Process: 485/2017-T

Date: February 21, 2018

Tax Type: IMI

Source: Original CAAD Decision

Summary

This arbitration decision addresses whether land integrated within the National Ecological Reserve (REN) and Natura 2000 network can be taxed as construction land for IMI (Municipal Property Tax) purposes. The applicant company challenged IMI assessments for 2012-2015 totaling €36,139.52, arguing that the property's classification as construction land was erroneous given legal prohibitions on development. The property covers 100 hectares within REN areas delimited by Regulation No. 1046/93 under Decree-Law No. 166/2008, which establishes that construction requires prior exclusion from the REN. A 2009 government order rejected such exclusion, maintaining the REN classification and prohibiting subdivision, urbanization, and construction activities. The applicant contended that since the property is legally unfit for construction, it should be classified as rural property under Article 3(1) of the Property Tax Code rather than construction land under Article 6. Consequently, the taxable property value should be calculated using lower rural property valuation rules (Articles 17 et seq.) instead of urban property valuation that resulted in an assessment of €2,258,720.00. Key arguments included: the property cannot be developed without REN exclusion and a valid detailed plan, neither of which exists; taxpayers can challenge assessment acts without first contesting property registration entries; and prior stamp tax assessments based on the same erroneous classification were judicially annulled. The case examines the competence of CAAD tribunals to review IMI assessments, the interaction between environmental protection legislation and tax classification rules, and taxpayers' procedural rights under the RJAT system to challenge assessments and obtain refunds with compensatory interest.

Full Decision

ARBITRAL DECISION

I – REPORT

1.1. A…, S.A., NIF…, with registered office at …, No. …, …-… Lisbon (hereinafter referred to as the "Applicant"), having requested the official review of the Property Tax (IMI) assessments for 2012, 2013, 2014 and 2015, in the total amount of €36,139.52, submitted, following their implicit dismissal and of the aforementioned assessments, on 30/8/2017, a request for the constitution of an arbitral tribunal and for an arbitral decision, pursuant to the provisions of articles 2, No. 1, lit. a), 3, No. 1, and 10 et seq. of Decree-Law No. 10/2011, of 20/1 (Legal Regime for Arbitration in Tax Matters, hereinafter only referred to as "LRAT"), in which the Tax and Customs Authority (TA) is requested, on the ground that should be "declared illegal and annulled the Property Tax assessment acts of 2012, 2013, 2014 and 2015, and the act dismissing the official review duly submitted that confirmed them, with all legal consequences, in particular the condemnation of the TA to refund to the present applicant the amount of Property Tax improperly paid, plus compensatory interest until its full reimbursement."

1.2. On 23/11/2017 the present Singular Arbitral Tribunal was constituted.

1.3. Pursuant to the provisions of article 17, No. 1, of the LRAT, the TA was summoned, as the respondent party, to submit its reply. The TA submitted its reply on 9/1/2018, arguing for the total inadmissibility of the Applicant's request. The TA also invoked an exception – to which the now Applicant replied via request dated 16/1/2018.

1.4. By order of 9/2/2018, the Tribunal considered, pursuant to article 16, lit. c), of the LRAT, that the meeting referred to in article 18 of the LRAT was dispensable and that the case was ready for decision. The date of 21/2/2018 was also fixed for the pronouncement of the arbitral decision.

1.5. The Arbitral Tribunal was properly constituted, is materially competent, the case does not suffer from vices that would invalidate it and the Parties have legal standing and capacity, being legitimately constituted.

