. 2 of article 46 of CIMI (market value of the land added to the construction cost), resulting in a property value of €484,910.00, which was notified to the Applicant on November 24, 2016.

4- The assessment record contains the classification as property "other" and as such, effected under article 46, no. 2. Only the value of €484,930.00 is "corrected" to €484,910.00 due to the change in the Dependent Gross Area from 0.0000m2 to 120.1200m2 and in the Private Gross Area from 258.4500m2 to 138.3300m2.

5- The representative of the Applicant in the assessment commission presented a dissenting opinion statement as appears in the assessment record.

Facts deemed proven

All those referred to above.

Facts deemed not proven

Not relevant to the decision.

Substantiation of facts proven and not proven

Regarding the facts, the Tribunal need not pronounce on everything alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to distinguish proven from unproven facts (cf. article 123, no. 2, of CPPT and article 607, no. 3 of CPC, applicable by virtue of article 29, no. 1, paragraphs a) and e), of RJAT).

Thus, the facts relevant to the judgment of the case are chosen and selected based on their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (cf. prior article 511, no. 1, of CPC, corresponding to current article 596, applicable by virtue of article 29, no. 1, paragraph e), of RJAT).

Thus, taking into consideration the positions assumed by the parties, in light of article 110/7 of CPPT, and the documentary evidence attached to the case, the facts listed above were considered proven as relevant to the decision.

III - LAW

The disputed issue in the present arbitral action centers on determining whether the property described constitutes a commercial property or property for services, as referred to in paragraph b) of article 6 of the Municipal Property Tax Code (CIMI), or should be classified in the category of "other," provided for in paragraph d) of the same rule, given that the classification assigned determines the method to be used in the respective assessment: that provided in no. 2 of article 46 of CIMI, which was used by AT, or that provided in article 38 of the same legislation, as the Applicant argues.

Let us examine this.

2- This issue has been addressed several times in this CAAD, as evidenced by the case law index:

Proceedings 62/2013-T, 348/2015-T, 604/2015-T, 218/2015-T, 271/2015-T, 244/2016-T.

3- Consider the direction of the decision, with which we agree (and believe to be unanimous), in the parts which, with due respect, we transcribe:

Proceeding 348/2015-T:

(…) Considering the provisions of article 2 of CIMI, the concept of "property" rests on three elements, namely: 1) A physical element which is translated into a fraction of territory, encompassing waters, plantations, buildings and constructions of any nature incorporated or resting therein, with a character of permanence; 2) A legal element, which requires that physical reality (real property) integrate the patrimony of a natural or legal person; 3) An element of an economic nature, which is translated in the requirement of economic value in normal circumstances.

…. In accordance with article 6 of CIMI:

"1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Other".

Article 2, no. 2 of the same article adds that:

"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."

In turn, and in accordance with no. 4 of the same article:

"4 - The provisions of paragraph d) of no. 1 include lands situated within an urban agglomeration that are not land for construction nor are covered by the provisions of no. 2 of article 3, and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination other purposes than those referred to in no. 2 and also those of the exception in no. 3."

According to the legal definition, commercial properties or properties intended for services are buildings or constructions licensed for such purposes.

And… a fuel service station, such as a service station and/or a convenience store, are commercial establishments where acts of commerce are carried out. As is known, there are two categories of commercial acts: objective and subjective commercial acts. In the first category we include acts and legal transactions that are typically and objectively commercial, such as, for example, commercial purchase and sale or the purchase of goods and products for resale. Thus in this category we can include the acts carried out by the Applicant, that is, the activity of retail sale of fuel, the washing of motor vehicles or the sale of food and beverages are objective acts of commerce. As for the second category, those are considered (subjective acts of commerce) all those characterized by being carried out by a merchant and that do not have an exclusively personal nature. Given that the Applicant is a commercial company, it assumes the status of merchant with the legal consequences resulting therefrom.

