Process: 401/2018-T

Date: January 22, 2019

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 401/2018-T) addresses whether construction land (terrenos para construção) is subject to AIMI (Additional Tax on Real Estate) under Article 135º-B(2) of the CIMI. The claimant, a company holding construction land intended for future service-sector buildings, challenged an AIMI assessment of €27,920.68 for 2017, arguing that the literal interpretation of Article 135º-B(2) unconstitutionally includes construction land despite excluding completed commercial, industrial, and service properties. The taxpayer contended this violates constitutional principles of fiscal equality (Article 13 CRP) and contributive capacity (Article 104(3) CRP), creating irrational distinctions between completed properties used for economic activities (exempt) and land destined for identical purposes (taxable). The claimant argued that excluding operational business properties while taxing construction land for the same purposes lacks rational justification and harms economic activity. The Tax Authority defended the assessment, asserting that AIMI operates as a real property tax for legal entities, abstracting from economic circumstances, and that the legislator deliberately chose to exclude only properties classified under Article 6(1)(b) and (d) of CIMI (commercial, industrial, services, and 'others') while maintaining taxation on residential properties and construction land. The Authority argued nothing in the law indicates legislative intent to exempt all properties affected by economic activity. This case exemplifies constitutional challenges to AIMI's objective scope, particularly regarding differential treatment of construction land versus completed business properties, raising fundamental questions about horizontal equity in Portuguese real estate taxation.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. A... S.A., legal entity no. ..., with registered office in ..., ..., ...-... ..., (hereinafter referred to as Claimant or Taxpayer), filed on 2018-08-23 a petition for singular arbitral decision, in accordance with the provisions of paragraph a) of no. 1 of article 2, no. 5 paragraph a), article 6, no. 1 and article 10, nos. 1 and 2 all of Decree-Law no. 10/2011, of 20 January (hereinafter referred to as RJAT), requesting the Tax and Customs Authority (hereinafter referred to as Respondent or AT), with a view to declaring the illegality and consequent annulment of the act of rejection of the amicable complaint bearing no. ...2018... and, consequently the annulment of the levy of AIMI no. 2017..., relating to the year 2017, in the amount of 27,920.68 €.

  2. The petition for constitution of a Singular Arbitral Tribunal was accepted by His Excellency the President of CAAD, and notified to the Respondent on 2018-08-30.

  3. In accordance with and for the purposes of the provisions of paragraph a) of no. 2 of article 6 of RJAT, by decision of His Excellency the President of the Deontological Council of CAAD, duly notified to the parties within the prescribed deadlines, the undersigned was appointed as arbitrator and communicated to that Council the acceptance of the appointment within the deadline provided for in article 4 of the Deontological Code of the Centre for Administrative Arbitration.

  4. On 2018-10-15 the parties were notified of this appointment, and did not express a will to refuse the appointment of the arbitrator, in accordance with the combined provisions of article 11, no. 1 paragraphs a) and b) as amended by Law no. 66-B/2012, of 31 December.

  5. The Singular Arbitral Tribunal was constituted on 2018-11-06, in accordance with the provision of paragraph c) of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December.

  6. Duly notified for such purpose, through an order issued on 2018-11-06 the Respondent filed on 2018-12-05 its response, having attached the administrative file (PA), on 2018-12-06.

  7. By order issued on 2018-12-10, duly notified to the parties, which justified, amongst other things, the waiver of the meeting referred to in article 18 of RJAT, and the presentation of final submissions, thirty-first January two thousand and nineteen was indicated as the expected deadline for the issuance and notification of the final decision.

  8. On 2019-01-18 the AT filed a petition accompanied by a copy of the arbitral tax decision, issued in the context of process no. 420/2018-T, of 2019-01-15.

  9. On 2019-01-21 the Claimant came to pronounce itself on the above-mentioned petition of the AT.

  10. In support of its petition the Claimant invokes, in summary and with relevance to what matters here, the following (mentioned mostly by transcription):

10.1. "(…) literally no. 2 of article 135-B of CIMI does not exclude from the objective scope of AIMI the land for construction, insofar as this only comprises the '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', not expressly referring to paragraph c) of no. 1 of article 6 of the same Code, which contemplates land for construction (regardless of the purpose of the building authorised or provided for it)" (cf. article 23 of the petition for arbitral decision);

