Process: 633/2018-T

Date: September 13, 2019

Tax Type: IMI

Source: Original CAAD Decision

Summary

CAAD Arbitral Decision 633/2018-T addressed whether real estate companies are subject to Additional Municipal Property Tax (AIMI) on properties held for their core business activities. Four companies challenged AIMI assessments totaling €17,667.59 for 2017, arguing that properties instrumental to their real estate business should be exempt. The claimants—engaged in property acquisition, leasing, development and construction—contended that AIMI was designed to tax wealth indicators, not assets essential to economic activity. They argued that taxing real estate companies on properties core to their corporate purpose would effectively tax their business operations, contrary to legislative intent. Additionally, they challenged the inclusion of construction land (terrenos para construção) in the taxable base, asserting that land destined for commercial, industrial or service purposes should be excluded under Article 135-B(2) of the IMI Code, which exempts such properties from AIMI. The companies also raised constitutional concerns about the AIMI regime. The tribunal accepted the coalition of parties and cumulation of claims under Article 3(1) of RJAT, as all assessments involved identical factual circumstances and legal principles. The case reflects broader debates about whether AIMI applies to properties held by real estate companies as business inventory versus investment assets, and the proper treatment of construction land under Portuguese tax law.

Full Decision

ARBITRAL DECISION

Report

On 12-12-2018, the companies A..., S.A., legal entity no. ..., with registered office at Rua ..., no. ..., ...-... ..., B..., UNIPESSOAL, LDA, legal entity no. ..., with registered office at Rua ..., no. ..., ...-... ..., C..., UNIPESSOAL, LDA, legal entity no. ..., with registered office at Rua ..., no. ..., ...-... ..., D..., S.A., legal entity no. ..., with registered office at Rua ..., no. ..., ...-... ..., hereinafter referred to as the Claimants, presented, in coalition, a request for the constitution of an arbitral tribunal, with a view to the immediate declaration of illegality of the acts rejecting the gracious complaints lodged, and indirectly, the declaration of illegality of the acts of assessment of Additional Municipal Property Tax (AIMI) no. 2017..., 2017..., 2017... and 2017..., with reference to the year 2017, in the total amount of €17,667.59.

The request for constitution of the Arbitral Tribunal was accepted by the Honorable President of CAAD on 13-12-2018 and notified to the Respondent on the same date.

The Claimants did not proceed with the appointment of an arbitrator, whereupon, under the provisions of article 6, paragraph 2, letter a) of the RJAT, Dr. Suzana Fernandes da Costa was appointed as arbitrator by the President of the Deontological Council of CAAD on 06-02-2019, with the appointment having been accepted within the legally prescribed timeframe and terms.

On the same date, the parties were duly notified of this appointment, and did not express any intention to reject the appointment of the arbitrator, in accordance with article 11, no. 1, letters a) and b) of the RJAT, in conjunction with articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provisions of letter c), paragraph 1, of article 11 of the RJAT, the Arbitral Tribunal was constituted on 26-02-2019.

On 27-02-2019, an order was issued requiring notification of the Respondent to present its response within 30 days and, if it so wished, to request the production of additional evidence and to send the arbitral tribunal a copy of the administrative file within the deadline for submission of the response.

On 01-04-2019, the Respondent submitted its response and attached the administrative file to the case.

On 16-04-2019, an order was issued, in accordance with the principles of autonomy of the Arbitral Tribunal in the conduct of the proceedings, expedience, simplification and procedural informality, dispensing with the meeting provided for in article 18 of the RJAT, and granting a period of 20 days for the parties to submit arguments. In the same order, the parties were invited to send the documents produced in Word format within 30 days, and the date of 31-07-2019 was set for the issuance of the arbitral decision. The Claimants were also warned to make payment of the subsequent arbitral fee by that date.

On 27-05-2019, the Respondent attached to the case the ruling of the Constitutional Court no. 299/2019 of 21 May.

The Claimants attached to the case, on 29-05-2019, proof of payment of the subsequent arbitral fee.

Neither party chose to submit arguments.

On 31-07-2019, an order was issued extending the deadline for issuance of the arbitral decision to 13-09-2019, as the decision of the case had not yet been completed.

