Process: 521/2018-T

Date: March 4, 2019

Tax Type: Outros

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 521/2018-T) addresses whether AIMI (Additional Municipal Property Tax) applies to construction land designated for non-residential purposes. The claimant, A... Lda., a real estate development company, challenged AIMI assessment no. 2018... issued on June 30, 2018, for an urban property classified as 'land for construction' in Vila Nova de Gaia. The property, originating from a 1990 subdivision permit and subsequent amendments, was explicitly designated for mixed-use development including equipment, services, commerce, and parking—not residential housing. The claimant argued the assessment was vitiated by error in legal assumptions and misqualification of the taxable event, contending AIMI should not apply to non-residential construction land. The company paid the tax in full on September 28, 2018, before filing the arbitration request on October 22, 2018, seeking annulment and reimbursement with compensatory interest under Article 43 of the General Tax Law. The Tax Authority (AT) defended the assessment, arguing AIMI applies to all urban properties meeting Article 135-B criteria of the IMI Code, based on objective reality rather than potential use. The arbitral tribunal, constituted on January 3, 2019, found itself properly competent under the Legal Framework for Arbitration in Tax Matters (RJAT). The case raises fundamental questions about AIMI's scope regarding non-residential construction land and the proper interpretation of property classification for tax purposes under Portuguese law.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. On 22 October 2018, A..., Lda., NIPC..., with registered office at ..., no. ..., in Lisbon (hereinafter Claimant), filed a request for constitution of an arbitral tribunal, under the combined provisions of articles 2, no. 1, paragraph a), and 10, no. 1, paragraph a), and no. 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters (hereinafter, abbreviated as LFATM), as amended by article 228 of Law no. 66-B/2012, of 31 December, with a view to this tribunal's pronouncement regarding:

  • Assessment of the legality of the tax act for assessment of the Additional Municipal Property Tax (AIMI) no. 2018..., of 30 June 2018, with the consequent annulment thereof.

  • Condemnation of the Claimant to return to the Claimant the tax paid, plus compensatory interest owed under article 43 of the General Tax Law (LGT).

The Claimant attached 6 (six) documents.

The Respondent is AT – Tax and Customs Authority (hereinafter, Respondent or AT).

  1. In essence, the Claimant alleges that:

The assessment of AIMI is vitiated by illegality, namely due to error in the assumptions of law, or error in the qualification of the tax fact, in that it disregarded the situation of the property in question being a land for construction intended or assigned "(...) to the implementation of mixed-type building for equipment/services/commerce and parking" and not intended for housing.

It further invokes, in support of its defence, the arbitral decisions issued in cases no. 668/2017-T, no. 675/2017-T, no. 681/2017-T and no. 668/2017-T.

  1. The request for constitution of an arbitral tribunal was accepted by the President of CAAD and followed its normal procedure with notification to AT, on 29 October 2018.

  2. The Claimant did not proceed with the appointment of an arbitrator, and therefore, under the provisions of article 6, no. 2, paragraph a) and article 11, no. 1, paragraph a) of the LFATM, the President of the Deontological Board of CAAD appointed the undersigned as arbitrator of the Arbitral Tribunal, who communicated acceptance of the appointment within the applicable period.

4.1. On 12 December 2018, the Parties were notified of this appointment and did not manifest any intention to refuse the appointment of the arbitrators, under the combined terms of article 11, no. 1, paragraphs b) and c), of the LFATM and articles 6 and 7 of the Deontological Code of CAAD.

4.2. Thus, in accordance with the provisions of article 11, no. 1, paragraph c) of the LFATM, the Arbitral Tribunal was constituted on 3 January 2019.

  1. On 4 February 2019, the Respondent, duly notified for that purpose, filed its Reply in which it specifically contested the arguments raised by the Claimant, concluding for the dismissal of the present action.

5.1. In essence and also briefly, it is important to note the most relevant arguments on which the Respondent based its Reply, namely:

The act of additional assessment of IMI relating to land for construction, with allocation for "commerce and services", is not vitiated by any error of qualification, either of fact or of law.

