Process: 603/2017-T

Date: July 8, 2019

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 603/2017-T) addresses the constitutionality of AIMI (Additional Tax on Municipal Property Tax) as applied to a real estate development company. The claimant, A... Lda., challenged an AIMI assessment of €10,415.48 for 2017, arguing that taxing construction land held as inventory violates constitutional principles. The company specialized in purchasing, urbanizing, and reselling land, transforming rural plots into urban construction land. The core legal issue centered on whether AIMI's application to construction land ('terrenos para construção') held by real estate companies as tradable inventory constitutes unconstitutional discrimination. The claimant argued violation of the principle of taxpaying capacity (Article 104 CRP) and equality (Article 13 CRP), noting that companies engaged in real estate transformation are uniquely burdened compared to other businesses and individual taxpayers. They emphasized that their land inventory represents working capital subject to IRC (corporate income tax), not passive wealth accumulation. The Tax Authority defended AIMI's constitutionality, citing that taxpaying capacity extends beyond income to asset ownership, referencing Constitutional Court Decision 695/2014. The Authority argued that legislative configuration freedom permits different tax treatment based on property types, and that AIMI legitimately targets immovable property as recognizable capital regardless of productive allocation. Article 135-B of the IMI Code excludes commercial, industrial, and service properties from AIMI, but not residential properties or construction land. This case represents a significant constitutional challenge to AIMI's scope and its impact on real estate business models in Portugal.

Full Decision

ARBITRAL DECISION

I – REPORT

  1. On 20.11.2017, the Claimant, A…, Lda., NIF …, with registered office at Rua …, nº …, …, …, requested the CAAD to constitute an arbitral tribunal, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Respondent is the Tax and Customs Authority, with a view to annulling the assessment of AIMI tax,[1] dated 30.06.2017, relating to the year 2017, in the amount of €10,415.48.

The Claimant, alleging that it paid the amount of the tax, further petitions for the restitution thereof, plus compensatory interest.

  1. The request to constitute the arbitral tribunal was accepted by the Honourable President of the CAAD and notified to the Tax and Customs Authority.

Pursuant to the terms and for the purposes of the provisions of article 6, section 1, of the RJAT, by decision of the President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, the undersigned was appointed as arbitrator, who communicated to the Deontological Council and to the Centre for Administrative Arbitration the acceptance of the task within the regularly applicable deadline.

The Arbitral Tribunal was constituted on 6 February 2018.

  1. As the grounds presented in support of its claim, the Claimant alleged the material unconstitutionality of the regime contained in articles 135-A et seq. of the IMI Code, amended by article 219 of Law no. 42/2016, of 28 December, in summary and essentially, with the following arguments:

  • The Claimant is a limited liability company whose object is the purchase, sale and resale of immovable property, being the owner of land plots for construction located at …, in the parish of …, …, registered in the respective property matrix under articles …, …, …, …, …, …, …, …, …, …, …, …, …, …, …, …, …, …, and … and which result from the exercise of the Claimant's activity, which, at the said location, proceeded to their urbanization, transforming rural land into urban land.

  • The "inventories" of the Claimant consist of "land for construction", for which it is subject to corporate income tax (IRC) since the beginning of its incorporation.

  • The assessment that is the subject of the present proceedings is based on Law no. 42/2016, of 28/01, which added to the IMI Code, Chapter XV, with the heading "Additional tax on municipal property tax", which comprises articles 135-A to 135K.

  • Excluded from this tax (article 135-B) are properties classified as "commercial, industrial or for services" and "others", pursuant to subsections b) and d) of section 1 of article 6 of the Code.

  • Such taxation clearly violates constitutional norms and principles.

  • First, it violates the principle of taxpaying capacity (article 104 of the CRP), inasmuch as companies engaged in real estate activity and obtaining profits therefrom, with payment of the corresponding IRC, are burdened with a new tax that, without sufficient material justification, taxes them exclusively based on this activity.

  • Other companies engaged in the transformation of goods are not specially burdened by the exercise of such activity.

  • There is thus no fair apportionment of the tax burden among legal entities, that is, between those engaged in real estate activity, transforming rural land into urban land, and the remaining companies.

  • The rules of articles 135-A and 135-C and 135-F, added to the IMI Code by article 219 of the 2016 Budget (Law no. 42/2016, of 28/12), clearly exceed the limits of the prohibition of excess in terms of proportional equality derived from the combination of the rules of article 13, section 1, of article 104 of the CRP, with the rule of article 18 of the same CRP.