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

The arbitral request is timely, in accordance with article 10, no. 1, letter a) of Decree-Law no. 10/2011 of 20 January and article 102, no. 1, letter a) of the Tax Procedure and Process Code.

The case is not affected by any nullities and no preliminary issues were raised, with the exception of cumulation of claims and coalition of parties, which shall be decided below.

The Claimants request the cumulation of claims and coalition of parties, arguing that the acts of assessment of AIMI in question are based on the same factual circumstances and result from the interpretation and application of the same legal principles or rules. They further argue that the Claimants are companies integrated in the same group, and make reference to article 3, no. 1 of the RJAT.

Article 3, no. 1 of the RJAT states that "the cumulation of claims, even if relating to different acts, and coalition of parties are admissible when the merits of the claims depend essentially on the assessment of the same factual circumstances and on the interpretation and application of the same legal principles or rules".

Only materially connected claims for which the tribunal is competent may be cumulated in tax arbitral proceedings, which is the case in the present case.

Thus, in this case, cumulation of claims is admitted, in accordance with articles 104 of the CPPT and 3 of the RJAT.

As regards coalition of parties, according to the same article 3, no. 1 of the RJAT, the same is admissible when we are dealing with the assessment of identical factual circumstances and the application of the same principles and rules of law, which is the case in the present arbitral proceeding.

Thus, coalition of parties is admitted under the provisions of articles 3, no. 1 of the RJAT, 104 of the CPPT and 36, no. 2 of the CPC.

2. Position of the Parties

The Claimants begin by stating that they engage in real estate activities, with the following corporate purposes:

  • acquisition and leasing of buildings, in the case of A..., SA;
  • purchase and sale and leasing of real estate, in the case of B..., Unipessoal, Lda;
  • purchase and sale of real estate, in the case of C..., Unipessoal, Lda;
  • construction and marketing of buildings, in the case of D..., SA.

They state that, despite not agreeing with the assessments in question, they chose to proceed with their payment and filed gracious complaints against each of them.

Said gracious complaints were expressly rejected on the grounds that the real estate held by the Claimants, classified as residential urban properties and land for construction, were subject to AIMI.

The Claimants argue that the assessments under challenge are affected by a defect of breach of law, due to errors in the factual and legal assumptions, and should be annulled.

For the Claimants, the legislator intended, in creating AIMI, to ensure that urban properties used for economic activities would not be subject to taxation under AIMI, acknowledging that mere possession of such properties does not constitute a factor demonstrating wealth, nor is it a sufficient indicator of the taxpayers' capacity to contribute regarding such properties. In the Claimants' view, the legislator intended not to place an excessive tax burden on taxpayers who, by virtue of their economic activities, hold real estate for the pursuit of their corporate purpose.

The Claimants argue that the holding of real estate assumes an instrumental function in the pursuit of their economic activities, that is, the real estate is necessary or essential for the performance of their corporate purpose. For this reason, the Claimants contend that the ownership of real estate cannot presume that the portfolio of real estate held is demonstrative of wealth or an indicator of capacity to contribute for AIMI taxation purposes.

For the Claimants, taxation of the real estate they hold would be directly taxing an economic activity, which the legislator sought to avoid when creating AIMI.

On the other hand, the Claimants also state that they cannot accept that the Tax Authority considered, in determining the taxable property value (VPT) subject to AIMI in the assessments in question, land for construction whose potential use coincides with commercial, industrial or services purposes, since article 135-B, no. 2 of the IMI Code provides that urban properties classified as commercial, industrial or for services are excluded from AIMI.

Subsidiarily, the Claimants contend that the AIMI taxation regime is contrary to the principles of equality and capacity to contribute, requesting that articles 135-A and 135-B of the IMI Code be disapplied as manifestly unconstitutional.

Finally, the Claimants request the reimbursement of the tax improperly paid, together with compensatory interest, in accordance with articles 43 and 100 of the LGT.

For its part, the Respondent, the Tax Authority and Customs Authority (AT), in its response, presented a defense by impugnation, stating first that AIMI applies to land for construction, regardless of the potential allocation that may be assigned to it, since it does not appear in the negative scope of application.