II – PARTIES' ALLEGATIONS

2.1. The now Applicant alleges, in its initial petition, that: a) "the property [in question] is located in the Parish of … in the Municipality of … and occupies an area without construction and outside an urban agglomeration corresponding to 100 hectares located between … and …"; b) "the property is integrated into the Natura 2000 Network, site of …, … and … (code PT…) which extends from … to …"; c) "the property is included in the area of the National Ecological Reserve (REN) delimited by Regulation No. 1046/93, of 18 October, under Decree-Law No. 93/90, of 19 March, which established the regime of the National Ecological Reserve, currently regulated by Decree-Law No. 166/2008, of 22 August"; d) "thus, in order for it to be lawful to construct on the property of the case it was necessary to change its classification, excluding it from areas classified as REN"; e) "the Government, by order of 11 August 2009 of the State Secretary for Spatial Planning and Cities, dismissed the exclusion of the property area from the REN, on the grounds that the Environmental Impact Statement (EIS) previously issued by the State Secretary for the Environment had in the meantime expired"; f) "with this, the detailed plan that would cover the area of the Applicant's property was never subject to the mandatory government ratification and publication in the Official Journal, which were essential elements for its entry into force"; g) "there did not exist, therefore, nor does there exist, a valid and effective detailed plan that would permit the legal framing of the project that the Applicant intended to carry out, which made impossible and continues to make impossible any construction on the property"; h) "the order of 11 August 2009 therefore maintained, intact, the original delimitation of the REN of the municipality of … which prohibits the Applicant from carrying out any subdivision, urbanization, construction, expansion, roads, excavations and landfill operations; either by force of the law then in force (see art. 4, No. 1, of Dec. Law 93/90, of 19 March) or in light of the law currently in force (see art. 20 of Dec. Law 166/2008, of 22 August) which establishes the Legal Regime of the National Ecological Reserve"; i) "therefore, the property of the case is, as it was on the date of the taxable event, legally unfit for subdivision, construction and building, since all this would always depend, on the one hand, on its prior exclusion from the REN and, on the other hand, on the prior entry into force of a detailed plan that would authorize subdivision, construction and building"; j) "this is, therefore, a case that the Property Tax Code expressly mandated to exclude from the classification as 'land for construction' (see art. 6, 3), and to include in the classification as 'rural property' (see art. 3, 1)"; l) "thus, the taxable property value of the property should not have been determined in accordance with the calculation rules applicable to urban properties which led to the assessment at the value of € 2,258,720.00, but rather according to the rules applicable to determining the taxable property value of rural properties"; m) "if the property is not, as declared by the Arbitral Tribunal [which was constituted to decide on another case], land for construction for purposes of the application of item 28.1 of the Tax Code – which mandates the application of the rules of the Property Tax Code regarding the classification of properties – it is not, by parity of reasoning, for purposes of the application of the municipal property tax"; n) "nor should it be said that the fact that the applicant did not previously react against the assessment of the property could prevent it from proceeding with its request for official review of the Property Tax assessment acts and with the present arbitral challenge against their respective dismissal"; o) "the possibility of the taxpayer independently scrutinizing the acts of property assessment is, therefore, in the words of the Constitutional Court, a faculty of the taxpayer, and not a burden, which aims to strengthen and not restrict the judicial protection of their rights and guarantees legally and constitutionally protected"; p) "from this it follows that nothing prevents the Applicant from invoking the illegality of the assessment act now challenged on the basis of the erroneous property registration entry that preceded it and which thus resulted in a tax assessment marred by illegality"; q) "just as the aforementioned stamp tax assessments whose annulment was judicially determined, the Property Tax assessment acts issued on the basis of a taxable property value resulting from the application of the calculation rules relating to urban properties to the property here in question are illegal"; r) "the taxable property value of the property should, in effect, have been determined in accordance with articles 17 et seq. of the Property Tax Code"; s) "the TA has not deigned, to this day, to deliver an express decision, despite the Applicant having submitted two requests to that effect, which regrettably also received no response whatsoever".

2.2. From the above, the Applicant concludes that should be "declared illegal and annulled the Property Tax assessment acts of 2012, 2013, 2014 and 2015, and the act dismissing the official review duly submitted that confirmed them, with all legal consequences, in particular the condemnation of the TA to refund to the present applicant the amount of Property Tax improperly paid, plus compensatory interest until its full reimbursement."

