Process: 327/2015-T

Date: January 28, 2016

Tax Type: IMI

Source: Original CAAD Decision

Summary

This Portuguese tax arbitration case (Process 327/2015-T) addresses a dispute over IMI (Municipal Property Tax) property classification between rural and urban categories. The taxpayers sought to annul an assessment form that reclassified their property from rural to urban during an inheritance tax procedure, arguing the property should remain classified as rural. The property in question consisted of structures serving as a wine cellar and wine press, which the claimants argued had exclusively agricultural utility. They supported their position by citing the property's historical agricultural use and an unfavorable municipal planning opinion regarding construction viability. The Tax Authority (THA) valued the property at €14,100 as urban property and rejected the taxpayers' request for a second assessment. The THA defended its classification, arguing no factual or legal error occurred in the preliminary rejection. Significantly, procedural complications dominated the case proceedings. The tribunal determined the case value was €14,100 (the property's assessed value) rather than the €69.35 initially declared by claimants, requiring mandatory legal representation under Portuguese tax procedure law (CPPT Article 6/1) and additional arbitration fees totaling €306. Despite multiple tribunal orders and notification attempts, including postal service, the claimants failed to appoint legal counsel or pay the required fees. The tribunal scheduled a final deadline of January 28, 2016, for compliance, warning that failure would result in dismissal of the case. This case illustrates the critical importance of procedural compliance in Portuguese tax arbitration, where substantive arguments regarding property classification can be rendered moot by failure to meet formal requirements such as proper legal representation and timely fee payment.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. A..., TIN[1] ... and B..., TIN ... both with tax domicile at ... Street, no. ... – LISBON, presented a request for arbitral determination, pursuant to the provisions of paragraph (a) of no. 1 of Article 2, of no. 1 of Article 3 and of paragraph (a) of no. 1 of Article 10, all of the LTAT[2], with the request directed at the THA[3], with a view to the annulment of the procedure of the Finance Service of ... which classified a rural property as urban in the property assessment carried out in the context of an inheritance tax procedure and preliminarily rejected their request for a 2nd assessment, seeking in consequence the annulment of assessment form no. ... and the change of classification of urban property to rural, regarding Article ... of the parish of ..., municipality of Peniche described in the category of Other Urban Properties.

  2. A request that was made without exercising the option of appointing an arbitrator, which was accepted by the Honorable President of CAAC[4] and automatically notified to the THA on 27/05/2015.

  3. Pursuant to the provisions of no. 2 of Article 6 of the LTAT, by decision of the Honorable President of the Deontological Board, duly communicated to the parties within the legally applicable time limits, an arbitrator of the tribunal Arlindo José Francisco was appointed on 23/07/2015, who communicated his acceptance of the mandate within the legally stipulated time limit.

  4. The tribunal was constituted on 10/08/2015 in accordance with the provisions contained in paragraph (c) of no. 1 of Article 11 of the LTAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of December 31.

  5. With its request, the claimant seeks the annulment of the dismissal order preliminary to the request for a 2nd assessment, carried out in the context of an inheritance and gift tax procedure, by considering the property in question as urban, when the same, in its understanding, is implanted on rural land, being part thereof and at its service, since they serve as a wine cellar and wine press.

  6. It supports its point of view, in summary, in the agricultural utility that it exclusively always had, while it did not collapse, and in the unfavorable opinion issued by the Municipal Council of ..., regarding the possibility of construction.

  7. Concluding that the assessment made by the THA as an urban property is illegal and should be annulled, maintaining the classification of the property as rural.

  8. In its response, the defendant, in the first place, considered that the economic value of the process indicated by the claimant does not comply with the provisions contained in Article 97-A/1-c of the CPPT[5], applicable ex vi of Article 29 of the LTAT, since what is discussed here are property values, and given that the TPN[6] attributed in the 1st assessment of € 14,100.00, with which the claimant does not agree, this shall be the value of the case and not the indicated value of € 69.35.

  9. In consequence, there is an obligation on the part of the claimant to appoint a legal representative, in accordance with what Article 6/1 of the CPPT provides, since the value of the process exceeds twice the jurisdiction of the court of first instance.

  10. By way of exception, it raises the incompetence of the singular arbitral tribunal, given that the matters which the claimant intends to have examined do not fall within those listed in Article 2 no. 1 of the LTAT and also that of the lapse of the right of action given that the claimant did not observe, in the presentation of the request for 2nd assessment, the time limit mentioned in Article 76 no. 1 of the MPIT[7].