The AT further argues that the legislator, despite having excluded from application urban properties classified as industrial, commercial or services and others, expressly chose to maintain other properties that also form part of companies' assets, such as those classified as residential or land for construction. Thus, for the AT, these urban properties classified as residential and land for construction were not included in the negative scope of AIMI and are therefore subject to taxation, even if such real estate property is used in the exercise of any economic activity.

For the AT, and given its position, there is no illegality in the AIMI assessments in question.

Regarding the alleged breach of the principles of equality and capacity to contribute by the Claimants, the AT states that there is no breach of these principles in the AIMI taxation regime.

To support its position, the Respondent makes reference to various decisions issued by CAAD.

As to the request for payment of compensatory interest made by the Claimants, the AT argues that such request should fail, since there is no illegality in the assessments in question in the case.

3. Factual Issues

3.1. Proven Facts:

Based on analysis of the documentary evidence produced and the position of the parties as shown in the procedural documents, the following facts are considered proven and relevant to the decision of the case:

  • The Claimants are commercial companies that develop their activities in the real estate sector;

  • The Claimant A..., SA has as its purpose the acquisition and leasing of buildings;

  • The Claimant B..., Unipessoal, Lda has as its purpose the purchase, sale and leasing of real estate;

  • The Claimant C..., Unipessoal, Lda has as its purpose the purchase and sale of real estate;

  • The Claimant D..., SA has as its corporate purpose the construction and marketing of buildings;

  • The Claimant A..., SA was notified of the AIMI assessment no. 2017..., relating to the year 2017, in the amount of €925.47, with payment deadline until 30-09-2017, relating to urban properties registered in the cadastre under articles ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and ..., classified as land for construction;

  • The Claimant B..., Unipessoal, Lda was notified of AIMI assessment no. 2017..., relating to the year 2017, in the amount of €71.36, with payment deadline until 30-09-2017, relating to the urban property registered in the cadastre under article ... and classified as residential;

  • The Claimant C..., Unipessoal, Lda was notified of AIMI assessment no. 2017..., relating to the year 2017, in the amount of €560.56, with payment deadline until 30-09-2017, relating to urban properties registered in the cadastre under articles ... and ..., classified as residential;

  • The Claimant D..., SA was notified of AIMI assessment no. 2017..., relating to the year 2017, in the amount of €16,110.20, with payment deadline until 30-09-2017, relating to urban properties registered in the cadastre under articles ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and ..., classified as land for construction;

  • The urban properties registered in the cadastre under articles ..., ... and ... are residential properties (admitted by agreement in the decisions on the gracious complaints issued by the AT).

  • The urban properties registered in the cadastre under articles ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and ... are land for construction.

  • All the Claimants proceeded with the payment of the assessments mentioned above.

  • All the Claimants filed gracious complaints against the AIMI assessments of which they were notified;

  • The gracious complaints presented were the subject of a rejection order issued by the Chief of the Tax Service Office of Sintra ..., with the Claimants being notified on 14-09-2019;

  • The Claimants filed the present request for arbitral pronouncement on 12-12-2018.

No other facts relevant to the decision of the case were proven.

3.2. Unproven Facts

It was not proven that the land for construction registered in the cadastre under articles ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and ... were intended for residential or commercial, services or industrial use, since property record sheets were not submitted, and there is no document that proves these facts in either the arbitral request or the administrative file, nor were such facts admitted by agreement of the parties.

3.3. Grounds for the Proven Factual Issues:

The arbitrator's conviction was based on the documents attached to the case by the Claimants and on the position of the parties as demonstrated in the procedural documents produced.

4. Legal Issues:

4.1. Object and Scope of the Present Proceeding

The essential legal issues that arise in this proceeding are as follows:

  • Whether residential properties and land for construction held by legal entities in the context of economic activities related to leasing, purchase and sale of real estate and construction are or are not subject to taxation under AIMI;

  • Whether land for construction whose potential use coincides with commercial, industrial or services purposes are or are not subject to AIMI;

  • And whether the subjection to AIMI of land for construction with the purposes indicated above constitutes or does not constitute a breach of the principle of equality.

