Process: 588/2018-T

Date: September 23, 2019

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitration case (588/2018-T) addressed both procedural and substantive issues concerning AIMI (Adicional ao Imposto Municipal sobre Imóveis), Portugal's additional tax on real estate assets. A..., Lda. challenged AIMI assessment no. 2017 for €12,904.36, arguing that Article 135-B of the Municipal Property Tax Code (CIMI) was materially unconstitutional. The company claimed the provision violated constitutional principles of equality and proportionality by disproportionately burdening construction and property resale companies holding 'land for construction' compared to other taxpayers. The claimant argued that taxing such properties failed to reflect actual contributory capacity since these assets were trading inventory rather than wealth indicators. However, the case faced a critical procedural defect: the claimant failed to comply with mandatory legal representation requirements. Under Article 6(1) of CPPT, applicable via Article 29(1)(a) of RJAT, legal representation by a qualified attorney (advogado) is compulsory in tax arbitration cases exceeding twice the first-instance tax court jurisdiction limit. Despite two formal invitations from the tribunal to regularize representation or provide proper power of attorney with ratification of proceedings, the claimant did not respond. This failure constituted a dilatory exception leading to absolution from the instance under Articles 576(2) and 577(h) of the Civil Procedure Code. The substantive constitutional challenge to AIMI's application to companies holding construction land was never adjudicated on the merits due to this procedural deficiency, demonstrating the critical importance of proper legal representation in Portuguese tax arbitration proceedings.

Full Decision

ARBITRAL TAX JURISPRUDENCE

Case no. 588/2018-T

Decision Date: 2019-09-23

Tax: IMI

Value of Claim: € 12,904.36

Subject Matter: AIMI and dilatory exception of lack of legal representation

ARBITRAL DECISION

I – REPORT

A..., Lda., taxpayer..., with registered office in ..., ..., Lisbon, filed on 23/11/2018 a request for constitution of tribunal and arbitral decision, in which it requests the annulment of the express dismissal act of the administrative complaint and, in final terms, of the AIMI assessment no. 2017... and the refund of the amount of tax paid, plus compensatory interest, on the grounds that it applies a rule that suffers from material unconstitutionality – article 135-B of the Municipal Property Tax Code (CIMI).

The Esteemed President of the Deontological Council of the Administrative Arbitration Centre (CAAD) appointed on 17/01/2019 Francisco Nicolau Domingos as arbitrator.

On 06/02/2019 the arbitral tribunal was constituted.

In compliance with the provision of article 17, no. 1 of Decree-Law no. 10/2011 of 20 January (RJAT), the Respondent was notified on 14/02/2019 to, if it so wished, file a response, request additional evidence and attach the Administrative File (PA) to the case record.

On 06/03/2019 the Respondent filed its response, in which it argues for the preliminary rejection of the request for arbitral decision, subsidiarily, recognition of the dilatory exception of lack of legal representation and, if this is not accepted, the maintenance in the legal order of the assessment in question.

The tribunal, by order of 18/07/2019, noting the circumstance that the case record documents the existence of a power of attorney that grants powers to Dr. B..., solicitor, with professional registration no. ... L, although without having subscribed the request for arbitral decision, as this is signed by a representative of an apparently different company from the Claimant, C..., S.A., invited the Claimant to, within two days, clarify the matter, attaching a certificate of its registration with the Commercial Registry Office, article 16, paragraph f) of RJAT or, alternatively, for the aforementioned solicitor to send a power of attorney with ratification of the proceedings.

The Claimant did not accept the invitation.

By order of 07/09/2019, the tribunal renewed the invitation to the above-identified solicitor to, within 2 days, attach a power of attorney with ratification of the proceedings, warning the Claimant that legal representation is mandatory in cases whose value exceeds twice the jurisdiction limit of first-instance tax courts – article 6, no. 1 of the Code of Tax Procedure and Process (CPPT), applicable ex vi article 29, no. 1, paragraph a) of RJAT and that the lack of legal representation leads to absolution from the instance, cfr. articles 576, no. 2 and 577, paragraph h) of the Code of Civil Procedure (CPC), applicable ex vi article 29, no. 1, paragraph e) of RJAT. Furthermore, since no evidence was requested to be produced, it did not appear necessary to invite the parties to perfect their procedural pleadings; the preliminary issue and the matter of exception could be known in the arbitral decision, determined, under the principle of autonomy of the arbitral tribunal in conducting the proceedings and determining the rules to be observed with a view to obtaining, within a reasonable time, a decision on the merits of the claims filed (article 16, paragraph c) of RJAT), the waiver of holding the meeting referred to in article 18 of RJAT, granted a time period for the parties to present written and simultaneous final submissions and set the deadline for issuing the arbitral decision.

