Process: 641/2018-T

Date: October 16, 2019

Tax Type: IMI

Source: Original CAAD Decision

Summary

Process 641/2018-T addressed the constitutionality of AIMI (Adicional ao Imposto Municipal sobre Imóveis), Portugal's additional tax on municipal property. The claimant, a real estate company owning multiple urban properties in a municipality, challenged AIMI assessment no. 2018... totaling €3,151.09 for the 2018 tax year. The company argued that AIMI violates constitutional principles, particularly the principle of contributive capacity (capacidade contributiva), equality, and proportionality. The case was brought before CAAD (Centro de Arbitragem Administrativa) under the Legal Framework for Tax Arbitration (RJAT). The claimant contended that even if taxation were legally permissible under Article 135-B of the IMI Code, the provision itself was unconstitutional. The Tax Authority (AT) defended the assessment's legality and requested that if the arbitral tribunal found merit in the constitutional challenge, the Public Prosecutor should be notified pursuant to Article 280(3) of the Portuguese Constitution and Article 72(3) of the Constitutional Court Act. The tribunal established facts based on uncontested documentation, including that the claimant operated in the real estate sector, owned various urban properties, and paid the assessed AIMI amount of €3,151.09 on September 28, 2018. The case represents a significant challenge to AIMI's constitutional validity, focusing on whether taxing accumulated real estate wealth respects fundamental tax law principles embedded in Portuguese constitutional jurisprudence. The decision would have implications for property owners and real estate companies subject to AIMI taxation.

Full Decision

Tax Arbitration Jurisprudence

Process No. 641/2018-T

Decision Date: 2019-10-16

IMI

Value of Claim: € 3,151.09

Subject Matter: IMI – Additional – AIMI – Constitutionality – Principles of equality, contributive capacity and proportionality.

ARBITRAL DECISION

I – Report

  1. A..., S.A., taxpayer no. ..., with registered office at ..., ..., ...-..., ..., requested the establishment of a singular arbitral tribunal, under the combined provisions of Article 2, no. 1, paragraph a) and Article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to as "RJAT") and Articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, in which the Tax and Customs Authority (hereinafter "Respondent" or "AT") is respondent.

  2. The request for arbitral ruling was presented on 18/12/2018 and concerns the declaration of illegality and consequent annulment of assessment no. 2018..., of 2018/06/030, with reference to the Additional Municipal Property Tax ("AIMI") for the year 2018, relating to the following urban properties: ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and ..., in the parishes of ... and Union of Parishes of ... (...) ..., ... and ..., both in the municipality of ..., in the total amount of €3,151.09.

  3. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority (AT).

  4. The Claimant did not proceed with the appointment of an arbitrator.

  5. In accordance with the provisions of paragraph a) of no. 2 of Article 6 and paragraph b) of no. 1 of Article 11 of Decree-Law no. 10/2011, of 20/01, as amended by Article 228 of Law no. 66-B/2012, of 31/12, the Deontological Board appointed the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the office within the applicable period, having duly notified the Parties.

  6. The Parties did not manifest a desire to challenge the appointment of the arbitrator, in accordance with the combined provisions of Article 11, no. 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code.

  7. The singular arbitral tribunal was constituted on 26/02/2019, in accordance with the provisions of paragraph c) of no. 1 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31/12.

  8. Notified in accordance with the law, the Tax and Customs Authority, hereinafter Respondent or AT, submitted a Response arguing for the complete rejection of the request for arbitral ruling, as unfounded, and requesting that it be decided that the challenged acts do not suffer from the defects attributed to them or any other defects and, consequently, that the Respondent be absolved of all claims.

  9. The Respondent further requests that, if this is not decided, in accordance with the provisions of Article 280, no. 3 of the Constitution of the Portuguese Republic and Article 72, no. 3 of the Constitutional Court Act, notification of the learned arbitral judgment be given to the Public Prosecutor.

  10. Considering that the present process did not require specific procedural steps and that there were no exceptions to be considered and since only questions of law were at issue, the Tribunal dispensed with the holding of the meeting referred to in Article 18 of the RJAT, without prejudice to having granted a period for written submissions, which both Parties presented, maintaining and reiterating the positions they had previously expressed.

