Process: 578/2018-T

Date: July 5, 2019

Tax Type: IMI

Source: Original CAAD Decision

Summary

CAAD Process 578/2018-T addresses whether the Additional Municipal Property Tax (AIMI) applies to construction land designated for industrial use. The claimant, a real estate company, challenged the 2018 AIMI assessment on urban properties classified as construction land allocated to industry. The company argued that Article 135-B(2) of the IMI Code establishes a negative delimitation, subjecting only residential properties and unallocated construction land to AIMI, not land designated for industry. The claimant invoked the constitutional principle of equality (Article 13 CRP), asserting that taxing construction land allocated to industrial activity violates this principle, as such land forms the core of their economic activity rather than serving as a luxury asset. The Tax Authority countered that AIMI is a wealth tax independent of property allocation or owner characteristics. Unlike industrial or commercial properties explicitly excluded, construction land remains taxable regardless of intended use. The Authority argued the legislation deliberately maintained construction land within AIMI's scope, even when held by companies, as it evidences economic capacity. The tax targets high-value real estate portfolios to fund Social Security, irrespective of whether properties generate income or constitute business assets. The Authority maintained that equal treatment under tax law does not prevent reasonable distinctions, and construction land retains intrinsic market value warranting taxation. This case exemplifies ongoing disputes over AIMI's application to business-held construction land and raises important constitutional questions about tax equality in Portuguese property taxation.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. A..., SA, legal entity no. ..., with registered office at ..., no. ..., Barcelos, filed, on 20-11-2018, a request for constitution of the arbitral tribunal, in accordance with articles 2º and 10º of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as LRAT), in conjunction with article 102º of the Code of Tax Procedure and Process (CTPP), in which the Tax and Customs Authority (hereinafter referred to only as Respondent, or TCA) is requested.

  2. The Claimant seeks, through its request, the declaration of illegality of the tax assessment act for the Additional Municipal Property Tax – AMPT – no. 2018... of the year 2018.

  3. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 20-11-2018.

3.1. The Claimant did not proceed with the appointment of an arbitrator, whereby, under the provisions of section a) of article 6(2) and section b) of article 11(1) of the LRAT, the President of the Deontological Council appointed the undersigned as arbitrator of the arbitral tribunal, who communicated acceptance of the appointment within the respective time limit.

3.2. On 14-01-2019 the parties were notified of the appointment of the arbitrator, with no impediment having been raised.

3.3. In accordance with the provisions of section c) of article 11(1) of the LRAT, the arbitral tribunal was constituted on 04-02-2019.

3.4. In these terms, the Arbitral Tribunal is duly constituted to examine and decide the subject matter of the proceedings.

  1. To support the request for arbitral ruling, the Claimant alleges, in summary, the following:

The Claimant is a commercial company that is dedicated to the purchase, sale, and administration of real estate and the carrying out of all legally permitted operations on real estate, civil construction, study, management, promotion and financing of industrial, commercial, hotel, tourist, agricultural and real estate projects, import and export.

It is the owner of the urban properties mentioned in the disputed assessment, to which are lands for construction allocated to industry.

In accordance with article 135-B(2) of the Municipal Property Tax Code, a negative delimitation of the AMPT is established, in that this tax only covers urban properties allocated for residential purposes and lands for construction.

Since the properties subject to the arbitral request and of which the Claimant is the owner are lands for construction allocated to industry, they were wrongly taxed under the AMPT, in that although they are considered "lands for construction," they constitute one of the exceptions provided for in that section 2), by the fact that they are intended for "industry."

Under penalty of violation of the constitutional principle of equality, provided for in article 13 of the Constitution.

The lands in question do not present themselves as merely instrumental to the exercise of the activity; rather, they integrate the very core of the economic activity, in that they are the object of commerce or industry, intended for resale or for transformation should buildings be erected for subsequent resale.

It invokes, in support of its thesis, arbitral decisions issued within the scope of CAAD, concluding for the partial illegality of the assessment in question and consequently requesting the restitution of the tax paid plus compensatory interest.

  1. The Tax and Customs Authority presented its response, invoking in summary the following:

Unlike what was primarily intended with item 28.1 of the General Seal Tax Table, the AMPT is not intended to burden the taxation of luxury real estate, since a high-value real estate portfolio can be constituted by a plurality of low-value properties.

Subject to the additional IMI are properties allocated to "housing" and "lands for construction" as defined in article 6º of the IMI Code.