  11. Lastly, it impugns the arguments of the claimant, considering that there was no error of fact or law in the preliminary rejection of the request for a 2nd assessment and of the assessment form ... and that the acts carried out by the defendant do not suffer from any illegality and as such should remain in the legal order.

II – SANATION

The tribunal was regularly constituted and immediately ordered the notification of the THA in accordance with Article 17 of the LTAT.

In its response, the THA raised, as already seen, the issue of the economic value of the process, the obligation to appoint a legal representative, and the exception of the tribunal's incompetence ratione materiae, with the tribunal issuing, on October 2, 2015, the following order:

"Having examined the case file, it appears that, before the scheduling of the meeting provided for in Article 18 of the LTAT, there is a need to define the economic value of the process and its consequences.

The claimant seeks the annulment of the order that rejected the request for a 2nd assessment, the annulment of the assessment contained in assessment form no. ..., concerning the urban article no. ... of the parish ... of the municipality of Peniche and the change of classification of the respective property. What is at issue here is the property value attributed in assessment by the THA which was € 14,100.00 which, in accordance with the provisions contained in Article 97-A, no. 1 paragraph (c) of the CPPT, applicable ex vi of Article 29 no. 1, paragraph (a) of the LTAT, is this the economic value of the process and not the value declared in the petition. In this perspective, the tribunal considers that, by force of the provisions of Article 6 no. 1 of the CPPT, it is mandatory to appoint a lawyer, since the economic value of the process exceeds twice the jurisdiction of the tax tribunal of first instance and, consequently, the initial arbitration fee is € 459.00, therefore an additional amount of € 306.00 should be paid.

In these terms, notify the claimant, to within 30 days, proceed to appoint their legal representative and to pay the additional initial arbitration fee of € 306.00, under penalty of the defendant being declared absolved of the instance."

Following the time limit set, the claimant said nothing, and it was decided to schedule the meeting referred to in Article 18 of the LTAT, with the defendant manifesting its disagreement in a petition of November 17, 2015.

On December 14, 2015, the tribunal was informed by the CAAC services that they had been unable to contact the claimant and that there were strong doubts as to whether she had become aware of the orders previously issued.

On the same date, the following order was issued:

"Despite all the diligences carried out by CAAC, it was not possible to contact the claimant, and it is admitted that she will not have become aware of the orders of 02/10/2015 and 14/11/2015. In view of the provisions contained in Articles 16 and 19 of the LTAT, I order the notification of the claimant, by postal mail, that the meeting of Article 18 of the LTAT scheduled for the 15th of the current month is cancelled and will take place on January 12, 2016, at 10:30 at CAAC, making her aware that by then she must appoint her legal representative and proceed to pay the additional initial arbitration fee of € 306.00, under penalty of, without further diligences, declaring the defendant absolved of the instance.

Also notify the THA of this order."

The defendant came forth in a petition of December 15, 2015 to manifest its disagreement.

On January 12, 2016, the tribunal issued the following order:

"Having examined the case file, there was no procedural impulse whatsoever on the part of the claimant, even after notification by postal mail, which occurred on 24/12/2015, according to information from CAAC.

Therefore, we consider the meeting of Article 18 of the LTAT, scheduled for today, as well as the carrying out of any other diligence, unnecessary, scheduling January 28, 2016 for the issuance of the decision.

Notify the claimant that until the date of the decision, she must provide proof of payment of the additional initial arbitration fee still owed in the amount of € 306.00 as well as the subsequent court fee in the amount of € 459.00."

The tribunal understands the perspective of the defendant set forth in the petitions already referred to and, although it has not ruled upon them, such position corresponds only to the understanding that any ruling, at that time, would in no way contribute to the objective sought, which was to enable the claimant to be regularly represented in the process and that, in the final decision, if there is a need, the respective examination and ruling will be made.

Given the procedural development, characterized by the complete detachment of the claimant, despite the diligences carried out, pursuant to Article 19 no. 1 of the LTAT, the tribunal issues its decision.

III – REASONING

1 – Issues to be decided in the present case

The claimant intended that it be examined and decided whether the procedure of the Finance Service of ... which classified a rural property as urban in the property assessment carried out in the context of an inheritance tax procedure and preliminarily rejected its request for a 2nd assessment was or was not lawful and, if not, to annul assessment form no. ... and to alter the classification of urban property to rural, regarding Article ... of the parish of ..., municipality of Peniche described in the category of Other Urban Properties.