10.2. "(…) understands that, in accordance with the principles of legal hermeneutics and the applicable constitutional fiscal principles, the objective exclusion from the scope of AIMI, provided for in no. 2 of article 135-B of CIMI, must cover land for construction intended for services, in particular when held by a company that acquires them for future promotion of buildings with that purpose as is the case. (cf. article 24 of the petition for arbitral decision);

10.3. "(…) the subjection to AIMI of land for construction of properties intended for industrial, commercial and service purposes, in accordance with a literal interpretation of nos. 1 and 2 of article 135-B of CIMI, is incompatible with the constitutional principles of fiscal equality and contributive capacity, enshrined in article 13 and no. 3 of article 104 of the Constitution of the Portuguese Republic (cf. article 26 of the petition for arbitral decision);

10.4. The Claimant, considering that AIMI "expressly replaced Item 28 of TGIS", sets forth various considerations regarding the ratio legis of article 135-B) of CIMI, citing various arbitral decisions issued within CAAD, and the Decision of the Constitutional Court no. 590/14. of 11 November 2015 (cf. articles 27 and following of the petition for arbitral decision);

10.5. To conclude (cf. article 63 of the petition for arbitral decision) that: "At this moment, it is safely concluded that the letter of no. 2 of article 135-B of CIMI does not do justice to its spirit by embracing within the objective scope of AIMI land for construction affected by an industrial, commercial or service activity"

10.6. (…) there is no rational justification to argue that a property affected to a commercial, industrial or service purpose is not subject to AIMI so as not to prejudice the economic activity of its holders, and at the same time, to maintain that a land for construction of such properties must be taxed and that this does not affect the economic activity" (cf. article 66 of the petition for arbitral decision);

10.7. The Claimant, in order to anchor its point of view regarding the violation of the constitutional principles of fiscal equality and contributive capacity relative to the underlying normative, by not excluding from AIMI, land for construction whose authorised or envisaged building is the construction of properties intended for services, cites constitutional case-law, namely Decision no. 250/2017 of 24 May 2017" [1] (cf. articles 69 and following of the petition for arbitral decision);

10.8. The Claimant concludes its petition for arbitral decision by requesting that "the annulment of the express act of rejection of the amicable complaint whose legality assessment is hereby requested, and, consequently, the annulment of the AIMI levy, in the contested part, in the amount of € 27,920.68, for vice of law, so as to proceed with the immediate and full restoration of legality, and the AT should proceed to the restitution of this amount plus compensatory interest calculated from the date of undue payment of the tax obligation until the date of actual restitution, with all legal consequences".

  1. As already referred to on 2018-12-06 the Tax and Customs Authority, attached the PA and submitted its response where, fundamentally in summary, and for what matters here, it defends the following (which is also mentioned mostly by transcription);

11.1. "(…) with regard to AIMI levied on urban properties of which legal entities and equivalent structures are owners, usufructuaries or superficiaries (article 135-A/2 of CIMI) the tax assumes the nature of a real tax, insofar as the determination of the amount payable abstracts from the economic dimension of the entities, namely the classification as small, medium or large enterprise, nor does it affect the total net assets of the entities" (cf. article 13 of the response);

11.2. "(…) the legislator excluded from the scope the urban properties classified as 'industrial, commercial or for 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 land for construction, by not including them in the negative delimitation enshrined" (cf. article 24 of the response);

11.3. "(…) nothing in the letter of the law authorises concluding that the intention of the legislator of AIMI was to exclude from taxation urban properties that are affected by the exercise of an economic activity" (cf. article 51 of the response);

11.4. "AIMI levied on legal entities and equivalent structures has the nature of a real tax on real estate property, constituted by urban properties that meet the types covered by a34-B/2, regardless of the class of asset in which they are recorded – inventories, tangible fixed assets or non-current assets held for sale" (cf. article 55 of the response);

11.5. "(…) in the wording of article 135-B/2 of CIMI, it follows that the legislator, specifically, only excluded from AIMI taxation urban properties classified as 'commercial, industrial or for services' and 'others', in accordance with paragraphs b) and d) of article 6/1 of CIMI" (cf. article 66 of the response);

11.6. "(…) the legislator chose to formulate the restriction taking into account the classification of properties" (cf. article 67 of the response);

11.7. "Not existing in the letter of the law anything that indicates that such exclusion may be extended, namely extended to other properties not included therein, when they are affected by a determined economic activity of the tax subject" (cf. article 68 of the response);

11.8. "(…) the AT did not proceed to any unconstitutional interpretation of the rule, for it is not it that decides to include, in AIMI taxation, urban properties affected by economic activities" (cf. article 75 of the response);

11.9. "(…) the Claimant seeks an ab-rogating interpretation of the rule, introducing into it a meaning that was not enshrined by the legislator in the letter of the law, thus expanding the scope of the exclusion from taxation, so as to cover the totality of the properties held by it (cf. article 78 of the response);

11.10. As regards the ratio legis the AT states (cf. articles 83 and following of its response) that AIMI aims to reach a portion of the assets of the tax subjects, applying to real estate property constituting an asset, legally recognisable as capital of a determined entity (singular or collective), regardless of being affected to any productive process or income-generating process.

