Process: 563/2016-T

Date: May 30, 2017

Tax Type: IMI

Source: Original CAAD Decision

Summary

CAAD arbitration decision 563/2016-T addresses the legality of a 200% IMI rate surcharge applied to an urban property in Guarda Municipality for 2014. The taxpayer challenged an IMI assessment of €4,464.72, arguing the 200% increase lacked legal basis, proper notification, and substantiation required under Articles 268 of the Portuguese Constitution (CRP) and 77 of the General Tax Law (LGT). The claimant filed a Reclamação Graciosa (administrative review) on April 1, 2016, which the Tax Authority dismissed, asserting it was not the proper procedural remedy and directing the taxpayer to special administrative action instead. The Tax Authority argued the arbitral tribunal lacked competence because the surcharge originated from the Municipality's classification of the property as vacant, not from the IMI assessment itself. The Authority contended the taxpayer should challenge the Municipality's decision directly. However, the arbitral tribunal rejected this position, confirming its competence under Article 2(1)(a) of RJAT, ruling that the challenge properly targets the IMI assessment act itself, regardless of underlying municipal classifications. Key procedural issues included whether the taxpayer received prior notification and the right to be heard before the surcharge was applied. The Tax Authority claimed notification occurred but provided no documentary proof, while the claimant denied receiving any communication from the Municipality. The tribunal found no evidence the taxpayer was notified for prior hearing purposes regarding the vacant property classification. This decision establishes important precedents regarding arbitral tribunal jurisdiction over IMI assessments with municipal surcharges, the adequacy of Reclamação Graciosa as a remedy for challenging rate increases, and the Tax Authority's obligation to ensure proper notification and substantiation when applying statutory surcharges to property tax assessments.

Full Decision

ARBITRAL DECISION

The Arbitrator Dr. Maria Antónia Torres, appointed by the Ethics Board of the Centre for Administrative Arbitration ("CAAD") to form the Singular Arbitral Tribunal, constituted on 2 December 2016, rules as follows:

1. REPORT

1.1. A..., Lda., taxpayer no..., with registered office at Street..., no..., ..., ..., Parish of..., Porto, requested the constitution of an arbitral tribunal, pursuant to article 2, no. 1, paragraph a), and article 10, both of Decree-law no. 10/2011, of 20 January (hereinafter "RJAT"[1]).

1.2. The request for arbitral ruling concerns the declaration of illegality, and consequent partial annulment, of the tax act of assessment of IMI, with the no. 2014..., in the amount of €4,464.72 (four thousand four hundred and sixty-four euros and seventy-two cents), in the part concerning the 200% increase in the applicable IMI rate, relating to the year 2014, better identified in the initial petition presented by the Claimant, and which is hereby taken as stated and reproduced, for all legal purposes, which concerns the urban property owned by the Claimant, located at..., Guarda, registered in the urban property register under article no....

The Claimant further requests the condemnation of the Respondent to the restitution of the amounts unduly paid and that it be recognized the right to compensatory interest on all amounts paid.

The Claimant filed an administrative review on 1 April 2016, which came to be dismissed by the Respondent, on 9 May 2016, on the ground that, since the calculation of the tax was correctly carried out, the administrative review is not the proper means of defense for the purpose that the Claimant intends to achieve, a position with which the Claimant disagrees.

1.3. To support its request, the Claimant alleges that the IMI rate relating to the property referred to above, and applicable to urban properties located in the Municipality of Guarda, contained in the IMI assessment object of this petition, was increased by 200%. Now, being unable to expressly extract from the assessment note the reason why this increase was carried out, and considering that there is no legal or factual basis for such, it understands the assessment sub judice to be illegal. The Claimant further considers that the decision to dismiss the administrative review presented by it on the ground that it would not be the proper means of defense in this case was also illegal. Now, the Claimant understands that, having not been notified of any other act in this matter other than the assessment sub judice, only from this assessment could it react, being the administrative review the proper means for that purpose. Finally, the Claimant further alleges that the act in question lacks substantiation, in this case, with respect to the 200% increase applied to the property, and that the provisions of articles 268 of the CRP and 77 of the LGT have been violated. In addition, the Claimant alleges that there has also been a violation of the principle of participation and the right to be heard due to lack of prior hearing.

