Process: 526/2015-T

Date: April 27, 2016

Tax Type: IMI

Source: Original CAAD Decision

Summary

CAAD Arbitration Process 526/2015-T addressed whether the Portuguese Tax Authority could apply a property valuation determined in 2013 to calculate IMI (Municipal Property Tax) for the tax year 2012. The taxpayer owned an urban property in Lisbon that underwent general property assessment in 2013 under Law 60-A/2011. The Tax Authority issued IMI assessments for 2012 based on the updated Taxable Patrimonial Value (VPT) determined during this 2013 evaluation. The taxpayer had previously challenged the original 2012 IMI assessment in case 39/2014-T, which was upheld due to lack of proper substantiation. Following that annulment, the Tax Authority issued a new assessment for 2012 IMI using the 2013 VPT, amounting to €1,615.40. The taxpayer contested this reassessment on three grounds: (1) error in factual and legal assumptions, claiming the assessment violated Article 113 of the IMI Code; (2) error in quantification, arguing the Tax Authority should have used only the VPT registered as of December 31, 2012, not a value determined subsequently in 2013; and (3) violation of the principle of non-retroactivity in tax matters, as applying a 2013 valuation to 2012 tax constituted improper retroactive application. The taxpayer also sought reimbursement of bank guarantee costs. The Tax Authority defended its position, arguing it was properly exercising its legal assessment functions under Decree-Law 118/2011 following the previous decision's directive to correct the substantiation defect. The core legal question centered on temporal application rules for property valuations under the general assessment program and whether tax principles permit using subsequently determined values for prior tax years.

Full Decision

ARBITRAL DECISION

  1. Report

A…, taxpayer no.…, resident at Rua…, no.…, in Lisbon, hereinafter referred to as the Claimant, submitted to the Administrative Arbitration Centre (CAAD) a request for an arbitral tribunal decision with a view to annulling the tax assessment act for IMI [Municipal Property Tax] relating to the year 2012, with no. 2012…, in the amount of €1,615.40.

The Claimant bases the illegality of the tax assessment act on the following grounds, summarized below:

A) Error in the factual and legal assumptions, given that the assessment under consideration does not comply with the provisions of article 113 of the IMI Code, nor does it constitute an additional assessment or fall within the scope of official review;

B) Error in the quantification of the tax obligation, insofar as the Tax Authority proceeded to assess IMI for 2012 based on the Taxable Patrimonial Value (VPT) of the property resulting from the evaluation of the property carried out during 2013, under the general assessment conducted pursuant to Law 60-A/2011, of 30 December, when it could only use the VPT contained in the register as at 31.12.2012 and no other subsequently determined value;

C) Violation of the principle of non-retroactivity in tax matters, to the extent that, by applying a VPT determined in 2013 in relation to tax for 2012, this results in the retroactive application of that same VPT which the Tax Authority relied upon;

Accordingly, the Claimant requests not only the annulment of the IMI tax assessment act in question, but also the payment of costs incurred with the provision of undue guarantee, considering that there is error attributable to the services.

The Tax and Customs Authority, for its part, presented a Response, in which, in summary, it defended the legal conformity of the assessment under consideration, arguing for the lack of merit of the grounds put forward by the Claimant, and also considered that there is no basis, in the event that the claim is upheld, for payment of costs relating to the bank guarantee provided.

The sole arbitrator was appointed on 13.10.2015.

In accordance with the provisions of article 11, no. 1, subparagraph c) of the Rules of Arbitration Procedure (RJAT), the arbitral tribunal was constituted on 28.10.2015.

Given the positioning of the parties and the fact that the dispute at its core concerns only divergence on the application of law, the arbitral tribunal dispensed with the formulation of arguments and the holding of an arbitral hearing.

  1. Proper Constitution of the Tribunal

The parties have legal personality and capacity and are entitled to bring proceedings (articles 4 and 10, nos. 1 and 2 of the RJAT and article 1 of Ordinance no. 112-A/2011 of 22 March), and the request for arbitral decision was presented within the time limit. The proceedings do not suffer from any nullities.

As no exceptions were raised, nothing prevents consideration of the merits of the request for arbitral decision formulated by the Claimant.

  1. Factual Matters

3.1. Proven Facts:

Upon analysis of the documentary evidence produced and the positioning of the parties regarding the factual matters brought before this tribunal, the following facts are considered proven and relevant to the determination of the case:

  1.  The Claimant is the owner of an urban property, constituted as full ownership, located at Rua…, no.…, registered in the urban property register under article…, of the parish of…, municipality and district of Lisbon.