The parties did not present final submissions.

POSITION OF THE PARTIES

The Claimant presents the request for arbitral decision because, in its judgment, article 135-B, no. 2 of CIMI, which formed the basis of the AIMI assessment in question, should be disapplied by the tribunal, as it violates the constitutional principles of equality, in its aspect of contributory capacity, as well as proportionality. That is, the assessment suffers from an error regarding the legal presuppositions, as it applies an unconstitutional rule.

To support the defect of the act, it observes that non-conformity with the Fundamental Law refers to the difference in incidence, depending on the nature of the taxpayers, insofar as the tax particularly burdens companies engaged in construction and resale of property, including "land for construction". It adds that when "land for construction" is held by these companies, the necessary presupposition of that taxation is not met – ownership of "land for construction" and sale, as evidence of increased contributory capacity or wealth.

It equally argues that the constitutional principle of equality would not be compatible with the negative fiscal discrimination granted to residential properties and land, relative to those with different uses (commercial, industrial, services or other), which between the initial version of AIMI and the one that would ultimately be adopted recorded an expansion of exemptions granted to certain companies. The application of AIMI to companies engaged in property trading penalizes, in an aggravated manner, those entities to the detriment of others without any rational justification.

The legislative purpose announced by the legislator in the context of AIMI – the normative establishment of a tax on real estate wealth, measured by the taxable asset value – loses relevance in the taxation of legal entities, not constituting a criterion delimiting the scope of the subjective obligation.

It concludes by petitioning for the refund of the tax and the condemnation of the AT to pay compensatory interest.

The Respondent presents a defence with the following grounds:

i) Error regarding the legal presuppositions

It argues that the relevant criterion for delimiting the scope of objective incidence is solely the classification typology of urban properties provided for in article 6, no. 1 of CIMI, to which article 135-B, no. 2 of CIMI expressly and specifically refers. Or, put another way, the subjection of land for construction and properties classified as residential to the incidence rule of AIMI is effected, regardless of its potential use, as well as the nature and specificities of its holder.

Secondly, it argues that the legislative choices were structured by the need to mitigate the impact of the imposition in question on the exercise of business economic activities in general. This came about through the exclusion of urban properties for industrial, commercial or service purposes and "other", although there was an express legislative choice to integrate into the subjection other properties that also form part of the company's assets – those classified as residential or as land for construction.

In this manner, the legislator did not ensure that in all cases the real estate assets affected by the exercise of any economic activity would not be affected by the imposition.

As to the violation of the constitutional principle of equality, it argues that the issues should be framed as follows: i) whether article 135-B of CIMI, when interpreted to include within the scope of application of AIMI "land for construction" for purposes of "commerce, industry, services" or "other" offends the principle and ii) whether the application of the AIMI regime, to the extent of including entities that conduct an economic activity, promotes differentiated treatment and inequality between taxpayers.

In this context, it begins by arguing that land for construction is not merely instrumental to the exercise of the economic activity; on the contrary, it forms part of its core, with intrinsic economic value and with quotation in the real estate market. Thus, it argues that the legislative solution of subjecting to taxation all taxpayers in consideration of the ownership of the relevant legal situations over the urban properties identified in the objective incidence, independent of the legal or economic structuring that those taxpayers may possess, is comprehensible.

In summary, the situation of companies engaged in the sale of land for construction, regarding the success or failure of the commercial activity they conduct or even the type of real estate assets they hold, is irrelevant for the imposition.

On the other hand, it maintains that the ownership of real estate by a natural person or by a legal entity, whether real estate company or real estate fund, evidences, as in relation to any owner of property intended for housing, a special economic capacity to contribute additionally to the Social Security Financial Stabilization Fund, to which AIMI revenue is allocated.

Thus, it argues that it is not apparent that the taxation of land for construction, with use for "commerce and services", in the manner provided in articles 135-A and 135-B of CIMI, collides with the principle of equality, justice and contributory capacity.

ii) Condemnation to pay compensatory interest

It argues that, if the Tax Authority and Customs Authority (AT) does not have the competence to refuse the application of a rule based on its unconstitutionality, there is manifest lack of legal support for the acceptance of this claim.

