Process: 361/2018-T

Date: March 27, 2019

Tax Type: Outros

Source: Original CAAD Decision

Summary

CAAD Decision 361/2018-T examines whether construction land intended for services falls within the scope of AIMI (Adicional ao Imposto Municipal sobre Imóveis). The claimant, a commercial company holding construction land classified with a 'services' localization coefficient, challenged a 2017 AIMI assessment of €19,101.12. The company argued that Article 135-B(2) of the IMI Code, which excludes industrial, commercial, and service properties from AIMI, should be interpreted extensively to include construction land destined for such purposes. The claimant contended that taxing construction land for non-residential purposes violates constitutional principles of fiscal equality and contributive capacity (Articles 13 and 104(3) of the Portuguese Constitution), particularly because the legislative intent was to protect business economic activity. The company emphasized that while completed service properties are exempt, taxing undeveloped land intended for the same purpose creates an irrational distinction that penalizes companies before they can exploit their assets. The Tax Authority defended the assessment, arguing that the legislator deliberately excluded only completed 'industrial, commercial, or services' properties while expressly maintaining construction land within AIMI's scope. This case represents a significant constitutional challenge to AIMI's application, questioning whether the differential treatment between developed business properties and construction land destined for identical purposes can withstand scrutiny under equality and contributive capacity principles.

Full Decision

ARBITRATION DECISION

The Arbitrator Raquel Franco, appointed by the Deontological Council of the Administrative Arbitration Centre to constitute the Arbitration Court established on 06-08-2018, decides on the following terms and grounds:

1. Report

On 30-07-2018, A..., S.A. (hereinafter, Claimant), with registered office at ..., no. ..., ..., no. ..., ..., ...-... Amadora, NIPC..., filed, pursuant to the provisions of articles 2, no. 1, paragraph a) and 10, no. 1, paragraph a) of Decree-Law no. 10/2011, of 20 January (which approved the RJAT), and of articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, a request for constitution of an arbitration court with appointment of the Arbitrator by the Deontological Council of the Administrative Arbitration Centre, in accordance with the provisions of articles 6, no. 1 and 11 of the RJAT, with the grounds set out in the initial petition then presented.

The request for constitution of the arbitration court was accepted by the Honourable President of CAAD and automatically notified to the Tax and Customs Authority.

Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as arbitrator of the singular arbitration court and notified the parties of this appointment on 13-09-2018.

Thus, in accordance with the provision of paragraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the singular arbitration court was constituted on 03-10-2018, followed by the pertinent legal procedures.

2. Case Management

The arbitration court was regularly constituted, in accordance with the provisions of articles 2, no. 1, paragraph a), and 10, no. 1, of Decree-Law no. 10/2011, of 20 January, and is competent.

The Parties are duly represented, are legitimate and possess legal standing and capacity (all in accordance with articles 4 and 10, no. 2, of Decree-Law no. 10/2011, of 20 January and article 1 of Ordinance no. 112-A/2011, of 22 March).

The case does not suffer from nullities.

Through an arbitral order of 13.11.2018, the Parties were notified of the dispensation of the meeting referred to in article 18 of the RJAT, as well as of the deadline for submission of written submissions, which they subsequently presented.

3. Positions of the Parties

Claimant

The Claimant identifies as the immediate object of the request for arbitral pronouncement the act of express dismissal of the administrative review no. ...2018..., presented against the AIMI assessment concerning the year 2017, with no. 2017..., in the amount of € 19,101.12 – the assessment of the legality of this assessment act being the mediate object of the request for arbitral pronouncement.

This is an AIMI assessment concerning construction land for which the type of localization coefficient applied is that of "services".

According to the Claimant, although no. 2 of article 135-B of the IMI Code does not literally exclude from the objective scope of AIMI the construction land, the Claimant understands that, in accordance with the principles of legal hermeneutics and the constitutional principles in force, the objective exclusion from AIMI scope, provided for in no. 2 of article 135-B of the IMI Code, should encompass construction land intended for services, in particular when held by companies that acquire them for future promotion of buildings with such use, as is the case herein.