  • Second, in taxing companies engaged in real estate activity differently from the remaining companies and in relation to individual taxpayers and undivided estates, there is also a violation of the principle of equality (article 13 of the CRP).

  • In taxing companies solely because they are owners of "land for construction", resulting from their activity, the legislator is not contributing to equality among citizens, but rather accentuating discrimination between natural and legal persons.

  • However, in the case of real estate companies engaged in the transformation of rural land into urban land, as is the case with the Claimant – their inventories (tradable assets) consist solely of the product of its operation, not remaining inactive, so such taxation has only the objective of collection by the State of undue tax revenues, contributing in no way to a fair apportionment of wealth (see article 103, section 1, final part of the CRP).

  1. The ATA – Tax and Customs Authority, when called to submit its response, contested the Claimant's claim, defending itself through objection, in summary, with the following grounds:

  • It is important to note that taxpaying capacity, in addition to income and the use of assets, is also expressed, pursuant to law, through the ownership of assets (see section 1 of article 4 of the General Tax Law).

  • In this context, it may be read in the decision of the Constitutional Court no. 695/2014, namely, that the "principle of taxpaying capacity does not dispense with the concurrence of other constitutional principles. As was stated in Decision no.711/2006, 'it is clear that the principle of taxpaying capacity must be reconciled with other principles with constitutional dignity, such as the principle of the Social State, the freedom of legislative configuration, and certain requirements of practicability and cognizability of the tax fact, also indispensable for the fulfillment of the objectives of the tax system'" and further:

"To determine, however, whether there exists a particularism sufficiently distinct to justify an inequality of legal regime, and to decide on the circumstances and factors to be considered relevant in such determination, is a task that primarily falls to the legislator, who holds the primacy of the concretization of constitutional principles and the corresponding freedom of legislative configuration. Therefore, the principle of equality presents itself fundamentally to legal operators, in the context of constitutionality review, as a negative principle (...)- as a prohibition of arbitrariness".

  • It is necessary to determine whether the choices underlying the delimitation of the objective incidence of AIMI, made within the margin of "legislative configuration freedom", constitute a violation of the principle of equality, due to the fact that passive subjects with equal taxpaying capacity may be unequally affected by the tax due to the different weight that urban properties for residential purposes and land for construction may represent in their respective overall assets.

  • The Claimant, not questioning this choice, invokes the unconstitutionality of the AIMI regime for violation of the principles of equality (article 13 of the CRP) and taxpaying capacity (article 104, section 3 of the CRP), on the grounds of negative discrimination against companies engaged in real estate activity in relation to other companies, individual taxpayers and undivided estates.

  • However, in the opinion of the Respondent, and for various reasons, the established rules do not result in unjustified differences in treatment between taxpayers contrary to those constitutional principles.

  • The choices underlying the delimitation of the objective incidence of AIMI are made within the margin of "legislative configuration freedom".

  • The tax primarily aims to affect a portion of the assets of the passive subjects of the tax, applying to immovable property constituting an asset, legally recognizable as capital of a given entity (singular or collective), regardless of whether such property is allocated to any productive process or revenue-generating activity - it is believed that this is the purpose of section 1 of article 135-B of the IMI Code.

  • However, the legislator opted in section 2 of that provision for a negative delimitation of incidence, excluding from AIMI immovable property that, by virtue of its potential allocation, may be economically recognized as factors of production, in the capacity of capital, that is, as intermediate goods that, combined with the other factors of production, produce new utilities – economic goods that satisfy needs.

  • Truly, land for construction is not merely instrumental to the exercise of the activity; on the contrary, it forms part of the very core of the economic activity, it is the object of commerce or industry, since it is destined for resale or for transformation should constructions be erected thereon for subsequent sale.

  • Differently, the immovable property excluded from the subjection to AIMI, pursuant to section 2 of article 135-B of the IMI Code, is that which performs an instrumental function to industrial, commercial or service economic activities, inasmuch as it constitutes buildings that serve to support the functioning of such activities, and is not in itself a generator of revenues.

  1. Given the absence of any situation provided for in article 18, section 1, of the RJAT, which would make necessary the arbitral meeting therein provided, the holding of such meeting was dispensed with, on the grounds of the prohibition of useless acts.

Notified to submit written submissions, the parties did not exercise this option.

