Process: 568/2018-T

Date: September 11, 2019

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Case 568/2018-T, decided September 11, 2019) addresses the application of AIMI (Adicional ao Imposto Municipal sobre Imóveis) to construction land with mixed-use authorization. The claimant, A... S.A., challenged an AIMI assessment of €4,077.80 for 2018 concerning urban properties in Porto designated as construction land (Lot 1, 1,215m²) with subdivision authorization for collective housing including residential units, commerce, and parking. The taxpayer argued that AIMI should not apply to construction land intended for non-residential purposes (commerce, industry, services), invoking the equality principle and citing that Article 135-B of the Property Tax Code excludes such properties from AIMI taxation. Alternatively, the claimant contended that if AIMI applied, it should only cover the residential portion, not the commercial and parking areas, meaning the patrimonial tax value (€1,019,450.00) should be apportioned accordingly. The case raises critical questions about AIMI's objective scope regarding mixed-use construction land, whether lands authorized for non-residential construction are subject to AIMI, and how to determine taxable value when construction authorization encompasses both residential and non-residential purposes. The arbitral tribunal was constituted on January 29, 2019, following the claimant's request under the Legal Regime of Arbitration in Tax Matters (LRATM). This decision provides important guidance on AIMI application to construction land with mixed authorized uses and the methodology for calculating the tax base in such scenarios.

Full Decision

ARBITRAL DECISION

Case No. 568/2018-T

Date of decision: 2019-09-11

IMI

Value of claim: € 4,077.80

Subject Matter: AIMI - Land for construction

ARBITRAL DECISION (see complete version in PDF)

I. REPORT

  1. A..., S.A., tax identification number..., with registered office at Rua ..., no...., ...-... Porto (hereinafter, the "Claimant"), came pursuant to articles 2, no. 2, letter a), 5, no. 2, 6, no. 1 and 10 et seq. of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters (hereinafter, "LRATM"), in conjunction with article 99, letter a) and article 102, no. 1, letter f) and no. 2, both of the Code of Tax Procedure and Process (hereinafter, "CTPP"), to request the constitution of an arbitral tribunal, with the intervention of a sole arbitrator, wherein the Tax and Customs Authority (hereinafter, the "Respondent" or "TA") is the respondent, with a view to declaring the illegality of the assessment act for the Additional Property Tax ("AIMI" – Adicional ao Imposto Municipal sobre Imóveis) no. 2018..., relating to the year 2018, from which results a sum to pay of €4,077.80, and, likewise, that it be determined that the Respondent be condemned to refund that amount and respective indemnity interest counted from the date of wrongful payment of the tax until the date of processing of the respective credit note.

  2. According to articles 5, no. 2, letter a) and 6, no. 1 of the LRATM, the Ethics Council of the Arbitration Centre appointed the signatory as arbitrator, who communicated acceptance of the assignment within the applicable period.

  3. The Arbitral Tribunal was constituted at CAAD, on 29 January 2019, as per communication from the President of the Ethics Council of CAAD.

  4. Duly notified, the Respondent submitted its answer on 6 March 2019.

  5. The Claimant alleges, in summary, that:

5.1. After having been notified of the assessment act for AIMI no. 2018..., in the total amount of €4,077.80, with payment deadline in the month of September 2018, it paid the assessed amount on 13 September 2018;

5.2. The assessment of AIMI relates to urban properties of which it is the owner and legitimate owner located at Rua ..., no. ... and Rua ..., nos. ... to ..., described in the Land Registry of Porto under nos. ..., ... and ..., registered in the respective urban land matrix under articles ..., ... and ... of the parish of ..., municipality of Porto;

5.3. The identified properties correspond to Lot 1, with a total area of 1215m2, pursuant to Subdivision Licence no. ALV/.../.../CMP and cert/.../.../CMP, of 10 July 2013;

5.4. The urban property resulting from this subdivision operation is described in the Land Registry of Porto under no. ... and registered in the respective urban land matrix under article ... of the parish of ..., municipality of Porto;

5.5. According to the respective subdivision licence, authorization is granted, in the lands in question, for the construction of a property intended for collective housing with the following characteristics:

5.6. For purposes of land registration, in an evaluation carried out pursuant to the relevant provisions of the Property Tax Code (hereinafter, "Property Tax Code"), and based on the building capacity and property configuration provided for in the aforementioned subdivision licence, the patrimonial value of the property was fixed by the TA at €1,019,450.00;

5.7. The AIMI came into force on 1 January 2017, having been introduced in the Property Tax Code by Law no. 42/2016, of 28 December, having, in practical terms, come to replace the taxation that had previously been in effect under stamp duty (hereinafter, "SD") on properties of high value (i.e., Patrimonial Tax Value equal to or exceeding €1,000,000), provided in item 28 of the General Table of Stamp Duty (hereinafter, "GTSD");

5.8. After a series of problems caused by the interpretation and application of item 28 of the GTSD, it was intended, albeit maintaining the principle of aggravated taxation of high-value real estate assets, to eliminate some controversies raised during the validity of that taxation;

5.9. It thus results from the combined application of the provisions of article 135-B with those of article 6, both of the Property Tax Code, that subject to AIMI are urban properties intended for residential purposes and lands for construction, as defined in article 6, no. 1, letters a) and c) of the Property Tax Code.

5.10. From the interpretation of the identified provisions, it should be understood to be covered by the exclusion effected by no. 2 of article 135-B of the Property Tax Code also lands for construction whose patrimonial tax values were determined on the basis of location coefficient types "commerce," "industry," and "services," essentially, in the same way as occurs with urban properties for commerce, industry, or services.