11.11. The Respondent also cites, in defence of its thesis, various arbitral decisions, further arguing for the non-existence of any violation regarding the constitutional principles of equality and contributive capacity, with regard to the interpretation it makes with reference to no. 2 of article 135-B of CIMI.

11.12. The AT concludes its response argument in the sense of the lack of merit of the present petition for arbitral decision.

  1. The Singular Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2, no. 1, paragraph a), 5 and 6 of RJAT.

  2. The parties have legal personality and capacity, and are duly and legally represented (article 3, 6 and 15 of the Code of Tax Procedure and Process, ex vi article 29, no. 1, paragraph e) of RJAT).

  3. No exceptions requiring to be decided have been raised.

II- GROUNDS

A. MATTER OF FACT

A.1. Facts established as proven

With relevance to the assessment and decision of the question raised, the following facts are established as proven and settled:

  1. On 01/01/2017 the Claimant was the owner (amongst others) of the following land for construction:

    • urban, matrix U–..., of the parish of..., municipality of Lagos – VPT 2,389,991.48 €,
    • urban, matrix U-..., of the parish of..., municipality of Lagos – VPT 979,010.00 €
    • urban, matrix U-..., of the parish of..., municipality of Grândola – VPT 1,378,220.08 €,
    • urban, matrix U-..., of the parish of..., municipality of Grândola – VPT 1,758,914.32 €,
    • urban, matrix U–..., of the parish of..., municipality of Grândola – VPT 479,031.43 €, all "land for construction" with the type of location coefficient "services".

  2. On the aforementioned properties the levy of AIMI no. 2017... was made, in accordance with the provisions of article 135-F, no. 1 of CIMI, in the amount of 27,920.68 €, corresponding to the rate of 0.4% on the respective VPT(s) of 6,980,167.31 €

  3. From the aforementioned levy the Claimant filed on 30-01-2018 with the Finance Service of... an amicable complaint bearing no. ...2018...

  4. This complaint was rejected by order issued by the Director of Finance of..., on 28/5/2018 and notified to the Claimant

  5. The decision rejecting the complaint refers to the grounds of the draft decision, in which the following is mentioned, amongst other things:

ASSESSMENT OF THE PETITION

[…]

"With regard to what is alleged by the complainant that the legislation invoked is manifestly unconstitutional (due to violation of the principles of contributive capacity and equality) it is important from the outset to note that it is not within the remit of the AT, in accordance with article 281 of the Constitution of the Portuguese Republic (CRP) to assess the vice of unconstitutionality of the rules that support the AIMI levy - , noting that the law in which these are contained was authorised and ordered published by the President of the Republic in accordance with paragraph b) of no. 1 of article 134 of CRP, whereby it falls to the AT to levy the tax in question, in its capacity as active subject of the tax relationship.

Indeed, falling as it does to the Courts the assessment of (un)constitutionality, the tax administration, which is subject to the hierarchical dependence of the executive, cannot substitute itself for the courts, and review the constitutionality of the laws which it must apply.

In the sense of what was mentioned above it is important to cite the Decision of the Supreme Administrative Court of 201-01-21, Proc, 0811/08, which tells us that 'The rule in question of the Decree-Law, which is a legislative act arising from the exercise of Government of the legislative function. And, to that extent, there is no doubt that we are dealing with a legislative rule, whereby, the assessment and declaration of its possible illegality or unconstitutionality falls to the Constitutional Court (article 281, no. 1 paragraphs a) and b) of CRP), being excluded from the jurisdiction of the administrative and fiscal courts'.

Conversely, in the light of the principle of legality, to which it is bound in its action, the AT cannot fail to apply the law and comply with it.

Indeed, being the AT subject to the principle of legality (article 268 no. 2 of CRP and article 55 of LGT) it cannot fail to apply a rule on the ground of unconstitutionality, unless the Constitutional Court has already declared the unconstitutionality of the same with binding general force or one is dealing with violation of constitutional rules directly applicable and binding, such as those relating to rights, freedoms and guarantees, see Decision of the Supreme Administrative Court of 04-03-2015, Proc, 01529/14.