  1. The tribunal is materially competent and is regularly constituted pursuant to the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented.

The proceedings are not vitiated by defects that would invalidate them.

  1. It is necessary to resolve the following issues:
  1. Illegality of the assessment due to material unconstitutionality of the rules contained in articles 135-A et seq. of the IMI Code, amended by Law no. 42/2016, of 28.12, when applied to a company whose object is the purchase, sale and resale of immovable property.

In the case of a declaration of illegality of the assessment,

  1. Recognition of the Claimant's right to restitution of the tax paid.

and

  1. Recognition of the right to compensatory interest.

II – THE RELEVANT FACTS

  1. The following facts are considered proven:

  2. The Claimant is a limited liability company whose sole corporate object is the purchase, sale and resale of immovable property, for which it is subject to corporate income tax (IRC) since the beginning of its activity.

  3. The Claimant is the owner of urban properties located at …, in the parish of …, …, registered in the respective property matrix under articles …, …, …, …, …, …, …, …, …, …, …, …, …, …, …, …, …, …, and … which are land plots for construction and result from the exercise of the Claimant's activity.

  4. The land for construction referred to constitutes inventory of the Claimant.

  5. The assessment in question is based on Law no. 42/2016, of 28/02, which added to the IMI Code, Chapter XV, with the heading "Additional tax on municipal property tax", which comprises articles 135-A to 135K.

With interest for the resolution of the case, there are no unproven facts.

  1. The Tribunal's conviction regarding the resolution of the factual matter was based on the documents contained in the file, namely the Claimant's commercial certificate, property notebooks of the immovable property and notification of the assessment, and regarding the Claimant's tax registration and the accounting classification of the land plots, on the absence of objection by the Respondent to such facts evaluated in light of the rules of experience, also bearing in mind that these are elements in the possession of the Respondent itself, and further noting that no disagreement has been expressed between the parties regarding the factual matter.

III – THE APPLICABLE LAW

  1. Article 135-B of the IMI Code, amended by Law no. 42/2016, of 28 December, the rule of objective incidence of the regime of the Additional Tax on Municipal Property Tax whose constitutional conformity is questioned, establishes the following:

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

2 – Excluded from the additional tax on municipal property tax are urban properties classified as 'commercial, industrial or for services' and 'others' pursuant to subsections b) and d) of section 1 of article 6 of this Code."

As is commonly accepted, the principle of taxpaying capacity constitutes the criterion for assessing the application of the principle of tax equality, and also constitutes a prerequisite for taxation.[2] [3]

The legislator of AIMI, within the scope of its powers of free legislative configuration, excludes from taxation urban properties classified as "commercial, industrial or for services" and "others". Therefore, companies that are owners of this type of immovable property are not subject to taxation under AIMI.

A question that may be raised in the case before us is whether, in light of that exclusion and the principle of tax equality, the taxation of land plots destined for construction owned by a company whose sole corporate object is the marketing thereof would be legitimate.

It must be noted that such assets when owned by this type of companies constitute assets intended to be transacted, not being an indication of taxpaying capacity but a necessary condition for the exercise of an economic activity, similar to what occurs with a company that is the owner of other types of merchandise, which it holds for commerce within the scope of its activity.

As may be read in case 507/2015-T,[4] regarding the extinct item 28 of the TGIS:

"The Claimants are commercial companies that regularly exercise, as an activity comprised in their respective corporate objects, the activity of purchase of land for construction and for resale.

The Claimants argue, in summary, that the ownership of land for construction of dwellings consists, in the case of commercial companies of this type, in the patrimonial substrate of their economic activity, the concretization of a truly essential means to the pursuit of their economic activity generating revenue, so there completely fails the premise that ownership of such land could constitute an indication (or symptom) of a (or an increased) taxpaying capacity or 'wealth'.