5.11. As stated in the arbitral decision rendered in case no. 681/2017-T, it would not be coherent not to apply AIMI to buildings intended for commerce, industry, or services and to apply it to lands intended for their construction and whose value is incorporated in the value of the buildings.

5.12. As results from the above reasoning, article 135-B of the Property Tax Code, when interpreted in the sense of including within the scope of application of AIMI the "lands for construction" with purposes of commerce, industry, services or others - is manifestly contrary to the principle of equality, constitutionally enshrined.

5.13. The land for construction in question, being also intended for commerce and parking, and not being exclusively residential, does not correspond to the legal concept of land for construction whose authorized or anticipated construction be for housing, and, consequently, is not subsumed in the norm that delimits the real scope of the tax.

5.14. Its classification under AIMI is manifestly illegal and the consequent tax assessment justifies its annulment, in accordance with article 163, no. 1 of the Code of Administrative Procedure applicable pursuant to article 2, letter c), of the General Tax Law (hereinafter, "GTL").

5.15. Even if the arguments described above were not well-founded, it would always have to be concluded that the tax would have incurred solely and exclusively on the authorized or anticipated residential purpose and never on the non-residential use, such as commerce and parking.

5.16. The Patrimonial Tax Value (hereinafter, "PTV") of the urban property contained in the matrix relevant for purposes of taxation must be achieved through the evaluation of the part with effective residential use excluding the part intended for non-residential use.

5.17. In the present case, the PTV of the property was fixed by the TA at €1,019,450.00, and fell on the residential part, but also on the part intended for parking, commerce and services, whereby the norm circumscribing the objective scope of the tax was subverted with the inherent and serious tax distortions that resulted in the present assessment.

5.18. The assessment act is, therefore, illegal since it reduces to a reality inconsistent with the normative provision supporting the taxation under AIMI, having to be corrected to reflect only the residential reality. And, therefore, it would always be necessary to conclude that, since the taxation falls on a PTV that encompasses both the evaluation of the residential part and the part intended for commerce and parking, the assessment errs in the factual and legal presuppositions and is affected by manifest illegality, since the tax demanded also fell on the non-residential part, which must determine its annulment, even if partial.

  1. The Respondent sustains, in summary, that:

6.1. The AIMI emerges as a special taxation of high-value assets intended to ensure the financing of Social Security.

6.2. Article 1, no. 2 of the Property Tax Code was amended by Law no. 114/2017, of 29 December, which approved the State Budget for the year 2018, now having the following wording: "2 - The additional property tax, deducted from collection charges and from the provision of deductions from the collection of personal income tax (IRS) and corporate income tax (IRC), constitutes revenue of the Financial Stabilization Fund of Social Security."

6.3. In the Report of that Budget it is stated that: "The allocation of progressive taxation of real estate assets to the Financial Stabilization Fund of Social Security 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 holders of larger real estate assets, reinforcing the overall progressivity of the system. (...)

Progressive taxation of real estate assets

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

To prevent the impact of this tax on economic activity, excluded from the scope are rustic properties, mixed properties, industrial properties and those used for tourism activity, also allowing companies exemption for properties used for their productive activity up to €600,000. The possibility of deduction of the amount of tax paid from the collection relating to property income constitutes an additional incentive for rental and productive use of assets. This tax replaces the previous 1% stamp duty on property value above 1 million euros. With a much lower rate (0.3%) it is also fairer because it takes into account the overall value of real estate assets and not, individually, the value of each property."

6.4. As stated in arbitral decision no. 420/2018-T, "what the legislator intended with AIMI was to create another avenue for subsidizing 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 Social Security consists in the expansion of the bases for obtaining financial resources, having in view, in particular, the reduction of non-wage labor 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 that the new AIMI taxation is not applied to legal entities holding properties intended for commercial, industrial and service activities, since 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, letter b), of Law no. 4/2007, and articles 3, letter a), and 14, letter a), of Decree-Law no. 367/2007, of 2 November].

From this perspective, in which the legislator, lacking financing for Social Security, privileges the role of tax collector over concern with the balance of business taxation, some basis can be discerned for distinguishing between the ownership of real estate assets by persons who, presumably, will carry out activities connected with the financing of Social Security (who will already contribute to that financing) and the ownership of properties not intended for those activities, whose holders, tendentially, will not be associated in the same way with that financing, at least not with the same intensity.

For what has been stated, it will not be completely devoid of objective and rational explanation the creation of special taxation of high-value assets intended to ensure the financing of Social Security limited to real estate assets that will not already tend to be 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 on a personal basis, taxing larger assets more highly," is compatible with the objective that taxation of assets should contribute to equality among citizens, affirmed in no. 3 of article 104 of the CRP, since progressivity has as its corollary, tendentially, imposing higher taxation on those with greater tax-paying capacity."

6.5. The AIMI as special taxation of high-value assets falls "on the sum of the patrimonial tax values of urban properties located in Portuguese territory of which the taxpayer is the owner" (article 135-B, no. 1 of the Property Tax Code).

6.6. Similar to IMI, the taxpayers of AIMI are the owners, usufructuaries or right holders of the respective properties, regardless of whether they are natural or legal persons, being equated to these "any structures or centers of collective interests without legal personality that appear in the matrices as taxpayers of property tax, as well as undivided estate represented by the head of household" (article 135-A, nos. 1 and 2 of the Property Tax Code).

6.7. Insofar as the modeling of the quantitative amount to be paid abstracts from the economic dimension of the entities, in particular the qualification as small, medium or large enterprise, as well as, by not reaching the totality of the net assets of the entities, it can be stated that AIMI falling on urban properties of which legal persons and equated structures are owners, usufructuaries or right holders assumes the nature of a real tax (article 135-A, no. 2 of the Property Tax Code).