In the same sense we can see Vieira de Andrade, in Constitutional Law, Almedina, 1977, p. 270, which tells us that 'This conflict [between constitutionality and the principle of legality] cannot be resolved through the automatic prevalence of constitutional law over legal law. This is not what is at issue, because what is at stake is not the constitutionality of the law, but the assessment that administrative bodies may make about that law. On the one hand, the Administration is not a body for reviewing constitutionality; on the other hand, the subjection of the Administration to the law is not only aimed at protecting the rights of individuals, but also at the defence and pursuit of public interests […]. Granting the administrative power unlimited powers to control the unconstitutionality of the laws to be applied would lead to administrative anarchy, would invert the Law – Administration relationship and would directly violate the principle of separation of powers, as enshrined in our Constitution'

(…)

From what has been stated it therefore follows that, in Portuguese Constitutional Law there is no possibility of the AT refusing to comply with a rule, even if it perhaps considers it unconstitutional, substituting itself for the bodies responsible for reviewing constitutionality.

Finally, it should also be noted that we are not aware of any intervention in terms of preventive or successive review of the constitutionality of AIMI, which could put into question the tax acts by virtue of the same.

CONCLUSION

Consequently the AIMI levy no. 2017... now complained of does not suffer from any error as to its assumptions, whereby the present amicable complaint should be rejected"

  1. The Claimant on 2017-09-29 proceeded to pay the tax that was levied on it.

  2. On 2018-08-23 the Claimant filed with CAAD a petition for arbitral decision that gave rise to the present process (cf. CAAD management information system).

A.2. Facts established as not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Grounds for the matter of fact established as proven and not proven.

Regarding the matter of fact, the court does not have to rule on everything that was alleged by the parties, it being rather its duty to select the facts that matter for the decision and to distinguish between proven and not proven matter (cf. article 123, no. 2 of CPPT and article 670, no. 3 of CPC, applicable ex vi article 29, no. 1, paragraphs a) and e) of RJAT.

Thus the facts pertinent to the judgment of the case are chosen and defined in function of their legal relevance, which is established in view of the various plausible solutions of the question(s) of Law. (cf. article 596 of CPCivil, applicable ex article 29, no. 1, paragraph e) of RJAT

Thus, taking into consideration the positions assumed by the parties in the light of article 110, no. 7 of CPPT, the documentary evidence and the attached PA, the facts set out above are considered proven, with relevance to the decision.

B. AS REGARDS THE LAW

  • Object and delimitation

The AIMI levied by the AT and at issue in the present proceedings relates to the following properties:

(i) - urban, matrix U–..., of the parish of..., municipality of Lagos – VPT 2,389,991.48 €,

(ii) - urban, matrix U-..., of the parish of..., municipality of Lagos – VPT 979,010.00 €

(iii) - urban, matrix U-..., of the parish of ..., municipality of Grândola – VPT 1,378,220.08 €,

(iv) - urban, matrix U-..., of the parish of ..., municipality of Grândola – VPT 1,758,914.32 €,

(v) - urban, matrix U–..., of the parish of..., municipality of Grândola – VPT 479,031.43 €, all "land for construction" with the type of location coefficient "services".

  • Normative framework

AIMI was created by article 219 of Law no. 42/2016, of 28 December which approved the State Budget for 2017, by adding to the Code of IMI articles 135-A to 135-K, now constituting chapter XV of the respective code.

Constituting revenue of the Financial Stability Fund of Social Security in accordance with the provisions of no. 2 of article 1 of CIMI (as amended by article 257 of Law no. 114/2017, of 29 December (LOE 2018) with entry into force on 2018-01-01.

The objective or real scope of the additional tax on urban properties is in accordance with the provisions of no. 1 of article 135-B "on the sum of the tax patrimonial values of urban properties situated in Portuguese territory of which the tax subject is the owner".

Providing in no. 2 of the same provision an exclusion from the scope "of 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.

Thus subject to AIMI are properties affected to "housing" and "land for construction" as defined in the aforementioned article 6 of CIMI.

Similarly to the IMI regime, the tax subjects of the tax in discussion are the owners, usufructuaries or superficiaries of the respective properties – article 135-A, no. 1, regardless of whether they are natural or legal persons, being equated to these "any structures or centres of collective interests without legal personality that appear in the matrices as tax subjects of the municipal property tax, as well as undivided succession represented by the head of household", in accordance with the provision of no. 2 of article 135-A.