The Claimants further add that

– it is quite possible 'that companies/enterprises of this kind be, for example, owners of several land plots for construction with tax values exceeding one million Euros while simultaneously presenting situations with negative net worth, or, at least, successive losses at the end of several fiscal periods, namely because it may not be possible to realize revenues or, much less, profit, through the resale of the mentioned land plots',

– that 'within the scope of their economic activity, it is also perfectly reasonable that, for example, commercial real estate companies opt, within the context of their business, to keep in their portfolio land intended for construction (which they acquired for resale – and even if nothing is constructed thereon) for several years, in order to await better market conditions', and

– that 'subjecting to taxation, through capital tax, during those several years (and in all those years), the ownership of these same land plots would produce an aggravated effect of decapitalization, damaging, perhaps decisively, the economic conditions (and the development of the respective activity) of the said passive subjects of the tax (companies of investment and real estate commerce);

– such taxation through capital tax, in the hypothesis that it could apply to real estate commerce companies, would penalize in an aggravated manner from a fiscal perspective the entities that, within the scope of freedom of economic initiative, opted for this sector of activity, to the detriment of others, unacceptably taking as an index or sign of an increased taxpaying capacity what is merely a productive factor, prerequisite for obtaining true revenue-product, or simply a means of exercising a given economic activity;

These considerations appear pertinent and appropriate.

It is unequivocal that companies engaged in the marketing of land for construction face a significant additional burden compared to the generality of companies, based on a hypothetical index of taxpaying capacity that does not necessarily correspond to reality, since the imposition of taxation has no relationship whatsoever with the real income of the activity carried out by the companies and burdens them even when they have negative results, the taxation being accentuated, accumulated annually, precisely in situations where, due to the lack of success of the marketing activity, the land is held for several years and, therefore, there would be less justification for the imposition of additional taxation, exclusive to this type of company.

On the other hand, neither is there any reason to distinguish between companies that market land for construction of residential buildings and those that market land for other purposes.

Therefore, also from this perspective, item 28.1 of the TGIS materializes an unjustified negative discrimination against companies engaged in the marketing of land for construction, which entails its material unconstitutionality, for violation of the principle of equality."[5] [6]

Also in the case at hand there is an unjustified negative discrimination, as it lacks rational foundation the taxation under this new tax of land for construction owned by a company whose economic activity is precisely the purchase and sale of immovable property and which are therefore clearly restricted to a commercial purpose when, simultaneously, the law excludes from taxation immovable property destined for commerce, industry or services. It might even be said that the reason for the tax exclusion applies with greater intensity in companies whose sole economic activity is precisely the purchase and sale of immovable property, since the ownership thereof constitutes a necessary condition for the exercise of their own activity, manifestly not being an indication of economic affluence.[7] While other companies may exercise their activity without the ownership of immovable property (using the same through other legal instruments, such as the lease contract, for example), companies with such a corporate object may only exercise such activity if they are owners of immovable property. Otherwise, naturally, such activity may not be exercised.

The nature of these companies could justify, in relation to the others, positive discrimination, similar to what occurs under Municipal Property Tax[8] and Municipal Tax on Onerous Transfers of Immovable Property,[9] never negative discrimination.[10]

On the other hand, there also lacks rational foundation the discrimination between these companies that market land plots and those that market other types of immovable property not subject to the tax and even in relation to the generality of companies that engage in the purchase and sale of other types of goods (whose merchandise may also have very significant patrimonial value), taxing the former and not the latter.

The taxation in question is thus arbitrary, which materializes an unjustified negative discrimination against companies engaged in the marketing of land for construction, implying material unconstitutionality, for violation of the principle of equality.

In light of the foregoing, it is concluded, for what matters for the resolution of the present proceedings, that article 135-B of the IMI Code is materially unconstitutional, inasmuch as it subjects to taxation under AIMI the ownership of land for construction belonging to companies whose object is the marketing of immovable property.

Consequently, the assessment that is the subject of the present proceedings is vitiated by a defect of violation of law, by constituting an error as to the legal prerequisites for the application of a materially unconstitutional rule, which has as a consequence its annulment (article 163, section 1, of the Administrative Procedure Code).

  1. Request for Restitution of Sums Paid and Compensatory Interest

The Claimant further requested the condemnation of the Respondent to reimburse the sums wrongfully collected, as well as the payment of compensatory interest that may be owed, pursuant to article 43 of the General Tax Law.

In the case in question, it is manifest that, following the illegality of the assessment acts, the request of the Claimant for restitution is well-founded by virtue of articles 24, section 1, subsection b), of the RJAT and 100 of the General Tax Law, since such is essential to restore the situation that would exist if the illegality in question had not been committed.

As regards compensatory interest, this request must also be evaluated in light of article 43 of the General Tax Law.

