Process: 355/2017-T

Date: October 23, 2017

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 355/2017-T) addresses whether IMI (Municipal Property Tax) additional assessments totaling €23,211.15 for fiscal years 2012-2015 should be annulled due to insufficient legal reasoning (falta de fundamentação). The petitioner, a real estate company, challenged the Tax Authority's determination that their urban property was completed in 2007, triggering IMI liability. The core dispute centers on whether the Tax Authority adequately justified this conclusion when dismissing the gracious complaint. The petitioner argued that the decision merely referenced an appraisal report and aerial photographs without explaining why the property was deemed completed in 2007, which subsection of Article 10 of the IMI Code applied, or whether habitability conditions were verified. This lack of reasoning allegedly violated the taxpayer's constitutional right to defense. The Tax Authority countered that reasoning by reference to technical appraisal reports is legally sufficient, the decision contained adequate factual and legal basis (photographs and municipal documents), and the petitioner's ability to file an extensive defense proved the reasoning was comprehensible. The case highlights the critical balance between administrative efficiency and taxpayers' procedural rights, particularly regarding the legal standard for fundamentação in property tax assessments and whether technical reports alone satisfy the reasoning requirement under Portuguese tax law.

Full Decision

ARBITRAL DECISION

REPORT

A…, Lda., a commercial limited liability company registered at the Commercial Registry Office of Cascais under the collective identification number…, with registered address at…, n.º…, …, parish of …, municipality of Cascais, …-…, …, filed a petition for the constitution of a singular Arbitral Tribunal, in accordance with the joint provisions of Articles 2nd and 10th of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (hereinafter AT) is the Respondent, with the objective of obtaining a declaration of illegality of the decision of the Finance Service of Cascais dismissing the gracious complaint regarding the assessment acts for Municipal Property Tax (IMI) relating to the years 2012 to 2015 identified in the case file.

The petition for constitution of the Arbitral Tribunal was accepted by the Honorable President of CAAD on 1 June 2017 and automatically notified to the AT.

In accordance with the provisions of subsection c) of Article 11, no. 1 of RJAT, the singular Arbitral Tribunal was constituted on 10 August 2017.

The AT responded, contending for the dismissal of the petition.

The meeting referred to in Article 18 of RJAT was dispensed with and the holding of final submissions was dispensed with, given the nature of the matter contained in the case file.

The Arbitral Tribunal is duly constituted and materially competent, in accordance with subsection a) of Article 2, no. 1 of RJAT.

The parties have legal personality and capacity, are legitimate and are represented (Article 4, and no. 2 of Article 10 of RJAT and Article 1st of Ordinance no. 112/2011, of 22 March).

No nullities, exceptions or preliminary issues arise that would prevent immediate consideration of the merits of the case.

FACTUAL MATTERS

Based on the elements contained in the case file, the following facts are considered proven:

  • The Petitioner is the owner and legitimate proprietor, in its capacity as a real estate company, of the urban real property located at …, with the designation …, described in the … Land Registry Office of Cascais under no. … and registered in the urban real property matrix of the parish of … under article …;

  • During the year 2015, the Finance Service of Cascais … carried out an inspection of the aforementioned property, having concluded that it met the habitability conditions necessary for its configuration as a residential property;

  • Accordingly, it proceeded to register the aforementioned property in the competent matrix, this having received the provisional article no. P…;

  • The registration of the property in question in the respective matrix gave rise to additional IMI assessment acts, relating to the fiscal years 2012, 2013, 2014 and 2015, in the total amount of €23,211.15;

  • On 31 May 2016, the Petitioner filed a gracious complaint regarding the assessment acts identified in the case file;

  • On 14 February 2017, the Petitioner was notified of the draft decision of the Gracious Complaint, which sought its dismissal;

  • The Petitioner exercised the right of participation, through submission of prior hearing;

  • On 23 March 2017, the Petitioner was notified of the total dismissal of the Gracious Complaint filed by it;

  • The decision dismissing the Gracious Complaint filed was based on the property appraisal report;

  • The appraisal report states that in determining the age of the property, reference was made to the visualization of the orthophotomaps of CM … as well as the date of constitution of the condominium ownership, concluding that the properties are completed since 2007.

Taking into consideration the positions assumed by the parties, in light of Article 110, no. 7 of CPPT and the documentary evidence attached to the case file, the facts listed above are considered proven, with relevance to the decision.