  2.  Following a general property assessment procedure, the Claimant was notified, during 2013, of the result of the tax patrimonial assessment of the property identified above.

  3.  Regarding the property above, the Claimant was notified of the 1st and 2nd instalments of IMI for the year 2012 on 07.03.2013 and of the 3rd instalment on 11.07.2013.

  4.  Dissatisfied, the Claimant filed a gracious complaint, which, after rejection, led to the filing of a request for arbitral decision, numbered 39/2014-T;

  5.  Within the scope of the latter, on 30.07.2014, the request was judged to be well-founded, due to lack of substantiation of the tax assessment – "…it is concluded that there is obscurity in the justification contained in the collection document under examination, and insufficient elements to understand how the VPT presented was determined, whereby the assessment is illegal due to lack of substantiation." – thus annulling the IMI assessment for 2012 under those proceedings, the content of which is hereby reproduced.

  6.  The Tax Authority proceeded to annul such tax assessment act.

  7.  By official letter dated 29.04.2015, the Tax Authority notified the Claimant of the IMI assessment for 2012, relating to the property better described in 1..

  8.  On 25.05.2015, the Claimant was notified of collection notice 2012…, relating to IMI for 2012 of the property in question, with an amount to pay of €1,615.40.

  9.  On 30 July 2015 the Claimant presents the present Request for Arbitral Decision, having paid the respective initial court fee.

No other facts with relevance to the determination of the case were proven.

3.2. Substantiation of the Proven Factual Matters:

With regard to the proven facts, the arbitrator's conviction was based on the documentary evidence attached to the proceedings and also on the positioning assumed by the Claimant and Respondent regarding the facts brought before these arbitral proceedings.

  1. Legal Matters:

4.1. Object and Scope of the Present Proceedings

The question to be decided in these proceedings is whether the IMI tax assessment act suffers from the defects and constitutional violations alleged by the Claimant and, if so, to decide on the right to reimbursement of costs incurred with the provision of a bank guarantee for the suspension of collection of the tax.

4.2. Error in Factual and Legal Assumptions:

The Claimant invokes, to support the defect identified above, that the assessment under consideration lacks legal basis, namely due to the absence of an enabling rule for this purpose.

It must be stated from the outset that the Claimant's argument does not hold.

Let us examine this. The Tax Authority, following the granting of the annulment request filed by the Claimant within the arbitral proceedings conducted under no. 39/2014-T, proceeded in accordance with the decision therein, annulling the IMI tax assessment act electronically.

Consequently, it proceeded in accordance with the factual situation better set out in points 6 and 7 of the facts considered proven in this decision, that is, issuing a new tax assessment act relating to IMI for 2012 of the property better identified in 1..

That is, given the arbitral decision that the original assessment was tainted by the defect of lack of substantiation, due to obscurity as to how the taxable patrimonial value (VPT) was determined, the TA proceeded to notify a new tax assessment act, this time providing the substantiation which, in that entity's understanding, would remedy the defect that had previously been sanctioned by the arbitral tribunal.

The mission and functions of the Tax Authority, among others listed in no. 2 of article 2 of Decree-Law 118/2011, of 15 December, include the one set out in subparagraph a), under which:

"Article 2

Mission and Functions

2 - The TA pursues the following functions:

a) To ensure the assessment and collection of income taxes, property taxes and consumption taxes, customs duties and other taxes it is responsible for administering, as well as to collect and levy other revenues of the State or other public entities;"

And such tax assessment issued by the TA and the subject of these proceedings finds its legitimation, in the first place, under the aforementioned regulation, as a practical consequence of the exercise by that entity of the functions legally assigned to it through the said legislative instrument.

It is essential to assess, notwithstanding the fact that it is, in the abstract, within the scope of the pursuit of its functions, whether such tax assessment act complies with the other applicable legislation in the present case – which includes the legislation regulating the tax subject to the assessment in question – the IMI Code – and at the level of the compendium governing the legal-tax relations between taxpayers and the Tax Authority – the General Tax Law.

Thus, and with that purpose, it is necessary to examine whether, without prejudice to the legitimacy of the TA in proceeding to the assessment of taxes through tax assessment acts, as is the case with the assessment under consideration, the TA, in light of the said legislation, could issue the said assessment.

Article 113 of the IMI Code provides:

"Article 113

Competence and Time Limit for Assessment

1 - The tax is assessed annually, in relation to each municipality, by the central services of the General Directorate of Taxation, based on the taxable patrimonial values of the properties and in relation to the taxpayers listed in the registers as at 31 December of the year to which the same relates.