Specifically, the Claimant considers that, in accordance with the principle of legal hermeneutics, the exclusion provided for in no. 2 of article 135-B of the IMI Code relating to urban properties classified as industrial, commercial and for services should be interpreted extensively as expressing a legislative intention to also exclude from taxation the construction land of these properties. On the other hand, it considers that the subjection to AIMI of construction land for properties intended for industrial, commercial and services purposes is incompatible with the constitutional principles of fiscal equality and contributive capacity, enshrined in articles 13 and no. 3 of article 104 of the Constitution of the Portuguese Republic.

The Claimant further adduces arguments relating to the origin of AIMI, specifically concerning the defunct item 28 of the TGIS, emphasizing especially that, in this context, only construction land whose authorized or foreseen building was for housing purposes was taxed, with exclusion of properties classified, for IMI purposes, as commercial, industrial, for services and others, as well as construction land for which building authorization or provision for residential purposes was not established (that is, construction land whose authorized or foreseen building corresponded to the construction of commercial, industrial, services or other properties).

On the other hand, the Claimant analyzes the parliamentary discussion that preceded the approval of AIMI, sustaining that "an effort was made so that AIMI would not fall on properties devoted to non-residential activities carried out by companies, but the final wording of the law and, consequently, its most immediate exegesis, does not adequately reflect this effort, falling well short; in fact, whereas a company that owns land for construction of a building devoted to offices (services) cannot immediately draw from the legal text any exclusion, a private individual holding dozens of commercial rental properties that uses them as merely a way of obtaining income will not be subject to the tax on their respective value" and that "the wording of no. 2 of article 135-B of the IMI Code does not do justice to its spirit by encompassing within the objective scope of AIMI the construction land, when devoted to an industrial, commercial or services activity." It concludes, in this regard, that there is no rational justification for defending that a property devoted to commercial, industrial or services purposes is not subject to AIMI so that the economic activity of its holders is not prejudiced, and at the same time, to advocate that construction land of these properties should be taxed and that this does not affect the economic activity.

Finally, it also contends the material unconstitutionality of the rule contained in no. 2 of article 135-B of the IMI Code insofar as, by not excluding, it permits the taxation of construction land whose authorized or foreseen building is the construction of properties intended for services, on the grounds of violation of the principles of equality and contributive capacity inherent in articles 13 and 104, nos. 2 and 3, all of the Constitution, for the following reasons:

  • first, because, being animated by purposes of not burdening economic activity, it precisely affects those construction lands that would most require protection since they do not yet allow their holders effective exploitation;

  • second, because it discriminates between companies promoting commercial projects and companies that operate them;

  • finally, because the exclusion encompasses land without buildings such as golf courses, sports fields or quarries, whose favoring finds no reasonable justification.

The Claimant's final request refers to the payment of compensatory interest, being formulated under the provisions of articles 43 and 100 of the LGT and 61 of the CPPT.

Respondent

As for the Respondent, it argues that the operations leading to the assessment of the tax in question in this case are correct and that the construction land in question falls within the scope of the rule as the legislator excluded from scope the urban properties classified as "industrial, commercial or services" and "others" but expressly chose to maintain other properties that also form part of the assets of companies, such as those classified as residential or construction land, by not including them in the negative delimitation enshrined.

The Respondent thus understands that "the exclusion of taxation of urban properties with purposes «industrial, commercial and services» and «others» clearly expresses the intention to mitigate the impact of AIMI on economic activities, but does not take to its final consequences the alleged intention to eliminate all and any impact of the tax", namely because "the legislative option enshrined in articles 135-A and 135-B, of qualifying as taxpayers natural persons and legal entities and any structures or centers of collective interests without legal personality that are owners, usufructuaries or superficiaries of urban properties located in Portuguese territory with the classification as 'construction land' or 'buildings or constructions for residential purposes', inevitably brought, into the field of taxation, entities pursuing economic activities", so that "nothing in the wording of the law authorizes the conclusion that the legislator's intention in AIMI was to exclude from taxation the 'urban properties that are devoted to the exercise of an economic activity'".