On the other hand, article 6 of CIMI, classifies under its no. 1 the types of urban properties as follows:

Article 6

Types of urban properties

Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Others

Being detailed in the remaining numbers of the normative the requirements/conditions relating to the different types of properties in question.

In light of the normative framework mentioned and without prejudice to what will be stated below, it may already be advanced, as a partial and provisional conclusion, to the effect that it is the understanding of this court that the literalness of the AIMI rules leads to the application of the tax, and for what matters here, to "land for construction", regardless of the purpose to which it may be subjected, since it does not appear in the negative delimitation of the scope.

The understanding that is noted does not constitute an isolated position, let alone an unprecedented one, within the framework of CAAD and has been followed by numerous arbitral decisions among which stand out, amongst others, those issued in the following proceedings: 654/2017-T of 2018-09-03, 664/2017-T of 2018-06-26, 667/2017-T of 2018-09-05, 685/2017-T of 2018-09-06, 690/2017-T, of 2018-09-06, 692/2017-T of 2018-05-11, 696/2017-T of 2018-07-23, 6/2018-T, of 2018-07-26, and 306/2018-T, of 2018/12/28.

The Claimant bases its petition for arbitral decision on the parallelism it establishes between the tax in question and item 28 of TGIS, concluding by violation of the constitutional principle of equality in the aspect of contributive capacity, insofar as, in its perspective there is a clear inequality in the interpretation of the provision in question, to the effect that the negative delimitation of the scope should be extended to "land for construction", namely with purpose for "services".

As already anticipated, not agreeing with this interpretation, this court subscribes to the position set out in process no. 6/2018 of 2018-07-26 issued within CAAD, which we subscribe to without any reservation: the "literalness of articles 135-A, no. 1 and 135-B, nos. 1 and 2 is clear and does not lend itself to any interpretative doubts. Being the letter of the law or grammatical element the first element to invoke in legal hermeneutics and being it presumed that the legislator knew how to express its thinking in adequate terms (no. 3 of article 9 of the Civil Code), it will not be necessary to invoke other elements from those available in the panoply of hermeneutics".

Being equally aligned and in a similar sense with what is stated regarding this segment in the decisions issued within the context of processes nos. 664/2017-T and 676/2017-T, which the above-cited decision invokes: "The exclusion from the tax thus covers, properties classified as commercial, industrial or for services, being understood as such the buildings or constructions licensed for those purposes or that have as their normal purpose each one of those purposes. It also encompasses the residual species referred to in paragraph d) of no. 1 of that article 6, including therein the land situated within or outside an urban agglomeration that are neither land for construction nor rural properties, and also buildings and constructions that do not fall within any of the previous classifications.

The scope of the objective scope, by effect of the remission to that article 6, was thus defined not only by reference to a type of urban properties, but also by reference to the administrative procedure through which the classification was made or, in the absence of a license, to the rule, destination of such properties for commercial, industrial and service or other purposes".

It cannot be otherwise than to differ from the position sustained by the Claimant as regards the interpretation it carries out relative to article 135-B) of CIMI, to the effect that the legislator intended to exclude from the scope of AIMI properties that are shown to be essential for obtaining income of the Claimant in the context of pursuit of its economic activity.

Reverting to the cited arbitral decision from process no. 6/2018-T, the interpretation that the Claimant sustains "(…) has no support in the letter of the law nor does it follow from the rational and systematic element. It is clear from the reading and interpretation of the rules in question that the legislator's option was not in the direction advocated by the Claimant. Such an option would assume that the legislator, instead of having delimited the scope of the application through characterised types, would have opted for a case-by-case evaluation in function of the affection of the property, in practical terms, to an economic activity of a legal entity. What is demonstrated not to have occurred".

"(…) it was not on the basis of the activity to which the properties are affected that the exclusion of the scope was defined, [2] for in the wording that came to be approved the non-application was defined only on the basis of the types of properties indicated in article 6 of CIMI, without any allusion to the purpose of the functioning of legal entities.

They are distinct concepts the affection of a property, which presupposes a use and the purpose to which it is intended, the "normal purpose" underlying the classifications of properties, to which no. 2 of article 6 of CIMI refers.

If it had been maintained, in the final wording of the Budget, the legislative intention to remove the application on properties directly affected to the functioning of legal entities, it would certainly have maintained the reference to this affection that was contained in the proposal and that expressed that legislative option.