4.2. On the Possible Illegality of AIMI Assessments Due to the Fact that the Real Estate is Held by Legal Entities with the Activities of the Claimants

As stated in the proven factual issues, the corporate purposes of the Claimants are as follows:

  • acquisition and leasing of buildings, in the case of A..., SA;
  • purchase and sale and leasing of real estate, in the case of B..., Unipessoal, Lda;
  • purchase and sale of real estate, in the case of C..., Unipessoal, Lda;
  • construction and marketing of buildings, in the case of D..., SA.

The Claimants argue that, given their corporate purposes, the holding of the real estate identified in the case should not be subject to AIMI under penalty of breach of law due to errors in the factual and legal assumptions. Let us examine this.

Law no. 42/2016 of 28-12 (State Budget Law for 2017) added the AIMI regime to the IMI Code in articles 135-A to 135-K.

Article 135-A of the IMI Code defines the subjective scope of this tax, by stating that "passive subjects of the additional municipal property tax are natural or legal persons who are owners, usufructuaries or surface rights holders of urban properties situated in Portuguese territory".

Article 135-B of the IMI Code defines the objective scope of this tax and establishes the following:

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

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

Article 6 of the IMI Code establishes that:

"1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Others.

2 - Residential, commercial, industrial or services are buildings or constructions licensed for such purposes or, in the absence of a license, which have as their normal destination each of these purposes.

3 - Land for construction is considered to be land located within or outside an urban agglomeration for which a license or authorization has been granted, prior communication admitted or favorable prior information issued for subdivision operations or construction, and also those that have been declared as such in the acquisition deed, except for land in which the competent authorities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal spatial planning plans, are assigned to spaces, public infrastructure or facilities.

4 - The prediction of letter d) of paragraph 1 includes land located within an urban agglomeration that is not land for construction nor is covered by the provision of paragraph 2 of article 3, and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination purposes other than those referred to in paragraph 2 and also those in the exception of paragraph 3".

The wording of article 135-B of the CIMI approved by the State Budget Law for 2017 does not exclude the application of AIMI to properties used for residential purposes and land for construction used by legal entities in the context of their economic activity.

As stated in the CAAD decision of case no. 420/2018-T, "the legislative concern to 'avoid the impact of this tax on economic activity' was announced in the Proposal of the State Budget Law for 2017 and was realized, to some extent, through the exclusion from the scope of application of 'urban properties classified as 'industrial' species, as well as urban properties licensed for tourism activity, the latter provided that its purpose is duly declared and proved' and the deduction from the taxable amount of the amount of '€600,000.00, when the passive subject is a legal entity with agricultural, industrial or commercial activity, for properties directly assigned to its operation'. However, the exclusion of application was not defined on the basis of the activity to which the properties are assigned, as in the wording that was ultimately approved, the non-application was defined only on the basis of the types of properties indicated in article 6 of the CIMI, with no reference whatsoever to the assignment to the operation of legal entities."

On this issue, numerous CAAD decisions have already ruled, such as: 109/2019-T, 46/2019-T, 700/2018-T, 420/2018-T and 664/2017-T.

We consider, as did the CAAD ruling of case no. 420/2018-T, presided over by Counselor Jorge Lopes de Sousa, that "the holding of real estate property of high value, regardless of whether or not it is assigned to economic activity, is tendentially indicative of high capacity to contribute, higher than that which may be presumed to exist when property of reduced value is held or when no property exists, and therefore, in principle, the limitation of taxation to the first situations is justified".

Also José Maria Pires, in the manual "O Adicional ao IMI e a tributação pessoal do património" (Additional IMI and Personal Property Taxation), Almedina, 2017, page 7, states that AIMI "aims to tax wealth in a progressive manner, above a certain value, when the holders are natural persons, and all the wealth of legal entities, regardless of value and at a proportional rate".

The recent Constitutional Court ruling no. 299/2019 of case no. 752/2018 states that "it is not apparent that the statutory pursuit of real estate promotion or exploitation activities would allow to eliminate, regarding all passive subjects whose activity in that field implies the holding of rights over real estate, the taxation of real estate wealth of which they are holders".

Thus, we must conclude that the use of real estate for the economic activities of legal entities does not exclude taxation under AIMI.