Regarding the Claimant's arguments anchored in the Explanatory Note of the Report of the Proposed State Budget for 2017, the Respondent understands that it has lost current relevance as a consequence of the amendments that were introduced in parliament to the legislative proposal presented by the Government to the Assembly of the Republic, so that that Note is no longer an adequate interpretative source.

5. Factual Matters

5.1. Proved Facts

The following facts are considered proved:

a) The Tax and Customs Authority proceeded to assess AIMI no. 2017..., of 30.06.2017, in the amount of € 19,101.12, whose taxpayer is the Claimant;

b) The Claimant proceeded to pay the assessment identified in a) on 26.09.2017;

c) In determining the taxable value for AIMI purposes, the Tax Authority considered the sum of the tax patrimonial values, as of 01.01.2017, of the urban properties listed in said assessment and which appear in the property registers as being owned by the Claimant;

d) The sum of the tax patrimonial values referred to in c) amounts to € 4,775,279.51;

e) A rate of 0.4% was applied to the sum of the tax patrimonial values referred to in c) and d), from which resulted the assessment of the amount of € 19,101.12;

f) The properties whose tax patrimonial values were considered in the assessment are as follows:

(i) The urban property registered in the property register under no. U-..., of the parish of ..., municipality of Amadora, whose tax patrimonial value, as of 01.01.2017, amounted to € 1,828,107.30,

(ii) The urban property registered in the property register under no. U-..., of the parish of ..., municipality of Amadora, whose tax patrimonial value, as of 01.01.2017, amounted to € 1,350,773.63,

(iii) The urban property registered in the property register under no. U-..., of the parish of ..., municipality of Amadora, whose tax patrimonial value, as of 01.01.2017, amounted to € 1,596,398.58;

g) All properties identified in f) are classified, in accordance with the IMI Code, as construction land;

h) With respect to all properties identified in f) and g), the type of localization coefficient applied is that of "services";

i) According to the subdivision permit no. .../00, of 15.05.2000, issued by the Municipal Council of Amadora, on those construction lands, which correspond to lots A (U-...), B (U-...) and H (U-...) referred to therein and subsequent amendments, only offices may be constructed;

j) On 31.01.2018, the Claimant filed, at the Financial Services of ..., an administrative review against the AIMI assessment issued by the Tax and Customs Authority;

k) On 15.06.2018, the Claimant was notified that the administrative review referred to in the preceding paragraph had been dismissed by order of the Chief of said Financial Services, by delegation of powers, of 08.06.2018.

5.2. Unproved Facts

There are no facts with relevance to the decision that have not been considered proved.

5.3. Grounds for Establishing Factual Matters

The facts were established as proved on the basis of documents attached to the request for arbitral pronouncement, in the administrative file and on facts enumerated by the Parties in their respective procedural documents regarding which there is no controversy.

Regarding the factual matters, the Court does not have to pronounce on everything alleged by the Parties; rather, it is its duty to select the facts that matter for the decision and to distinguish between proved and unproved matters (cf. article 123, no. 2, of the CPPT and article 607, no. 3 of the CPC, applicable ex vi article 29, no. 1, paragraphs a) and e) of the RJAT).

The facts are selected in accordance with their legal relevance, which is determined in function of the various possible solutions for the case (cf. the previous article 511, no. 1, of the CPC, current 596, applicable ex vi article 29, no. 1, paragraph e) of the RJAT).

Given the positions assumed by the Parties, the facts enumerated above are considered proved, with relevance to the decision.

6. Legal Grounds

In the request for arbitral pronouncement, the defects imputed to the assessment and to the act of express dismissal of the assessment were done in a certain order which will now be observed in its examination.

Regarding the question of the objective scope of AIMI, it concerns the combined interpretation of the scope rule provided for in no. 1 of article 135-B ("The additional municipal property tax is levied on the sum of the tax patrimonial values of urban properties located in Portuguese territory of which the taxpayer is the owner") and the exclusion rule provided for in no. 2 of the same article 135-B ("Excluded from the additional municipal property tax are urban properties classified as 'commercial, industrial or for services' and 'others' in accordance with paragraphs b) and d) of no. 1 of article 6 of this Code").