  11. After the presentation of the Submissions, the Tribunal decided to invite the Claimant to clarify additionally some apparent divergences in legal matters between the Claim and those same submissions, by refining this procedural document.

  12. Following this notification, the deadline for decision was postponed for a period of 2 months, in accordance with Article 21 of the RJAT.

  13. The Claimant made no further submissions.

II – Dismissal of Procedural Defects

  1. The Arbitral Tribunal is regularly constituted and is materially competent, in accordance with paragraph a) of no. 1 of Article 2 of Decree-Law no. 10/2011, of 20/01.

  2. The Parties possess legal personality and capacity, are entitled to bring the action, and are legally represented (see Article 4 and no. 2 of Article 10 of Decree-Law no. 10/2011 and Article 1 of Ordinance no. 112/2011, of 22 March).

  3. The process is not affected by defects that would invalidate it and no questions were raised that would prevent consideration of the merits of the case.

III – Matters of Fact

A - Facts Established

The Tax and Customs Authority chose not to submit the administrative file; however, based on the elements presented by the Claimant, which were not contested, the following facts are considered established:

a) The Claimant is a company that carries out its activity in the real estate sector;

b) It is the owner of various urban properties whose identification is contained in the List attached to the Assessment Note previously identified, which constitutes Document no. 1;

c) On 30 June 2018, the AT issued the AIMI assessment no. 2018..., with the amount payable of €3,151.09 (doc. 2) with reference to the year 2018, by application of the rate of 0.4% on the TPV of €787,771.69, corresponding to the sum of the individual values of the properties listed in the aforementioned doc. 1.

d) The aforementioned amount of tax was paid on 2018/09/28, as evidenced by doc. 2.

B - Facts Not Established

There are no material facts relevant to the decision of the case that should be considered not established.

C – Reasoning

a) The judge (or arbitrator) does not have the duty to rule on all the matters of fact alleged, but rather has the duty to select those relevant to the decision, taking into account the cause of action that supports the claim formulated by the plaintiff, and decide whether it considers them established or not established (Article 123, no. 2, of the CCP and Article 607, no. 3 of the Code of Civil Procedure, applicable by virtue of Article 29, no. 1, paragraphs a) and e), of the RJAT).

b) On the other hand, according to the principle of free assessment of evidence, the Tribunal must base its decision on the evidence produced in accordance with its intimate conviction, formed from the examination and evaluation it makes of the means of proof brought to the process, and in accordance with its life experience and knowledge of people and their circumstances.

c) In this case, the Tribunal formed its conviction based on the critical analysis of the documents presented only by the Claimant, while also taking into account that neither the documents nor the matters of fact alleged were contested or challenged.

d) Thus, taking into account the positions assumed by the Parties, the provisions of Article 110 of the CCP, and the documentary evidence, the facts listed above were considered established, insofar as they were relevant to the decision.

IV – Matters of Law

The present arbitral request concerns the declaration of illegality of the tax act of assessment of AIMI previously identified.

1 - Arguments of the Claimant

In summary, the Claimant alleges that the AT committed illegalities arising from errors in the factual and legal premises by considering that the properties in question meet the requirements to be taxed under AIMI. Furthermore, the Claimant argues that, even if the taxation of the properties at issue were to be permitted under AIMI, pursuant to Article 135-B of the IMI Code, this legal provision would be unconstitutional by virtue of violation of the principle of contributive capacity.

The legislator, in instituting the additional IMI, intended to create an effective tax on real estate wealth. It is, therefore, a tax that applies to urban real estate wealth materialized in the right of ownership, usufruct, or surface rights of certain urban properties located in Portuguese territory, that is to say, on the global tax property value of urban properties designated for housing and land for construction.

Thus, "the legislator excludes from taxation under AIMI, in accordance with the provisions of no. 2 of Article 135-B of the IMI Code, 'urban properties classified as commercial, industrial or for services' and 'other' in accordance with paragraphs b) and d) of no. 1 of Article 6 of this Code".