2.3. For its part, the Respondent alleges, in its reply, that: a) "from the tenor of the request for arbitral decision it is apparent that the Applicant intends to make the effects of the classification of the property as rural property retroactive to 2012, a classification that was only requested in 2016 and authorized in 2017"; b) "the act which is the subject of the request for arbitral decision goes beyond the competence of the arbitral tribunal"; c) "the nature of a property (which is what the Applicant here mediately or immediately intends to question) is not susceptible to being discussed in arbitral proceedings, for that purpose there are specific procedures established in the legal-fiscal normative, furthermore, and as has already been mentioned above, the nature of the property is fixed documentarily in the case files"; d) "the facts about which the Applicant now intends to question, without having done so in a timely manner and in the proper forum, allowing all the time limits it had at its disposal to elapse, are settled in the legal order"; e) "even if it were considered, purely as a matter of obligation of counsel, that we were dealing with a fact susceptible to scrutiny at the CAAD, the same would have to, pursuant to and for the purposes of No. 7 of art. 134 of the Tax Procedure Code, see exhausted all the gracious remedies provided for in the assessment procedure, which did not happen, from which results a clear incompetence of the arbitral tribunal"; f) "the property record – which is part of the documentary collection of the case files – records the results of the assessment, which was not challenged, through the respective means of reaction available to the now Respondent"; g) "if the tax certificate delivered by the Applicant is disregarded, which, purely as an academic exercise, is conceded, the Tribunal overlooks and makes no account of the references in that certificate to the declaration Form 1 (which are here given as fully reproduced for all legal purposes) and which determined that the property be assigned a taxable property value of € 2,258,720.00 and that that same property be described and registered as land for construction with residential use"; h) "never, at any time, in the years of the assessments in question, the Applicant, as the taxpayer subject, challenged those certificates and/or assessments, through the procedural and/or litigation means available to it, which established that that property was land for construction with residential use"; i) "it is outside the material competence of the Arbitral Tribunal, the scrutiny and/or analysis of assessment acts and property registration acts"; j) "by the above, there is, in the concrete case, a dilatory exception which translates into the incompetence of the arbitral tribunal, which prejudices the knowledge of the merits of the case, and should determine the absolution of the Respondent Entity from the instance, taking into account the provisions of articles 576, No. 1 and 577, lit. a) of the Civil Procedure Code, applicable ex vi article 29, No. 1, lit. e) of the LRAT"; l) "it is necessary to first note that the Applicant in articles 2 to 22 of its request for arbitral decision describes the entire evolution of the procedures for the integration or exclusion of REN areas and other facts which in its view prove that the land was unfit for construction on the date of the assessments here in question. [...]. Now, in the face of such conclusion, it is legitimate to question, why is it that the Applicant, knowing in 2009 that it could not carry out any subdivision, urbanization, construction, expansion, roads, excavations and landfill operations, did not promptly present the request to alter the property record of the property in question, since it would be in its interest?"; m) "if from 2009 it knew that it could not build on that land, why is it that only in 2016, more precisely on 08/08/2016, did the Applicant submit a request for correction of the property record pursuant to art. 130 of the Property Tax Code, in order to be classified as rural?"; n) "in accordance with what is stipulated in the aforementioned legal provision [article 130, No. 8, of the Property Tax Code], the effects of the elimination of an urban entry and its registration in the rural property record, only have effects on the assessment for the year in which the request is submitted or the correction is promoted"; o) "thus, being the Respondent Entity bound by the principle of legality, it could not have acted otherwise, since, only after the request made by the Applicant were the requirements for registration of the property in the rural property record confirmed"; p) "by all the above, the assessment in issue represents a correct interpretation and application of the law to the facts, not suffering from the vice of violation of law"; q) "with regard to the claimed right to compensatory interest provided for in No. 1 of article 43 of the General Tax Law, resulting from judicial annulment of an assessment act, it depends on whether it has been demonstrated in the case that this fact is affected by error in the factual or legal presuppositions imputable to the Tax Administration"; r) "since, on the date of the facts, the Tax Administration made the application of the law, necessarily, pursuant to the terms in which as an executive body it is constitutionally bound, one cannot speak of error of the services pursuant to the provision of article 43 of the General Tax Law"; s) "from everything that has been set out above it is clear that the tax act in issue is valid and legal, because it conforms to the legal regime in force on the date of the taxable facts, with no error imputable to the services having occurred, in this case. The legal presuppositions that confer the right to the claimed compensatory interest are not met"; t) "the Applicant is not entitled to payment of any compensatory interest, the Applicant's claim should be considered inadmissible and the Respondent Entity should be absolved of all claims."

2.4. The Respondent concludes that "the exception invoked should be judged to be well-founded and, if this is not the case, the present request for arbitral decision should be judged inadmissible, the impugned tax assessment acts remaining in the legal order and the respondent entity being accordingly absolved of the claim."