4.3 On the Possible Unconstitutionality of AIMI Taxation of Land for Construction Intended for Commerce, Services or Industry

Article 13 of the Constitution of the Portuguese Republic (CPR) establishes the principle of equality of citizens before the law. The principle of equality is a limit on legislative discretion and does not require equal treatment of all situations, but implies that those in equal situations are treated equally and those in unequal situations are treated unequally, so as not to create arbitrary and unreasonable discriminations, because they lack sufficient material foundation.

The principle of equality prohibits distinctions that are arbitrary and devoid of objective and rational justification, as can be read in Constitutional Court rulings no. 128/99 of 03-03-1999, from case no. 140/97 and no. 1057/96 of 16-10-1996, from case no. 347/91, among others.

As stated in the CAAD decision of case no. 420/2018-T, "the capacity to contribute of business legal entities, relevant to assessing the application of the principle of tax equality, is not evidenced solely by income, namely by the results of the activity to which the properties are intended."

The author Sérgio Vasques, in the article titled "Capacidade Contributiva, Rendimento e Património" (Capacity to Contribute, Income and Property), in Tax Review no. 23, page 36, states that "property provides its holder with a special capacity to contribute, advantages that by their nature escape personal income tax: thus, the ownership of property facilitates credit raising, strengthens the negotiating position of its holder in the celebration of various contracts, makes it easier to multiply wealth allowing him to take risks where in principle he would not do so".

In conclusion, we consider that the principles of equality and capacity to contribute are not violated, and that the assessments in question are not affected by any illegality.

On the other hand, and subsidiarily, the Claimants state that they cannot accept that the Tax Authority considered, in determining the taxable property value (VPT) subject to AIMI in the assessments in question, land for construction whose potential use coincides with commercial, industrial or services purposes, since article 135-B, no. 2 of the IMI Code provides that urban properties classified as commercial, industrial or for services are excluded from AIMI.

For the Claimants, the subjection to AIMI of land for construction with the purposes indicated in paragraph 2 of article 135-B of the IMI Code constitutes discriminatory treatment that violates the principle of equality.

Regarding the constitutionality of this issue, the Constitutional Court has already ruled in rulings no. 299/2019 and 494/2019, which decided not to declare unconstitutional the rule extracted from article 135-B, no. 2 of the IMI Code, to the effect of including, within the scope of AIMI application, land for construction with purposes of commerce, industry and services or others.

Article 135-B, no. 2 of the IMI Code provides as follows: "Excluded from the additional municipal property tax are urban properties classified as 'commercial, industrial or for services' and 'others' in accordance with letters b) and d) of paragraph 1 of article 6 of this Code".

The Constitutional Court ruling no. 299/2019 of case no. 752/2018 states that "AIMI constitutes, therefore, a new tax on property, with a partial or analytical scope – it targets the ownership of real estate property and, even within this, only the holding of some typologies of urban properties – and a static nature, aiming to tax the economic force that materializes in the aggregate value of urban properties held by the passive subject and, like other property taxes, such as IMI, regardless of the gain they produce".

The aforementioned ruling states that the introduction of this differentiation in the structure of AIMI is based mainly on reasons of economic policy, of protection of the economic activity of companies holding urban properties.

The same ruling continues by stating that "(…) it was through reasons of an extrafiscal nature that the legislator justified in the Proposal of Law no. 37/XIII the rule of tax exclusion, stating that with it is intended to 'avoid the impact of this tax on economic activity'. The pursuit of that objective – the protection of the economy – in the modulation of a property tax is constitutionally legitimate, as it is aimed at the realization of a priority incumbency of the State: the promotion of economic structures (articles 9, letter d), and 81, letter a) of the Constitution), which presupposes the proper functioning of economic activities. (…) the protection of commerce, as well as of industries, services or other economic activities, is an extrafiscal interest that may prove to be of greater importance than the gains obtained through AIMI revenue collection.

In the final wording, the criteria based on the taxpayer's economic activity were replaced by the reference to the species of urban properties established in article 6 of the CIMI".

The taxation under AIMI of land for construction results from the fact that construction rights or subdivision operations have been constituted therein, which, according to the aforementioned ruling, is "translated into a patrimonial position of its holder and a proper market value, (…) land for construction and built property are not equivalent or assimilable economic realities, in the field of urban real estate property taxation (…)".