That is, the legislator did not establish the exclusion of the tax incidence rule for lands for construction for reasons related to their potential allocation, whereby, unequivocally, it concludes that the subjection of lands for construction and properties classified as residential to the tax incidence rule of the AMPT is effected independently of their potential allocation, as well as the nature and specificities of their owner.

Although it excluded from the incidence properties classified as "industrial, commercial or service" and "other," the legislator expressly opted to maintain other properties that also form part of the assets of companies, such as those classified as residential or lands for construction, whereby, although they form part of the assets of companies, they are not included in the negative delimitation provision by exclusion from the scope of application.

In the absence of other elements, "the interpreter should in principle opt for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, and in particular to their technical-legal meaning, on the assumption that the legislator was able to express his thoughts correctly and there is no reason to conclude that the legislator was unable to express his thoughts in adequate terms, as must be presumed, by virtue of the provisions of article 9, section 3, of the Civil Code, on the contrary, the question was duly considered, having been abandoned in the final wording."

With respect to the alleged violation of the principle of equality, it states that what is necessarily equal should be treated equally and what is essentially different should be treated as different, not preventing, however, differentiation of treatment, but only arbitrary, unreasonable discriminations, i.e., distinctions of treatment that do not have sufficient material justification and foundation.

The taxation embodied in the AMPT constitutes a specific imposition on wealth (cf. article 4(1) of the General Tax Law) and not on income, whereby it is well understood, then, the legislative solution of subjecting taxation to all taxpayers in consideration of the ownership of relevant legal situations regarding the urban properties identified in the objective incidence, with independence of the legal or economic structure that such taxpayers may possess.

Like any tax on wealth, the AMPT is dissociated from any eventual realization of profit from the sale of real estate, as well as from the existence or non-existence of a negative or positive net situation, being 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 building rights, 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 guarantee of obligations.

It is not seen that the taxation of the Claimant's real estate wealth offends the principle of tax equality and contributory capacity merely because ownership of real estate constitutes the very object or directly contributes to the development of its economic activity.

Ownership of high-value real estate by a natural person or legal entity (whether real estate company, real estate fund or other) evidences, as in relation to any owner of property intended for housing, a special economic capacity to contribute additionally to the Financial Stabilization Fund of Social Security, to which the AMPT revenue is allocated.

Whereby it is not seen that the taxation of lands for construction, allocated for "commerce and services" although held by legal entities of which they form part of their real estate wealth and are allocated to the development of their economic activity, in the manner provided for in articles 135-A and 135-B of the IMI Code, collides with the principle of equality, justice and contributory capacity.

In summary, the AMPT applies to the real estate wealth that has the characteristics indicated in article 135-B of the IMI Code, that is, subjecting any and every entity that is the owner of real rights over urban properties in accordance with objective reality and not merely potential at the moment of verification of the tax act.

It invokes as support numerous arbitral case law, as well as that of the Constitutional Court.

The respondent concludes for the legality of the assessment act contested by the Claimant which should, thus, be maintained, defending that, in any circumstance, compensatory interest could never be charged.

  1. By order of 04-04-2019, the meeting provided for in article 18º of the LRAT was dispensed with, and, with the consent of the parties, the submission of further arguments.

II – CLARIFICATION OF ISSUES

8.1. The tribunal is competent and duly constituted.

8.2. The parties have legal personality and capacity, show themselves to be legitimate and are duly represented (articles 4º and 10(2) of the LRAT and article 1º of Ordinance no. 112-A/2011, of 22 March).

8.3. The proceedings do not suffer from nullities.

8.4. No exceptions have been raised that prevent examination of the merits of the case.

III – FACTS AND LAW

III.1. Facts

Given the positions assumed by the parties and the documentary evidence filed in the proceedings – bearing in mind that the Tribunal does not have a duty to pronounce on all matters alleged, but rather has a duty to select those that matter for the decision, taking into account the cause of action that substantiates the request filed (cf. articles 596(1) and 607(2-4) of the Civil Code, as amended by Law 41/2013, of 26/6) and to state whether it considers them proven or not proven (cf. article 123(2) of the CTPP) – the following facts are considered, as relevant to the examination and decision of the questions raised:

a) The Claimant is a company that, among others, is engaged in the purchase, sale, and administration of real estate and the carrying out of all legally permitted operations on real estate;

b) The Claimant is the owner of urban property register entries no. ..., ..., ..., ..., ..., located in the parish of ..., municipality of Barcelos, classified as "lands for construction" and with a coefficient of use for "industry";

c) The Claimant was notified by the Tax Authority of the assessment of AMPT, relating to, among others, the properties identified above, referring to the year 2018, with no. 2018-...;

d) The Claimant paid the tax resulting from that assessment.