III – ESTABLISHED, UNPROVEN FACTS AND THEIR JUSTIFICATION

3.1. The following facts are considered established:

i) The property here in question is the property of the now Applicant, as is verified by reading the property record that was attached as doc. 3. It is a property located in the parish of …, municipality of …, and which occupies an area without construction and outside an urban agglomeration, corresponding to 100 hectares located between … and ….

ii) The aforementioned property is integrated into the Natura 2000 Network, site of …, … and … (code PT…) which extends from … to …, as can be verified by reading docs. 4 to 6 attached to the present case. The same property is also included in the area of the REN delimited by Regulation No. 1046/93, of 18/10, under Decree-Law No. 93/90, of 19/3, which established the regime of the National Ecological Reserve (see doc. 7 appended), currently regulated by Decree-Law No. 166/2008, of 22/8.

iii) The Regulation of the Master Plan of …, which was ratified by Resolution of the Council of Ministers No. 42/94, of 18/6, requires (in No. 6 of art. 10) that the area of the property be subject to a detailed plan, in accordance with the provisions of art. 46 (see doc. 8 appended). That detailed plan implies an amendment to the Master Plan and the exclusion from the REN, so it is subject (following a complex procedure that involves the Municipality, the Regional Coordination and Development Commission of the Center and the National REN Commission), to government ratification, which is competent, pursuant to the provisions of article 3, No. 1, of Decree-Law No. 93/90, of 19/3, to approve the integration and exclusion of areas from the REN.

iv) Thus, the Municipal Council of … initiated the aforementioned procedure to alter the delimitation of the REN of its municipality, aiming, with this, at the approval of the detailed plan relating to …, which depended on this alteration by force of the resolution ratifying its Master Plan.

v) However, the Government, by order dated 11/8/2009 of the State Secretary for Spatial Planning and Cities, dismissed the exclusion of the property area from the REN on the grounds that the Environmental Impact Statement previously issued had in the meantime expired (see doc. 9 appended to the case files). So the detailed plan that would cover the area of the now Applicant's property was never subject to the mandatory government ratification and publication in the Official Journal.

vi) As the REN exclusion procedure did not proceed, for the reasons indicated above, there did not exist (nor does there exist) a detailed plan that would permit the legal framing of the construction project that the now Applicant intended to carry out – thus making impossible the realization of any construction on the property in question.

vii) As the aforementioned order of 11/8/2009 maintained intact the original delimitation of the REN of the municipality of …, the Applicant is prohibited from carrying out, on the property in question, any subdivision, urbanization, construction, expansion, roads, excavations and landfill operations – both by force of the provision in art. 4, No. 1, of Decree-Law No. 93/90, of 19/3, and by force of what is currently established in art. 20 of Decree-Law No. 166/2008, of 22/8 (Legal Regime of the National Ecological Reserve).

viii) Being the Applicant prohibited from carrying out the aforementioned operations on the property in question, it is verified that that property was, on the date of the taxable event, legally unfit for subdivision, construction and building – and therefore, for purposes of classification pursuant to the provisions of the Property Tax Code, it is a "rural property" (see art. 3, No. 1, of the Property Tax Code). Thus, such determines that the determination of the taxable property value of the property in question be made in accordance with the rules applicable to determining the taxable property value of rural properties and not in accordance with the calculation rules applicable to urban properties.

ix) The demonstrated (and proven) constructive and building unfitness of the property in question (due to reasons of a legal nature) prevails over the property registration entry (which indicated that it was "land for construction").

x) By order of 28/9/2017 of the Head of the Tax Office of …, the request for correction of the property record submitted by the Applicant on 8/8/2016 was granted, with effects from the year 2016. According to information from the Applicant, the property in question registered in the property record with No. … was eliminated on 19/10/2017, having been registered as rural with No. …, with the taxable property value of €139,000.00, of the parish of ….

xi) On 28/12/2016, the now Applicant requested the official review of the Property Tax assessments in question (for the years 2012, 2013, 2014 and 2015, and identified by docs. Nos. 2012…, 2013…, 2014… and 2015…) and their annulment (see doc. 1). Despite the now Applicant having submitted two requests requesting an express decision on its request (see doc. 12 attached to the case files), the TA did not deliver one.

xii) Aggrieved, the Applicant submitted the present request for arbitral decision on 30/8/2017.