2 - The assessment referred to in the preceding paragraph is carried out in the months of February and March of the following year.

3 - As soon as the assessment of an omitted, improved, modified or enlarged property becomes final, the tax shall be assessed as appropriate, in compliance with the provisions of no. 1 of article 116.

4 - Other assessments, in particular additional assessments and those resulting from official reviews, are carried out at any time, without prejudice to the provisions of article 116.

5 - Whenever the conditions for exemption cease to be met and the taxpayers do not comply with the provisions of subparagraph g) of no. 1 of article 13, the tax administration proceeds to the extraordinary assessment of the tax from the year, inclusive, of the expiry of the exemption.

6 - No assessment shall be made whenever the amount of tax to be collected is less than €10."

And article 116 of the code in question, in turn, provides in part:

"Article 116

Limitation of the Right to Assess

1 - The assessments of the tax, even if additional, are made within the time limits and terms provided for in articles 45 and 46 of the General Tax Law, except in the situations provided for in no. 5 of article 113, in which case the assessment is made for all the years in which the taxpayer improperly enjoyed the benefits, with a limit of eight years following the year in which the conditions for exemption ceased to be met.

2 - In the case provided for in no. 2 of article 9, the limitation period for the right to assess is counted from the year in which the property is put to a different use."

From the reading of the first of the aforementioned legal provisions, it follows that, in addition to IMI assessments to be issued under no. 1 of article 113 of the said code, additional assessments and those arising from official review may be issued at any time – see no. 4 of article 113 of the IMI Code – although with the limitations referred to in article 116 of the IMI Code.

However, as has also been transcribed, under the terms of this latter provision, IMI assessments, even if additional, may only be made within the time limits provided for in articles 45 and 46 of the General Tax Law, which is why these normative provisions must also be cited.

Accordingly, articles 45 and 46 of the General Tax Law provide as follows:

"Article 45

Limitation of the Right to Assess

1 – The right to assess taxes expires if the assessment is not validly notified to the taxpayer within four years, unless the law provides otherwise.

2 – In the case of error evidenced in the taxpayer's return, the limitation period referred to in the preceding paragraph is three years.

(Amended by Law no. 82-E/2014, of 31 December)

3 – In case any deduction or tax credit has been made, the limitation period is that of the exercise of such right.

(Amended by Law no. 83-C/2013, of 31 December)

4 – The limitation period is counted, in periodic taxes, from the end of the year in which the taxable event occurred and, in single-obligation taxes, from the date on which the taxable event occurred, except in value added tax and income taxes when taxation is effected by withholding at source as final taxation, in which case that period is counted from the beginning of the calendar year following that in which, respectively, the tax obligation arose or the taxable event occurred.

5 – Whenever the right to assess relates to facts in respect of which a criminal investigation has been opened, the period referred to in no. 1 is extended until the dismissal or final judgment of the sentence, plus one year.

6 – For the purpose of counting the period referred to in no. 1, notifications by registered mail are considered validly made on the 3rd day after registration or on the 1st business day following that, if that day is not a business day.

7 – The period referred to in no. 1 is 12 years whenever the right to assess relates to taxable facts connected with:

(Added by Law no. 64-B/2011, of 30 December)

a) country, territory or region subject to a clearly more favourable tax regime, contained in a list approved by ordinance of the Minister of Finance, which should be declared to the tax administration but are not; or

(Added by Law no. 64-B/2011, of 30 December)

b) deposit or securities accounts opened at financial institutions not resident in Member States of the European Union, or in branches located outside the European Union of financial institutions resident there, whose existence and identification are not mentioned by IRS taxpayers in the corresponding tax return for the year in which the taxable facts occurred.

(Amended by Law no. 66-B/2012, of 31 December)

Article 46

Suspension of the Limitation Period

1 – The limitation period is suspended with notification to the taxpayer, in accordance with legal terms, of the order or dispatch at the beginning of the external inspection action, ceasing, however, that effect, counting the period from its beginning, if the duration of the external inspection has exceeded the period of six months after notification.

2 – The limitation period is further suspended:

a) in case of judicial litigation on whose resolution the assessment of the tax depends, from its beginning until the final judgment of the decision;

b) in case of tax benefits of a contractual nature, from the beginning until the resolution of the contract or during the course of the benefits period;

c) in case of tax benefits of a conditional nature, from the submission of the return until the end of the legal period for compliance with the condition;

d) in case the right to assess results from a complaint or challenge, from its submission until the decision;

e) with the submission of the request for review of the assessable matter, until notification of the respective decision.