In this sense see, among others, António Santos Rocha and Eduardo José Martins Brás, (2015) Taxation of Assets. Almedina. Coimbra. Pp. 44; José Maria Pires (2010) Lessons on Property Tax and Stamp Tax. Almedina. Coimbra. Pp. 81. Regarding this see, among others, Decisions of the Central Administrative Court of the South, of 4-06-2015 and of 10-07-2015, rendered respectively in proceedings nos. 08035/14 and 06810/12. The same TCAS also ruled to this effect in Decision of 15-11-2011, in proceeding no. 3917/10…

…Given this, the acts carried out by the Applicant, namely the retail sale of fuel, food and beverages, are acts of commerce and the property under consideration in the present proceedings has as its destination or exclusive purpose to allow the practice of this commercial activity. It is, therefore, an evident and notorious fact that the operations carried out on the property in question in the present proceedings constitute, without doubt, the practice of commercial acts, and it is not clear on what basis we could consider such property as falling within the category of "other". As aptly referred to in the Decision of TCAS, of 10-07-2015, rendered in proceeding no. 06810/13, "urban properties to be classified in the species 'other' are lands situated within an urban agglomeration that are not for construction, nor are covered by the provisions in no. 2, article 3, and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination other purposes than those referred to in no. 2 and also those of the exception in no. 3. In the classification of urban property as belonging to the species 'other' the legislator adopted a residual criterion …"

Given the legal framework set out above, and considering the rules on the interpretation of legal norms, namely those resulting from article 11 of the General Tax Law (LGT), it is necessary to conclude that the general principles of interpretation of laws, to which no. 1 of article 11 of the LGT refers, are established in article 9 of the Civil Code.

… Now, the letter of the law is clear and its ratio legis does not give rise to doubt as to the non-existence of valid grounds for the qualification of the property as "other," for purposes of assessment and determination of its tax property value. Therefore, the second assessment carried out, contested here, erred as to the factual and especially legal presuppositions, by having as its premise the erroneous qualification of the property, considering it as the species "other," when it should have considered it as property "commercial" (…).

Proceeding 604/2015-T:

(…)… "service station" is defined by paragraph q) of article 2 of Ordinance 131/2002 of 09.02 as "… the installation intended for the supply, for own consumption, public or cooperative, of gasoline, diesel and LPG for road vehicles, corresponding to the area of the place where the supply units are located, their respective reservoirs and safety and decontamination zones, as well as integrated buildings and the roads necessary for the circulation of road vehicles to be supplied".

In turn, … the term "service area" is defined by paragraph e) of article 2 of Ordinance 131/2002 of 09.02 as "usual designation of service stations on main itineraries supplementary itineraries containing equipment and means intended to provide support to users and road vehicles".

Let us then address the substantive issue: the immovable properties identified above which were assessed as being of the species "other" (paragraph d) of no. 1 of article 6 of the IMI Code) pursuant to articles 46, nos. 1 and 2 of CIMI, should be considered as such as the Respondent argues, or, rather, should they be considered of the species "commercial" (paragraph b) of no. 1 of article 6 of the IMI Code) and consequently should be assessed pursuant to article 38 of the IMI Code, as the Applicant argues?

It should be verified that both parties, in general terms, agree that the set of buildings and constructions and other elements incorporated and resting with a character of permanence, which embody the "service stations" and the "service area" integrate the concept of "property" in the meaning of article 2 of the IMI Code. What the Respondent then seeks to separately address is the "metal covering" (in the Applicant's meaning) or the "canopy" (in the Respondent's meaning), but only because it argues for the application of the assessment method of no. 2 of article 46 of the IMI Code.

That is, even the "storage tanks, fuel pumps, metal coverings where the lighting fixtures and company logo are located and electrical lighting poles and price fixing equipment" are considered, by the parties, as immovable property because they are considered integral parts of the "service stations" and the "service area," as would always result from article 204 of the Civil Code.

… both fuel service stations, as well as a service area, are commercial properties, by virtue of the content of the permits for use licensing combined with the literal element of the rule of no. 2 of article 6 of the IMI Code.

By virtue of no. 2 of article 6 of the IMI Code, the fuel service stations and the service area in question in this proceeding, as a set of buildings and constructions (with their respective integral parts) integrating, as they integrate, the concept of commercial establishments where objective and subjective acts of commerce are carried out, must be considered commercial urban properties (paragraph b) of no. 1 of article 6 of the IMI Code).

That is, these urban properties constitute the installations where the Applicant exercises its commercial activity of retail fuel sales. An activity generating business income (subject to CIT in accordance with paragraphs a) of nos. 1 of articles 2 and 3 of the CIT Code) and which is itself commercial, profitable, in accordance with the classification of economic activities – CAE, of the National Institute of Statistics (article 142 of the CIT Code).

It suffices to note how in the CAE Rev-3, with code 47 300, this activity is defined: "retail trade in motor vehicle fuels, in specialized establishments". The same applies to the definition of product sales and catering activities that occur in "service areas".

It would make no sense to consider that these installations, which are ultimately the place par excellence where the Applicant exercises its profit-generating activity - commercial profitable activity - subject to the CIT regime and then, for purposes of IMI, not to consider these installations or buildings, in overall terms, as constituting an urban property of the species "commercial"(…).