The same Constitutional Court ruling no. 299/2019, which we follow closely as we fully agree with its grounds, states that "in fact, and based, as has been seen, on the reason for the non-taxation of urban properties, commercial, industrial, for services or others on the purpose of promoting the proper functioning of economic activities – which implies the creation of incentives for the reallocation of resources to productive purposes, in order to increase economic growth – land for construction can only contribute to that objective in potentiality, in a hypothetical and conditional future, since even if a right to build has been formed, nothing prevents the change of will of its holder with respect to the purpose to be given to the property. Moreover, what is relevant for the purposes of annual taxation under AIMI is the taxable property value of the existing property and as shown in the cadastre, since one cannot tax a future and eventual capacity to contribute, but only the actual and effective capacity to contribute. Land for construction constitutes an economic asset with property value, in itself revealing the capacity to contribute of its holder, and is therefore constitutionally legitimate its inclusion in the property assets globally subject to AIMI; regardless of what may actually be implanted therein. (…)

On the other hand, it is clear that, in pursuance of the purpose of the rule of paragraph 2 of article 135-B of the IMI Code to the objective of not excessively burdening real estate assets with an intermediary function within the business organization of the passive subject, regarding land for construction, this functional nexus is not yet established with sufficient certainty, since its holder is not at all prevented from altering the projected purpose, in order to assign to the construction of properties for residential purposes land initially licensed for construction with other purposes. Already in the case of buildings constructed with purposes of commerce, industry, services or others, even if one cannot exclude the possibility of the existence of non-conformity between normal and materialized use, especially in cases where there is no licensing or other intervention constitutive of rights of public authorities, the legislator assumes that the probability of such a deviation is scarce and, to that extent, that the risk proves insufficient to put into question the configuration of the tax. Such an empirical assessment, which does not appear unreasonable, falls within the margin of freedom of conformation of the democratic legislator, it being not incumbent on the Court to conduct its scrutiny within the framework of the control of equality, in its negative aspect, here invoked".

Thus, we conclude that there is no violation of constitutionally protected principles.

The acts of assessment in question in this case are not affected by illegality due to breach of law, and should remain in the legal order.

Even if it were understood that there would be unconstitutionality in the AIMI assessment of land for construction used for commerce, services or industry, the Claimants failed to prove that the said properties had that same use, since they did not submit any document proving that same use, and therefore the annulment of the respective assessments on that ground would always fail.

5. Compensatory Interest

The Claimants request the reimbursement of the tax improperly paid, together with compensatory interest, in accordance with articles 43 and 100 of the LGT.

Article 43, no. 1 of the LGT provides that: "compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due".

As the declaration of illegality of the assessments in question in the present case fails to succeed, the request for condemnation of the AT to refund the amount paid and to pay compensatory interest also fails.

6. Decision

In light of the foregoing, it is determined:

  • To judge as unmeritorious the requests made by the Claimants in the present arbitral proceeding, regarding AIMI assessments no. 2017..., 2017..., 2017... and 2017..., with reference to the year 2017, in the total amount of €17,667.59;

  • To condemn the Claimants to pay the costs of the present proceeding.

7. Value of the Case:

In accordance with the provisions of article 306, paragraph 2, of the CPC and article 97-A, paragraph 1, letter a) of the CPPT and article 3, paragraph 2 of the Regulation on Costs in Tax Arbitration Proceedings, the value of the action is set at €17,667.59.

8. Costs:

In accordance with article 22, paragraph 4, of the RJAT, and Table I attached to the Regulation on Costs in Tax Arbitration Proceedings, the amount of costs is fixed at €1,224.00, to be borne by the Claimants, in accordance with article 22, paragraph 4 of the RJAT.

Notify.

Lisbon, 13 September 2019.

Text prepared by computer, in accordance with article 138, paragraph 5 of the Code of Civil Procedure (CPC), applicable by cross-reference of article 29, paragraph 1, letter e) of the Tax Arbitration Regime, reviewed by me.