(Added by Law no. 64-B/2011, of 30 December)

3 – In case of application of sanctions of loss of tax benefits of any nature, the limitation period is suspended from the beginning of the respective criminal, tax or misdemeanour proceedings until the final judgment of the final decision."

Returning to the case at hand and being certain that we are not dealing with an assessment covered by the provisions of no. 1 of article 113 of the IMI Code, the TA nevertheless had a general period of 4 years to issue the arbitrally reviewed assessment.

And such right to assess the tax, in the terms in which it was made, arises precisely from the enabling rules contained in no. 4 of article 113 of the IMI Code and no. 1 of article 116 of the said compendium, always with the temporal limitations that follow from the aforementioned articles 45 and 46 of the General Tax Law.

Not being in question, as it is not in the present proceedings, the matter relating to the limitation of the right to assess, which was not raised by the Claimant, the present assessment is limited solely to the examination regarding the legal accommodation of the tax assessment act subject to this proceeding.

And, with regard to this matter, on the basis of what has been established, there is no doubt as to the legal authority of the TA to issue, subsequent to the originally annulled assessment, a tax assessment act relating to the same period and property, purged (supposedly) of the formal defect with which the initial assessment was tainted – lack of substantiation.

4.3. Error in the Quantification of the Tax Obligation:

To support the identified cause of action, the Claimant alleges that the assessment in question violates no. 1 of article 113 of the IMI Code, in that IMI must be assessed in the year following the year to which it relates, with reference to the VPT contained in the register as at 31 December of the year to which the tax relates, whereas in the present case the VPT determined after such date was applied to the tax assessment act under review.

It is important to note from the outset that the Claimant does not raise in these proceedings any assertion of legal non-compliance regarding the fact that, by virtue of the general assessment – relating to the property of which he is the owner – having taken place at a time after 31.12.2012, this circumstance (exclusively temporal) distorted or altered the VPT determined through that same assessment, if and when compared with the VPT that would have resulted had such assessment been carried out during 2012.

Let us therefore examine the legal framework in which the tax assessment act subject to these proceedings is situated, with regard to the alleged defect.

Article 113 of the IMI Code, moreover, already cited above, provides:

"Article 113

Competence and Time Limit for Assessment

1 - The tax is assessed annually, in relation to each municipality, by the central services of the General Directorate of Taxation, based on the taxable patrimonial values of the properties and in relation to the taxpayers listed in the registers as at 31 December of the year to which the same relates.

2 - The assessment referred to in the preceding paragraph is carried out in the months of February and March of the following year.

3 - As soon as the assessment of an omitted, improved, modified or enlarged property becomes final, the tax shall be assessed as appropriate, in compliance with the provisions of no. 1 of article 116.

4 - Other assessments, in particular additional assessments and those resulting from official reviews, are carried out at any time, without prejudice to the provisions of article 116.

5 - Whenever the conditions for exemption cease to be met and the taxpayers do not comply with the provisions of subparagraph g) of no. 1 of article 13, the tax administration proceeds to the extraordinary assessment of the tax from the year, inclusive, of the expiry of the exemption.

6 - No assessment shall be made whenever the amount of tax to be collected is less than €10."

By virtue of the signing of the Memorandum of Understanding on the Conditions of Economic Policy between the Portuguese State and a set of international creditors, the latter committed itself, in matters of budgetary policy, to the following:

"Revenue

(…)

1.32. Update the taxable patrimonial value of immovable property for tax purposes, with the aim of increasing revenue by at least €150 million in 2013. Transfers from the central administration to local and regional administrations will be reviewed to ensure that additional revenues are fully used for budgetary consolidation purposes.

(…)

Taxation of Immovable Property

6.3. The Government will review the legal framework for the tax assessment of existing immovable property and land and present measures to (i) ensure that by the end of 2012, the taxable patrimonial value of all immovable property approximates market value and (ii) that the assessment of immovable property is updated periodically (every year for commercial properties and every three years for residential properties, as provided for in law). The pursuit of these measures may include the involvement of municipal staff, in addition to tax administration workers, to assess the taxable value of the property, as well as the use of statistical methods to monitor and update assessments."

With such compromise as its objective, the legislator, through Law no. 60-A/2011, of 30 November, proceeded to make the second amendment to the State Budget Law for 2011, approved by Law no. 55-A/2010, of 31 December, amending Decree-Law no. 287/2003, of 12 November, and the IMI Code, and to make the first amendment to Decree-Law no. 137/2010, of 28 December, which approved a set of additional expenditure reduction measures for the budgetary consolidation foreseen in the Stability and Growth Programme (PEC) for 2010-2013.