Proceeding 244/2016-T:

(…)… in light of the legal statement, that "commercial" properties (article 6, no. 1, paragraph b), of CIMI) 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" (article 6, no. 2, of CIMI), it remains to ascertain what commercial purposes are and whether these or others are pursued by the Applicant in the property whose assessment is challenged.

It is long been peacefully accepted by doctrine that tax rules are interpreted like any other legal rules, a solution that is now expressly stated in no. 1 of article 11 of the General Tax Law (LGT), by establishing that "1 - In determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed." On the other hand, no. 2 of the same article 11 of the LGT provides that "2 - Whenever tax rules employ terms specific to other branches of law, they must be interpreted in the same sense as they have therein, unless otherwise directly results from the law".

Now, the commercial purposes to which urban properties are intended cannot be other than the purposes regulated by commercial laws, that is, the practice of commercial acts, including commercial purchase and sales, provided for in articles 463 and following of the Commercial Code.

The sale of fuel, as the main activity exercised by the Applicant in the assessed property, falls within the practice of commercial acts, whether objective, because the sale of products acquired for that purpose are commercial sales, or subjective, given that commercial companies are merchants by nature (article 13, no. 2, of the Commercial Code).

The Respondent entity argues that, for a property to be commercial, it is not enough that commercial acts be carried out therein, citing as an example a bullring, a property intended for entertainment (subjective commercial acts, as the companies, singular or collective, that organize them are commercial) and that, as decided by the Supreme Administrative Court in the Decision rendered on 10/04/2013, in proceeding no. 0770/12…

The operative part of the same cited Decision clarifies the reasons why a "bullring" must be assessed by the construction cost method added to the land value: it is that "The mathematical formula of article 38 cannot be applied to the main part of the property, constituted by the arena and the bleachers, because the coefficients that comprise it do not adjust to the determination of market value. First and foremost, the fundamental coefficient of this assessment method, which is the base value (vc), which is set administratively for the entire country, does not adjust to the characteristics specific to a bullring, especially those main zones or parts. Article 39 of CIMI establishes that the base value corresponds to the unit construction cost per square meter of a building or construction, added to the land value. Now, if the land component could be applied to the entire area, the same does not hold for the construction value component, as neither is the arena a built part, nor are the bleachers a construction that, in a market of competition, are in the same conditions as real estate constructions for which an annual value per square meter is set"..

But the property whose assessment is treated in the present proceedings is not in the same conditions as a bullring, as a "fuel service station" is, by legal definition, "the installation intended for supply, for own consumption, public or cooperative, of gasoline, diesel and LPG for road vehicles, corresponding to it the area of the place where the supply units are located, their respective reservoirs and safety and protection zones, as well as integrated buildings and the roads necessary for the circulation of road vehicles to be supplied" …

"Service station" is a complex reality in which, in addition to supply units, the "integrated buildings" are also inserted, even though they are intended to pursue complementary activities (defined by the Regulation for Construction and Operation of Fuel Service Stations as "the services to be provided to users within the limits of the service station, in complement to the supply of fuel and lubricants, namely convenience store, vehicle support and vehicle washing (manual or automatic)") (…).

4- We therefore cannot discern sufficient grounds, which, contrary to all that has been set out, would permit the subsumption of the property in question in the category provided in paragraph d) of article 6 of CIMI. The urban property should be assessed in accordance with the rules of article 38 of CIMI.

5- For this reason, the contested act erred as to its presuppositions by encompassing an erroneous qualification of the species of property under assessment, prejudicing its outcome. It therefore suffers from the vice of violation of law.

Accordingly, the present arbitral application is well founded with the consequent annulment of the contested act. Further consideration of the other issues raised by the parties becomes unnecessary, given the decision on the fundamental issue of qualification of the property subject of the present proceedings.

DECISION

On these grounds, this Arbitral Tribunal decides to uphold the arbitral application filed and, in consequence:

a-) To declare the illegality of the assessment act contested, with the consequent annulment of the act fixing the property value.

b-) To order the repetition of the assessment procedure in accordance with the correct qualification of the property as described above and with all legal consequences, in particular concerning the application of the assessment criteria legally provided for the species of properties with commercial purposes, as provided in article 38, no. 1 of CIMI in force on the date of the facts.

Value of the proceeding

The value of the proceeding is fixed at €1,956.75 in accordance with article 97-A, no. 1, a), of the Tax Procedure and Proceeding Code, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulation on Costs in Tax Arbitration Proceedings.