The Claimant admits, right at the beginning of the petition it presented to this court, that, "literally", the exclusion rule does not include construction land – because it does not expressly refer to paragraph c) of no. 1 of article 6 of the IMI Code, where this category of urban properties is provided for. However, it considers that, through application of interpretative principles and constitutional principles that structure the legal-tax system, the exclusion in no. 2 of article 135-B of the IMI Code relating to urban properties classified as industrial, commercial and for services should be interpreted extensively as expressing a legislative intention to also exclude from taxation the construction land of these properties.

It bases this legislative intention on the formulation of the tax that preceded AIMI and on the preparatory works that preceded the approval of AIMI in the Assembly of the Republic.

On these arguments it is important to state the following:

(i) The taxation provided for in item 28 of the General Table of Stamp Tax, invoked by the Claimant as an interpretative element to sustain the "legislative intention" to which it refers does not meet the requirements to be used for this purpose. Indeed, the rules that supported this form of taxation were repealed when AIMI was created, thus demonstrating, through the repealing rule, the explicit will of the legislator to eliminate them from the Portuguese legal system. Eliminated as they are, it makes no sense that they be invoked as an interpretative element of the current system of taxation, of which they are not part. Moreover, the historical antecedents of the approval of this other tax should also be considered excluded from the task of aiding interpretation of the current system. They cannot, obviously, be invoked as antecedents of the current tax because they are antecedents of the tax that this one repealed, at the risk of thus bringing to the discussion historical elements that are outdated even if chronologically anterior to the legislative texts that, at this moment, require interpretation. It does not seem to us that such activity is authorized by the interpretative rules in force in the Portuguese legal system.

(ii) Regarding the preparatory works that preceded the approval of AIMI in the Assembly of the Republic, the Claimant invokes the Explanatory Note of the Report of the Proposed State Budget for 2017, knowing, however, that the proposal found therein concerning AIMI did not proceed, as it rightly mentions in its petition "the political and parliamentary outcry that erupted around this proposal regarding the new AIMI led it to be the object of amendment proposals from the generality of parties, most of all, from the Government's own party and the Portuguese Communist Party."

The proposal that came to be approved was Proposal no. 402C-2, authored by the Socialist Party, which provided for the wording of no. 2 of article 135-B of the IMI Code that is still in force and that was in force at the date of the tax facts in question in this case. Now, the fact that the explanatory note of this proposal indicates as one of the reasons that determined its presentation "to ensure the absence of impact on economic activity" certainly authorizes the Claimant to defend, politically, that the legislator did not achieve this objective in the best way, but it does not authorize it to draw the legal consequences it seeks herein, that is, to consider excluded from taxation realities that the legislator, having had the moment and occasion to exclude, did not exclude in the normative text it conceived and approved. There is therefore no reason to conclude that the legislator did not know how to express its thought in adequate terms, as must be presumed by virtue of the provision of article 9, no. 3, of the Civil Code. Thus, we conclude that construction land with the designation "services" is included within the scope of AIMI and that, for this reason, there is no defect of violation of law imputed to the assessment and to the dismissal of the administrative review that are the object of the case.

Regarding the question of material unconstitutionality of the IMI regime, on which the Claimant bases the material unconstitutionality of the assessment act, it is important to carefully analyze the argument invoked as potential grounds for the non-application of the legal rule provided for in no. 2 of article 135-B of AIMI based on the legal-constitutional principles of contributive capacity and equality.

The Claimant states that the principle of contributive capacity in the aspect of equality of treatment imposes a negative control, as a prohibition of arbitrariness, and a positive control in the sense of ascertaining the existence of an effective connection between the tax obligation and the economic premise selected as the object of the tax. It adds, however, that no. 3 of article 104 of the Constitution, which provides that the taxation of property should contribute to equality of citizens, has been interpreted to mean that the Constitution only requires that this form of taxation be an instrument of equality among citizens, and that the reduction of inequalities is the constitutional objective of property taxation, an objective that opens the door for the legislator to proceed, namely, to discrimination of property – without prejudice, of course, to applicable constitutional limitations.