In sum, AIMI applies to real estate assets that have the characteristics indicated in article 135-B of the IMI Code, that is, subjecting any and all entity that holds real rights over urban properties in accordance with the objective reality and not merely potential reality at the moment of the verification of the tax act.

5.2. The Respondent did not request production of evidence.

  1. By order of 5 February 2019, the Parties were notified of the Arbitral Tribunal's decision to dispense with the holding of the meeting referred to in article 18 of the LFATM, with 6 March 2019 being set as the deadline for the delivery of the arbitral decision.

  2. On 7 February 2019, the Claimant informed the Arbitral Tribunal that it did not intend to present any further submissions.

II. PRELIMINARY EXAMINATION

The Arbitral Tribunal was regularly constituted and is competent ratione materiae, given the nature of the subject matter of the case (see articles 2, no. 1, paragraph a) and 5 of the LFATM).

The request for arbitral pronouncement is timely, being filed within the period provided for in article 10, no. 1, paragraph a), of the LFATM.

The parties have legal capacity and standing, have legitimacy and are properly represented (see articles 4 and 10, no. 2 of the LFATM and article 1 of Ordinance no. 112-A/2011, of 22 March).

The case does not suffer from nullities, and no exceptions or preliminary issues have been raised that would prevent the merits from being decided and which must be addressed.

III. REASONING

III.1. FACTS

§1. ESTABLISHED FACTS

The following facts are established:

a) The Claimant has as its corporate purpose, among others, real estate investments, namely the purchase of properties for resale, from urban properties to already urbanised or to be urbanised land, purchase and sale of real estate, planning and development of the respective urbanisations and constructions, their commercialisation and exploitation; management of properties, owned or otherwise, as well as all spaces of which the company is, or may become, owner, tenant or concessionaire;

b) The Claimant has as its main activity developed and registered in the register, "real estate development (development of building projects)" – CAE 41100, and as secondary activities "purchase and sale of real estate" – CAE 68100, and "leasing of real estate" – CAE 68200;

c) The Claimant is the legitimate owner of the urban property of the type "land for construction" denominated as Lot ..., registered in the urban property matrix of the Union of Parishes of ... and ..., municipality of Vila Nova de Gaia, under the matrix article ...;

d) The urban property in question originated from the Subdivision Permit no. .../90, issued on 18 October 1990 by the Municipal Chamber of Vila Nova de Gaia, and its Amendments, the 1st Amendment of 25 July 2005 and the 2nd Amendment of 4 October 2005, as being intended or assigned "(...) to the implementation of mixed-type building for equipment/services/commerce and parking";

e) The urban property in question was assessed by the Respondent, on 22 January 2007, having been assessed therein and expressly considered of the type "land for construction" with the application of the allocation coefficient "services";

f) The Respondent notified the Claimant, on 30 June 2018, of the Assessment of AIMI on the urban property in question, relating to the year 2018;

g) The Claimant made payment, on 28 September 2018, of the assessment in question, in full;

h) The Claimant filed, on 22 October 2018, the present request for arbitral pronouncement.

§2. UNESTABLISHED FACTS

With relevance for the assessment and decision of the case, no unestablished facts result.

§3. MOTIVATION OF THE FACTUAL MATTER

The facts relevant for the judgment of the case were chosen and delineated in accordance with their legal relevance, in light of the plausible solutions to the legal questions, in accordance with the combined application of articles 123, no. 2, of the CPPT, 596, no. 1 and 607, no. 3, of the Code of Civil Procedure (CCP), applicable ex vi article 29, no. 1, paragraphs a) and e), of the LFATM.

Regarding the proven factual matter, the Tribunal's conviction was based on the facts articulated by the Parties, whose correspondence to reality was not contested and, therefore, admitted by agreement, in the critical analysis of the documentary evidence in the record, including the administrative file.

III.2. LAW

AIMI, created by article 219 of Law no. 42/2016, of 28 December, which approved the State Budget for 2017, through the addition to the IMI Code of articles 135-A to 135-K, emerges as a special taxation of high-value real estate assets intended to ensure the financing of Social Security.