6.8. Contrary to what was primarily aimed at with item 28.1 of the GTSD, it is not intended to burden the taxation of luxury properties, since high-value real estate assets may be constituted by a plurality of low-value properties.

6.9. Were expressly and exclusively excluded from the objective scope of AIMI urban properties classified as "commercial, industrial or for services" and "others" (article 6, no. 1, letters b) and d) and no. 2 of the Property Tax Code).

6.10. Thus, subject to AIMI are properties intended for "housing" and "lands for construction" as defined in article 6 of the Property Tax Code.

6.11. The law clearly and unequivocally establishes the scope of the tax on "lands for construction," and this independently of the potential intended use that may come to fall on these since they are not contained in the negative delimitation of scope.

6.12. That is, the legislator did not establish the exclusion from the scope of the tax rule of lands for construction on grounds related to their potential intended use.

6.13. Moreover, in IMI, the jurisprudence of higher courts has come to understand that "In determining the patrimonial tax value of lands for construction there is no place for the consideration of the intended use coefficients (ca) and quality and comfort coefficients (cq) identified above." (in this sense, the Decisions of the Supreme Administrative Court, of 18/11/2009, appeal no. 765/09; of 20/04/2016, appeal no. 824/15; decisions of the Central Administrative Court South, of 09/02/2017, case no. 5366/12; of 16/11/2017, case no. 907/07.9).

6.14. The fact that the law refers, without more, to article 6 of the Property Tax Code, and because it does not appear expressly in the norm of negative delimitation of scope, it is unequivocally concluded that the subjection of lands for construction and properties classified as residential to the norm delimiting the scope of AIMI is effected independently of their potential intended use, as well as the nature and specificities of their owner.

6.15. The choices of the legislator were equally guided by the need to mitigate the impact of this taxation on the exercise of business activities in general, which came about through the exclusion of urban properties with industrial, commercial and service purposes, and others.

6.16. Nevertheless, despite having excluded from the scope 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 companies, such as those classified as residential or lands for construction.

6.17. Thus, properties that form part of the assets of companies classified as residential or lands for construction are not included in the provision of negative delimitation by exclusion from the scope of application.

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

6.19. As stated in arbitral decision no. 420/2018-T, of 05/01/2018: "The wording of article 135-B of the CIMI that came to be approved does not exclude the scope of AIMI from properties intended for housing and lands for construction used by legal entities in the course of their economic activity."

6.20. 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 materialized, to some extent, through the exclusion from the scope of "urban properties classified as "industrial," as well as urban properties licensed for tourism activity, the latter provided they are duly declared and the intended use is proven" and the deduction from the taxable amount of the amount of "€600,000.00, when the taxpayer is a legal entity with agricultural, industrial or commercial activity, for properties directly used in its operation." However, it was not on the basis of the activity to which the properties are intended that the exclusion of scope came to be defined, because in the wording that came to be approved the non-scope was defined only on the basis of the types of properties indicated in article 6 of the CIMI, without any reference to the use in the operation of legal entities. These are distinct concepts: the use of a property, which presupposes a utilization, and the purpose to which it is intended, the "normal intended use," underlying the classifications of properties, to which no. 2 of article 6 of the CIMI refers. If it had been maintained, in the final wording of the Budget, the legislative intention to exclude the scope from properties directly used in the operation of legal entities, it would certainly have maintained the reference to this use that was contained in the proposal and that clearly expressed that legislative option."

6.21. Thus, given that this reference to the use of properties was deleted, there is no legal basis for concluding that residential properties and lands for construction used in the activity of legal entities do not fall within the scope of AIMI.

6.22. Since in the final version approved and in force the delimitation of the scope and exclusion from scope was expressly established only on the basis of the types of properties indicated in article 6 of the Property Tax Code, one must therefore respect the choice of the legislator!

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

6.24. It further adds 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 virtue of the provision of article 9, no. 3, of the Civil Code.

6.25. Thus, there is no illegality in the application of AIMI.

6.26. The principle of equality determines that equal treatment be given to what is necessarily equal and different treatment to what is essentially different, not preventing, however, differentiation of treatment, but only arbitrary, unreasonable discriminations.

6.27. It is important to note that truly, lands for construction are not merely instrumental to the exercise of economic activity; on the contrary, they form part of the very nucleus of economic activity, with intrinsic economic value and, normally, quotation in the real estate market, i.e., they can be sold, exchanged, given as security for obligations and obviously evidence a specific economic capacity.

6.28. Indeed, the taxation embodied in AIMI translates into a specific imposition on assets (cf. article 4, no. 1 of the GTL) and not on income.

6.29. Thus, it is well understood, then, the legislative solution of subjecting the taxation all taxpayers in consideration of the ownership of the legal situations relevant to the urban properties identified in the objective scope, independently of the legal or economic structuring that such taxpayers may possess.

6.30. Like any tax on assets, AIMI is dissociated from any realization of profit from the sale of immovable goods, as well as from the existence, or not, of negative or positive net situation, relevant, for the economy of the tax, only the patrimonial value of the lands. As for lands for construction, these do not reduce to mere construction rights, of future things, and all of them are autonomous goods which, even, by their natural scarcity, always have intrinsic economic value and, normally, quotation in the real estate market, i.e., they can be sold, exchanged, given as security for obligations.

6.31. And even if the properties taxed may prove to be instrumental to economic activity, they are apt to indicate that that legal entity is the owner of goods that, in themselves, evidence a specific affluence compared to other real estate owners.