Costs

The arbitration fee is fixed at €306.00, in accordance with Table I of the Regulation on Costs in Tax Arbitration Proceedings, to be paid by the Respondent, as the application was entirely upheld, pursuant to articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 4, of the aforementioned Regulation.

Lisbon, 09 June 2017

The Arbitrator,

(Fernando Miranda Ferreira)

Frequently Asked Questions

Automatically Created

How are fuel stations classified for IMI property tax purposes in Portugal?
Fuel service stations present a classification challenge under Portuguese IMI law. The Tax Authority typically classifies them as 'other' urban properties under Article 6(4) of CIMI rather than 'commercial' properties, arguing that their primary purpose is retail fuel sales, which doesn't fit traditional commercial, industrial, or service property categories. This classification has been contested by taxpayers who argue fuel stations should qualify as commercial properties under Article 6(2)(b), triggering the Article 38 valuation methodology. CAAD jurisprudence (including cases 62/2013-T, 348/2015-T, 604/2015-T) has addressed this recurring issue, establishing precedents for how these unique properties should be treated for IMI assessment purposes.
What is the difference between 'commercial' and 'other' urban property classifications under Article 6(4) of the CIMI?
Article 6 of CIMI establishes four urban property categories: residential, commercial/industrial/services, land for construction, and 'other'. Commercial properties under Article 6(2)(b) are buildings licensed for commercial, industrial, or service purposes, or having such normal destination. These are valued using Article 38's income-based formula. 'Other' properties under Article 6(4) constitute a residual category for urban buildings not fitting the first three classifications - essentially properties that don't serve residential, commercial, industrial, or service purposes. These are valued under Article 46(2) using land market value plus construction cost methodology. The classification distinction is crucial because it determines both the valuation method and potentially the final tax liability, making it a frequent subject of taxpayer challenges through CAAD arbitration.
Can Article 38 of the CIMI valuation formula apply to properties classified as 'other' urban buildings?
This represents a key legal question in Portuguese property tax law. The taxpayer in this case argued that even if classified as 'other' urban property, Article 38's valuation formula should still apply. The Tax Authority maintained that Article 46(2) is the appropriate methodology for 'other' properties, using market value of land plus construction cost rather than the income-based approach of Article 38. The legislative structure of CIMI appears to link specific valuation methods to property classifications, with Article 38 generally reserved for commercial, industrial, and service properties. However, taxpayers have challenged whether this rigid application is always appropriate, particularly when 'other' properties generate commercial income similar to properties expressly classified as commercial. CAAD case law has been developing principles to address these boundary situations.
How can taxpayers challenge the patrimonial tax value (VPT) of urban properties through CAAD arbitration?
Taxpayers can challenge VPT (Valor Patrimonial Tributário) determinations through CAAD arbitration under the RJAT (Legal Framework for Tax Arbitration - Decree-Law 10/2011). The process involves filing an application for constitution of an arbitral tribunal within the statutory deadline following notification of the contested assessment. In this case, the taxpayer first requested a second assessment, then filed for CAAD arbitration on 30-12-2016 after the second assessment maintained the disputed classification. The application must identify the contested administrative act (the VPT determination), specify the legal grounds (such as incorrect property classification or valuation methodology errors), and request specific relief (annulment and reassessment). CAAD provides a faster alternative to judicial courts for resolving property tax disputes, with specialized arbitrators deciding technical valuation and classification issues. The procedure follows RJAT rules, with both parties submitting written arguments before the tribunal issues a binding arbitral decision.
What are the legal grounds for annulling a property tax valuation based on incorrect classification in Portugal?
Portuguese law recognizes several grounds for annulling property tax valuations based on classification errors. First, incorrect legal classification of the property type under Article 6 of CIMI constitutes an error of law that vitiates the assessment, as different classifications trigger different valuation methodologies with distinct tax consequences. Second, misapplication of valuation formulas - such as applying Article 46(2) when Article 38 should govern - represents substantive legal error. Third, arbitrary or disorderly application of construction costs or other valuation parameters may constitute procedural irregularity or substantive error. Fourth, inclusion of assets that don't meet the legal definition of real property (such as equipment assets that lack permanence) constitutes factual and legal error. Taxpayers must demonstrate how the classification error materially affected the VPT determination. The burden typically involves showing both that the classification was legally incorrect under CIMI definitions and that correct classification would yield a different valuation outcome. Prior CAAD decisions on similar properties can provide persuasive authority supporting annulment requests.