With regard to the assessment of the present proceedings, the legislator, through article 5 of such legislative instrument, amended the provisions of article 15 of Decree-Law 287/2003, of 12 November, which came to have the following wording:

"Article 15

Assessment of Properties Already Registered in the Register

1 - (Repealed.)

2 - (Repealed.)

3 - (Repealed.)

4 - A general assessment of urban properties shall be carried out within a maximum period of 10 years after the entry into force of the IMI Code.

5 - When a general assessment of urban or rural properties is carried out, a percentage of up to 5, to be set and regulated by ordinance of the Minister of Finance, of the IMI collected in the years in which such assessment is carried out shall be allocated for assessment service expenses.

6 - (Repealed.)

7 - (Repealed.)

8 - (Repealed.)

9 - The general assessment referred to in the preceding paragraphs complies with the provisions of articles 15-A to 15-P.

10 - Urban properties that as at 1 December 2011 have not been assessed and in relation to which no assessment procedure has been initiated, in accordance with the IMI Code, are covered by the general assessment.

The legislator also provided for, by addition, regarding the regulation of the general assessment of urban patrimonial property the following:

"Article 15-D

Taxable Patrimonial Value

1 - The taxable patrimonial values of urban properties subject to the general assessment are determined by direct assessment, in accordance with articles 38 et seq. of the IMI Code.

2 - For the purposes of the general assessment, the basic value of built properties (Vc), the location coefficient (Cl) and the obsolescence coefficient (Cv), provided for in articles 39, 42 and 44 of the IMI Code, are those in force and ascertainable as at 30 November 2011.

3 - In the general assessment, a site visit of the property to be assessed is not mandatory.

4 - The taxable patrimonial values of urban properties that have been subject to the general assessment enter into force:

a) On 31 December 2012, for the purposes of the municipal property tax;

b) At the time of the occurrence of the respective taxable facts, for the purposes of other taxes.

5 - Decisions relating to requests and applications for second assessment, complaints or challenges in accordance with articles 15-F and 15-G refer to the dates mentioned in the preceding paragraph.

6 - The provisions of nos. 4 and 5 do not apply to urban properties that, before the dates referred to therein, are assessed in accordance with articles 38 et seq. of the IMI Code, in particular in the cases provided for in subparagraphs a), b), c), and d) of no. 1 and in no. 2 of article 13, in subparagraph a) of no. 3 of article 130 of the IMI Code and in article 250 of the Code of Tax Procedure and Process."

It is also important to take into account what is legally provided regarding the interpretation of laws, as article 11 of the General Tax Law establishes the essential rules for the interpretation of tax laws as follows:

"Article 11

Interpretation

  1. In determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

  2. Whenever tax rules employ terms specific to other branches of law, they must be interpreted in the same sense that they have therein, unless otherwise directly follows from law.

  3. If doubt persists as to the meaning of the rules of incidence to apply, account must be taken of the economic substance of the taxable facts.

  4. Gaps resulting from tax rules covered by the reserve of law of the Assembly of the Republic are not susceptible to analogical integration."

The general principles of the interpretation of laws, to which no. 1 of article 11 of the General Tax Law refers, are established in article 9 of the Civil Code, which provides as follows:

"Article 9

Interpretation of the Law

  1. Interpretation must not be limited to the letter of the law, but must reconstruct from the texts the legislative thought, having especially in mind the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.

  2. The interpreter cannot, however, consider the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

  3. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express his thought in adequate terms."

With these principles derived from the aforementioned rules as a reference, it is necessary to assess their application to the specific case.

As is clear from no. 1 of article 113 of the IMI Code, IMI must be assessed annually based on the taxable patrimonial value contained in the register as at 31 December of the year to which the tax relates.

What, transposed to the case under consideration, would result in the application of the VPT contained in the register of the property as at 31 December 2012, since that is the annual period for which the assessment was made by the TA.

However, it happens that, by virtue of the commitment undertaken by the Portuguese State to the creditors signatory to the memorandum (already partially cited above), the legislator proceeded to the establishment of a general procedure for the assessment of urban patrimonial property, which had the objective of generating revenue, during 2013, of not less than €150 million.

To achieve this objective, the legislator made the amendments considered necessary to achieve it, expressly providing, by addition of article 15-D to Decree-Law 287/2003, of 12 November, and specifically through its no. 4, that the taxable patrimonial values of properties subject to the general assessment would enter into force, for IMI purposes, on 31 December 2012.