As was decided in the arbitral decision delivered in case 507/2017-T:[11]

"As regards compensatory interest, given that these are defects derived solely from the application of an unconstitutional rule, it must be understood that the assessments do not suffer from any error that is imputable to the services of the Tax and Customs Authority, so there is no right to compensatory interest, in light of the provisions of article 43, section 1, of the General Tax Law, as the Supreme Administrative Court has been deciding uniformly, for the following reasons:

In that case, unless there is a question of disrespect for constitutional rules that are directly applicable and binding, such as those referring to rights, liberties and guarantees (see article 18, section 1, of the CRP), the Tax Authority cannot refuse to apply the rule on the grounds of unconstitutionality (Of interest on the issue, see the opinions of the Consultative Council of the Office of the Attorney General referred to in the Collection of Opinions of the Office of the Attorney General, volume V, items 10, 3, 3.2 – respectively, with the headings 'Review of constitutionality', 'Subsequent review' and '(Non)application of an unconstitutional rule (powers and duties of the Public Administration)' –, whose doctrine we follow.). For the Administration in general is subject to the principle of legality, enshrined constitutionally, and the Tax Authority is so also by virtue of the provisions of article 55 of the General Tax Law.

In our view, the Tax Authority should await the declaration of unconstitutionality with generally binding force, to be issued by the Constitutional Court (TC), pursuant to article 281 of the CRP.

For as VIEIRA DE ANDRADE says, 'This conflict [between constitutionality and the principle of legality] cannot be resolved through the automatic prevalence of constitutional law over statutory law. That is not what is at issue, because what is at stake is not the constitutionality of the law, but the judgment that administrative bodies may make on that constitutionality. On the one hand, the Administration is not an organ of review of constitutionality; on the other hand, the subjection of the Administration to the law aims not only at the protection of the rights of individuals, but also at the defense and pursuit of public interests […]. The granting to the administrative power of unlimited powers for control of the unconstitutionality of the laws to apply would lead to administrative anarchy, would reverse the Law-Administration relationship and would directly violate the principle of the separation of powers, as enshrined in our Constitution' (Constitutional Law, Almedina, 1977, p. 270.).

Similarly, JOÃO CAUPERS states that 'the Administration does not have, in principle, competence to decide the non-application of rules whose constitutionality gives it doubts, contrary to courts, to whom falls the diffuse and concrete review of constitutional conformity, which is demonstrated by the differences between articles 207 [today, 204] and 266, section 2, of the Constitution. While the former prevents courts from applying unconstitutional rules, the latter provides for the subordination of administrative organs and agents to the Constitution and the law.

It appears clear that the essential difference between the two provisions stems exactly from the circumstance that it was not intended to entrust the Administration with the task of review of the constitutionality of laws. The performance of such function by the latter must be viewed as exceptional' (Fundamental Rights of Workers and the Constitution, Almedina, 1985, p. 157.).

We conclude, therefore, that in Portuguese Constitutional Law there is no possibility of the Administration refusing to obey a rule that it considers unconstitutional, substituting itself for the organs of review of constitutionality, unless there is a question of violation of rights, liberties and guarantees constitutionally enshrined, which is manifestly not the case when it is a question of the application of a rule possibly violating the principle of non-retroactivity of tax law.

In line with this jurisprudence, the request for compensatory interest is to be judged unfounded, without prejudice to the right to reimbursement of the sums paid, which are to be calculated by the Tax and Customs Authority in execution of the present decision."

Following this jurisprudence, the request for condemnation of the Respondent to payment of compensatory interest is judged unfounded.

IV – DECISION

The arbitral tribunal therefore decides:

  • To judge the request for arbitral pronouncement well-founded and, in consequence, to decree the annulment of the assessment that is the subject of the proceedings;

  • To judge well-founded the request for reimbursement of the sum paid by the Claimant corresponding to the assessment and to condemn the Tax and Customs Authority to return such amount to it;

  • To judge unfounded the request for payment of compensatory interest and to absolve the Respondent of this request;

Let notice be given to the Attorney General, for the purposes of article 280, section 5, of the CRP.

Value of the action: 10,485.48 € (ten thousand four hundred and eighty-five euros and forty-eight cents) pursuant to the provisions of article 306, section 2, of the Code of Civil Procedure and 97-A, section 1, subsection a), of the Code of Tax Procedure and 3, section 2, of the Regulations on Costs in Arbitration Proceedings.

Costs borne by the Respondent, in the amount of 918.00 € (nine hundred and eighteen euros) pursuant to section 4 of article 22 of the RJAT.

Let notice be given.