Ultimately, it bases its thesis of unconstitutionality of the AIMI regime on the following circumstances:

  • first, because, being animated by purposes of not burdening economic activity, it precisely affects those construction lands that would most require protection since they do not yet allow their holders effective exploitation given their necessarily prior character to construction;

  • second, because it discriminates between companies promoting commercial projects and companies that operate them;

  • finally, because the exclusion encompasses land without buildings such as golf courses, sports fields or quarries, whose favoring finds no reasonable justification.

The Claimant bases its normative judgment of unconstitutionality on the positive aspect of the principle of equality, that is, on the absence of a logical nexus between the tax obligation and the economic premise selected as the object of the tax. It also points to AIMI's failure in effectively taxing manifestations of wealth.

However, and notwithstanding the undeniable benefits of critical discussion as a formula for clarifying the meaning, scope and intrasystemic compatibility of legal norms, we do not agree with the thesis of unconstitutionality of AIMI for the fundamental reason that it seems to us possible to find differences between construction land and (already built) properties devoted to services. And these differences seem evident to us, first and foremost, at the level of the main argument formulated by the Claimant – that of economic activity conducted therein. For if an already built urban property possesses functional aptitude for the exercise of an economic activity, a construction land does not. Now, if the basis of the exclusion operated in the rule provided for in no. 2 of article 135-B of the IMI Code is that of the protection of economic activity, then it makes sense to distinguish between realities because the realities are effectively different. Note that the fundamental principle in the matter of equality is the principle of equal treatment, which obliges one to treat equally what is equal and differently what is different. In the case of construction land devoted to services and already built urban properties with that designation, the difference from the point of view of economic realization potential exists and was recognized by the legislator when it excluded from AIMI scope the latter and not the former. Moreover, the same logic seems to underlie the exclusion of urban properties that fall within the "others" category, which includes, as the Claimant advances, golf courses, sports fields or quarries. Indeed, in these three cases as well it is possible to identify the reason why they are excluded from the scope rule – it is that they also reveal functional aptitude for the exercise of an economic activity, unlike what occurs with construction land. The legal construction from which AIMI results seems thus to have resulted from a balancing between the need to tax certain real property and the need to protect the economic activity conducted on that same property. From this balancing results a certain equilibrium considered appropriate by the legislator. Obviously, from this compromise solution neither the interest in revenue collection (by virtue of the exclusions) nor the interest in protecting economic activity (by virtue of some urban properties where economic activity may be carried out, and which already form part of company assets, being covered by the taxation) is fully satisfied – but this is, as always, the result of a balancing. The question of unconstitutionality would only arise if the criterion used by the legislator to distinguish the situations within its balancing were illogical or impossible to discern, which does not seem to us to be the case.

In sum, we understand that there is a substantive reason for the discrimination operated by the legislator in the AIMI regime, namely in the formulation of the scope rule provided for in no. 1 of article 135-B of the IMI Code and of the exclusion rule provided for in no. 2 of article 135-B of the IMI Code, so we see no reasons to adhere to the judgment of unconstitutionality formulated by the Claimant.

Thus, the Court concludes that there are no grounds for annulment of the contested tax act and of the act dismissing the administrative review no. ...2018..., which should therefore remain in the legal order, with all legal consequences, namely that of non-restitution of the paid tax. Thus, the request for compensatory interest is prejudiced, since its respective grounds do not exist.

7. Decision

In accordance with what has been stated, this Arbitration Court decides as follows:

a) To judge unmeritorious the request for declaration of illegality of the act of express dismissal of the administrative review no. ...2018... and of the AIMI assessment for the year 2017, with no. 2017..., in the amount of € 19,101.12;

b) To judge unmeritorious the request for compensatory interest;

c) To condemn the Claimant in the costs of this case.

8. Value of the Case

In accordance with the provisions of articles 306, no. 2, of the Code of Civil Procedure, 97-A, no. 1, paragraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 19,101.12 (nineteen thousand, one hundred and one euros and twelve cents).