1.4. The Tax Authority (AT) argues that the request sub judice should be ruled unfounded because, first and foremost, the arbitral tribunal is not competent to analyze the matter, and the Claimant should have used administrative action as the proper procedural means in this case. The AT refers that the qualification of properties as vacant for IMI purposes is the responsibility of the Municipality (which then notifies the AT), so that having the AT assessed the IMI based on that information, the tax assessment is correct, and the Claimant should, if it wishes, appeal against the decision of the municipality. Additionally, the Respondent also alleges that it should be the responsibility of the Claimant to present the supporting documents of the communications carried out by the Municipality, which the Claimant says did not occur, but which the Respondent considers that "We can safely conclude, that the now Claimant and Subject of IMI was notified to exercise the right of prior hearing...", without, however, having presented proof of that fact.

1.5. Both parties presented their arguments, successively. The meeting of the arbitral tribunal provided for in article 18 of the RJAT was dispensed with, as there was no need for additional presentation of evidence.

2. SANITATION

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal personality and capacity, are shown to be legitimate and are regularly represented (cf. articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March).

No procedural defects were identified in the case.

3. MATTER OF FACT

With relevance for the decision on the merits, the Tribunal considers the following facts proven:

1) The Claimant was, at the date of the assessment sub judice, owner of the urban property object of that same assessment, located in the Municipality of Guarda;

2) The Claimant was notified to settle IMI on the said property, at the applicable rate in the said Municipality with an increase of 200%, having made the payment of the tax;

3) The Claimant filed an administrative review on 1 April 2016, the same having been dismissed by the AT, on the ground that, given the matter in dispute, it would not be the proper means of defense, but rather a special administrative action;

Facts Not Proven

No essential facts, with relevance for the assessment of the merits of the case, which were not proven were found, except in what concerns the notification of the Claimant, either for purposes of prior hearing, or for purposes of final decision, by the Municipal Chamber of Guarda, regarding the qualification of the property as vacant.

Substantiation of the Matter of Fact

The conviction regarding the facts taken as proven was based on the evidence presented by the Claimant, whose authenticity and correspondence to reality were not questioned by the Respondent, except in the part in which the Respondent presents the conviction, but not the proof, that the Claimant will have been notified by the Municipality for purposes of prior hearing, a fact which the Claimant denies.

4. OF THE PROPER PROCEDURAL MEANS AND THE COMPETENCE OF THE ARBITRAL TRIBUNAL

The AT understands that the Claimant, by presenting the administrative review referred to above, did not use the proper procedural means for that purpose, with the AT considering that, in view of the qualification of the property by the Municipality as vacant, the calculation of the tax was correctly carried out. Therefore, the Claimant should have used a special administrative action for its defense. The AT further understands that what the Claimant intends to contest is not the IMI assessment sub judice, but rather the qualification of the property by the Municipality, and therefore considers this Tribunal to be manifestly incompetent to rule on the matter.

Now, we cannot fail to disagree with this position of the AT. Namely, see the following. The Claimant is objecting against an act of IMI assessment, better identified above, although advancing that, at the origin of that act, there may be an erroneous qualification of the property. However, its petition is, clearly, in the sense of the partial annulment of an IMI assessment act, as follows from the records.

Therefore, this exception is unfounded, given that what is discussed is the IMI assessment previously referred to, a situation perfectly framed in paragraph a) of no. 1 of article 2 of the RJAT.

5. ON THE LAW

As identified above, the issue to be decided concerns the declaration of partial illegality of the IMI assessment act for the year 2014, with respect to the application of the 200% increase applicable to the IMI rate, on the property owned by the Claimant.