Substantiation of the facts:

The facts given as proven are based on the critical examination of the documentary evidence presented and not contested, which is hereby reproduced, as well as of the administrative proceedings filed in the case.

No facts with relevance to the decision of the case were given as not proven.

III.2. Law

As emerges from the arbitral request, the Claimant expresses its disagreement with the assessment act challenged, on the grounds that, in summary, it believes the assessment suffers from illegality due to, on the one hand, lands for construction intended for industry being at issue and, on the other, such lands integrating the very core of its economic activity. It further invokes violation of the principle of equality, if this were not the case.

In other words, what is at issue here resides in determining the scope of subjection of the "Additional Municipal Property Tax."

Law 42/2016, of 28 December added to the IMI Code, inter alia, article 135-A which provides: "the passive subjects of the additional municipal property tax are natural or legal persons who are owners, usufructuaries or superficiaries of urban properties situated in Portuguese territory."

In turn, the following article – 135-B – provides:

"1. The additional municipal property tax applies to the sum of the patrimonial values subject to tax of urban properties situated in Portuguese territory of which the passive subject is the owner.

2 – Excluded from the additional municipal property tax are urban properties classified as 'commercial, industrial or for services' and 'other' in accordance with sections b) and d) of article 6(1) of this Code."

As the Claimant argues, this regime excludes from the incidence of the AMPT "urban properties classified as 'commercial, industrial or for services' and 'other'" in accordance with sections b) and d) of article 6(1) of the Municipal Property Tax Code (IMI Code), whereby only urban properties allocated for residential purposes and lands for construction are covered, as defined in that article 6º.

In the case at hand, lands for construction are at issue but which, due to the fact that they are intended for "industry," the Claimant contends are outside the objective incidence of the tax. In other words, the Claimant seeks the expansion of the objective exclusions from subjection to the AMPT, enshrined in article 135-B(2) of the IMI Code, so as to include therein also urban properties classified as "lands for construction," provided that the construction envisioned thereon reduces to one of the types to which the said section 2) refers, that is, to urban properties intended for "commercial, industrial or services" purposes or "other."

Is that so?

As Baptista Machado says – Introduction to Law and Legitimizing Discourse: "in the absence of other elements that induce the selection of the less immediate meaning of the text, the interpreter should in principle opt for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, and in particular to their technical-legal meaning, on the assumption (not always accurate) that the legislator was able to express his thoughts correctly" (page 182).

Which leads us to conclude that the exclusion of taxation of all or part of "lands for construction" was not the solution adopted, since article 135-B(2) of the IMI Code only provides for exclusion from taxation regarding the AMPT of urban properties classified as "commercial, industrial or for services" and "other," precisely in accordance with sections b) and d), of article 6(1), which inevitably leads to the taxation of properties provided for in the two remaining sections of that same article 6º of the IMI Code, that is, urban properties classified as "residential" – section a) – or as "lands for construction."

And so it will be once the literal wording of articles 135-A(1) and 135-B(1-2) of the IMI Code is clear and does not appear to lend itself to interpretive doubts. As is stated in Arbitral Decision no. 664/2017-T, of 26-06-2018:

  • "The exclusion of the tax encompasses, therefore, properties classified as commercial, industrial or for services, understood as such the buildings or constructions licensed for those purposes or that have as their normal destination each of these purposes. It covers, moreover, the residual category referred to in section d) of article 6(1) of that article, including therein lands situated within or outside an urban agglomeration that are neither lands for construction nor rural properties and also buildings and constructions that do not fit into any of the previous classifications.

The scope of objective incidence, by effect of the cross-reference to that article 6º, was thus defined not only by reference to a certain species of urban properties, but also by reference to the administrative procedure through which the classification was effected or, in the absence of a license, to the normal destination of those properties for commercial, industrial and services purposes or other.

It is true that the legislative concern to 'prevent the impact of this tax on economic activity' was announced in the Proposal of Law for the Budget of the State for 2017 and was materialized through the exclusion from the scope of incidence of 'urban properties classified as the species "industrial," as well as urban properties licensed for tourist activity, the latter provided they are duly declared and proven to be for that purpose' and the deduction from the taxable value of the amount of '€ 600,000.00, when the passive subject is a legal entity with agricultural, industrial or commercial activity, for properties directly allocated to its operation.'