6.32. It would only be possible to understand otherwise if the specific quality of the taxpayer and/or its nature were projected in the normative criterion under scrutiny.

6.33. Which is not, at all, as is clear to see and interpret given the letter of the Law.

6.34. The holding of high-value real estate assets, independently of whether or not they are used in economic activity, is tendentially indicative of high tax-paying capacity, obviously higher than that which is presumed to exist when lower-value assets are held or when they do not exist.

6.35. We do not see how the taxation of the Claimant's real estate assets violates the principle of tax equality merely because the ownership of immovable property constitutes the very object of its economic activity.

6.36. We do not perceive that the taxation of lands for construction, with intended use for "commerce and services," in the manner in which they are provided for in articles 135-A and 135-B of the Property Tax Code, collides with the principle of equality, justice and tax-paying capacity.

6.37. Even properties intended for commercialization do not cease to evidence, obviously, the tax-paying capacity of their owner, a capacity that is real, measurable and unquestionable independently of the intended use to which their owner wishes to give them.

6.38. The idea that properties for commercialization do not evidence manifestations of tax-paying capacity is undoubtedly an error of perception that should be dispelled.

6.39. As for the inapplicability of article 43 of the GTL, the contested acts are not affected by any defect that determines their annulment.

II. MATTER OF FACT

A.1. Facts established as proven

With relevance to the merit decision, the Tribunal considers the following factuality as proven:

  1. The urban properties located at Rua ..., no. ... and at Rua ..., nos. ... to ..., of the parish of ..., municipality of Porto, were subject to a subdivision operation, with the urban property resulting from this operation being described in the Land Registry of Porto under no.... (cf. Urban Property Booklet attached to the request for arbitral pronouncement).

  2. In the subdivision licence authorization was granted for the construction of a property intended for housing in the lands for construction in question.

  3. In the Urban Property Booklet attached to the request for arbitral pronouncement, the property with the land registration article no...., described in the Land Registry of Porto under registration no...., is identified as being a "Land for Construction."

A.2. Facts established as not proven

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

A.3. Reasoning on the matter of fact proven and not proven

  1. With regard to the matter of fact, the Tribunal does not have to pronounce on everything that was alleged by the parties; rather, it has the duty to select the facts that matter for the decision and discriminate the proven matter from the not proven (cf. article 123, no. 2, of the CTPP and article 607, no. 3 of the Code of Civil Procedure (hereinafter, "CCP"), applicable pursuant to article 29, no. 1, letters a) and e) of the LRATM).

  2. Thus, the facts pertinent to the judgment of the case are chosen and outlined according to their legal relevance, which is established in light of the various plausible solutions to the legal questions.

  3. Thus, having in consideration the positions assumed by the parties, in light of article 110, no. 7 of the CTPP, the documentary evidence and the supporting documents attached to the proceedings, the facts listed above were established as proven, with relevance to the decision.

III. LAW

On the Additional Property Tax

  1. The central issue in the present proceedings is the possibility of lands for construction with non-residential potential intended uses being excluded from AIMI, pursuant to article 135-B, no. 2 of the Property Tax Code, which is transcribed:

"2 – Excluded from the additional property tax are urban properties classified as 'commercial, industrial or for services' and 'others' pursuant to letters b) and d) of no. 1 of article 6 of this Code."

  1. The referred issue has not come to be answered unanimously in the jurisprudence of CAAD, with essentially two divergent positions existing:

(a) On one hand, the position of those who argue that lands for construction intended for "commercial, industrial, or service" purposes or "others" are excluded from taxation under AIMI. This position, also defended by the Claimant, is grounded, in particular, in the unity of the legal system, required by the principle of coherence in values or axiological coherence of the legal system. For the defenders of this thesis, the unity of the legal system leads to an extensive interpretation of the exclusion provided for in article 135-B, no. 2 of the Property Tax Code, allowing that in this norm lands for construction are included. Thus, for the defenders of this jurisprudential orientation there is a material unconstitutionality resulting from the non-subjection to AIMI of buildings intended for commerce, industry or services, when the lands intended for the construction of buildings with those same purposes are taxed. The burden on some taxpayers at the expense of others thus constitutes, for the defenders of this thesis, a violation of the principle of equality;

(b) On the other hand, it has equally come to be argued that the norm of subjection of AIMI is applicable to urban properties classified as "residential" and to "lands for construction," independently of their potential intended use. The defenders of this thesis, in turn, emphasize that the extension of article 135-B, no. 2 of the Property Tax Code to lands for construction is not correct given that there is not an identity between lands for construction and constructed properties from the perspective of the teleology of the exclusion norm.

  1. In the face of the different positions, we align ourselves, generically, with the second, as it is, in the opinion of this Tribunal, and as will be demonstrated below, the position most coherent with the letter and spirit of the law.

  2. Indeed, the taxpayers of AIMI are natural or legal persons who are owners, usufructuaries or right holders of urban properties located in Portuguese territory (cf. article 135-A, no. 1 of the Property Tax Code).

  3. AIMI falls on the sum of the PTVs of the properties of which natural or legal persons are owners (cf. article 135-B, no. 1 of the Property Tax Code).

  4. However, as referred, excluded from its scope of application are rustic properties, urban properties classified as "commercial, industrial or for services" and "others" as defined in article 6 of the Property Tax Code and properties exempt or not subject to IMI in the previous year (cf. the provisions of articles 135-B, no. 2 and 135-C, no. 3, letter a), both of the Property Tax Code).

  5. In this regard, it is important to reiterate that the classification as "commercial, industrial or for services," as well as the classification as "others" is that which results from the Property Tax Code itself, in particular, from article 6 of this Code.