Thus, having been deleted this allusion to the affection of properties, there is no legal support to conclude that residential properties and land for construction affected to the activity of legal entities do not fall within the scope of AIMI".

"In the absence of other elements that induce the election of the less immediate sense of the text, the interpreter must opt in principle for that sense which best and most immediately corresponds to the natural meaning of the verbal expressions used, and namely to the natural meaning of the verbal expressions used, and namely to their technical-legal meaning, in the assumption (not always exact) that the legislator knew how to express its thinking correctly" [3]

With regard to the unconstitutionality issues raised by the Claimant, it comes to advocate that the taxation here under discussion constitutes a violation of the principles of fiscal equality and contributive capacity.

The understanding that this court subscribes to as regards the unconstitutionality issues does not differ from the negative judgment that has been made on them, amongst others, and although merely by way of example, the arbitral decisions issued within CAAD in proceedings nos. 664/2017-T, 676/2017-T, 678/2017-T, 690/2017-T, 6/2018-T and 306/2018-T, not finding reasons to differ from them, and which are reconducible, namely to what is set out within the context of process no. 664/2017-T, (retaken in process no. 676/2017-T):

"(…) the Constitutional Court has stressed, one of the essential objectives constitutionally defined in the fiscal system, along with satisfying the financial needs of the State and other public entities, is that of just distribution of income and wealth as emerges from article 103, no. 1 of the Constitution.

It is this binding of the fiscal system to the idea of social justice and the reduction of social inequality of income and wealth that requires that it be progressive. This requirement is expressly enshrined within personal income taxation in accordance with no. 1 of article 104, personal income tax aims at "reducing inequalities and shall be single and progressive taking into account the needs and income of the household".

Fiscal progressivity requires that the relationship between tax paid and the level of income be more proportional which can only be achieved by applying to taxpayers with higher incomes a higher tax rate. In other words, there is progressivity when the tax value increases in proportion greater than the increase in taxable matter.

Consequently, the Constitution requires an intrinsic progressivity of contributing to a reduction in the inequality of income (on all these aspects, see the Decision of the Constitutional Court no. 187/2013, nos. 97, 98 and 99).

Fiscal progressivity also constitutes a requirement of the principle of material equality.

As Casalta Nabais refers, the principle of fiscal equality has inherent especially "the idea of generality or universality, whereby all citizens are bound to fulfil the duty to pay taxes, and uniformity, requiring that such duty be assessed by the same criterion – the criterion of contributive capacity. This implies equal tax for those with equal contributive capacity (horizontal equality) and different tax (in qualitative terms) for those with different contributive capacity in proportion to this difference (vertical equality)" (Fiscal Law, 5th edition, Coimbra, 2009, pp. 151-152).

"Configuring the general principle of equality as a material equality, the principle of contributive capacity – according to the same author – as the tertium comparationis of equality in the field of taxes, does not require a specific and direct constitutional provision. Its constitutional foundation is the principle of equality articulated with the other principles and provisions of the respective "fiscal constitution" and, in particular, those that already follow from the structural principles of the fiscal system contained in articles 103 and 104 of the Constitution (ob. cit., p. 152).

As a presupposition and criterion of taxation, the principle of contributive capacity – within the same line of understanding – "removes the fiscal legislator from arbitrariness, obliging it to, in the selection and articulation of tax facts, adhere to manifestations of contributive capacity, that is, to raise as an object and taxable matter of each tax a certain economic presupposition that is a manifestation of that capacity and is present in the various legal hypotheses of the respective tax" (ob. cit., p. 154).

Also the Constitutional Court, more recently, has analysed the principle of fiscal equality from the perspective of contributive capacity, as can be seen namely in Decision no. 142/2004 where it is stated that "[t]he principle of contributive capacity expresses and implements the principle of fiscal or tax equality in its aspect of uniformity – the duty of all to pay taxes according to the same criterion – with contributive capacity filling the unitary criterion of taxation".