3.2. There are no material unproven facts relevant to the decision of the case.

3.3. The facts considered pertinent and established (see 3.1) are founded on the analysis of the positions exposed by the parties and the documentary evidence attached to the case files.

IV – PRELIMINARY ISSUE

As mentioned in the report of the present decision, the Respondent invoked, in its reply of 9/1/2018, an exception based on alleged "incompetence of the arbitral tribunal to scrutinize assessment acts and registration acts in the property record" (see points 17 et seq. of the reply). It is thus necessary to ascertain whether the same should be considered well-founded, taking into account also what is stated in the request from the Applicant sent on 16/1/2018, in which the latter pronounces itself on the aforementioned exception.

In the view of the Respondent, "the Applicant intends to make the effects of the classification of the property as rural property retroactive to 2012, a classification that was only requested in 2016 and authorized in 2017. Which is why the act which is the subject of the request for arbitral decision goes beyond [in its view] the competence of the Arbitral Tribunal." It adds that, "even if it were considered, purely as a matter of obligation of counsel, that we were dealing with a fact susceptible to scrutiny at the CAAD, the same would have to, pursuant to and for the purposes of No. 7 of art. 134 of the Tax Procedure Code, see exhausted all the gracious remedies provided for in the assessment procedure, which did not happen". And concludes that "it follows from the documentary collection of the case files that at no time did the Applicant timely question the assessment (duly notified) of the property in question and the nature conferred on it in that assessment, and therefore should be barred from any attempt to, by this means, futile, [...] come to scrutinize any assessment."

In summary, the Respondent holds that "it is outside the material competence of the Arbitral Tribunal to scrutinize and/or analyze assessment acts and property registration acts. And therefore it is never within the material competence of the Arbitral Tribunal to analyze them, with this being its main ground for the well-foundedness of the arbitral claim, i.e., the elimination from the legal order of those assessments, property registrations and classifications of properties."

However, the Respondent is not correct, given that: a) contrary to what it alleges, the jurisprudential orientation has clearly been in the sense that "any illegalities committed in the acts prior to the fixing of the taxable property value of the property, such as the official registration in the property record of a certain physical reality as property, may be subject to autonomous challenge – through special administrative action – or invoked in challenge of a tax act" (see, for example, the Decision of the Supreme Administrative Court of 8/1/2014, proc. 01685/13); b) it is verified, in the case of these case files, that the now Applicant expressly challenges (as the Respondent acknowledges in points 2 and 3 of its reply) the tax assessment acts with the ground being their illegality (see also, in this respect, for example, points 39 and 47 of the initial petition); c) nothing thus prevents the now Applicant from invoking the illegality of the challenged assessment acts on the basis of the erroneous property registration entry of the property in question (even if such registration was not autonomously scrutinized at an earlier time) – in this respect, see, for example, the following decisions: "the act in question [...] is immediately injurious, and [...], as such, can the appellant, if it wishes, scrutinize it autonomously, if it does not wish to scrutinize it in the context of challenging the tax assessment. (On this alternative faculty, see Jorge Lopes de Sousa, [Code of Tax Procedure and Process, annotated and commented, 6th ed., 2011, Vol. I], p. 470.)" (Decision of the Supreme Administrative Court of 27/11/2013, proc. 01725/13); "The act of official registration in the property record of a certain physical reality, for having been qualified as property, is immediately injurious and autonomously challengeable through special administrative action, being judicial challenge the proper means to scrutinize the assessment of the Property Tax arising from such act." (Decision of the Court of Administrative Appeal of the North of 28/9/2017, proc. 01939/12.6BEBRG); d) as it follows from what was said previously, there is no (alleged) retroactivity of effects of classification of property that occurred in 2017, there is only the assessment of the legality of the assessments resulting from the (alleged) erroneous property registration of the property in question in the years 2012 to 2015; e) pursuant to the provisions of art. 2, No. 1, lit. a), of the LRAT, arbitral tribunals have competence to consider requests for declaration of illegality of acts of assessment of taxes [as is the case of the request that gave rise to the present case: see above, b)].

In light of the above, it is concluded that the invoked exception is not well-founded.

V – LAW

In the case under analysis here, there are two controversial questions of law: 1) to determine whether the Property Tax assessments in question suffer from the vice of violation of law because they were calculated in accordance with (alleged) incorrect classification of the property as "land for construction"; 2) to determine whether there is entitlement to payment of the claimed compensatory interest.