Thus, these are the issues the tribunal must know:

a) Whether the dilatory exception of lack of legal representation is verified;

b) Whether the express dismissal act of the administrative complaint which, in final terms, concerns the AIMI assessment no. 2017... suffers from the defect of error regarding legal presuppositions;

c) Whether the AT should be condemned to pay compensatory interest.

PRELIMINARY ISSUE

The Respondent argues that it should be absolved from the instance, as, in its judgment, the dilatory exception of lack of legal representation is verified.

First and foremost, it is important to establish the elements necessary to address the issue:

i) The Claimant conducts its business activities in the real estate sector.

ii) The Claimant was notified of the AIMI assessment no. 2017..., in the amount of 12,904.36 euros, for the year 2017 and which has as taxable matter: 3,226,089.07 euros.

iii) On 19/12/2017, the Claimant filed an administrative complaint of the AIMI assessment no. 2017....

iv) The administrative complaint was expressly dismissed, by order of the Head of the Finance Service in Lisbon..., notified to the Claimant, by letter dated 20/08/2018.

v) The request for arbitral decision was filed on 23/11/2018, signed by a representative of an apparently different company from the Claimant: C..., S.A. and with attachment of a power of attorney.

The case record documents the existence of a power of attorney that grants powers to Dr. B..., solicitor with professional registration no. ... L, although the request for arbitral decision is signed by a representative of an apparently different company from the Claimant: C..., S.A.

For this reason, by order dated 18/07/2019, the tribunal invited the Claimant to clarify the matter, attaching a certificate of its registration with the Commercial Registry Office or, alternatively, for the aforementioned solicitor to send a power of attorney with ratification of the proceedings.

It happens that the invitation was not accepted.

Article 6 of CPPT provides that: "Legal representation is mandatory in judicial cases whose value exceeds twice the jurisdiction limit of the first-instance tax court, as well as in proceedings within the jurisdiction of the Central Administrative Court and the Supreme Administrative Court".

In the present case, the value of the proceedings is 12,904.36 euros, therefore legal representation is mandatory.

It happens that, it is repeated, the request for arbitral decision was not signed by the solicitor, but by a representative of an apparently different company from the Claimant: C..., S.A.

The signature of the solicitor on the request for arbitral decision, a procedural pleading in which the factual and legal grounds of the Claimant's claim are described, is mandatory.

The signature expresses the authorship of the document, constitutes a requirement of a formal nature, aimed at binding the author to its content.

Article 48, no. 1 of the Code of Civil Procedure (CPC), applicable ex vi of article 29, no. 1, paragraph e) of RJAT provides that: "The lack of power of attorney and its insufficiency or irregularity may, at any time, be argued by the opposing party and raised ex officio by the court".

Thus, the solicitor was notified to attach a power of attorney with ratification of the proceedings. After the period for this purpose had elapsed, it was found that the invitation to cure the defect was not accepted.

Legal representation, when the procedural law so requires, constitutes a procedural presupposition relating to the party, with the normative requirement being based on the fact that the issues to be resolved in court transcend the knowledge of a layperson and, on the other hand, on the proper administration of justice, in which qualified professionals intervene who are free from direct personal interests.

In the present case, while it is indisputable that there exists a power of attorney granted in favor of the solicitor, on the other hand, it is also unequivocal that it was not the solicitor in question who signed the request for arbitral decision; on the contrary, in this document there is even affixed a stamp of a company which apparently is different from the Claimant.

In the first place, if the request for arbitral decision is signed by a natural person who does not invoke and prove their quality as a solicitor, the dilatory exception of lack of legal representation is verified.

In the second place, the signature of procedural pleadings by solicitors allows their binding to its content – article 6, no. 2 of Ordinance no. 280/13, of 26 August. For this reason, within the scope of civil procedure, article 6, no. 3 of Ordinance no. 280/13, of 26 August provides that: "The document containing the information inserted in the forms must be digitally signed by means of an electronic signature certificate that permanently guarantees the professional quality of the signatory, and for this purpose the System of Certification of Professional Attributes associated with the Citizen Card and Mobile Digital Key may be used".

Also in the field of tax arbitration, procedural pleadings signed by solicitors must be signed (although without the need for digital signature), as in addition to expressing the authorship of the request for arbitral decision, they also attest to the professional quality of the signatories, e.g. article 6, no. 3 of Ordinance no. 280/13, of 26 August, applicable ex vi of article 29, no. 1, paragraph e) of RJAT.