The Arbitrating Judge

(Suzana Fernandes da Costa)

Frequently Asked Questions

Automatically Created

What is the Additional Municipal Property Tax (AIMI) and how does it apply to real estate companies in Portugal?
The Additional Municipal Property Tax (AIMI) is a supplementary property tax in Portugal that applies to the aggregate value of urban real estate holdings exceeding certain thresholds. For real estate companies, AIMI generally applies unless the properties are classified as commercial, industrial or services under Article 135-B(2) of the IMI Code. Real estate companies argue that properties instrumental to their core business activity—such as inventory held by developers or properties for leasing—should be exempt because holding such assets is part of their economic activity rather than a wealth indicator. However, the Tax Authority typically maintains that real estate companies are subject to AIMI unless specific exclusions apply, creating ongoing disputes about whether business-essential properties constitute taxable wealth.
Are construction land plots (terrenos para construção) subject to AIMI taxation under Portuguese tax law?
Construction land plots (terrenos para construção) are generally subject to AIMI taxation under Portuguese law, as they constitute urban property included in the taxable base. However, Article 135-B(2) of the IMI Code excludes urban properties classified as commercial, industrial or for services from AIMI. Taxpayers argue that construction land destined for such purposes should likewise be excluded. The classification depends on the land's intended use and official categorization. If construction land is designated for residential development, it typically remains subject to AIMI. The treatment of construction land held by real estate development companies as business inventory versus investment property remains a contentious issue, with companies contending that land essential to their construction and development activities should not be taxed as wealth indicators.
Can real estate companies challenge the constitutionality of AIMI tax assessments before the CAAD arbitral tribunal?
Yes, real estate companies can challenge both the legality and constitutionality of AIMI tax assessments before the CAAD (Centro de Arbitragem Administrativa) arbitral tribunal. The RJAT (Legal Regime of Tax Arbitration) allows taxpayers to request arbitration challenging tax assessments, including constitutional arguments. In Decision 633/2018-T, the claimants raised constitutional concerns about the AIMI regime as applied to real estate companies. The Constitutional Court's involvement is evidenced by Ruling 299/2019 referenced in the proceedings. Taxpayers must first pay the contested amount and file a gracious complaint (reclamação graciosa) before seeking arbitration. The arbitral tribunal has competence to assess constitutional questions arising from tax disputes, though definitive constitutional rulings rest with the Constitutional Court. This dual-track approach allows comprehensive challenge to AIMI assessments on both administrative legality and constitutional grounds.
What was the outcome of the CAAD arbitral decision 633/2018-T regarding AIMI on real estate companies?
While the full outcome is not disclosed in the excerpt, CAAD Decision 633/2018-T admitted the coalition of four real estate companies challenging €17,667.59 in AIMI assessments for 2017. The tribunal accepted jurisdiction over claims that properties essential to the companies' real estate business activities should be exempt from AIMI, and that construction land destined for commercial, industrial or service purposes should be excluded under Article 135-B(2) of the IMI Code. The case involved companies engaged in property acquisition, leasing, construction and development. The tribunal recognized the claims raised identical legal and factual issues justifying procedural consolidation. Constitutional Court Ruling 299/2019 was introduced into the proceedings, suggesting constitutional dimensions were relevant to the outcome. The decision reflects ongoing litigation regarding whether AIMI applies to real estate held as business inventory by companies whose corporate purpose centers on property activities.
How can taxpayers file a gracious complaint (reclamação graciosa) against AIMI tax assessments in Portugal?
Taxpayers can file a gracious complaint (reclamação graciosa) against AIMI assessments by submitting a written challenge to the Tax Authority within the statutory deadline, typically within 120 days of notification of the assessment under Article 70 of the Tax Procedure Code (CPPT). The complaint must identify the contested assessment, state grounds for challenge (factual errors, legal violations, constitutional issues), and include supporting documentation. In AIMI cases, common grounds include incorrect property valuation, improper classification, or inapplicability of exemptions. Payment of the contested amount is generally required before filing, though taxpayers may request suspension of payment. If the Tax Authority rejects the gracious complaint—as occurred in Decision 633/2018-T—taxpayers can escalate to CAAD arbitration within 90 days of rejection notification under Article 10 of RJAT. The arbitration request must include proof of prior administrative challenge, payment receipts, and legal arguments. This two-tier system allows administrative resolution before formal arbitration.