Article 1, no. 2 of the IMI Code was amended by Law no. 114/2017, of 29 December, which approved the State Budget for the year 2018, now reading as follows:

"The additional municipal property tax, deducted from collection fees and the provision of deductions from the personal income tax (IRS) and corporate income tax (IRC) collections, constitutes revenue of the Social Security Financial Stabilisation Fund."

In the Report of the State Budget for the year 2018, the following is stated:

"[...]

The allocation of progressive taxation of real estate assets to the Social Security Financial Stabilisation Fund corresponds to the objective of the government programme to broaden the financing base of Social Security, while at the same time introducing a tax that falls on those holding larger real estate assets, strengthening the overall progressivity of the system. (...)

Progressive taxation of real estate assets

The additional municipal property tax introduces into the taxation of real estate a progressive element of personal basis, taxing larger assets more highly, with a marginal rate of 0.3% applied to assets exceeding €600,000 per taxpayer."

To avoid the impact of this tax on economic activity, exemption is provided for rural, mixed, industrial properties and those dedicated to tourist activity, while also allowing companies an exemption for properties dedicated to their productive activity up to €600,000. The possibility of deducting from the collection the amount of tax paid relating to property income constitutes an additional incentive to lease and productive use of the real estate.

This tax replaces the previous 1% stamp tax on the value of real estate above 1 million euros. With a much lower rate (0.3%) it is also fairer in that it takes into account the overall value of the real estate portfolio and not, in isolation, the value of each property."

As stated in arbitral decision no. 420/2018-T, of 15 January 2018:

"What the legislator intended with the Additional IMI was to create another avenue for subsidising the social security system, which is one of the constitutional duties of the State, provided for in article 63, no. 2, of the CRP. (...)

The essence of the principle of diversification of sources of financing of Social Security consists in the broadening of the bases for obtaining financial resources, with a view, in particular, to the reduction of non-salary labour costs (article 79 of Law no. 17/2000, article 108 of Law no. 32/2002, and article 88 of Law no. 4/2007, of 16 January), which may explain why the new AIMI taxation is not applied to legal entities holding properties intended for commercial, industrial and service activities, as the holding of properties of these types by legal entities is normally associated with the exercise of these activities, with the corresponding payment of contributions to Social Security, as employing entities [article 92, paragraph b), of Law no. 4/2007, and articles 3, paragraph a), and 14, paragraph a), of Decree-Law no. 367/2007, of 2 November].

From this perspective, in which the legislator, lacking funding for Social Security, privileges the role of tax collector over concern with the balance of business taxation, some foundation may be found to distinguish between the holding of real estate assets by persons who, presumptively, will conduct activities connected to Social Security financing (who will already contribute to that financing) and the holding of properties not intended for these activities, whose holders, tendentially, will not be associated in the same way with that financing, at least not with the same intensity.

For the foregoing reasons, it will not be completely devoid of objective and rational explanation the creation of a special taxation of high-value real estate assets intended to ensure the financing of Social Security limited to real estate assets that will not already be tendentially connected with that financing.

On the other hand, the creation of AIMI, as a complementary tax on real estate assets, which aimed to introduce into taxation "a progressive element of personal basis, taxing larger assets more highly", is consistent with the objective that the taxation of assets should contribute to equality among citizens, affirmed in no. 3 of article 104 of the CRP, as progressivity has as its corollary, tendentially, to impose greater taxation on those with greater capacity to pay."

AIMI, as special taxation of high-value real estate assets intended to ensure the financing of Social Security, applies "to the sum of the tax-assessed values of urban properties situated in Portuguese territory of which the taxpayer is the holder". [see no. 1 of article 135-B of the IMI Code].

Similarly to the regime of the Municipal Property Tax (IMI), the taxpayers subject to the Additional IMI are the owners, usufructuaries or superficiaries of the respective properties, regardless of their quality as natural or legal persons, equating to these "any structures or centres of collective interests without legal personality that appear in the tax registers as taxpayers of the municipal property tax, as well as the undivided estate represented by the head of household", (see no. 1 and no. 2 of article 135-A of the IMI Code).