2 – Matter of Fact

The matter of fact considered relevant and proven on the basis of the elements attached to the case file is as follows:

a) The property in question came into the possession of the claimants by inheritance from C..., as per the inheritance and gift tax settlement process no. ... of the Finance Service of ....

b) As a consequence of said transmission, the property assessment took place, to which was attributed the TPN of € 14,100.00, a value with which the claimant did not agree, coming to request a 2nd assessment, a request that was rejected as untimely.

c) The economic value attributed to the process by the claimants was € 69.35, a value corresponding to the IMT[8] collection.

d) In its response, the THA came to say that the claimants did not intend to discuss the value of the IMT collection, but the TPN attributed to the property, given that they requested the declaration of illegality of the order preliminary rejecting the request for a 2nd assessment, the annulment of the assessment form and the change of classification of the property.

e) In these circumstances, it concluded that the economic value of the case should be € 14,100.00 and that there was an obligation to appoint a legal representative, as prescribed by Article 6 no. 1 of the CPPT.

f) The tribunal accepted the point of view of the THA and determined the diligences already referred to with the claimants with a view to regularizing their procedural situation, which, as seen, resulted in being fruitless.

No other factuality not enumerated or not proven is considered by us to be relevant for the decision.

3 – Matter of Law

As already seen, what is at issue here is the TPN of € 14,100.00 attributed to the property in the assessment carried out, the preliminary rejection of the request for a 2nd assessment, and the annulment of the assessment form and change of classification of the property, and not the value of the IMT collection of € 69.35.

Thus, in accordance with what is determined by Article 97-A of the CPPT, in its no. 1 paragraph (c), the economic value of the process is € 14,100.00, a value which the claimants intended to put into question with the request for a 2nd assessment and the annulment of the respective form and which by the arbitral route they intended to have annulled.

From this conclusion and in view of the provisions contained in Article 6 no. 1 of the CPPT, it is mandatory to appoint a legal representative.

It is clear from the case file that all diligences were undertaken, including notification by postal mail, with a view to the claimants regularizing their procedural situation, which they did not do nor adduced any justification, the tribunal draws from their procedure the legal consequences foreseen, without need for consideration of the remaining issues.

IV – DECISION

In light of the foregoing, the tribunal decides:

a) To declare the defendant absolved of the instance pursuant to Article 41 of the CPC[9], applicable here ex vi of Article 29 of the LTAT, since the claimants, despite being notified, did not appoint a legal representative, as they were obliged to do by force of the provisions contained in Article 6 no. 1 of the CPPT.

b) To fix the value of the process at € 14,100.00, in accordance with Article 97-A, no. 1 paragraph (c) of the CPPT, Article 299 no. 1 of the CPC and Article 3 no. 2 of the RCPAT[10].

c) To fix the costs, pursuant to no. 4 of Article 22 of the LTAT, in the amount of € 918.00, in accordance with the provisions of table I referred to in Article 4 of the RCPAT, which shall be borne by the claimants.

Notify

Lisbon, January 28, 2016

Text prepared by computer, pursuant to Article 131, no. 5 of the CPC, applicable by referral of Article 29, no. 1, paragraph (e) of the LTAT, with blank verses and revised by the tribunal.

The arbitrator,

Arlindo José Francisco

[1] Acronym for Tax Identification Number
[2] Acronym for Legal Regime of Arbitration in Tax Matters
[3] Acronym for Tax and Customs Authority
[4] Acronym for Administrative Arbitration Centre
[5] Acronym for Code of Tax Procedure and Process
[6] Acronym for Tax Property Value
[7] Acronym for Municipal Property Tax Code
[8] Acronym for Municipal Property Tax
[9] Acronym for Civil Procedure Code
[10] Acronym for Regulation of Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