Let us see then.

  1. The now Applicant alleges that "the acts of assessment of Property Tax issued on the basis of a taxable property value resulting from the application of calculation rules relating to urban properties to the property here in question are illegal. [And that] the taxable property value of the property should [...] have been determined in accordance with articles 17 et seq. of the Property Tax Code."

First of all, it should be noted that the case relating to the property here in question is extensively documented – and in terms that permit the conclusion that there is a property registration entry (as "land for construction") that does not correspond to the physical reality of the aforementioned property.

Indeed – and summarizing some of the points of the factual matter given as established [see above, points i) to vii)] and which illustrate the situation of the property in question – it is verified, by reading the documents attached to the case files (and whose veracity was not challenged), that: a) the property occupies an area without construction and outside an urban agglomeration, corresponding to 100 hectares located between … and …; b) the aforementioned property is integrated into the Natura 2000 Network, site of …, … and … (code PT…) which extends from … to …, as can be verified by reading docs. 4 to 6 attached to the present case files; c) the same property is also included in the area of the REN delimited by Regulation No. 1046/93, of 18/10, under Decree-Law No. 93/90, of 19/3, which established the regime of the National Ecological Reserve (see doc. 7), currently regulated by Decree-Law No. 166/2008, of 22/8; d) the Regulation of the Master Plan of …, which was ratified by Resolution of the Council of Ministers No. 42/94, of 18/6, requires (in No. 6 of art. 10) that the area of the property be subject to a detailed plan, in accordance with the provisions of article 46 (see doc. 8); e) that detailed plan implies an amendment to the Master Plan and the exclusion from the REN, so it is subject (following a complex procedure that involves the Municipality, the Regional Coordination and Development Commission of the Center and the National REN Commission), to government ratification, which is competent, pursuant to the provisions of article 3, No. 1, of Decree-Law No. 93/90, of 19/3, to approve the integration and exclusion of areas from the REN; f) the Municipal Council of … initiated the aforementioned procedure to alter the delimitation of the REN of its municipality, aiming, with this, at the approval of the detailed plan relating to …, which depended on this alteration by force of the resolution ratifying its Master Plan; g) the Government, by order dated 11/8/2009 of the State Secretary for Spatial Planning and Cities, dismissed the exclusion of the property area from the REN on the grounds that the Environmental Impact Statement previously issued had in the meantime expired (see doc. 9 appended to the case files) – and therefore the detailed plan that would cover the area of the now Applicant's property was never subject to the mandatory government ratification and publication in the Official Journal; h) as the REN exclusion procedure did not proceed, for the reasons indicated above, there did not exist (nor does there exist) a detailed plan that would permit the legal framing of the construction project that the now Applicant intended to carry out – thus making impossible the realization of any construction on the property in question; i) as the aforementioned order of 11/8/2009 maintained intact the original delimitation of the REN of the municipality of …, the Applicant is prohibited from carrying out, on the property in question, any subdivision, urbanization, construction, expansion, roads, excavations and landfill operations – both by force of the provision in art. 4, No. 1, of Decree-Law No. 93/90, of 19/3, and by force of what is currently established in art. 20 of Decree-Law No. 166/2008, of 22/8 (Legal Regime of the National Ecological Reserve).

From this it necessarily follows the conclusion, duly demonstrated and proven, that, (as mentioned in point viii) of the established factual matter,) being the Applicant prohibited from carrying out the aforementioned operations on the property in question, the same was, on the date of the taxable event, legally unfit for subdivision, construction and building. Accordingly, it must be concluded that, for purposes of classification pursuant to the provisions of the Property Tax Code, it is a "rural property" (see art. 3, No. 1, of the Property Tax Code) – which determines that the determination of the taxable property value of that property must be made in accordance with the rules applicable to determining the taxable property value of rural properties and not in accordance with the calculation rules applicable to urban properties.