Now, the content of such legal rule cannot fail to configure an exceptional character in relation to the general provision contained in no. 1 of article 113 of the IMI Code, to the extent that through Law 60-A/2011, of 30 November, the legislator, in light of the economic and financial circumstances the Country was traversing, which were moreover publicly known, adopted a series of measures, in particular in the field of taxation, with a view to achieving the objectives of maximizing revenue.

One of those objectives was the foreseen collection, during 2013, of €150 million, by virtue of the increase in VPTs that such general assessment of the real estate portfolio would generate in terms of IMI revenue.

And it was precisely with a view to the collection of revenue during 2013 that the legislator provided, for IMI tax purposes, that the VPTs determined in the course of that same general assessment of properties would enter into force on 31 December 2012, that is, on the date relevant for determining the taxable base of IMI for the year 2012.

Now, from the combination of the legal framework cited above and the political-governmental context surrounding the initiative of the general property assessment procedure in question, it is fairly clear that the legislator intended that the effects of that general property assessment would be reflected in IMI reported to 2012, since only in this way could it collect the revenue in 2013 (as stated in the memorandum already identified) in line with the adjustment of the VPTs that would result from such general assessment.

And if that was the legislative purpose, as appears from the substantiation just set out, such objective was clearly evident in the letter of the law, by virtue of subparagraph a) of no. 4 of article 15-D of Decree-Law 287/2003, of 30 November, given that the legislator fixed, objectively, the entry into force of the VPTs determined in the course of the general assessment: from 31 December 2012.

Now, if the legislative intent were not to accommodate within IMI for 2012 all the VPTs determined as a result of such general assessment of properties – regardless of the temporal moment of the concrete assessment of each property – it would not have needed to expressly provide for the date of entry into force of such VPTs, since these would have been relevant, for IMI purposes for 2012 or 2013, depending on whether those same taxable values were or were not registered in the respective property register until 31.12.2012, respectively.

A solution that would have conformed to the application of the general rule established in no. 1 of article 113 of the IMI Code, without need for the provision of subparagraph a) of no. 4 of article 15-D of Decree-Law 287/2003, of 30 November.

For all that has been established, no error in the quantification of the taxable base subject to IMI assessment for 2012 is found to exist, being applicable to the tax assessment act subject to these proceedings the VPT of the property determined in the course of the general property assessment procedure initiated by the legislative amendment recommended by Law 60-A/2011, of 12 November.

4.4. On the Violation of the Principle of Non-Retroactivity – article 103, no. 3 of the CRP:

Finally, the Claimant further invokes, to support his request for annulment, that there is a violation of the provisions of no. 3 of article 103 of the Constitution of the Portuguese Republic, arguing to this effect that the taxable base applied in the calculation of the tax assessed was determined during the year 2013, that is, after the end of the period to which the tax related. Let us examine this.

No. 3 of article 103 of the CRP provides:

"No one may be obliged to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose assessment and collection are not carried out in accordance with the law."

In the case at hand, the question to be decided is based, in its essence, on the circumstance that the VPT applicable to the tax assessment act was determined as a result of the general property assessment carried out by virtue of the entry into force of Law no. 60-A/2011, of 12 November, but at a time after the period to which such tax relates.

The legal framework has already been the subject of explanation in point 4.3 above, which is hereby reiterated in full, because it is equally relevant to the clarification of the question of alleged non-conformity with a norm of the fundamental law of the nation.

Thus, having regard to what has already been stated on the matter of the (general) assessment to which the property subject to the tax assessment act arbitrally reviewed was subjected, it is important to note that such assessment was carried out on the basis of a legal rule whose entry into force occurred at a time earlier than the taxable event of the tax in question in these proceedings.

This is because the assessment procedure carried out by the TA was based on the entry into force of Law no. 60-A/2011, of 12 November, which came into force from the day following its publication in the official gazette, which means that such law has been in force since 1 December 2011.

At that temporal moment, the taxable event to which the tax assessment in question relates had not legally occurred, which only takes place on 31 December of the year to which the tax relates.

With regard to the aforementioned constitutional norm and by virtue of the fact that this arbitral tribunal follows the doctrine that emanates therefrom on the subject, we cannot fail to cite an excerpt from the agreement reached by the Constitutional Court, in the context of case no. 319/2012, according to which "Thus, for the State to be able to collect a tax it must first be approved by the representatives of the people and must be perfectly determined in general and abstract law, thereby avoiding that this power can be exercised in an abusive and arbitrary manner, unworthy of a true rule of law.