What happens when a rural property is incorrectly classified as urban for IMI tax purposes?
When a rural property is incorrectly classified as urban for IMI purposes, the property owner faces significantly higher tax liability, as urban properties are typically taxed at higher rates than rural properties. Taxpayers can challenge this classification through the CAAD arbitration system by requesting annulment of the assessment form (ficha de avaliação). The challenge must demonstrate that the property maintains agricultural characteristics and utility, such as housing agricultural equipment or serving farming operations. Evidence may include the property's historical use, physical characteristics, lack of urban infrastructure, and unfavorable municipal planning opinions for construction. However, taxpayers must comply with strict procedural requirements, including meeting statutory deadlines for requesting second assessments under Article 76 of the Property Tax Code (CIMI), appointing legal representation when the case value exceeds twice the jurisdiction of first instance courts, and paying required arbitration fees.
Can a taxpayer request a second property valuation under Portuguese tax arbitration (CAAD)?
Yes, taxpayers can request a second property valuation under Portuguese tax arbitration (CAAD) when disputing IMI assessments. This right is governed by Article 76 of the CIMI (Municipal Property Tax Code) and must be exercised within strict statutory timeframes from notification of the initial assessment. The request for a second assessment can be filed when taxpayers disagree with the property's valuation or classification. However, the Tax Authority may preliminarily reject this request if it determines the classification or valuation was correct. If the preliminary rejection is maintained, taxpayers can escalate the dispute to CAAD arbitration under Article 2(1)(a) of the LTAT (Tax Arbitration Law), seeking annulment of both the rejection decision and the underlying assessment form. The arbitration process requires compliance with procedural formalities, including proper case valuation (based on the property's assessed value, not nominal administrative fees), appointment of legal counsel for higher-value disputes, and payment of arbitration fees within specified deadlines.
What are the legal grounds for annulling an IMI property evaluation report (ficha de avaliação)?
Legal grounds for annulling an IMI property evaluation report include: (1) Incorrect property classification - demonstrating the property was wrongly classified as urban when it possesses rural characteristics and serves agricultural purposes; (2) Factual errors in the assessment - proving the evaluation was based on incorrect physical data, location information, or property characteristics; (3) Legal errors in applying valuation criteria - showing the Tax Authority misapplied legal provisions governing property classification under the CIMI; (4) Violation of procedural rights - establishing that the taxpayer was not afforded proper opportunity to participate in the assessment process or that the assessment lacked required technical justification; (5) Supporting evidence such as municipal planning opinions indicating the property lacks construction viability, documentation of exclusive agricultural use, and expert testimony regarding the property's nature. The burden of proof rests on the taxpayer to demonstrate these errors, and challenges must be brought within the statutory timeframe established in Article 76(1) of the CIMI, typically following notification of the assessment.
How does the CAAD arbitration process handle disputes over property classification between rural and urban?
The CAAD arbitration process handles property classification disputes by first examining procedural compliance before addressing substantive classification issues. The tribunal determines the case's economic value based on the property's assessed value (not administrative fees), which affects requirements for legal representation and arbitration fees. The defendant Tax Authority typically raises preliminary objections, including tribunal competence ratione materiae (whether the matter falls within CAAD's jurisdiction under Article 2 of the LTAT), statute of limitations for filing assessment challenges, and procedural compliance issues. On the merits, the tribunal examines whether the property meets legal criteria for urban or rural classification under the CIMI, considering factors such as the property's physical characteristics, actual use, presence of urban infrastructure, construction viability per municipal planning regulations, and whether structures serve agricultural activities. The tribunal evaluates evidence including assessment forms, municipal opinions, property descriptions in land registry documents, and taxpayer-submitted proof of agricultural use. If procedural requirements are not met—such as failure to appoint mandatory legal representation or pay required fees—the tribunal may dismiss the case without reaching the substantive classification dispute.
What is the role of municipal planning opinions in determining property tax classification under IMI?
Municipal planning opinions play a significant evidentiary role in determining property tax classification under IMI, though they are not necessarily determinative. When a municipal council issues an unfavorable opinion regarding a property's construction viability, this supports arguments for rural classification by demonstrating the property lacks urban development potential. Such opinions reflect whether the property is located in an urban consolidation zone, whether it has access to urban infrastructure (water, sewage, electricity), and whether construction is permitted under local zoning regulations. Properties that cannot legally support construction or lack urban characteristics are more appropriately classified as rural for IMI purposes. However, the Tax Authority is not bound solely by municipal opinions and will also consider the property's actual physical state, current use, and compliance with legal definitions of urban property under Article 2 of the CIMI, which includes buildings for habitation, commerce, industry, or services. The weight given to municipal opinions depends on how recent, specific, and technically detailed they are, and whether they align with other evidence of the property's agricultural nature and utility.