First and foremost, it is true that from the IMI collection note in question, the reason for the 200% increase in the applicable rate does not appear, and yet, the Respondent points out in its answer the qualification of the property as vacant as the ground for such, a ground which the Claimant also takes to be probable.

Based on this presupposition, it is necessary to analyze the matter of the increase in the IMI rate in case of declaration of urban properties as vacant.

The legislator, in order to operationalize the provisions of no. 3 of article 112 of the CIMI, came to define the fiscal concept of vacant property and what the procedure and the prerequisites are for such qualification to occur.

A vacant property is thus considered to be an urban property which for a period of one year is found to be unoccupied, with indications of non-occupation being the absence of contracts in force with telecommunications companies, water, gas and electricity supply companies and the absence of invoicing relating to consumption of water, gas, electricity and telecommunications, without prejudice to the exceptions listed in the rule.

As regards the procedure for qualification of a property as vacant, no. 1 and no. 2 of article 4 of the applicable act states that: "The identification of urban properties or autonomous fractions that are vacant is the responsibility of the municipalities" and that "The municipalities notify the subject of IMI, for the tax address, of the draft declaration of vacant property, for this to exercise the right of prior hearing, and of the decision, in accordance with the terms and deadlines provided in the Code of Administrative Procedure.

That is, it is the responsibility of the Municipality, if the prerequisites for the declaration of a certain property as vacant are met, to initiate the above-mentioned procedure, namely by proceeding with the notification of the owner to pronounce himself. Therefore, the classification of a property as vacant, for tax purposes, cannot fail to be preceded by notification to its owner, thus ensuring that the owner may participate in the formation of the decision, exercising the right to be heard.

And, only in light of this procedure, which the law establishes as the responsibility of the Municipality, is it admitted that prior hearing by the AT is not necessary in IMI assessments of the same nature as the one being examined here.

Now, in the case in question, it is immediately disputed whether the said mandatory notifications were carried out to the Claimant. As previously mentioned, the Claimant alleges in the records that such communication did not exist, at any time, on the part of the Municipality. On the other hand, the Respondent, despite being convinced that such will have occurred, as appears from its answer, did not proceed to attach to these records any document proving those notifications to the Claimant. Now, based on no. 1 of article 74 of the General Tax Law, we cannot fail to support the understanding that it was the Respondent that had to provide such proof: "The burden of proof of the facts constitutive of the rights of the tax administration or of the taxpayers falls on whoever invokes them."

As has been understood by legal doctrine, and also in the process 136/2015 which dealt with the same matter, the local authorities are, in these cases, tax creditors, not only holders of the revenue of the tax in question but also of the power to establish rates and rate increases, without prejudice to the fact that the management of the tax is the responsibility of the AT.

Now, in the case of the IMI assessment in question, the part of the tax procedure that falls to the Municipality is determinative of the fixing of the tax rate to be applied to the property.

However, the Respondent failed to demonstrate in the records that the procedure legally established for the increase in the IMI rate to be applicable was complied with, namely through the necessary notifications to the Claimant, and therefore it is not established that the conditions for qualification of the property as vacant were met. Had it been complied with, the Respondent would have been right when it refers that a "new" right to prior hearing would not fall to it before the IMI assessment, in that the new elements of the IMI assessment would already be known and discussed with the Claimant. However, the Respondent did not provide proof that this was the case, that the Claimant had already been previously given the power to exercise the right to be heard. Therefore, it cannot be concluded that the Claimant was notified in that sense, putting into question an essential presupposition upon which the IMI assessment in question rests, for which reason it is decided in the sense of the existence of error on the legal presuppositions.

Having concluded this tribunal in this sense, the examination of the remaining defects alleged by the Claimant is prejudiced, because procedurally useless.

6. DECISION:

In these terms and with the substantiation that is hereby exposed, this arbitral tribunal rules:

1. To rule totally founded the request for declaration of partial illegality of the tax act of IMI assessment for the year 2014, on the ground of error on the legal presuppositions, annulling it in the part corresponding to the increase in the IMI rate.