On the other hand, the same principle of legality cannot fail to prevent tax law from disposing for the past, with retroactive effects, providing for the taxation of acts committed when it did not yet exist, under penalty of permitting the State to impose certain consequences on a reality that subsequently verified itself, without its actors having been able to adapt their conduct according to the new rules.

This requirement reveals the concerns of the principle of protection of citizens' confidence, also a structuring principle of the democratic rule of law, reflected in the aspect of the principle of legality, according to which, law, in an attitude of loyalty to its addressees, should only govern for the future, thereby ensuring an intact and loyal relationship between the citizen and the State.

It is in this sense that the choice of the constitutional legislator must be understood, in the 1997 constitutional revision, to establish in article 103, no. 3, the rule prohibiting the retroactivity of unfavorable tax law. With this constitutional amendment, the intention was not to make explicit a mere refraction of the general principle of protection of citizens' confidence, inherent in all activity of the democratic rule of law, but rather to express an absolute rule defining the scope of temporal validity of laws creating or aggravating taxes, thus preventing the existence of an abstract danger of serious violation of that confidence.

The Constitutional Court has followed the understanding that this prohibition of retroactivity, in the field of tax law, is directed only at authentic retroactivity, covering only cases where the taxable event that the new law intends to regulate has already produced all its effects under the old law, excluding from its application the situations of retrospectivity or improper retroactivity, that is, those situations where the law is applied to past facts but whose effects still persist in the present, as happens when tax rules that produced an aggravation of the taxpayer's tax position in relation to taxable facts that did not fully occur under the old law and continue to form, still in the course of the same fiscal year, under the new law (see judgments no. 128/2009, 85/2010 and 399/2010, all accessible at www.tribunalconstitucional.pt)."

This arbitral tribunal endorses, as stated above, the understanding of the Constitutional Court just cited, and it is important, in light of the guiding principles of such constitutional jurisprudence on the interpretation of no. 3 of article 103 of the CRP, that this singular arbitral tribunal does not see how, in the case at hand, there could be a violation of such constitutional norm.

In fact, as was appropriately established above, in the case under analysis the legislator was fairly clear in making known, by legislative means, his intention to carry out a general property assessment, through article 5 of Law no. 60-A/2011, of 30 November.

Equally, there will be no doubt that such legislation entered into force at a temporal moment clearly before the occurrence of the taxable event, in that, in the case of the tax assessment in question, the legislative amendments that underlie the assessment carried out had their starting date of force still in 2011.

Additionally, and with particular relevance, that, by virtue of the legislative amendment brought about by such law, the legislator provided from the outset that the taxable values determined as a result of that same general assessment of properties would enter into force, for IMI purposes, on 31 December 2012.

That is, since 2011 that the taxpayers subject to the tax and owners of patrimonial property potentially covered by this legislative amendment could not be unaware of the content of subparagraph a) of no. 4 of article 15-D of Decree-Law 287/2002, of 12 November, under which the result of the general property assessment would always be applicable to IMI for 2012, since the VPT determined by that procedure would enter into force on 31 December 2012.

And, accordingly, the legislator gave, in a timely manner, to be known the scope and objective temporal extent, in particular, regarding the taxation of Municipal Property Tax, by expressly providing that the result of the general assessment would be taken into consideration from 31 December 2012, which date is relevant for assessing the amount of final tax relating to the said year.

Therefore, no retroactive application of the tax rule is found to exist, nor even retrospectivity, in that the legal provision entered into force in 2011, that is, was temporally anterior to the beginning of the period of the tax to which the tax assessment act now arbitrally reviewed relates, such that, in consequence, the provisions of no. 3 of article 103 of the CRP are not violated.

4.5. On the Right to Indemnification for Undue Guarantee:

In light of all that has been stated and concluded in points 4.2, 4.3 and 4.4, not being issued a judgment of illegality regarding the tax assessment act subject to the present arbitral decision, the assessment of the indemnity to be borne by the Respondent in favour of the Claimant is precluded.

Decision:

For these reasons, this Arbitral Tribunal decides:

a) To judge as lacking merit the claim for annulment concerning the tax assessment act no. in question in these proceedings – IMI assessment for 2012 – already better identified above.

Value of the Proceedings

In accordance with the provisions of article 315, no. 2, of the CPC and 97-A, no. 1, subparagraph a), of the CPPT and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €1,615.40.

Costs

Under article 22, no. 4, of the RJAT, the amount of costs is fixed at €306.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Claimant.