However, from the said negative delimitation of incidence, the Claimant extracts the conclusion that it was intended to create a tax on real estate fortune, sustaining that the AMPT, as a supplement to the IMI, aims at the taxation of the accumulation of residential property of very high value, invoking, in particular, violation of the principle of equality.

In accordance with various decisions already issued by the Constitutional Court, that superior Court has understood that there is no constitutional unconstitutionality to that effect. As is stated in the Decision issued in proc. 250/2017 of 24-05-2017:

  • "For tax purposes, properties … are clearly distinguished from lands for construction, in accordance with article 6º of the Municipal Property Tax Code, the first of those categories being constituted by buildings or constructions already existing …, while the second comprises exclusively lands for which has been consolidated by an administrative act of prior control of an urbanistic operation the right to build buildings intended for that or other purposes.

Thus, while properties … correspond to actual constructability, definitively incorporated into the legal sphere of their owner, lands for construction correspond to merely potential constructability, legally consolidated in the legal sphere of the owner of the land, but not yet materialized.

That is, the taxation of properties … applies to existing reality, to corporeal things, unlike the taxation of lands for construction, which applies to building rights, to future things, as is moreover evidenced by article 45º of the IMI Code, by establishing that the patrimonial value of the latter is determined exclusively by the volume and quality of the building to be constructed on the land, and not by its current characteristics."

Or, in the more recent Decision of 29-05-2019, in proc. no. 307/2019:

  • "The value of a land for construction corresponds, fundamentally, to a legal expectation, embodied in a right to build thereon a property with certain characteristics and a certain value. It is that expectation of production of wealth materialized in a property to be built that makes the value of the property increase and the wealth of the owners of the land for construction, once the land comes to be considered as being for construction. For that reason, the greater the value of the properties to be built, the greater is the value of the land for construction.

  • The legislator's recognition that the land for construction translates a patrimonial position of its holder and its own market value makes the invocation of the purpose and value corresponding to the property to be built thereon useless: land for construction and constructed land are not equivalent or assumable economic realities, in the domain of taxation of real estate wealth. Thus it was affirmed by the Court, with emphasis on the ruling of the Plenary in … Decision no. 378/2018, doctrine entirely transposable to the norm of the AMPT singled out here."

Where it is added that:

  • "Also within the scope of incidence of the AMPT, even if guided by a personal optics, cannot fail to be recognized that lands for construction are well distinct from already-built urban properties and allocated to a specific purpose via licensing or normal use. In truth, and resting, as has been seen, the reason for the non-taxation of urban properties, commercial, industrial, for services or other in the purpose of promoting the proper functioning of economic activities – which implies the creation of stimuli for the reallocation of resources to productive purposes, so as to increase economic growth – lands for construction can only contribute to that objective in potentia, in a hypothetical and conditional future, because even if the right to build has been formed, nothing prevents the change of will of its holder regarding the destination to be given to the property."

  • "Lands for construction constitute an economic asset with patrimonial value, in itself revealing the contributory capacity of its owner, being, for that reason, constitutionally legitimated its inclusion in the patrimonial assets globally subject to the AMPT, independently of what may be effectively implemented thereon."

In other words, lands for construction, like properties intended for housing, will reveal a higher index of fortune and, as such, of greater contributory capacity. It is not seen, therefore, that a violation of the principle of equality occurs in the option to tax those properties, given the reasonableness of the distinction and the purposes sought.

Furthermore, there is the fact that the exclusion of the incidence of the AMPT was not made with a view to any eventual activity to which the properties are allocated, but was based solely on the types of properties indicated in article 6º of the IMI Code, with no allusion whatsoever to their allocation.

Indeed, as is stated in Arbitral Decision no. 675/2017-T, of 04-05-2018:

  • "If the final wording of the Budget had maintained the legislative intention of removing the incidence regarding properties directly allocated to the operation of legal entities, the reference to this allocation that was in the proposal and that clearly expressed this legislative option would certainly have been maintained.

Having been suppressed that allusion to the allocation of properties, there is no legal support for concluding that residential properties and lands for construction allocated to the operation of legal entities do not matter for the incidence of the AMPT."