2. To rule founded the request for compensatory interest petitioned by the Claimant.

* * *

The value of the case is set at Euros 4,464.72 (four thousand four hundred and sixty-four euros and seventy-two cents), in accordance with the provisions of articles 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, no. 1, paragraph a) of the CPPT and 306 of the CPC.

The amount of costs is set at Euros 612 (six hundred and twelve euros) under article 22, no. 4 of the RJAT and Table I attached to the RCPAT, charged to the Tax and Customs Authority, in accordance with the provisions of articles 12, no. 2 of the RJAT and 4, no. 4 of the RCPAT.

Let notification be made.

Lisbon, 30 May 2017

The Arbitrator

(Maria Antónia Torres)

Text prepared by computer, in accordance with article 131, no. 5 of the Code of Civil Procedure, applicable by reference of article 29, no. 1, paragraph e) of the RJAT.

The drafting of this arbitral decision is governed by the spelling prior to the Orthographic Agreement of 1990.

[1] Acronym for Legal Regime of Tax Arbitration.

Frequently Asked Questions

Automatically Created

What is the 200% IMI rate surcharge applied to urban properties and when can it be challenged?
The 200% IMI rate surcharge is typically applied to urban properties classified as vacant or in ruins by municipal authorities. Under Portuguese law, this surcharge can be challenged through arbitration proceedings under Article 2(1)(a) of RJAT when contesting the IMI assessment act itself. The CAAD tribunal confirmed that taxpayers may challenge the assessment containing the surcharge even when the underlying issue involves municipal property classification, as the proper object of contestation is the tax assessment act, not merely the administrative classification that triggered it.
Can a taxpayer file a Reclamação Graciosa to contest an IMI surcharge on the tax assessment?
Yes, a taxpayer can file a Reclamação Graciosa to contest an IMI surcharge included in a tax assessment. In this case, the Tax Authority improperly dismissed the administrative review, arguing it was not the proper procedural means and suggesting special administrative action instead. However, the arbitral tribunal disagreed with this position, finding that when a taxpayer challenges an IMI assessment act (which includes the surcharge), the Reclamação Graciosa is an appropriate preliminary administrative remedy before seeking arbitration or judicial review.
What are the legal requirements for tax assessment notification and reasoning under Articles 268 CRP and 77 LGT?
Article 268 of the Portuguese Constitution (CRP) and Article 77 of the General Tax Law (LGT) require tax assessments to contain adequate substantiation explaining the factual and legal basis for the tax calculation. The assessment notification must clearly identify why specific rates or surcharges apply. In this case, the tribunal noted the IMI collection note failed to explicitly state the reason for the 200% increase, and the Tax Authority provided no documentary evidence that the taxpayer was properly notified of the vacant property classification that triggered the surcharge, constituting a violation of mandatory substantiation requirements.
How does the right to prior hearing and the principle of contradictory apply to IMI surcharge decisions?
The right to prior hearing (audiência prévia) and the principle of contradictory are fundamental procedural guarantees in Portuguese tax law. Before applying an IMI surcharge based on vacant property classification, the Municipality must notify the taxpayer and provide opportunity to present arguments or evidence. In this decision, the tribunal found no proof that the claimant received notification for prior hearing purposes regarding the property's classification as vacant. The Tax Authority's assertion that notification occurred without supporting documentation was insufficient to satisfy the mandatory prior hearing requirement, representing a serious procedural defect.
What remedies are available to taxpayers for recovery of overpaid IMI and compensatory interest?
Taxpayers who successfully challenge an illegal IMI assessment are entitled to restitution of amounts unduly paid plus compensatory interest (juros indemnizatórios) on those amounts. The compensatory interest rate is set by law and runs from the date of payment until full refund. In this case, the claimant specifically requested both reimbursement of the overpaid tax resulting from the 200% surcharge and recognition of the right to compensatory interest on all amounts paid. These remedies ensure taxpayers are made whole when tax authorities collect taxes without proper legal basis or procedural compliance.