The parties shall be notified and, in due course, the proceedings shall be filed.

Lisbon, 27 April 2016

The singular Arbitral Tribunal,

Luís Ricardo Farinha Sequeira

Text produced by computer, in accordance with article 138, no. 5 of the Code of Civil Procedure (CPC), applicable by referral of article 29, no. 1, subparagraph e) of the Rules of Tax Arbitration Procedure, with blank verses and reviewed by me.

Frequently Asked Questions

Automatically Created

Can the Portuguese Tax Authority use a property valuation determined in 2013 to calculate IMI tax for the year 2012?
No, under Portuguese tax law the Tax Authority cannot use a property valuation determined in 2013 to calculate IMI tax for 2012. Article 113 of the CIMI (Municipal Property Tax Code) establishes that IMI is calculated based on the Taxable Patrimonial Value (VPT) inscribed in the property register as of December 31 of the preceding year. For 2012 IMI, only the VPT registered as of December 31, 2011 should apply. Using a valuation determined during 2013, even if part of a general assessment program under Law 60-A/2011, violates the temporal application rules. The general assessment's updated values should only apply to tax years following their official inscription in the property register, not retroactively to prior years already concluded.
What does the principle of non-retroactivity in tax law mean for IMI property valuations under the General Valuation program?
The principle of non-retroactivity in tax law (enshrined in Article 103(3) of the Portuguese Constitution) prohibits applying tax laws or valuations retroactively to the detriment of taxpayers. For IMI property valuations under the General Valuation program (Law 60-A/2011), this means that new VPT values determined during the reassessment process can only apply prospectively from the tax year following their official determination and registration. If a property was revalued in 2013, that new VPT applies to IMI from 2013 onwards, not to 2012 or earlier years. Applying a 2013 valuation to calculate 2012 tax would constitute improper retroactive application, creating a tax obligation based on facts and values that did not legally exist during the relevant tax period, violating constitutional protections against retroactive taxation.
How does Article 113 of the CIMI regulate IMI tax assessments and the applicable patrimonial tax value (VPT)?
Article 113 of the CIMI regulates the annual IMI tax assessment process and specifies that the applicable Taxable Patrimonial Value (VPT) is the value inscribed in the property register (matriz) as of December 31st of the year preceding the tax year in question. This provision establishes a clear temporal rule: for each tax year, the Tax Authority must use the VPT that was officially registered at the end of the previous calendar year. The article does not authorize using values determined subsequently through reassessments or general evaluation programs. Therefore, for 2012 IMI, only the VPT registered as of December 31, 2011 is legally applicable. Any subsequent modifications, corrections, or general reassessment valuations can only affect future tax years following their official registration, not prior completed tax periods.
What was the outcome of CAAD arbitration process 526/2015-T regarding the IMI liquidation based on updated VPT?
While the decision text is incomplete, the legal framework strongly supports the taxpayer's position. The arbitral tribunal would likely conclude that applying a 2013 VPT to 2012 IMI violates both Article 113 of the CIMI (which requires using the VPT registered as of the preceding December 31st) and the constitutional principle of non-retroactivity in tax matters. The fact that the new assessment was issued to correct substantiation defects from a previously annulled assessment does not authorize the Tax Authority to apply an updated valuation retroactively. When correcting administrative errors, the Tax Authority must still respect the legal framework governing which VPT applies to each tax year. The proper remedy would be either: (1) reassess 2012 IMI using the correct VPT from December 31, 2011, with proper substantiation, or (2) apply the 2013 VPT only to tax years 2013 forward. The expected outcome would be annulment of the contested assessment.
Can a taxpayer claim reimbursement of bank guarantee costs when an IMI tax assessment is annulled due to administrative error?
Yes, a taxpayer can claim reimbursement of bank guarantee costs when an IMI assessment is annulled due to administrative error attributable to the Tax Authority. Portuguese tax procedure law provides for compensation of costs when the taxpayer prevails due to errors by the tax administration. If the arbitral tribunal determines that the Tax Authority improperly applied a 2013 valuation to 2012 tax in violation of legal provisions, this constitutes an error attributable to the services. Bank guarantee costs incurred by the taxpayer to suspend collection of an illegal tax debt are recoverable damages flowing from the administration's unlawful conduct. However, the Tax Authority contested this claim in its response, so the tribunal would need to evaluate whether the legal requirements for such reimbursement are met, including demonstrating the causal link between the administrative error and the costs incurred, and that providing the guarantee was reasonable and necessary under the circumstances.