Taking into account what has been set out in the Report for the 2017 Budget, we can conclude that it was not intended with the AMPT to burden the taxation of luxury real estate, as was primarily intended with item 28.1 of the General Seal Tax Table, since high-value real estate wealth can be constituted by a plurality of low-value properties. It will have instead had in view the creation of another channel for subsidizing the social security system, which is one of the constitutional obligations of the State.

But, moreover, the Claimant seeks that the provisions of article 135-A of the IMI Code be disapplied, invoking the unconstitutionality of the AMPT taxation regime, for violation of the principle of equality, by making an indiscriminate taxation of all properties, defending that those allocated to economic activities are necessarily excluded from that taxation.

As is its case. The Claimant contends that the circumstance that the properties in question form an integral part of its commercial activity, as that is its corporate purpose, lacks foundation and, on the contrary, it would be violative of the principle of equality to subject such properties to the AMPT, by comparison with other entities, non-real estate entities, that are owners of real estate.

Let it be said at the outset that we understand that the fact that the Claimant holds the properties within its economic activity does not, however, remove the incidence of the AMPT. The Claimant is mistaken when it argues that it will have been the intention of the legislator to seek to exclude from the scope of incidence of the tax properties allocated to economic activities, under the pretext that the objective pursued would be not to overburden the taxpayers who own properties by virtue of their corporate purpose.

Indeed, the contributory capacity here envisaged is the same as that of the IMI, to which the AMPT is added, and the legislator opted to establish lighter tax rates for legal entities in relation to natural persons. As regards the alleged tax burden on the real estate sector, in relation to other sectors, note that, first of all, within the economic sector in question, companies are treated equally, and it is contained within the scope of the legislator's freedom of action, being, moreover, common and accepted practice, the interference in economic activities, fiscally incentivizing some, and fiscally burdening others.

Now, when an apparently or tendentially equal situation is treated in an apparently different manner, one can only speak of fiscal inequality if there are no compelling reasons that have led the legislator to make the choices it made. That is, what is constitutionally prohibited to the legislator is pure arbitrariness, which will not occur when it has in view the pursuit of objectives to which it attributes greater value – as is the paradigmatic case of tax benefits, in which the legislator prefers to forgo tax revenue to achieve other objectives.

It is, moreover, within that spirit that the legislator, as far as this case is concerned, only seeks to tax properties classified as residential and lands for construction, refraining from making the AMPT apply to the others. In other words, it took a measure of distinction of what is unequal, making a choice whose justification seems clear: not to increase the tax burden on productive sectors, seeking the much-touted needs for investment and economic growth.

As is stated in the also recent Decision of the same Constitutional Court of 21-05-2019, issued in proc. 299/2019:

  • "The AMPT constitutes, then, a new tax on wealth, of partial or analytical scope – it takes ownership of real estate wealth and, even within this, only the holding of some typologies of urban properties – and static nature, aiming to tax the economic strength that is materialized in the aggregate value of urban properties titled by the passive subject and, like other taxes on wealth, such as the IMI, independently of the gain they produce.

  • The taxation of wealth cannot be seen as a mere alternative or substitute for the taxation of income, as it constitutes an autonomous purpose of the tax system, to which the plan of the Fundamental Law attributes, alongside the general financial function, a specific redistributive function (articles 103(1) and 104(3) of the Constitution).

  • It is not seen that the statutory pursuit of activities of promotion or real estate exploitation permits the exclusion, regarding all subjects whose activity in that field implies holding rights over real estate, of the taxation of the predial wealth of which they are owners.

  • The legislative-political option of taxation applies to the wealth directly revealed by ownership itself of patrimonial value – in this case, the wealth resulting from the ownership of rights over urban real estate assets of a certain typology. The objective cutting resulting from the cross-reference to certain categories normatively provided for in article 6º of the IMI Code does not modify the essence of the AMPT, as a static and analytical tax on urban real estate wealth, without the income that this economic asset may generate being relevant.

  • There is no support for considering that the rationality underlying the definition of the new partial tax on wealth is not compatible with what it designates as the burdening of the real estate sector."

In line with what has been followed by other decisions of the same Court, in particular Summary Decision no. 412/2019, of 29-05-2019.