The recognition of the principle of contributive capacity as a criterion intended to assess the constitutional inadmissibility of certain or certain solutions adopted by the fiscal legislator, has also led to the idea, expressed for example in the Decision of the Constitutional Court no. 348/97, that taxation in accordance with the principle of contributive capacity will imply "the existence and maintenance of an effective connection between the tax obligation and the economic presupposition selected as the object of the tax, requiring therefore a minimum of logical coherence of the various concrete hypotheses of the tax provided for in the law with the corresponding object thereof"

In summary, the principle of tax equality can be materialized through different aspects: a first, is in the generality of the tax law, in its application to all without exception: a second, in the uniformity of the tax law, in treating equally taxpayers who are in equal situations and differently those who are in different situations, in the measure of the difference, to be assessed by contributive capacity; a last, is in the prohibition of arbitrariness, in preventing the introduction of discriminations between taxpayers that are devoid of rational foundation (cf. Decisions of the Constitutional Court nos. 306/2010 and 695/2014)."

According to Sérgio Vazques [4] "Along with the taxation of income, the taxation of property is presented as that which best lends itself to personalisation and redistribution of wealth, thus imposing a broad consensus as to its legitimacy and convenience"

Continuing the same author:

"(…) The taxation of property would thus be justified as the extension of the personal tax on income and as the reinforcement of the qualitative discrimination it carries out".

Reverting to the situation in the present proceedings, it is not perceived that the taxation of land for construction, with purpose for "services", as property of the Claimant, in the manner provided for in articles 135-A and 135-B of CIMI, conflicts with the principle of fiscal equality and contributive capacity.

As already noted, the Claimant in its arguments seeks to assimilate the regime of the tax now in question to that of the former item 28.1 of TGIS when it states that AIMI revokes and replaces the item in question, invoking fundamentally arbitral case-law, as well as of the Constitutional Court.

If indeed the LOE 2017, (article 210, no. 2) proceeds to revoke item 28 of the General Table of Stamp Duty, the truth is that the regimes in question, albeit presenting some parallelism, reveal divergences between them, whose detail will not fit to assess here.

It is worth, however, to invoke the recent constitutional case-law produced with regard to item 28.1 of TGIS, with reference to the unconstitutionality of the same, for alleged violation of the principles of equality, contributive capacity and proportionality.

In this respect, it should be borne in mind the decision issued in Decision no. 378/2018 of 4 July 2018 of the Plenary of the Constitutional Court, issued in the context of process no. 156/2012, which decided "not to declare unconstitutional the rule contained in item 28.1 of the General Table of Stamp Duty, approved by Law no. 55-A/2012, of 29 October, and amended by Law no. 83-C/2013, of 31 December, in the part in which it imposes annual taxation on the ownership of land for construction whose authorised or envisaged building, is for housing, whose patrimonial tax value is equal to or greater than € 1,000,000.00".

A decision which in fact has already been seconded, at least in three other decisions, equally issued by the Constitutional Court, within the context of Decisions nos. 443/2017, 485/2018 and respectively, 2 and 4 October 2018, and Decision no. 605/2018, issued in the context of processes nos. 339/16 and 340/16 on 14 November 2018.

III- COMPENSATORY INTEREST

The Claimant formulates a request for reimbursement of the amount paid from the disputed levy and compensatory interest.

As the petition for arbitral decision is not to be judged as having merit, it cannot be concluded by the non-existence of undue payments, and, in consequence, the annulment of the levies is not justified, nor the restitution of the amount paid, nor the payment of compensatory interest, in accordance with the provisions of article 43, no. 1 of LGT.

IV. DECISION

In light of what has been set out, this Singular Arbitral Tribunal decides:

  • to declare the arbitral petition formulated by the Claimant as lacking merit, acquitting the Respondent thereof,

  • to maintain in the legal order the tax acts that are the object of the present proceedings,

  • to condemn the Claimant to the payment of procedural costs.

V- VALUE OF THE PROCEEDINGS

In accordance with what is provided for in articles 296, nos. 1 and 2 of the Code of Civil Procedure, approved by Law no. 46/2013, of 26 June, 97-A, no. 1, paragraph a) of the Code of Tax Procedure and Process, and articles [...], no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at 27,920.68 € (twenty-seven thousand nine hundred and twenty euros and sixty-eight cents).

VI- COSTS

In accordance with the provisions of articles 12, no. 2, 22, no. 4 of RJAT and articles 2 and 4 of the Regulation of Costs in Tax Arbitration Proceedings, and Table I attached hereto, the amount of costs is fixed at 1,530.00 € (one thousand five hundred and thirty euros).

NOTIFY

Document prepared by computer, in accordance with the provisions of article 131 of the Code of Civil Procedure, applicable by remission of article 29, no. 1, paragraph e) of the Legal Regime of Tax Arbitration, with blank verses, and reviewed by the arbitrator.