  6. This point is of particular relevance, since the classification of urban properties resulting from article 6 of the Property Tax Code expressly provides for the existence of "lands for construction" (article 6, no. 1, letter c)), these, however, being left out of the list of the exclusion norm provided for in article 135-B, no. 2 of the Property Tax Code.

  7. Thus, no reference is made to the future or potential intended use of the lands for construction, as a factor of relevance in the exclusion of these from taxation.

  8. Indeed, the legislator classified urban properties into four types: (i) residential; (ii) commercial, industrial or for services; (iii) lands for construction; and (iv) others (cf. article 6, no. 1 of the Property Tax Code).

  9. Pursuant to the provision of article 6, no. 2 of the Property Tax Code, urban properties for commerce, industry or services "are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal intended use each of these purposes."

  10. Whereas lands for construction consist of "lands situated within or outside an urban agglomeration, for which a license or authorization has been granted, prior notice admitted, or favorable prior information issued for a subdivision or construction operation, and also those that have been so declared in the acquisition deed, except lands in which the competent entities prohibit any of those operations, in particular those located in green zones, protected areas or that, in accordance with municipal land use plans, are intended for public spaces, infrastructure or equipment." (cf. article 6, no. 3 of the Property Tax Code).

  11. For purposes of AIMI, thus, subject to taxation are urban properties that are classified as residential and lands for construction.

  12. Now, the interpretation of norms, in particular those transcribed above, must have a minimum correspondence with the letter of the law.

  13. Indeed, pursuant to article 9, no. 2 of the Civil Code applicable by force of article 11, no. 1 of the GTL: "[h]owever, the legislative thought that does not have in the letter of the law a minimum verbal correspondence, even if imperfectly expressed, cannot be considered by the interpreter."

  14. We truly consider that if the legislator had wanted to exclude from AIMI properties potentially or in the future apt to develop an economic activity of a commercial, industrial, service nature, or others, it would have adopted a formulation that would allow that meaning to be attributed to the norm.

  15. Thus, we conclude that the legislator did not wish to exclude those properties from the objective scope of AIMI.

  16. That is, the criterion used to circumscribe the excluded properties relates to the typologies provided for in article 6 and not to the potential intended use of the properties for the economic activity of the taxpayer.

  17. In any case, the interpreter must resort to other elements of interpretation beyond the literal element, in particular the historical and teleological elements, so we will continue our analysis.

  18. Now, AIMI was created by article 219 of Law no. 42/2016, of 28 December (State Budget Law for 2017, hereinafter, "SB 2017"), having come into force on 1 January 2017, and was added to the Property Tax Code in articles 135-A to 135-L.

  19. From the Report of the SB 2017 it can be drawn that "[t]he additional property tax introduces into real estate taxation a progressive element on a personal basis, taxing larger assets more highly, with a marginal rate of 0.3% applied to assets exceeding €600,000 per taxpayer. To prevent the impact of this tax on economic activity, excluded from the scope are rustic properties, mixed properties, industrial properties and those used for tourism activity, also allowing companies exemption for properties used for their productive activity up to €600,000. The possibility of deduction of the amount of tax paid from the collection relating to property income constitutes an additional incentive for rental and productive use of assets. This tax replaces the previous 1% stamp duty on property value above 1 million euros. With a much lower rate (0.3%) it is also fairer because it takes into account the overall value of real estate assets and not, individually, the value of each property." (Report SB 2017 of the Ministry of Finance, pp. 57 and 60) (available at https://www.dgo.pt/politicaorcamental/OrcamentodeEstado/2017/Proposta do Orçamento/Documentos do OE/Rel-2017.pdf) (bolded and underlined ours).

  20. The concern expressed in the Report of the SB 2017 refers to a "productive use of assets" and not to its productive potential.

  21. There also seems to result from article 135-B, no. 2 of the Property Tax Code an extrafiscal concern that translates into an "incentive," to use the words of the referred report, to an effective and productive use of properties in commercial, industrial or service activity.

  22. Thus, although pursuant to article 9, no. 2 of the Civil Code the interpretation should not be confined solely and exclusively to the letter of the law "but reconstruct from the texts the legislative thought, taking especially into account 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," the referred norm does not grant, thus this Tribunal understands, a permission to the interpreter to extract meanings from the norm not resulting from its letter and not intended by the legislator, but rather to dispel some imperfection of the letter of the law, adapting it, in particular, to the legislative thought (cf. article 9 of the Civil Code).

  23. In the present case, however, it must be assumed that the legislator expressed correctly his thought pursuant to and for the purposes of article 9, no. 3 of the Civil Code.

  24. Thus, it is concluded that the land for construction held by the Claimant, even if it comes to be partially intended for commercial activities, is subject to AIMI and is not excluded from the respective objective scope of the tax.

  25. Note that, whereas the exclusion of taxation relating to constructed properties classified as "commercial, industrial or for services" or as "others" translates into an incentive to construction and effective operation of an economic activity, the same does not occur with the exclusion of a land for construction which, by itself, does not have an associated incentive to building (and may even result in a disincentive to construction).

  26. Indeed, lands for construction may maintain this classification, i.e., not be intended for materially commercial, industrial, service or other activities, for a long period.

  27. Thus – if the criterion were not that of its reduction to the category of urban property classified as commercial, industrial, services or others – the property would not be subject to taxation without being intended for productive use.

  28. Moreover, from a legal point of view, it is possible to alter the intended use of a land for construction, which could lead to situations of non-taxation due to mere potential intended use, followed by an alteration of the classification, without this necessarily becoming reducible to the categories of properties "commercial, industrial or for services" or "others."