Lisbon, CAAD, 27 June two thousand and eighteen.

The Arbitrator

Marcolino Pisão Pedreiro

REFORM OF ARBITRAL DECISION

  1. On 20.11.2017, the Claimant, A..., Lda., NIF..., with registered office at Rua ..., nº..., ..., ..., requested the CAAD to constitute an arbitral tribunal, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Respondent is the Tax and Customs Authority, with a view to annulling the assessment of AIMI tax, dated 30.06.2017, relating to the year 2017, in the amount of €10,415.48.

The Claimant, alleging that it paid the amount of the tax, also petitioned for the restitution thereof, plus compensatory interest.

By decision delivered on 27.06.2018, the arbitral tribunal found the following facts to be proven:

  1. The Claimant is a limited liability company whose sole corporate object is the purchase, sale and resale of immovable property, for which it is subject to corporate income tax (IRC) since the beginning of its activity.

  2. The Claimant is the owner of urban properties located at ..., in the parish of ..., ..., registered in the respective property matrix under articles ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., and..., which are land plots for construction and result from the exercise of the Claimant's activity.

  3. The land for construction referred to constitutes inventory of the Claimant.

  4. The assessment in question is based on Law no. 42/2016, of 28/02, which added to the IMI Code, Chapter XV, with the heading "Additional tax on municipal property tax", which comprises articles 135-A to 135K.

In the arbitral decision, the arbitral tribunal judged "materially unconstitutional, article 135-B of the IMI Code insofar as it subjects to taxation under AIMI the ownership of land for construction belonging to companies whose object is the marketing of immovable property." and that, consequently, "the assessment that is the subject of the present proceedings is vitiated by a defect of violation of law, by constituting an error as to the legal prerequisites for the application of a materially unconstitutional rule, which has as a consequence its annulment (article 163, section 1, of the Administrative Procedure Code)".

In accordance therewith, it decided:

a) To judge the request for arbitral pronouncement well-founded and, in consequence, to decree the annulment of the assessment that is the subject of the proceedings;

b) To judge well-founded the request for reimbursement of the sum paid by the Claimant corresponding to the assessment and to condemn the Tax and Customs Authority to return such amount to it.

Against this decision, the Respondent appealed to the Constitutional Court which, by decision of 29 May 2019 (decision 306/2019, case 756/2018, 3rd section), decided:

"a) Not to judge unconstitutional the rule contained in article 135-B, sections 1 and 2, of the Code of Municipal Property Tax, amended by article 219 of Law no. 42/2016, of 28.12, in the segment in which it subjects to taxation under additional tax on municipal property tax (AIMI) the ownership of land for construction belonging to companies whose object is the marketing of immovable property.

And, in consequence,

b) To grant standing to the present appeal, determining the reform of the appealed decision in accordance with the preceding judgment of non-unconstitutionality."

In accordance with the learned decision of the Constitutional Court, the arbitral tribunal reforms the decision in the following terms:

a) It judges the request for arbitral pronouncement unfounded and, in consequence, decides not to decree the annulment of the assessment that is the subject of the proceedings, which thus remains in the legal order;

b) It judges unfounded the request for reimbursement of the sum paid by the Claimant corresponding to the assessment and absolves the Tax and Customs Authority of the request for condemnation to return such amount to it;

The decision to judge unfounded the request for payment of compensatory interest and to absolve the Respondent of this request is maintained;

In consequence, the costs in the amount of 918.00 € (nine hundred and eighteen euros) pursuant to section 4, of article 22, of the RJAT, are borne by the Claimant.

Let notice be given.

Lisbon, CAAD, 8.07.2019.