The demonstrated (and proven) constructive and building unfitness of the property in question (due to reasons of a legal nature), therefore prevails over the property registration entry (which indicated that it was "land for construction"). In this respect, albeit for the purposes of Stamp Tax (and no reason is perceived to prevent the application of identical reasoning with respect to the Property Tax here in question), see, for example, the following decision: "Although no request for second appraisal of the property was submitted, and without defining what the consequence would be for purposes of Property Tax assessment, since that is not the subject of the appeal, the impossibility of construction on the aforementioned property, duly proven, cannot fail to be relevant for purposes of Stamp Tax assessment, levied on the basis of the building capability, which is found not to exist in fact. The fact is that Stamp Tax was calculated on the basis of the building capacity of the property which does not exist, this being one of the factual presuppositions of the assessment act." (Decision of the Supreme Administrative Court of 6/7/2016, proc. 0330/16). (Italics ours.)

In this sense also pronounced the Arbitral Decision of 7/10/2016, rendered in proc. No. 113/2016-T (in a case very similar to the one here in question, and also relating to Stamp Tax): "In accordance with the provisions of article 4 of the Property Tax Code, 'urban properties are all those that should not be classified as rural (...)', and among the various types of 'urban properties' referred to in article 6 of the Property Tax Code, 'land for construction' is expressly mentioned [No. 1, lit. c)], with No. 3 of the same article adding that 'land for construction is considered to be land situated within or outside an urban agglomeration, for which a license or permit has been granted, prior communication made or favorable prior information issued for subdivision or construction operations (...), except land in which the competent entities prohibit any of those operations, in particular those located in (...) protected areas (...)' [...]. [Evaluating the requirement that it must be land for construction, it is verified, in light of] the documents attached by the Applicant, that the property underlying the tax assessments in issue [is] '(...) integrated into the Natura 2000 Network [...]', being a protected area and included in the REN area of the municipality [in question]. Now, according to the provisions of the Master Plan Regulation [...], it will be necessary for the respective area of land to be excluded from the REN to be subject to a detailed plan, since it will imply an amendment to the aforementioned Master Plan. According to the information that the Applicant attached [...], the EIS favorably issued on the proposal to amend the delimitation of the REN [...], excluding from its perimeter the area covered by the Detailed Plan [...], expired on 20 March 2008 (and the extension of the deadline was not requested) [...]. Thus, as a consequence of the above, the land underlying the assessments [...] continued to be integrated into the REN, and therefore the requirement [of being] land for construction will not be applicable to it, on the date to which the taxable facts refer (and within the scope of the tax incidence rule transcribed above), nor the requirement [...] [that] the authorized and planned building for it shall be for residential purposes, because [this latter is] a consequence of the applicability of the previous requirement."

In light of the above, it is concluded, in the present case, that, since the property in question is not, provably, "land for construction" – it was and continues to be land located in a protected area (REN) – the Property Tax assessments that were issued on the basis of a taxable property value resulting from the application of calculation rules relating to urban properties suffer from the vice of violation of law, by error in the factual and legal presuppositions – which determines the declaration of its illegality and respective annulment.

  1. It remains, finally, to assess, under article 24, No. 5, of the LRAT, the claim for payment of compensatory interest in favor of the applicant.

Pursuant to article 43, No. 1, of the General Tax Law, compensatory interest is due when it is determined, in gracious complaint or judicial challenge, that there was error imputable to the services from which results payment of the tax debt in an amount higher than legally due.

It is, therefore, a necessary condition for the attribution of said interest the demonstration of the existence of error imputable to the services. In that sense, see, for example, the following decisions: "The right to compensatory interest provided for in No. 1 of art. 43 of the General Tax Law [...] depends on there being demonstrated in the case that this act is affected by error in the factual or legal presuppositions imputable to the TA." (Decision of the Supreme Administrative Court of 30/5/2012, proc. 410/12); "The right to compensatory interest provided for in No. 1 of article 43 of the General Tax Law presupposes that the case determines that in the assessment 'there was error imputable to the services', understood as 'error in the factual or legal presuppositions imputable to the Tax Administration'" (Decision of the Supreme Administrative Court of 10/4/2013, proc. 1215/12).

Having occurred, as noted by reading 1), error imputable to the services, it is concluded, also, for the well-foundedness of the said claim for payment of compensatory interest in favor of the applicant.

VI – DECISION

In light of the above, it is decided:

– That the claim for arbitral decision is well-founded, with the consequent annulment, with all legal effects, of the Property Tax assessment acts challenged and the reimbursement of the amount improperly paid.