  29. As results from the arbitral decision rendered in case no. 654/2017-T, of 03/09/2018, "[i]t is not contested that from the point of view of tax policy the solution could have been different, and while respecting other opinions, it is believed that the exclusion from taxation of all or part of the "lands for construction" was not the solution adopted, since no. 2 of article 135-B of the CIMI only provides for exclusion from taxation regarding AIMI of urban properties classified "commercial, industrial or for services" and "others," precisely in accordance with letters b) and d), of no. 1 of article 6, which inevitably leads to the taxation of the properties provided for in the two remaining letters of that same article 6 of the CIMI, namely, urban properties classified as "residential" (letter a)) or as "lands for construction" (letter c)). Covered by the taxation in question, in accordance with the letter of the law, are all urban properties classified as "residential" and all urban properties classified as "lands for construction," and not just some of them, and if the legislator, in his provision excluding taxation, intended to exclude some of the properties referred to in letters a) and c) of no. 1 of article 6 of the CIMI, it would have had all the means to do so. Similarly, the legislator could have altered the types of urban properties provided for in article 6 of the CIMI, for example, by subdividing lands for construction according to the purposes to which they were intended, which did not happen. With regard to the possibility of extensive interpretation of the exclusion enshrined in the aforementioned no. 2 of article 135-B of the CIMI, in order to encompass lands for construction not intended for housing – the solution adopted in the decisions that accepted pretensions similar to that of the Claimant, now in question – it is believed, always with respect due to other understandings, that it should not be accepted. Thus, and from the start, it is believed that there is not the identity of situations in light of the legally relevant criteria, necessary to effect the referred extension of the clause of exclusion from objective subjection, namely, it does not appear that lands for construction are in a situation identical to that of constructed properties, from the point of view of the teleology of that exclusion clause. From a teleological point of view, such a clause will have underlying, in the first place, the purpose of burdening with AIMI properties intended, or susceptible to immediate intended use, to productive processes, lands for construction not being endowed with such characteristics, given that while a constructed property will be, or will be susceptible to being immediately, intended for productive processes, lands for construction are not in such a situation. (...) Indeed, already constructed properties possess a material reality corresponding to the typology that falls to them. That is, a property built and licensed for, or that has as its normal intended use, commerce, industry or services, will correspond to a material reality adequate to such purposes and, for what interests us, objectively distinct from a property built and licensed, or with normal intended use, for housing. Lands for construction, on the other hand, are distinguished from the remaining lands in a merely legal plane, namely, in function of an action of a public entity (granting of license or authorization, admission of prior notice or issuance of favorable prior information of a subdivision or construction operation – cf. art. 6/3 and 37/3 of the CIMI) or of the owners (declaration of purpose in the acquisition deed; cf. art. 6/3 of the CIMI), to which the Law attributes certain legal effects. Thus, in function of the pointed material differentiation, the alteration of the intended use of a land for construction, from the point of view of the notes relevant to the problem in question, may be simple, requiring, for example, merely a declaration in the acquisition deed, the presentation and admission of a prior notice, or the presentation and approval of a request for prior information. The alteration of the purpose of a constructed building, from housing to commerce/industry/services, or vice versa, will imply, from a point of view of normality, the execution of more or less profound works (and necessary licenses). It further adds that a constructed property has incorporated a significant value corresponding to the construction, which, even in cases where it is not concretely intended for the intended use, will constitute a natural incentive to its economic operation since, always from a point of view of normality, a built property will not only not generate income, but will lose value (due to its degradation) from its non-use. A land for construction, on the other hand, not only does not incorporate, per se, any natural incentive for its building and subsequent intended use for productive activity, but, also from a point of view of normality, the opposite may occur, namely, in function of certain market conditions that create expectations of purely speculative gains, there may be incentives for their owners to maintain their condition of non-built lands." (Cf. Arbitral Decision of CAAD rendered in case no. 654/2017-T, of 03/09/2018) (bolded and underlined ours).

  30. In the same sense, see – by way of example – the arbitral decisions of CAAD rendered in cases nos. 664/2017-T, of 26/06/2018; 667/2017-T, of 05/09/2018; and 676/2017-T, of 16/07/2018.

  31. Notwithstanding considering that the taxation of only some assets (in the present case real estate assets) - contrary to the taxation of global assets - places the principle of tax-paying capacity in tension, it does not seem to this Tribunal that the taxation of lands for construction is the determining element to consider the existence of an unconstitutionality.

  32. Since, for purposes of application of the principle of equality, lands for construction with potential intended use for commerce, industry and services do not resemble constructed properties already intended for those purposes.

  33. In sum, the principle of equality implies, on one hand, that those in equal situations be treated equally and, on the other, that those in unequal situations receive different treatment. However, in the case at hand, properties "commercial, industrial or for services" do not appear to be in a situation comparable with "lands for construction."

  34. But further, there appears to be an extrafiscal objective of incentive to productive activity, so a judgment of unconstitutionality should be based on the disproportionality of the measure, which does not appear to be verified in the terms already explained above.