Now, if the request for decision is not signed by the solicitor, this requirement has not been fulfilled, that is, we are faced with the presentation to a tribunal of a procedural pleading in a manner not procedurally admissible, therefore, a procedural act was performed against the provision of article 144, no. 1 of CPC, generating an atypical nullity. Its lack determines the nullity of the act, with all legal consequences.

Thus, the Respondent is absolved from the instance, pursuant to article 6, no. 1 of CPPT and articles 576, no. 2 and 577, paragraph h) of CPC, applicable ex vi article 29, no. 1, paragraphs a) and e) of RJAT.

II – DECISION

Accordingly, and with the reasoning described above, it is decided to absolve the Respondent from the instance, with the due legal consequences.

VALUE OF PROCEEDINGS

The value of the proceedings is set at 12,904.36 euros, pursuant to article 97-A of CPPT, applicable by virtue of the provision of article 29, no. 1, paragraph a) of RJAT and article 3, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT).

COSTS

Costs to be borne entirely by the Claimant, in the amount of 918 euros, cfr. article 22, no. 4 of RJAT and Table I attached to RCPAT.

Notify.

Lisbon, 23 September 2019

The Arbitrator,

(Francisco Nicolau Domingos)

Frequently Asked Questions

Automatically Created

What is AIMI (Adicional ao Imposto Municipal sobre Imóveis) and how is it applied to property owners in Portugal?
AIMI (Adicional ao Imposto Municipal sobre Imóveis) is an additional tax on real estate assets in Portugal, applied to the total taxable asset value (VPT) of urban properties exceeding certain thresholds. For legal entities, Article 135-B(2) of CIMI subjects properties classified as residential or 'land for construction' to AIMI, regardless of their intended commercial use or whether they constitute trading inventory. The tax aims to capture real estate wealth, though its application to companies engaged in property development and resale has raised constitutional equality concerns.
Is it mandatory to have a lawyer (advogado) in Portuguese tax arbitration proceedings at CAAD?
Yes, legal representation by a qualified lawyer (advogado) is mandatory in CAAD arbitration proceedings when the claim value exceeds twice the jurisdiction limit of first-instance tax courts. This requirement stems from Article 6(1) of the Tax Procedure Code (CPPT), applicable to tax arbitration via Article 29(1)(a) of RJAT. The representative must be properly appointed through valid power of attorney, and their engagement must be documented in the case record. Failure to meet this requirement cannot be remedied by simple ratification if the party ignores tribunal invitations to regularize representation.
What happens if a party fails to appoint legal representation in a CAAD arbitration case exceeding the court threshold value?
If a party fails to appoint proper legal representation in a CAAD case exceeding the threshold value, the tribunal must invite correction of this procedural defect. If the party does not comply despite formal warnings, the lack of legal representation constitutes a dilatory exception (exceção dilatória) under Article 577(h) of the Civil Procedure Code, applicable via Article 29(1)(e) of RJAT. This leads to 'absolution from the instance' (absolvição da instância) under Article 576(2) CPC—a procedural dismissal without adjudication on the merits, effectively terminating the arbitration proceedings due to irregular constitution of the legal relationship.
Can the unconstitutionality of Article 135.º-B of the IMI Code be used as grounds to annul an AIMI tax assessment?
Constitutional challenges to Article 135-B of CIMI have been raised by taxpayers arguing that AIMI's application to companies holding construction land violates principles of equality and contributory capacity. Claimants contend that taxing inventory properties intended for resale treats construction companies unfairly compared to other businesses and fails to reflect actual wealth. However, Portuguese tax authorities counter that the legislative choice to include residential properties and construction land—while exempting commercial, industrial, and service properties—represents a rational policy balancing revenue needs with economic activity protection. The success of such constitutional arguments depends on demonstrating arbitrary discrimination without reasonable justification, though procedural compliance is prerequisite to obtaining substantive rulings.
What is the procedural consequence of a dilatory exception (exceção dilatória) for lack of legal representation in Portuguese tax disputes?
A dilatory exception (exceção dilatória) for lack of legal representation is a procedural impediment that prevents adjudication on the merits of a tax dispute. Under Portuguese procedural law (Articles 576-577 CPC, applicable to tax arbitration), this exception must be raised and resolved before substantive issues are addressed. When sustained, it results in 'absolvição da instância'—dismissal on procedural grounds rather than substantive rejection. Unlike a decision on the merits, this does not create res judicata on the underlying tax claim, potentially allowing the taxpayer to refile with proper representation. However, it wastes time and resources, emphasizing the critical importance of ensuring procedural compliance from the outset of CAAD arbitration proceedings.