"It is evident that the legislative intent underlying the rule of exclusion enshrined in no. 2 of Article 135-B of the IMI Code was based on the intention not to increase the tax burden on taxpayers who, by virtue of their economic activity, hold properties for the pursuit of their corporate purpose, since it is recognized that the mere holding of such properties does not constitute and cannot constitute a factor demonstrating wealth, nor a sufficient indicator of the contributive capacity of the owners of such properties".

Therefore, the properties in question cannot be subject to AIMI because they are not intended for personal use; they are intended for the pursuit of its economic activity, being a means of generating wealth and are not wealth in themselves.

In fact, the Claimant is a commercial company whose purpose is the exploitation and promotion of real estate, which encompasses the activities of buying and selling.

Accordingly, the holding of properties does not represent a contributive capacity that could justify taxation under AIMI, as the AT intends, but rather represents effectively the substrate of all activities carried out by the Claimant.

Consequently, the AIMI assessment sub judice, issued with respect to properties held by the Claimant, appears manifestly illegal, due to error in the factual and legal premises.

"To tax the properties subject to the present challenge would mean to directly tax an 'economic activity' - something that the legislator expressly intended to avoid when creating AIMI, as derived from the interpretation a contrario of Article 135-F, no. 3, of the IMI Code".

2. Constitutional Challenge on Grounds of Violation of the Principle of Equality

On the other hand, the taxation of the properties held by the Claimant would constitute a violation of the constitutional principle of equality in the aspect of contributive capacity.

Indeed, through the introduction of this tax, the legislator intended to tax wealth, but not the mere act of holding, rather the effective personal use and enjoyment of such wealth.

However, the Claimant is a commercial company whose purpose is the exploitation and promotion of real estate; consequently, it would constitute a violation of the principle of equality in the aspect of contributive capacity to tax properties held by it because the properties in question do not constitute wealth but rather the object of the very process of creating wealth through the development of the activity.

If this interpretation of the law is not followed, the taxation under AIMI of the properties constitutes discriminatory treatment, devoid of legal basis, generating disproportionate and inappropriate differentiations, which constitutes its unconstitutionality.

The Constitution guarantees equality in different ways and with different degrees of intensity: general principle of equality; equality before the law or equality in the application of the law; equality of the law or equality in the creation of the law.

And although taxation under AIMI encompasses both natural persons and legal entities, with its introduction the legislator intended to tax wealth, not the mere act of holding.

Consequently, it would constitute a violation of the principle of equality in the aspect of contributive capacity to tax the properties held by the Claimant because only properties are taxed under AIMI as elements demonstrative of wealth and their personal use by the owner, their enjoyment, and not the mere holding of properties that are allocated to the achievement of social purposes which do not allow their owner to make personal use of them.

Accordingly, the assessment violates the constitutional principles of equality.

3. Arguments of the Respondent

The Respondent, for its part, argues for rejection of the claim on the following grounds, in summary:

"The additional municipal property tax (AIMI) created by Article 219 of Law no. 42/2016, of 28 December, which approved the State Budget for 2017, by amending the IMI Code with Articles 135-A to 135-K, becoming Chapter XV of that code, emerges as a special taxation of assets of high value intended to ensure the financing of Social Security".

Thus, unlike the stamp tax provided for in Item 28.1 of the Table Attached to the CIS, the legal institute of AIMI "does not intend to burden the taxation of luxury properties, since real estate patrimony of considerable value can be constituted by a plurality of properties of reduced value".

On the other hand, the legislator's choices were equally guided by the need to mitigate the impact of this taxation on the exercise of business activities in general, which occurred through the exclusion of urban properties with industrial, commercial, and service purposes, and "others"... "with the purpose of not placing a fiscal burden on the competitiveness of enterprises, especially in international markets".

"The wording of Article 135-B of the IMI Code that was approved does not exclude the application of AIMI to properties dedicated to housing and land for construction used by legal entities in the course of their economic activity".

The exclusion of application was not based on the activity to which the properties are dedicated, since in the wording that was approved, the non-application was defined only based on the types of properties indicated in Article 6 of the IMI Code, without any reference to allocation to the functioning of legal entities.

Thus, the suppression of this reference to the allocation of properties in the final text of the law clearly reveals the legislator's intention to deprive it of any relevance for purposes of exclusion from taxation; therefore, contrary to what is alleged by the Claimant, there is no illegality in the application of AIMI.