Insofar as the modelling of the amount payable abstracts from the economic dimension of the entities, in particular the classification as small, medium or large enterprise, as well as in that it does not affect the totality of the net assets of the entities, it may be affirmed that, insofar as AIMI applies to urban properties of which legal entities and equivalent structures are owners, usufructuaries or superficiaries, it assumes the nature of a real tax. (see no. 2 of article 135-A of the IMI Code).

As correctly stated by doctrine:

"Thus, with respect to legal entities, AIMI is not intended, in fact, to tax entities with higher wealth indices, because all tax-assessed values of the properties subject to it are taxed, without minimum limit or any deduction.

Also, for that reason, AIMI that applies to legal entities comes closer to a general tax on real estate assets." (JOSÉ MARIA PIRES, The Additional IMI and Personal Taxation of Assets, Almedina, 2017, p. 42).

Unlike what was primarily intended with item 28.1 of the General Stamp Tax Table, the intention is not to impose a burden on the taxation of luxury properties, as high-value real estate assets may be composed of a plurality of properties of low value.

Explicitly excluded from the objective incidence of AIMI are urban properties classified as "commercial, industrial or for services" and "others". [see paragraphs b) and d) of no. 1 and no. 2 of article 6 of the IMI Code].

Therefore, subject to AIMI are properties dedicated to "housing" and "land for construction" as defined in the said article 6 of the IMI Code.

Having thus established the applicable legal framework, it is now necessary to draw the simple and elementary conclusion that the law clearly and unequivocally establishes the incidence of the tax on "land for construction", and this regardless of the potential allocation that may fall to these, since they do not appear in the negative delimitation of incidence.

That is, the legislator did not establish the removal of the tax incidence norm from land for construction for reasons related to its potential allocation.

Moreover, already in the context of IMI, the case law of the higher courts has come to understand that:

"In determining the tax-assessed value of land for construction, there is no place for consideration of the allocation coefficients (ca) and quality and comfort (cq) identified above."

In this sense, see the Decisions of the STA, 18/11/2009, rec. 765/09, 20/4/2016, rec. 824/15, Decisions of the TCA SOUTH, 9/02/2017, proc. 5366/12, Proc. no. 907/07.9, of 11/16/2017, with the latter referring to the following:

"(...)

  1. The regime for assessing the tax-assessed value of land for construction is enshrined in art. 45 of the IMI Code. The assessment model is the same as that for constructed buildings, although starting from the building to be constructed, taking as a basis the respective project. The value of the land for construction corresponds, fundamentally, to a legal expectation, embodied in a right to construct thereon a property with certain characteristics and a certain value.

It will be this expectation of production of wealth materialised in a property to be constructed that increases the value of the assets and the wealth of the owner of the land for construction, once the property in question comes to be considered as land for construction. For that reason, the greater the value of the property to be constructed, the greater the value of the land for construction underlying it (see art. 6, no. 3, of the IMI Code).

  1. In determining the tax-assessed value of land for construction, there is no place for consideration of the allocation coefficients (ca) and quality and comfort (cq) identified above.

  2. The location coefficient is also not applicable in the formula for assessing land for construction, in accordance with its definition contained in the same art. 42 of the IMI Code. This means that in determining the tax-assessed value of land for construction there is no application of the mathematical formula enshrined in art. 38 of the same statute."

As it emerges from the foregoing, given that the law refers, without further ado, to article 6 of the IMI Code, and because it does not expressly appear in the norm of negative delimitation of incidence, it is unequivocally concluded that the subjection of land for construction and properties classified as housing to the norm of incidence of AIMI is effected regardless of their potential allocation.

This, therefore, is the framework in which the legislator moved when outlining the configuration of the subjective and objective scope of incidence of AIMI.

The legislator's options were equally guided by the need to mitigate the impact of this taxation on the exercise of business activities in general, through the exclusion of urban properties with industrial, commercial and service purposes, and "others", with the purpose of not placing a fiscal burden on the competitiveness of enterprises, particularly in international markets.

Nevertheless, despite having excluded from incidence urban properties classified as "industrial, commercial or for services" and "others", the legislator expressly chose to maintain other properties that also form part of the assets of enterprises, such as those classified as housing or land for construction, by not including them in the negative delimitation provided.