  35. Further, as results from Decision no. 299/2019, of the Plenary of the Constitutional Court, of 21 May 2019, "the scope of AIMI, even if guided by a personal perspective, cannot fail to recognize that lands for construction are very distinct from already constructed urban properties and intended for a specific purpose via licensing or normal use. Indeed, and resting, as was seen, the reason for non-taxation of urban properties, commercial, industrial, for services or others on the purpose of promoting the proper functioning of economic activities – which implies the creation of stimuli to the reallocation of resources to productive purposes, so as to increase economic growth -, lands for construction can only contribute to that objective in potentiality, in a hypothetical and conditional future, since even if a right to build has been formed, nothing prevents the change of will of its owner regarding the intended use to give to the property. Beyond that what is relevant for purposes of annual taxation in AIMI is the patrimonial tax value of the property existing and contained in the matrix, as one cannot tax a future and eventual tax-paying capacity, but only current and effective tax-paying capacity. Lands for construction constitute an economic asset with patrimonial tax value, in itself revealing the tax-paying capacity of its owner, thus being constitutionally legitimate their inclusion in the patrimonial assets globally subject to AIMI, independently of what may actually be implanted therein."

  36. The referred Decision further states that "it is clear that, obeying the teleology of the norm of no. 2 of article 135-B of the Property Tax Code to the desideratum of not excessively burdening real estate assets with an intermediate function within the business organization of the taxpayer, as far as lands for construction that functional nexus is not yet established with sufficient guaranty, since its owner is not at all prevented from altering the intended purpose, so as to intend to the construction of properties for housing lands initially licensed for construction with other purposes. Now in the case of properties built, with purposes of commerce, industry, services or others, even if one cannot exclude the possibility of coming to exist non-conformity between normal use and that materialized, notably in cases where there is no licensing, or other intervention constitutive of rights of public authorities, the legislator assumes that the probability of such deviation is scant and, in that measure, that the risk shows itself insufficient to place in crisis the conformation of the tax. Such an empirical evaluation, which does not appear unreasonable, is situated within the margin of freedom of conformation of the democratic legislator, not being incumbent upon the Court to proceed to its scrutiny within the framework of control of equality, in its negative aspect, here invoked.

Thus being, neither the term elected to compare the legal-subjective situations – the potential use of urban properties – carries relevance in the problem nucleus in equation, nor the holders of the two typologies of urban properties put in confrontation – lands for construction with purposes of commerce, industry, services or similar, on one hand, and constructed properties classified, in accordance with article 6 of the Property Tax Code, as 'commercial, industrial or for services' or 'others,' on the other - are in an equiparable position, in accordance with the tax fact and the structure of objective scope of AIMI, whereby there is not found, also on this point, ground to support a judgment of unconstitutionality of the norm questioned, in the specific hypothesis under appreciation.'"

  1. On the other hand, with regard to item 28.1 of the GTSD - which imposed an annual taxation on the ownership of lands for construction whose authorized or anticipated construction be for housing in accordance with the provisions of the Property Tax Code, whose PTV was equal to or exceeding €1,000,000.00 – it behooves us to state, in the first place, that the wording of article 135-B of the Property Tax Code does not coincide with the wording of the referred item.

  2. Note that item 28.1 of the GTSD established the following: "Ownership, usufruct or right of superficies of urban properties whose patrimonial tax value contained in the matrix, in accordance with the Property Tax Code (CIMI), is equal to or exceeding €1,000,000 - on the patrimonial tax value used for purposes of IMI:

28.1 - For residential property or for land for construction whose authorized or anticipated construction be for housing, in accordance with the provisions of the Property Tax Code - 1 %" (bolded and underlined ours).

  1. Since the norm in question in the present arbitral decision does not have the same content as the norm provided for in the previous item 28.1, the jurisprudence on this cannot be entirely transposed to the case at hand.

  2. The interpretive differences between the two norms are, moreover, easily understandable and, furthermore, justify the interpretation that we now defend.

  3. Indeed, the legislator, in the context of item 28.1 of the GTSD, expressly refers to a foreseeable use ("construction authorized or anticipated"), whereas in the norm contained in article 135-B, no. 2, of the Property Tax Code, no reference is made to a potential intended use, but rather to the classification effected in accordance with article 6 of the same Code.

  4. That is, when the legislator intended to confer different treatment on lands for construction, depending on their potential intended use, it did so with clarity.

  5. Lastly, the Claimant further states that the PTV of the property must be achieved through the evaluation of the part with effective residential use excluding the part intended for non-residential use.

  6. Now, having concluded that AIMI does not distinguish the potential intended use of properties, the tax should fall on the totality of the PTV, thus not considering the assessment to be (partially) illegal.

B.1. On indemnity interest

  1. The Claimant makes a request for refund of the amounts collected by the Respondent, as well as for the payment of indemnity interest.

  2. As the request for arbitral pronouncement is not to be deemed well-founded, it cannot be concluded that there are wrongful payments and, consequently, the annulment of the assessments is not justified nor is the payment of indemnity interest pursuant to article 43 of the GTL.

IV. DECISION

Whereupon, in this Arbitral Tribunal, it is decided to render the request for declaration of illegality of the AIMI assessment act no. 2018..., relating to the year 2018, in the amount of €4,077.80, not well-founded, and, in consequence, to condemn the Claimant in the costs of the proceedings.

V. VALUE OF PROCEEDINGS

The value of the proceedings is fixed at €4,077.80, pursuant to article 97-A, no. 1, letter a), of the CTPP, applicable by force of letters a) and b) of no. 1 of article 29 of the LRATM and no. 2 of article 3 of the Regulation on Costs in Tax Arbitration Proceedings.

VI. COSTS

The value of the arbitration fee is fixed at €612.00 pursuant to Table I of the Regulation on Costs of Tax Arbitration Proceedings, to be paid by the Claimant, pursuant to articles 12, no. 2, and 22, no. 4, both of the LRATM, and article 4, no. 4, of the cited Regulation.

Let it be notified.