– That the claim is also well-founded in the part relating to recognition of the right to compensatory interest in favor of the applicant.

The value of the case is fixed at €36,139.52 (thirty-six thousand one hundred and thirty-nine euros and fifty-two cents), pursuant to article 32 of the Administrative Procedure Code and article 97-A of the Tax Procedure Code, applicable by virtue of the provision in article 29, No. 1, lit. a) and b), of the LRAT, and article 3, No. 2, of the Regulation on Costs in Tax Arbitration Proceedings.

Costs charged to the respondent, in the amount of €1,836.00 (one thousand eight hundred and thirty-six euros), pursuant to Table I of the Regulation on Costs in Tax Arbitration Proceedings, and in compliance with the provision in articles 12, No. 2, and 22, No. 4, both of the LRAT, and the provision in article 4, No. 5, of the aforementioned Regulation.

Notify.

Lisbon, 21 February 2018.

The Arbitrator

(Miguel Patrício)

Text drawn up by computer, pursuant to the provision in article 131, No. 5, of the Civil Procedure Code, applicable by reference of article 29, No. 1, lit. e), of the LRAT.

The drafting of the present decision is governed by Portuguese spelling prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

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Can a property classified as a construction plot within the National Ecological Reserve (REN) be subject to IMI property tax?
Property located within the REN should not be classified as construction land for IMI purposes when construction is legally prohibited. Article 20 of Decree-Law 166/2008 prohibits subdivision, urbanization, and construction on REN land without prior exclusion. Article 6(3) of the Property Tax Code excludes from construction land classification those properties where construction is legally prohibited. Therefore, REN properties should be classified as rural property under Article 3(1) and taxed according to lower rural property valuation rules under Articles 17 et seq., not as construction land subject to higher urban property valuations.
Does the CAAD Arbitral Tribunal have jurisdiction to rule on IMI assessments for land integrated in the Rede Natura 2000 network?
Yes, the CAAD has jurisdiction under the RJAT (Decree-Law 10/2011) to decide on the legality of IMI tax assessments, regardless of whether property is integrated in the Natura 2000 network. Article 2(1)(a) and Article 10 of the RJAT grant arbitral tribunals competence to review tax assessment acts, including IMI. The environmental classification (REN, Natura 2000) is relevant to the substantive question of correct tax classification but does not affect the tribunal's jurisdiction to review the tax assessment act itself.
How can a taxpayer challenge IMI tax assessments through the Portuguese tax arbitration system (RJAT)?
A taxpayer can challenge IMI assessments through tax arbitration by: (1) requesting an official review (revisão oficiosa) from the Tax Authority within the legal deadline; (2) if the review is denied or implicitly dismissed, submitting a request for constitution of an arbitral tribunal pursuant to Articles 10 et seq. of Decree-Law 10/2011 (RJAT); (3) specifying grounds for illegality and relief sought; (4) upon tribunal constitution, the Tax Authority is summoned to reply; and (5) the tribunal issues a binding arbitral decision. Taxpayers can challenge assessment acts based on errors in underlying property classification without first challenging the property registration entry itself.
What are the legal consequences of land being included in both the REN and Rede Natura 2000 for IMI valuation purposes?
Land included in both REN and Natura 2000 network faces strict construction prohibitions under environmental law that affect IMI classification and valuation. If construction is legally prohibited under Article 20 of Decree-Law 166/2008, the property cannot be classified as construction land under Article 6 of the Property Tax Code. Instead, it must be classified as rural property under Article 3(1), with taxable property value determined according to Articles 17 et seq. using rural property valuation criteria, typically resulting in significantly lower valuations. Environmental protection status directly impacts tax classification because land legally unfit for construction cannot be taxed as developable construction land.
Is a taxpayer entitled to a refund with compensatory interest after annulment of unlawful IMI tax assessments in Portugal?
Yes, when IMI tax assessments are declared illegal and annulled, the taxpayer is entitled to a full refund of amounts improperly paid, plus compensatory interest (juros indemnizatórios) until complete reimbursement. This follows the general principle that annulment of unlawful tax acts requires restitution to restore the taxpayer to the position they would have occupied had the illegal act not occurred. Compensatory interest compensates for the State's wrongful retention of funds not legally due, running from the date of improper payment until actual refund, calculated according to rates established in tax legislation.