That is, it did not guarantee, nor did it intend to guarantee, in all cases, that "real estate assets dedicated to the exercise of any economic activity" would not be affected.

As stated in the recent arbitral decision no. 420/2018-T, of 15 January 2018, whose reasoning is adhered to and entirely endorsed:

"The wording of article 135-B of the IMI Code as approved does not remove the incidence of AIMI from properties dedicated to housing and land for construction used by legal entities in the course of their economic activity.

The legislative concern to 'avoid the impact of this tax on economic activity' was announced in the Bill for the State Budget for 2017 and was to some extent implemented through the exclusion from the scope of incidence of 'urban properties classified as "industrial", as well as urban properties licensed for tourist activity, these latter provided that their intended destination is duly declared and proven' and the deduction from the taxable amount of €600,000.00, when the taxpayer is a legal entity with agricultural, industrial or commercial activity, for properties directly dedicated to its operation'.

However, it was not on the basis of the activity to which the properties are dedicated that the exclusion of incidence was defined, as in the wording that was approved, the exclusion of incidence was defined only on the basis of the types of properties indicated in article 6 of the IMI Code, without any reference to the dedication to the operation of legal entities.

These are distinct concepts: the dedication of a property, which presupposes a use, and the purpose for which it is destined, the "normal destination", underlying the classifications of properties referred to in no. 2 of article 6 of the IMI Code.

If the final wording of the Budget had maintained the legislative intention of excluding incidence on properties directly dedicated to the operation of legal entities, it would certainly have retained the reference to this dedication that appeared in the proposal and that clearly expressed this legislative option.

Thus, having deleted this reference to the dedication of properties, there is no legal basis for concluding that residential properties and land for construction dedicated to the activity of legal entities are not subject to AIMI incidence.

Therefore, it is to be concluded that the dedication of properties to the economic activities of legal entities does not exclude taxation in AIMI (except in cases where these are properties that previously were exempt or not subject to IMI taxation, which are not taken into account for AIMI purposes, under no. 3 of article 135-B of the IMI Code).

The holding of high-value real estate assets, regardless of whether or not they are dedicated to economic activity, tends to reveal high capacity to pay, superior to that which is to be presumed to exist when lower-value assets are held or when they do not exist, and therefore, in principle, there is justification for limiting taxation to the first-mentioned situations.

However, the reasons underlying the distinction, for AIMI taxation purposes, between the tax-assessed values of properties classified as housing or land for construction (regardless of their actual dedication to those purposes) and those of urban properties with other classifications, in light of article 6 of the IMI Code, do not result explicitly from the Report of the 2017 Budget nor from its parliamentary discussion."

Thus, having deleted this reference to the dedication of properties in the final text of the law, it clearly reveals the intent of the legislator to remove any relevance from it for the purpose of excluding taxation.

In this delimitation of the real incidence, it is clear that the criterion adopted is intended to be universally objective, inducing greater uniformity and equality in the treatment of the properties subject to taxation, to the detriment of other criteria that would require case-by-case verifications of the actual intended purpose of the properties.

Since in the final approved version now in effect, the delimitation of incidence and exclusion of incidence was expressly established only on the basis of the types of properties indicated in article 6 of the IMI Code, it is therefore necessary to respect the legislator's option!

In the absence of other elements, "the interpreter must opt in principle for that meaning which best and most directly corresponds to the natural meaning of the verbal expressions used, and in particular to their technical-legal meaning, in the assumption that the legislator knew how to express his thought correctly."

It is further added that there is no reason to conclude that the legislator did not know how to express his thought in adequate terms, as must be presumed, by force of the provisions of article 9, no. 3, of the Civil Code, on the contrary, the question was duly considered and was abandoned in the final wording.

Thus, it is not to be seen that the act of additional IMI assessment relating to land for construction, with allocation for "commerce and services", is not vitiated by any error of qualification, either of fact or of law.

In conclusion, AIMI applies to real estate assets that have the characteristics indicated in article 135-B of the IMI Code, that is, subjecting any and all entity that holds real rights over urban properties in accordance with the objective reality and not merely potential reality at the moment of the verification of the tax act.