The Arbitrator

Marcolino Pisão Pedreiro

Frequently Asked Questions

Automatically Created

What is AIMI (Adicional ao Imposto Municipal sobre Imóveis) and how does it apply to real estate companies in Portugal?
AIMI (Adicional ao Imposto Municipal sobre Imóveis) is an additional tax on municipal property introduced in Portugal's 2017 State Budget (Law 42/2016). It applies to the aggregated taxable value of urban properties held by individuals, undivided estates, and companies. For real estate companies in Portugal, AIMI is particularly controversial because it taxes construction land ('terrenos para construção') held as inventory for resale. Unlike commercial, industrial, or service properties which are excluded under Article 135-B of the IMI Code, construction land remains subject to AIMI even when it constitutes working capital rather than passive investment. Real estate development companies argue this creates unfair discrimination since their inventory—land transformed through urbanization activities—is taxed differently from inventory held by other business sectors, despite already being subject to IRC (corporate income tax) on profits from sales.
Can the constitutionality of AIMI be challenged under the Portuguese Constitution's principle of contributive capacity (Article 104 CRP)?
Yes, the constitutionality of AIMI can be challenged under Article 104 of the Portuguese Constitution (CRP), which enshrines the principle of contributive capacity. In Process 603/2017-T, the claimant argued that AIMI violates this principle by taxing real estate companies based solely on ownership of construction land inventory, without considering that this represents working capital in their business operations rather than disposable wealth. The principle of contributive capacity requires taxation to reflect actual economic ability to pay, traditionally measured through income, consumption, or passive wealth. The claimant contended that taxing business inventory—already subject to IRC on realized profits—exceeds constitutional limits of proportional equality when combined with Article 13 (equality) and Article 18 (proportionality) of the CRP. However, the Tax Authority countered that Article 4 of the General Tax Law explicitly recognizes asset ownership as a valid expression of taxpaying capacity, and cited Constitutional Court Decision 695/2014 affirming legislative freedom to configure tax systems within reasonable bounds, provided choices are not arbitrary.
Are construction land plots (terrenos para construção) held as inventory by real estate companies subject to AIMI taxation?
Yes, construction land plots ('terrenos para construção') held as inventory by real estate companies are subject to AIMI taxation under the current Portuguese legal framework. Article 135-B of the IMI Code, which defines AIMI exemptions, excludes only properties classified as 'commercial, industrial or for services' and 'others' under Article 6(1)(b) and (d) of the IMI Code. Construction land, typically classified for residential development purposes, does not fall within these exempted categories. This creates significant controversy for real estate development companies whose business model involves acquiring rural land, urbanizing it, and selling construction-ready plots. In Process 603/2017-T, the claimant company argued this treatment is unconstitutional because their construction land inventory represents tradable assets (working capital) integral to their IRC-taxed business operations, not passive wealth accumulation. The company maintained that unlike idle property held for appreciation, their urbanized land results from active business transformation, making AIMI taxation on such inventory fundamentally different from taxation on investment property and discriminatory compared to how other industries' inventories are treated.
What types of properties are excluded from AIMI under Article 135-B of the Portuguese IMI Code?
Article 135-B of the Portuguese IMI Code establishes specific exclusions from AIMI taxation. Properties classified as 'commercial, industrial or for services' under Article 6(1)(b) of the IMI Code are exempt from AIMI, as are properties classified as 'others' under Article 6(1)(d). These exclusions recognize that such properties typically serve productive business purposes rather than representing passive wealth accumulation. However, notably absent from these exclusions are residential properties ('prédios urbanos habitacionais') and construction land ('terrenos para construção'), which remain subject to AIMI. This legislative choice has generated constitutional challenges, particularly from real estate development companies that argue their construction land inventory should be treated similarly to commercial or industrial property since it represents working capital in their business operations. The exclusion framework reflects the legislator's policy decision to target residential property wealth and development land while exempting operational business premises, though critics argue this distinction creates unjustified inequality between different business sectors and fails to account for the functional differences between passive investment property and active business inventory held for transformation and resale.
How does CAAD handle reform of arbitral decisions and what was the outcome in Process 603/2017-T?
CAAD (Centro de Arbitragem Administrativa) handles reform of arbitral decisions through a specific procedural framework established in the RJAT (Legal Framework for Arbitration in Tax Matters). Process 603/2017-T is notable because the decision text indicates it 'Substitutes the decision of 27 June 2018 (attached)', suggesting the original arbitral decision underwent reformation. While the excerpt provided does not detail the complete outcome or the reasons for reformation, it establishes the procedural context: the arbitral tribunal was constituted on 6 February 2018 with a single arbitrator appointed by the President of the Deontological Council. The case involved a constitutional challenge to AIMI taxation of €10,415.48 assessed against a real estate development company for 2017. The reformation of the original decision suggests either procedural irregularities, substantive errors requiring correction, or new considerations necessitating review. The fact that a reformed decision was issued demonstrates CAAD's quality control mechanisms and commitment to ensuring arbitral decisions meet legal and procedural standards. The case remains significant for establishing precedent on AIMI's constitutionality regarding construction land held by real estate companies, though the final substantive outcome requires reviewing the complete reformed decision.