9. Costs

Pursuant to article 22, no. 4, of the RJAT, the amount of costs is fixed at € 1,224.00 (one thousand, two hundred and twenty-four euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Lisbon, 27 March 2019

The Arbitrator

(Raquel Franco)

Frequently Asked Questions

Automatically Created

What is AIMI (Adicional ao Imposto Municipal sobre Imóveis) and how does it apply to construction land in Portugal?
AIMI (Adicional ao Imposto Municipal sobre Imóveis) is an additional property tax in Portugal that applies to the aggregate taxable value of urban properties exceeding certain thresholds. For construction land, AIMI generally applies unless specifically exempted. Article 135-B(2) of the IMI Code excludes urban properties classified as 'industrial, commercial, or services' from AIMI's scope, but the literal interpretation does not explicitly exempt construction land (terrenos para construção) intended for these purposes. This creates controversy when companies hold undeveloped land designated for future commercial or service developments, as they may face AIMI liability despite the underlying policy goal of not burdening business economic activity.
Can the constitutionality of AIMI be challenged through tax arbitration at CAAD?
Yes, taxpayers can challenge the constitutionality of AIMI provisions through CAAD (Centro de Arbitragem Administrativa) tax arbitration proceedings. In process 361/2018-T, the claimant raised constitutional arguments alleging that Article 135-B(2) of the IMI Code violates Articles 13 (equality) and 104(2)(3) (contributive capacity and taxation according to economic ability) of the Portuguese Constitution. CAAD arbitration courts have jurisdiction to assess both the legality of tax assessments and constitutional issues raised in connection with tax disputes. Taxpayers can request that CAAD declare provisions unconstitutional or interpret them in conformity with constitutional principles, providing an accessible alternative to Constitutional Court referrals in tax matters.
What was the outcome of the AIMI tax assessment challenge in CAAD process 361/2018-T?
The excerpt provided does not include the final decision or outcome of CAAD process 361/2018-T. The document presents the procedural background, confirmation that the arbitration court was properly constituted on October 3, 2018, and summarizes both parties' positions. The claimant challenged a 2017 AIMI assessment of €19,101.12 on construction land with a services classification, arguing for extensive interpretation of the exemption and constitutional violations. The Tax Authority defended the assessment's legality based on the literal application of Article 135-B(2). The arbitral decision's reasoning and final ruling would appear in subsequent sections not included in this excerpt.
How can taxpayers file a reclamação graciosa (administrative complaint) against an AIMI tax assessment?
To file a reclamação graciosa (administrative complaint) against an AIMI assessment in Portugal, taxpayers must submit their challenge within 120 days from the notification date or the payment deadline, whichever occurs later, pursuant to Article 70 of the LGT (Lei Geral Tributária). The complaint should be addressed to the Tax Authority that issued the assessment, clearly identifying the contested assessment (including tax year and assessment number), explaining the legal and factual grounds for contesting it, and specifying the relief sought. In process 361/2018-T, the claimant filed administrative review no. ...2018... against the 2017 AIMI assessment, which was expressly dismissed, subsequently leading to the arbitration request. If the administrative complaint is rejected or unanswered within the statutory period, taxpayers can then seek judicial or arbitral review.
What are the legal grounds for contesting AIMI liability on terrenos para construção (construction land) in Portugal?
Legal grounds for contesting AIMI on construction land include: (1) Extensive interpretation arguments – claiming Article 135-B(2) of the IMI Code should be interpreted to exclude construction land destined for industrial, commercial, or service purposes, consistent with the exemption for completed properties in these categories; (2) Constitutional challenges based on violation of the equality principle (Article 13 CRP) for discriminating between companies holding completed service properties versus those developing them; (3) Violation of contributive capacity (Article 104(3) CRP) by taxing land that generates no income and cannot yet be economically exploited; (4) Legislative intent arguments based on parliamentary discussions and the predecessor TGIS provision that only taxed residential construction land; (5) Irrational discrimination by exempting certain non-building properties like golf courses while taxing business construction land. Taxpayers should document the property's intended non-residential purpose through planning permissions or corporate business plans.