The same understanding can be found in arbitral case law, in particular in the already-cited Decision 675/2017-T: "The ownership of a real estate wealth, for the purposes of sale and transformation, with a view to obtaining economic results, does not cease to constitute a patrimonial asset that reveals an increased contributory capacity, which goes beyond the tax that applies to taxable profit by reason of the economic activity developed. What is at issue, therefore, is not the taxation of actual income earned by those entities through the activity developed, but the complementary contributory capacity that flows from the ownership of the patrimony and which in itself can facilitate the raising of credit or the strengthening of its negotiating position in the celebration of contracts."

Furthermore, the contributory capacity of business legal entities, relevant for assessing the application of the principle of tax equality, is not evidenced only by income, in particular by the results of the activity for which the properties are intended. In truth, "the patrimony provides its owner with a special contributory capacity, advantages that by their nature escape the tax on personal income: thus, the ownership of patrimony facilitates the raising of credit, strengthens the negotiating position of its owner in the celebration of various contracts, makes it easier to multiply wealth allowing him to risk where in principle he would not. In this optics, the tax on wealth is seen as something more than a prolongation of the tax on personal income - it is not a matter of overburdening here income that is already subject to it but of reaching manifestations of contributory capacity that truly escape it" (Sérgio Vasques, Contributory Capacity, Income and Patrimony, in Taxation, no. 23, page 36).

On the other hand, and as above has also been touched upon, "the legislative objective not being the taxation of luxury housing but rather obtaining yet another means of financing Social Security, in keeping with the political option of diversification, through 'a tax that falls on the holders of greater real estate patrimonies, reinforcing the overall progressivity of the system'" (page 57 of the State Budget Report for 2017), it is in function of these objectives that it must be assessed whether violation of the principle of proportionality occurs" (Arbitral Decision no. 420/2018-T, of 15-01-2019).

As, in the same manner, states Arbitral Decision 664/2017-T: "The ownership of real estate wealth, for the purposes of sale and transformation, with a view to obtaining economic results, does not cease to constitute a patrimonial asset that reveals an increased contributory capacity, which goes beyond the tax that applies to taxable profit by reason of the economic activity developed. What is at issue, therefore, is not the taxation of actual income earned by those entities through the activity developed, but the complementary contributory capacity that flows from the ownership of the patrimony and which in itself can facilitate the raising of credit or the strengthening of its negotiating position in the celebration of contracts."

Furthermore, the contributory capacity of business legal entities, relevant for assessing the application of the principle of tax equality, is not evidenced only by income, in particular by the results of the activity for which the properties are intended. In truth, "the patrimony provides its owner with a special contributory capacity, advantages that by their nature escape the tax on personal income: thus, the ownership of patrimony facilitates the raising of credit, strengthens the negotiating position of its owner in the celebration of various contracts, makes it easier to multiply wealth allowing him to risk where in principle he would not. In this optics, the tax on wealth is seen as something more than a prolongation of the tax on personal income - it is not a matter of overburdening here income that is already subject to it but of reaching manifestations of contributory capacity that truly escape it" (Sérgio Vasques, Contributory Capacity, Income and Patrimony, in Taxation, no. 23, page 36).

On the other hand, and as above has also been touched upon, "the legislative objective not being the taxation of luxury housing but rather obtaining yet another means of financing Social Security, in keeping with the political option of diversification, through 'a tax that falls on the holders of greater real estate patrimonies, reinforcing the overall progressivity of the system'" (page 57 of the State Budget Report for 2017), it is in function of these objectives that it must be assessed whether violation of the principle of proportionality occurs" (Arbitral Decision no. 420/2018-T, of 15-01-2019).

"From this perspective, it appears that this new taxation is not incompatible with the principle of proportionality, as it is suitable for the end in view (it produces the increase in revenues that is intended to be obtained), it is necessary (in light of the legislative option to increase Social Security revenues through diversification of sources) and a reasonable measure is not exceeded, in particular regarding legal entities, as the rates of the new tax are not high (and are lower for legal entities than for natural persons, in accordance with article 135-F), the tax paid is deductible from taxable matter of corporate income tax (article 135-J), considerable amounts are deducted from the taxable value (article 135-C) and it is not demonstrated, nor is there reason to believe, that the amounts collected exceed what is necessary for the purpose of reinforcing the sustainability and stability of Social Security" (ibid.).

In the same line, we conclude that it does not appear, therefore, that any illegality or unconstitutionality occurs, with the contested assessment act not meriting any censure.

Therefore, the examination of the request for compensatory interest is prejudiced.