Lisbon, 11 September 2019

The Arbitrator,

(Leonardo Marques dos Santos)

Frequently Asked Questions

Automatically Created

What is AIMI (Adicional ao Imposto Municipal sobre Imóveis) and how does it apply to construction land in Portugal?
AIMI (Adicional ao Imposto Municipal sobre Imóveis) is an additional property tax introduced in Portugal on January 1, 2017, through Law 42/2016 of December 28, replacing prior stamp duty taxation on high-value properties. Under Article 135-B of the Property Tax Code (Código do IMI), AIMI applies to urban properties intended for residential purposes and construction land (terrenos para construção) as defined in Article 6(1)(a) and (c) of the Property Tax Code, when the patrimonial tax value equals or exceeds €600,000 for individuals or €1,000,000 for companies. Construction land is taxable under AIMI when the authorized or anticipated construction is for housing purposes. However, significant interpretative questions arise regarding lands with mixed-use authorization (residential plus commercial, industrial, or services), with taxpayers arguing that Article 135-B(2) excludes construction land destined for commerce, industry, or services, applying the same exclusion logic that exempts completed buildings with those purposes from AIMI taxation.
Can a taxpayer challenge an AIMI tax assessment on construction land (terreno para construção) through CAAD arbitration?
Yes, taxpayers can challenge AIMI tax assessments on construction land through CAAD (Centro de Arbitragem Administrativa) arbitration. According to Articles 2(2)(a), 5(2), 6(1), and 10 et seq. of Decree-Law 10/2011 of January 20 (Legal Regime of Arbitration in Tax Matters - LRATM), combined with Articles 99(a) and 102(1)(f) of the Tax Procedure and Process Code (CPPT), taxpayers may request constitution of an arbitral tribunal with a sole arbitrator to declare the illegality of AIMI assessment acts. The arbitration request must seek annulment of the specific liquidation act, identify the contested amount, and request reimbursement plus compensatory interest (juros indemnizatórios) calculated from the date of wrongful payment until processing of the credit note. The CAAD Ethics Council appoints the arbitrator, and the tribunal is formally constituted following acceptance. The Tax Authority (Autoridade Tributária e Aduaneira) responds as the respondent party. CAAD arbitration provides an alternative dispute resolution mechanism for tax matters, including AIMI assessments, offering specialized tax expertise and procedural efficiency compared to administrative or judicial appeals.
How is the taxable value of construction land determined for AIMI purposes under Portuguese tax law?
The taxable value (valor patrimonial tributário - VPT) of construction land for AIMI purposes is determined according to the Property Tax Code evaluation rules. For construction land with subdivision authorization, the Tax Authority establishes the patrimonial value based on building capacity and property configuration specified in the subdivision license, applying location coefficients and construction parameters authorized for the plot. In Case 568/2018-T, the land's VPT was fixed at €1,019,450.00 based on the subdivision authorization for collective housing including residential units, commerce, and parking. A critical controversy exists regarding whether VPT for mixed-use construction land should encompass the entire authorized construction (residential and non-residential) or only the residential portion when determining AIMI liability. Taxpayers argue that when construction authorization includes non-residential uses (commerce, industry, services, parking), the VPT should be apportioned, excluding non-residential portions from the AIMI tax base, since Article 135-B exempts such purposes. This involves calculating what portion of the €1,019,450.00 valuation corresponds exclusively to authorized residential construction versus commercial and parking areas, ensuring taxation aligns with AIMI's legislative intent to tax only residential real estate assets.
What are the legal grounds for requesting annulment of an AIMI liquidation act before a CAAD arbitral tribunal?
Legal grounds for requesting annulment of an AIMI liquidation act before a CAAD arbitral tribunal include: (1) Violation of the equality principle (Article 13 of the Portuguese Constitution) when construction land intended for commerce, industry, or services is taxed under AIMI while completed buildings with identical purposes are exempt under Article 135-B(2) of the Property Tax Code, creating discriminatory treatment between functionally equivalent property categories; (2) Incorrect subsumption of facts to law when the contested property does not meet the legal definition of construction land 'whose authorized or anticipated construction is for housing' because the subdivision authorization encompasses significant non-residential uses (commerce, parking, services); (3) Error in factual and legal presuppositions (erro sobre os pressupostos de facto e de direito) when the assessment applies AIMI to the entire patrimonial tax value without excluding the portion corresponding to authorized non-residential construction; (4) Manifest illegality under Article 163(1) of the Administrative Procedure Code, applicable through Article 2(c) of the General Tax Law (LGT), when the assessment act contravenes the normative provisions delimiting AIMI's objective scope; and (5) Improper calculation of the tax base by including non-residential valuation components contrary to the tax's legal framework.
Is a taxpayer entitled to compensatory interest (juros indemnizatórios) when an AIMI assessment is declared illegal?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when an AIMI assessment is declared illegal, provided the tax was paid. Under Article 43 of the General Tax Law (LGT), when a tax payment is later determined to be undue through annulment of the assessment act, the Tax Authority must refund the amount plus compensatory interest calculated from the date of wrongful payment until the credit note is processed. In AIMI arbitration cases, claimants routinely request that the arbitral tribunal order the Tax Authority to refund the illegally assessed amount with applicable compensatory interest. The interest serves as compensation for the taxpayer's deprivation of funds that should not have been collected, reflecting the time value of money and ensuring full restitution. The interest rate and calculation methodology are established by law. In Case 568/2018-T, the claimant specifically requested that the Tax Authority be condemned to refund €4,077.80 'and respective indemnity interest counted from the date of wrongful payment of the tax until the date of processing of the respective credit note,' demonstrating that compensatory interest is a standard component of relief sought when challenging illegal AIMI assessments through CAAD arbitration.