LEGAL MATTERS

The principal issue that arises in the present case is whether the property identified in the case file should or should not be considered completed as of the year 2007, in accordance with the provisions of Articles 10 and 13, no. 4 of the IMI Code.

To this end, with relevance to the decision in the case, the Petitioner alleges in its petition for arbitral pronouncement the following:

  • The AT made virtually no effort to demonstrate the reasons that led to the dismissal of the gracious complaint filed, nor, moreover, to the issuance of the additional IMI assessments that were the subject of the Gracious Complaint filed;

  • In fact, the AT undertook practically no effort to demonstrate the reasons that led it to conclude that "the property was finalized as of 2007";

  • Why 2007? Because it was understood that some dwellings were already "occupied" and others in "habitability conditions"? Which are the first and which are the latter? Were any of the supposed residents contacted? Was the interior of the dwellings viewed?

  • The AT merely limits itself, in the final decision of the Gracious Complaint, to expressly refer to the appraisal carried out on the property by the appraiser expert of the Finance Service of Cascais –…;

  • However, upon analyzing the appraisal to which the AT refers in the contested decision, it is verified that no explanations were provided to the Petitioner regarding the reasons that led the Finance Service of Cascais –… to consider the properties as completed and, consequently, covered by the provisions of Article 10 of the Municipal Property Tax Code (IMI);

  • In view of the foregoing, there is no doubt that, by limiting its duty to provide reasoning to the meager information contained in the final decision, as well as to that, equally meager, in the appraisal carried out by the Finance Service of Cascais –…, the AT violated its duty to provide reasoning, thus resulting in the illegality of the assessments due to lack of reasoning;

  • The Petitioner does not know for certain – nor is it able to know – on the basis of which of the subsections of no. 1 of Article 10 of the IMI Code the AT judged the urban property to be completed, wherefore it will have to exercise its right of defense by ruling out the verification of any one of the subsections of the said article;

  • The Petitioner is unable to understand what the AT intended to demonstrate with such aerial photographs, except the mere circumstance of the existence of a condominium, located at …, whose dwellings had the structural part completed, however still in the construction phase;

  • From the photographs that the AT attached, it emerges precisely an unfinished and provisional reality;

  • For all of the foregoing, it is manifest that the decision dismissing the Gracious Complaint filed by the Petitioner is tainted by manifest illegality, and the IMI assessments, carried out by the AT, which underlie it are likewise illegal.

For its part, the Respondent alleges the following:

  • Reasoning by reference is legally permissible and, if this reference is made to an appraisal report, it cannot, therefore, be sparse in reasoning, as the Petitioner understands;

  • Nor is the length of the text what reveals the existence of reasoning, which can even be succinct, containing the facts and the law that led to the decision;

  • This is what occurs in the present proceeding whose reasoning results from photographs of the site and documents issued by the respective municipality, which cannot result in a decision with insufficient reasoning;

  • Even the Petitioner presented an extensive petition, as a sign that it understood what it had to defend (although we consider that it did not achieve this goal);

  • But let us ascertain the alleged insufficient reasoning, let us see what the appraisal report says, which in this proceeding can be verified in the documentary proof of 1st appraisal at page 20 of PA, which, when evaluating the property registered in the matrix with the provisional article P …, states in the description of the appraisal, the following:

"AREAS – OBTAINED THROUGH THE XARC OF CM … .

EXTERIOR VISIT OF THE PROPERTY AND VISUALIZATION OF SIGWEB OF CM … .

ELEMENTS CONTAINED IN THE BOX OF CM …: …, COMPLEMENTED WITH ELEMENTS EXISTING IN THE FILE OF SF CASCAIS … .

PH 07-05-2007

IN DETERMINING THE AGE OF THE PROPERTY, REFERENCE WAS MADE TO THE VISUALIZATION OF THE ORTHOPHOTOMAPS OF CM … AS WELL AS THE DATE OF CONSTITUTION OF THE PH, THUS BEING, IT IS CONCLUDED THAT THE PROPERTIES ARE COMPLETED SINCE 2007.