IV. DECISION

For these reasons, it is hereby decided by this Arbitral Tribunal:

a) To judge the arbitral request filed wholly unmeritorious, absolving the Respondent of all claims.

b) To condemn the Claimant in the costs of the proceedings.

V. VALUE OF THE PROCEEDINGS

The value of the proceedings is fixed at 1,156.48 € (one thousand one hundred fifty-six euros and forty-eight cents), in accordance with article 97-A(1)(a) of the Code of Tax Procedure and Process, applicable by virtue of sections a) and b) of article 29(1) of the Legal Regime for Tax Arbitration and article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

VI. COSTS

The arbitration fee is fixed at 306.00 €, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, in accordance with articles 12(2) and 22(4), both of the Legal Regime for Tax Arbitration, and article 4(4) of the aforementioned Regulation.

Lisbon, 05 July 2019

The Arbitrator

(António Alberto Franco)

Frequently Asked Questions

Automatically Created

Is the Additional Municipal Property Tax (AIMI) applicable to construction land designated for industrial use in Portugal?
Yes, according to the Tax Authority's position in this case, AIMI applies to construction land regardless of its designated use, including industrial purposes. Article 135-B of the IMI Code subjects 'lands for construction' to AIMI taxation. While the law excludes properties classified as 'industrial, commercial or service,' it does not exclude construction land allocated for these purposes. The Tax Authority argues that the legislator deliberately maintained construction land within AIMI's scope even when held by companies for industrial development, as the tax focuses on property ownership as evidence of economic capacity rather than property allocation.
What does Article 135-B(2) of the Portuguese IMI Code say about AIMI exemptions for construction land?
Article 135-B(2) of the IMI Code establishes the negative delimitation of AIMI, specifying that the tax covers urban properties allocated for residential purposes and lands for construction. The provision explicitly excludes properties classified as 'industrial, commercial or service' and 'other' categories. However, it does not provide an exclusion based on the intended future use of construction land. The claimant interpreted this to mean construction land allocated to industry should be exempt, while the Tax Authority maintains that only the property's current classification matters, not its intended allocation, meaning construction land remains taxable under AIMI regardless of planned industrial use.
How does the constitutional principle of equality (Article 13 CRP) apply to AIMI taxation on construction land?
The constitutional principle of equality under Article 13 of the Portuguese Constitution (CRP) requires that essentially equal situations receive equal treatment and different situations receive differentiated treatment. The claimant argued that taxing construction land allocated to industrial activity violates this principle because such land constitutes the core of their economic activity, not a luxury asset like residential property. The Tax Authority responded that AIMI, as a wealth tax, legitimately treats all high-value property owners equally regardless of whether ownership serves residential or business purposes. The Authority contends that construction land's intrinsic market value justifies taxation, and differentiation based on property classification (not allocation) represents reasonable, non-arbitrary tax policy that does not offend constitutional equality principles.
Can Portuguese taxpayers challenge AIMI assessments on industrial construction land through tax arbitration at CAAD?
Yes, Portuguese taxpayers can challenge AIMI assessments through the CAAD (Centro de Arbitragem Administrativa) tax arbitration system. Process 578/2018-T demonstrates this procedure: the claimant filed a request for arbitral tribunal constitution under Decree-Law 10/2011 (LRAT) and Article 102 of the Tax Procedure Code (CTPP). The arbitration process provides an alternative to judicial courts for resolving tax disputes. In this case, the tribunal was constituted on February 4, 2019, following the standard CAAD procedures including arbitrator appointment and notification to parties. Taxpayers can use this mechanism to contest AIMI assessments on various grounds, including alleged illegality of tax assessment acts and constitutional violations, as demonstrated by the claimant's challenge based on unconstitutionality arguments.
What was the outcome of CAAD Process 578/2018-T regarding the unconstitutionality of AIMI on construction land?
The document excerpt does not provide the final decision or outcome of CAAD Process 578/2018-T. The text presents only the initial sections including the report, the claimant's arguments asserting that AIMI taxation of construction land designated for industry violates Article 135-B(2) of the IMI Code and constitutional equality principles, and the Tax Authority's response defending the assessment's legality. The claimant cited previous favorable CAAD decisions supporting their position and sought declaration of the assessment's illegality, restitution of tax paid, and compensatory interest. However, the arbitral tribunal's analysis, legal reasoning, and final ruling on whether AIMI taxation of industrial construction land is unconstitutional are not included in this excerpt, leaving the case's ultimate outcome undisclosed in the provided text.