NOTIFICATION TO THE PUBLIC MINISTRY

The Respondent requested, by appeal to the provisions of article 280, no. 3 of CRP and article 72, no. 3 of the Law of the Constitutional Court, the notification of this arbitral decision to the Public Ministry.

Since the Public Ministry does not have representation before the arbitral courts that function alongside CAAD (article 4 of the Statute of the Public Ministry) communicate this decision to the Office of the General Prosecutor, for the appropriate purposes.

[The drafting of the present decision is governed by the spelling prior to the 1990 Orthographic Agreement, except in respect to transcriptions made].

Twenty-second of January two thousand and nineteen

The arbitrator

(José Coutinho Pires)

[1] Subsequently revoked by Decision of the Plenary of the Constitutional Court no. 378/2018, of 04-07-2018.

[2] Follows closely the sense of the arbitral decision rendered in the context of process no. 696/2017-T, which ran terms in CAAD, in which we intervened.

[3] Baptista Machado, Introduction to Law and Legitimising Discourse, p. 182.

[4] Contributive Capacity, Income and Property, Fiscal Law – Review of Tax Law and Management, no. 23, Coimbra 2005, pp. 33 and 36.

Frequently Asked Questions

Automatically Created

Are construction land plots (terrenos para construção) subject to AIMI under Article 135º-B(2) of the CIMI?
Yes, construction land plots are subject to AIMI under a literal interpretation of Article 135º-B(2) of the CIMI. This provision explicitly excludes only properties classified as 'commercial, industrial or for services' and 'others' under Article 6(1)(b) and (d), but does not mention construction land classified under Article 6(1)(c). The Tax Authority maintains that the legislator deliberately chose to tax construction land held by legal entities, even when destined for commercial or service purposes, while excluding completed operational business properties.
What did CAAD process 401/2018-T decide regarding the objective scope of AIMI for construction land?
CAAD Process 401/2018-T addressed a constitutional challenge to AIMI taxation on construction land intended for service-sector buildings. The claimant argued that subjecting construction land to AIMI while exempting completed commercial, industrial, and service properties violates principles of fiscal equality and contributive capacity. The case centered on whether Article 135º-B(2)'s literal exclusion should be interpreted broadly to cover construction land destined for business purposes, or whether the explicit non-mention of Article 6(1)(c) properties indicates deliberate legislative choice to maintain such taxation despite potential constitutional concerns.
Can AIMI on construction land be challenged on grounds of unconstitutionality under the principles of fiscal equality and ability to pay?
Yes, AIMI on construction land can be challenged on constitutional grounds based on fiscal equality (Article 13 CRP) and contributive capacity (Article 104(3) CRP). The claimant argued there is no rational justification for exempting operational business properties from AIMI while taxing construction land destined for identical purposes, as both relate to economic activity. The argument invokes Constitutional Court precedent (Decision 250/2017) and contends that taxing preparatory assets (land) while exempting operational assets creates arbitrary distinctions incompatible with horizontal equity principles and fails to respect genuine ability to pay, particularly when the land generates no income.
How does the principle of contributive capacity (capacidade contributiva) apply to AIMI taxation on real estate?
The principle of contributive capacity (capacidade contributiva) in AIMI taxation requires that tax burdens reflect genuine economic ability to pay. For legal entities holding construction land, this principle is challenged because: (1) undeveloped land generates no income or productive return; (2) AIMI operates as a real property tax abstracting from the entity's overall economic situation; and (3) differential treatment between land and completed business properties creates inequities. The claimant argued that taxing construction land intended for business purposes violates contributive capacity because it burdens non-productive assets while exempting income-generating operational properties, creating irrational discrimination that fails to measure true fiscal capacity.
What is the procedure for challenging an AIMI assessment through a tax arbitration claim (pedido de pronúncia arbitral) at CAAD?
Challenging an AIMI assessment through CAAD arbitration involves: (1) filing a prior amicable complaint (reclamação graciosa) with the Tax Authority; (2) upon rejection, submitting a petition for arbitral decision (pedido de pronúncia arbitral) within statutory deadlines under RJAT (Decree-Law 10/2011); (3) appointment of an arbitrator by CAAD's President; (4) constitution of the arbitral tribunal; (5) the Tax Authority files a response and administrative file; (6) the tribunal may waive hearings if appropriate; and (7) a final decision is issued. In Process 401/2018-T, the claimant challenged both the rejection of the amicable complaint and the underlying AIMI assessment of €27,920.68, seeking annulment based on alleged legal invalidity and unconstitutionality of the applicable provisions.