  • Now, from the transcribed text and proceeding directly to the counter-argument, we cannot follow the argumentation of the Petitioner regarding the lack of reasoning and also regarding the precise fact that determined that the properties were completed in 2007 – the constitution of the condominium ownership;

  • Condominium ownership can only be constituted, by means of a public deed in completed properties, in which it is possible to determine the individual parts and the common parts;

  • Now, relying on the fact listed in subsection d), that is: "In which it becomes possible for its normal utilization for the purposes for which it is intended, it would be incumbent upon the AT to prove that such utilization was possible, and this was achieved by virtue of the evaluative act undertaken by the SF, that is through elements collected in the course of the appraisal process – see what was proven in PA;

  • We therefore consider proven that the buildings/dwellings implanted on the construction land have the characteristics and conditions for them to be considered apt for habitation, the Petitioner having failed to rebut the presumption with any type of evidence;

  • Besides, the taxpayer does not indicate any alternative date for the completion of the properties, rather it asserts, or it is understood that even on the date of presentation of the present arbitral petition no dwelling is completed;

  • It is concluded, therefore, that both the decision of the gracious complaint and the assessments issued are legal, having regard to the evidence, and consequently the arguments put forward by the Petitioner do not prevail.

  • From all of the foregoing, the Petitioner's petition cannot succeed and the challenged acts should be maintained.

In view of the foregoing, regarding the position of the Parties and the arguments presented, in order to determine whether or not the IMI assessment acts sub judice are illegal, it will be necessary, first of all, to verify whether or not those assessment acts are sufficiently reasoned, considering the provisions of Articles 77 of the LGT, 36, no. 2 of CPPT, 10 and 13, no. 4 of the IMI Code.

Accordingly, let us see:

A – LEGAL FRAMEWORK

Article 268 of the Constitution of the Portuguese Republic, under the heading Rights and Guarantees of the Administered, establishes in its no. 3 the duty of express reasoning of acts practiced by the Administration, in particular by the Tax Administration, when they affect rights and legally protected interests of private parties.

This constitutional principle of the general duty to provide reasoning for tax acts was the subject of concretization in the procedures and processes of a tax nature in Article 77 of the LGT.

Indeed, no. 1 of Article 77 of the LGT establishes the following:

"1. The decision of the procedure is always reasoned by means of a brief exposition of the reasons of fact and law that motivated it, the reasoning being able to consist of a mere declaration of agreement with the grounds of previous opinions, information or proposals, including those that form part of the tax inspection report."

In accordance with its no. 2, the reasoning of tax acts "... may be carried out in a summary manner, but must always contain the applicable legal provisions, the qualification and quantification of the tax facts and the operations for determining the taxable income and the tax. ..."

In the genesis of the constitutional and legal establishment of the duty to provide reasoning we find the principle of the guarantee of defense of the rights and legitimate interests of the administered.

Which is, necessarily, complemented (i) by the duty of transparency of administrative activity and (ii) by the right of private parties to the reconstitution of the cognitive and evaluative process that presided over the practice of the act of which they are the recipients.

As José Carlos Vieira de Andrade teaches us, in The Duty of Express Reasoning of Administrative Acts, Coimbra, 1991, page 13, "... In our understanding, the duty of express reasoning obligates the administrative body to indicate the reasons of fact and law that determined it to practice that act, externalizing, in its decisive features, the internal procedure for the formation of the decisional will."

In the context of IMI, Article 119 of the IMI Code establishes that "1-The services of the Directorate-General of Taxes send to each taxpayer, by the end of the month prior to the month of payment, the competent collection document with discrimination of the properties, their parts susceptible of independent utilization, their respective taxable patrimonial value and the tax charged to each municipality of the location of the properties."

As the IMI assessment acts sub judice result from an act of official registration of the Property in the matrix by the Respondent, it is also relevant, in the assessment of the duty to provide reasoning for the assessment acts, to take into account the provisions of Article 10 of the IMI Code, which establishes the following:

"Article 10
Date of completion of urban properties

1 - Urban properties are presumed to be completed or modified on the earliest of the following dates:

a) On which a municipal construction permit was granted, when required;

b) Which the declaration of registration in the matrix indicates as the date of completion of the works;

c) On which any utilization occurs, provided that on a non-precarious basis;

d) On which it becomes possible for its normal utilization for the purposes for which it is intended.

2 - The head of finance of the area where the properties are located shall fix, by reasoned decision, the date of completion or modification of the properties, in cases not provided for in the preceding number and in those cases in which the presumptions stated therein should not apply, based on elements at his disposal, in particular those supplied by the tax administration services, the municipal chamber or resulting from complaint by the taxpayers."