Given that it is not to be held that the request for arbitral pronouncement has merit, it cannot be concluded that there are undue payments and, consequently, neither the annulment of the assessment nor the refund of the amount paid nor the payment of compensatory interest is justified, under article 43, no. 1, of the General Tax Law (LGT).

IV. DECISION

For these reasons, it is decided:

a) To hold the arbitral request wholly without merit;

b) To absolve AT from all claims.

VALUE OF THE CASE

In accordance with the provisions of articles 306, no. 2, of the CCP ex vi article 29, no. 1, paragraph e), of the LFATM, 97-A, no. 1, paragraph a), of the CPPT ex vi article 29, no. 1, paragraph a), of the LFATM and 3, no. 2, of the Regulations of Costs in Tax Arbitration Proceedings, the value of the case is fixed at €6,055.13 (six thousand and fifty-five euros and thirteen cents).

COSTS

Under the provisions of articles 12, no. 2, and 22, no. 4, of the LFATM, 4, no. 4, and in Table I attached to the Regulations of Costs in Tax Arbitration Proceedings and article 527, nos. 1 and 2, of the CCP ex vi article 29, no. 1, paragraph e), of the LFATM, the amount of costs is fixed at €612.00 (six hundred and twelve euros), to be borne by the Claimant.

Lisbon, 4 March 2019.

The Arbitrator,

(Hélder Faustino)

Frequently Asked Questions

Automatically Created

Is AIMI (Additional Municipal Property Tax) applicable to construction land not intended for residential housing?
Based on this arbitral decision, the applicability of AIMI to construction land not intended for residential housing depends on how the property is classified and assessed. The Tax Authority's position is that AIMI applies to all urban properties meeting the criteria in Article 135-B of the IMI Code, regardless of their specific allocation. However, the claimant argued that construction land designated exclusively for mixed-use non-residential purposes (services, commerce, equipment, and parking) should be exempt from AIMI, as the tax was primarily designed for high-value residential real estate. The property in question had been officially assessed as 'land for construction' with a 'services' allocation coefficient since 2007, based on subdivision permits explicitly excluding residential use.
What constitutes a valid legal basis for challenging an AIMI tax assessment on construction land in Portugal?
A company can request annulment of an AIMI assessment on mixed-use property classified as construction land by filing an arbitration request with CAAD within the legal deadline established in Article 10(1)(a) of the RJAT. Valid legal grounds include: (1) error in legal assumptions (erro sobre os pressupostos de direito), arguing that AIMI legislation does not cover non-residential construction land; (2) error in qualification of the taxable event (erro na qualificação do facto tributário), contending the property was incorrectly classified as subject to AIMI; and (3) citing the property's official allocation as established in subdivision permits and tax assessments showing non-residential designation. The company must demonstrate that the property's legal nature and intended use exclude it from AIMI's scope, supported by administrative documentation such as municipal permits and prior tax assessments confirming the non-residential classification.
Can a company request annulment of an AIMI assessment if the property is classified as mixed-use (services, commerce, parking)?
The CAAD arbitral tribunal procedure for disputing AIMI tax liquidation follows these steps: (1) File a request for constitution of an arbitral tribunal under Articles 2(1)(a) and 10 of Decree-Law 10/2011 (RJAT); (2) If the claimant doesn't appoint an arbitrator, the President of CAAD's Deontological Board appoints one under Article 6(2)(a) and 11(1)(a) of RJAT; (3) Parties are notified of the appointment and may refuse within the statutory period (Articles 11(1)(b-c) RJAT); (4) The tribunal is formally constituted, typically within 2-3 months of the initial request; (5) The Tax Authority files its reply contesting the claimant's arguments; (6) The tribunal may dispense with an oral hearing under Article 18 RJAT if appropriate; (7) A decision deadline is established; (8) The tribunal issues a reasoned arbitral decision addressing competence, facts, and legal merits. Taxpayers are entitled to compensatory interest under Article 43 of the General Tax Law if AIMI is found to be unlawfully charged and was paid before the decision.