B – APPLICATION OF LAW TO THE CONCRETE CASE

In the case under analysis, the assessment acts contained in the collection documents do not inform the taxpayer of the legal basis that sustains the application of the Taxable Patrimonial Value to years prior to the carrying out of the appraisal and official registration of the property in the matrix.

The Respondent argues that the reasoning for those acts is done by reference, legally admissible, to the appraisal report contained at pages 20 et seq. of PA.

Upon analyzing the appraisal report, it is verified that, in addition to the technical information relating to the appraised Property, as regards the date of completion of the property/age of the property – a determining fact for the official registration of the Property in the matrix and the official IMI assessment acts, subject of the present petition – it merely states that the date of completion of the property had "as reference the visualization of the orthophotomaps of the CM of … as well as the date of constitution of the Condominium Ownership. Thus being, it is concluded that the properties are completed as of 2007."

Now, from the orthophotomaps it is not possible to conclude that the Property is completed, since only exterior images are visualized, and it is even, contrary to what was concluded, perceptible through the visualization of that document that some of the floors of the property do not have windows. Also, the date of the provisional registration of the constitution of condominium ownership is not determinative of the qualification of a Property, for purposes of IMI, since the legal transaction constituting condominium ownership may be carried out before the building is completed or its completion is initiated – See Article 59, no. 2 of the Notarial Code.

Furthermore, even if one were to understand that the appraisal report contains reasoned grounds for the facts underlying the appraisal carried out, it is not possible to find there any legal reasoning. In fact, it is not possible to extract from the appraisal report, nor from the IMI assessment acts sub judice, what the legal basis underlying the determination of the date of completion of the Property is.

Now, in accordance with settled case law of the Decision of the Supreme Administrative Court, handed down in proceedings no. 668/13, of 27 November 2013, "I – The collection document referred to in Article 119 of the IMI Code does not preclude the necessity for normative reasoning of the IMI assessment acts determined by a new appraisal of the property when the new taxable patrimonial value is to serve as the basis for tax assessments relating to years prior to that in which the appraisal act took place."

Therefore, it is understood that it should be expressly stated in the IMI assessment acts or in the founding act whether the date of completion of the property was presumed in accordance with no. 1 of Article 10 or not, in which case it should be the subject of a reasoned decision by the Head of Finance, in accordance with no. 2 of Article 10 of the IMI Code.

It has now, in response to the arbitral petition presented, emerged that the Respondent indicates that the legal basis underlying the determination of the date of completion of the Property is subsection d) of no. 1 of Article 10 of the IMI Code.

However, it is not deemed either useful or permissible to consider facts that constitute subsequent reasoning of the tax act (See, among others, Decision of the Central Administrative Court of the South, proceedings no. 1260/11/BELRS, of 29 June 2017).

Consequently, taking into account that the Property subject to appraisal was omitted from the matrix and that the appraisal report carried out in 2015 concluded that the Property already existed since the year 2007, it was incumbent upon the AT to reason the assessment acts now in dispute, both factually and legally, informing the taxpayer of the legal basis that sustained the application of the new taxable patrimonial value to years prior to the carrying out of the appraisal.

It is settled that the lack of express reasoning of the assessment acts, because it reveals the omission of an essential formality for the guarantee of the right of defense of private parties against acts that are deemed to injure their rights and legitimate interests, implies the annulability of the underlying tax act, due to a defect of form due to lack of reasoning, as established by Articles 77 of the LGT and 36 of CPPT.

Accordingly, due to suffering from a defect of form due to lack of reasoning, the assessment acts must be annulled, as well as the assessment of compensatory interest subsequent thereto – Cf., Articles 35 and 77, no. 1 and no. 2 of LGT, 124, 125, 133 of CPA, 268, no. 3 of CRP, there being no place for compensation for the provision of undue guarantee, given that the period of 3 years provided for in Article 53, no. 1 of LGT has not elapsed.

DECISION

Whereupon this Arbitral Tribunal decides:

  • To declare totally well-founded the petition for annulment of the dismissal of the gracious complaint of the IMI assessment acts identified relating to the years 2012 to 2015;

  • To condemn the Respondent to refund to the Petitioner the amount of tax paid;

  • To condemn the Respondent in the costs of the present proceeding, as the losing party.

PROCESS VALUE

In accordance with the provisions of Article 306, no. 2 of the Civil Procedure Code, 97-A, no. 1 a) of CPPT and Article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the petition is fixed at €23,211.15.

COSTS

In accordance with the provisions of Articles 12, no. 2 and 22, no. 4, both of RJAT, and Article 4, no. 4 of the Regulation of Costs of Tax Arbitration Proceedings, the value of the arbitration fee is fixed at €1,224.00, in accordance with Table I of the aforementioned Regulation, at the expense of the Respondent.

Notify the parties.

Lisbon, 23 October 2017

The Arbitrator

Magda Feliciano

(The text of this decision was prepared using a computer, in accordance with Article 131, no. 5, of the Civil Procedure Code, applicable by reference from Article 29, no. 1, subsection e) of Decree-Law no. 10/2011, of 20 January (RJAT), and its drafting is governed by the orthography prior to the Orthographic Agreement of 1990.)

Frequently Asked Questions

Automatically Created

What is the legal requirement for reasoning (fundamentação) in IMI property tax assessments in Portugal?
Under Portuguese administrative and tax law, all tax assessment acts must contain sufficient reasoning (fundamentação) explaining the factual and legal basis for the decision. For IMI assessments, the Tax Authority must clearly indicate which facts support the property classification, the applicable legal provisions (such as specific subsections of Article 10 of the IMI Code regarding property completion), and how these lead to the tax liability. While reasoning by reference to technical documents like appraisal reports is legally permissible, the referenced documents must themselves contain adequate explanation. The reasoning must be sufficient to allow the taxpayer to understand the decision and effectively exercise their right of defense, either through gracious complaint or judicial appeal.
Can IMI additional tax liquidations be annulled if the Tax Authority fails to properly justify the property valuation?
Yes, IMI liquidation acts can be annulled for lack of proper justification (falta de fundamentação). Insufficient reasoning constitutes a substantive illegality that violates taxpayers' constitutional rights to defense and effective judicial protection. If the Tax Authority fails to adequately explain the factual basis for property valuation (such as the determination of completion date, habitability conditions, or applicable legal provisions), the taxpayer cannot meaningfully challenge the assessment. Courts and arbitral tribunals have consistently held that decisions lacking sufficient reasoning to permit the taxpayer to understand and contest the grounds for taxation are illegal and must be annulled, even if the underlying tax calculation might be materially correct.
What are the grounds for challenging IMI tax assessments through arbitration at CAAD?
Taxpayers can challenge IMI assessments at CAAD (Centro de Arbitragem Administrativa) on multiple grounds: (1) lack of reasoning or insufficient fundamentação in the assessment or gracious complaint decision; (2) incorrect property classification (urban vs. rural, residential vs. commercial); (3) errors in determining the property completion date under Article 10 of the IMI Code; (4) incorrect application of IMI valuation criteria; (5) procedural violations during assessment or administrative review; (6) substantive illegality in the tax calculation; and (7) violation of taxpayer rights during the administrative process. The arbitration petition must be filed within 90 days after notification of the gracious complaint dismissal or after the statutory deadline for the Tax Authority to decide expires.
How does reclassification of a property as residential affect IMI tax liability for prior years?
When property is reclassified from under construction to completed residential status, it triggers IMI liability from the date of completion. Under Article 10 of the IMI Code, properties are considered complete when they meet habitability conditions, obtain use licenses, or are effectively occupied. The completion date determines when IMI becomes chargeable. If the Tax Authority determines a property was completed in an earlier year than previously assessed (as occurred here with the 2007 determination), it can issue additional IMI assessments for all prior years within the statute of limitations. This retroactive liability can result in significant accumulated tax debts, making the determination of the exact completion date critical. Property owners must understand that even without formal matrix registration, IMI liability arises once legal completion conditions are met.
What is the procedure for filing a gracious complaint (reclamação graciosa) against IMI liquidation acts in Portugal?
The gracious complaint (reclamação graciosa) procedure under Article 70 of the CPPT allows taxpayers to challenge IMI liquidation acts administratively before pursuing arbitration or judicial appeal. The complaint must be filed within 120 days after notification of the assessment with the Tax Service that issued the act (or the hierarchically superior service). The Tax Authority must issue a draft decision and notify the taxpayer, who has the right to prior hearing (audiência prévia) under Article 60 of the LGT to submit observations. After considering these, the AT issues a final decision. If the complaint is dismissed or not decided within the statutory timeframe, the taxpayer can then appeal to CAAD arbitration or administrative courts within 90 days, as occurred in this case when the Finance Service of Cascais dismissed the petitioner's gracious complaint on March 23, 2017.