There is likewise no violation of the principle of equality provided for in the Constitution when properties are taxed in a company that holds them for the exercise of its activity. Like any tax on property, AIMI is dissociated from any realization of profit from the sale of real property, as well as from the existence or not of a negative or positive net position, with only the property value being relevant for purposes of the tax.

In accordance with the cited case law, to which we fully adhere, it is concluded that the ownership of real estate assets of high value by a natural person or by a legal entity (whether a real estate company, real estate fund, or other) evidences, as in the case of any owner of property designated for housing, a special economic capacity to contribute additionally to the Financial Stabilization Fund of Social Security, to which AIMI revenue is allocated.

In accordance with the prevailing case law, contrary to what is alleged by the Claimant, taxation under AIMI does not entail an unjustified negative discrimination against the ownership of companies whose economic activity is precisely the buying and selling of real property when, at the same time, the law excludes from taxation properties designated for commerce, industry, or services.

For all the reasons expressly stated regarding the maintenance in the legal order of the challenged tax act, the AT considers that, consequently, no indemnification interest is owed because the AIMI assessment is not affected by any illegality that could result in its annulment.

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4. General Jurisprudence on the Subject Matter

The matter contained in the present request for arbitral ruling has already been extensively addressed in other cases of requests for arbitral ruling, with the jurisprudence resulting from the decisions overwhelmingly supporting the conformity of the AIMI assessments issued by the AT with the law.

The Constitutional Court, through Decision no. 299/2019, of 20/05/2019, and more recently through Decision no. 399/2019, of 4/07/2019, analyzed the question and decided in the same sense as the almost unanimous case law of CAAD (see, inter alia, Dec. 668/2017-T, 675/2017-T, 686/2017-T, 692/2017-T, 681/2017-T, 688/2017-T, 664/2017-T, 677/2017-T, 603/2017-T, 694/2017-T, 687/2017-T, 683/2017-T, 676/2017-T, 666/2017-T, 682/2017-T, 696/2017-T, 6/2018-T, 438/2018-T, 342/2018-T, 291/2018-T, 521/2018, 631/2018-T, 87/2019-T, and 109/2019-T), with which we agree, and therefore, given the great clarity, depth of analysis, and legal reasoning, we proceed to follow that case law.

4.1 Error in the Factual Premises

The Claimant argues that the properties previously identified, as being designated for commerce, do not correspond to the properties on which AIMI should apply because they are held from the perspective of generating income, are elements apt to produce wealth, and do not constitute a sufficient factor revealing the contributive capacity of their owners. The legislator, in this provision, intended to tax wealth or real estate assets. Under Article 135-B, the legislator did not wish to increase the tax burden on taxpayers who, by virtue of their economic activities, hold properties for the pursuit of their corporate purpose.

On the other hand, the taxpayer whom the legislator intends to tax is one who appears as possessor of wealth confirmed by the ownership of a patrimony of high value, that is to say, wealth, and not one who, although holding real estate patrimony of high value, holds it merely as an object that enables the development of an economic activity that constitutes its corporate purpose.

The legal institute regulating AIMI is contained in Articles 135-A to 135-K, added to the IMI Code, under Chapter XV, by Law no. 42/2016, of 28 December (State Budget Law for 2017).

The subjective scope of the tax is defined in Article 135-A, which provides that "the persons subject to the additional municipal property tax are natural and legal persons who are owners, usufructuaries, or holders of surface rights over urban properties located in Portuguese territory".

The objective scope, in turn, derives from Article 135-B, which provides as follows:

"Article 135-B

Objective Scope

1 - The additional municipal property tax applies to the sum of the tax property values of urban properties located in Portuguese territory of which the subject is the owner.

2 - Excluded from the additional municipal property tax are urban properties classified as 'commercial, industrial, or for services' and 'others' in accordance with paragraphs b) and d) of no. 1 of Article 6 of this Code".

Under these provisions, it is clear that the legislator followed the path of clearly defining that persons subject to the tax are natural and legal persons who are owners, usufructuaries, or holders of surface rights over urban properties located in Portuguese territory, and that the object of taxation under AIMI is all properties that are not classified as "commercial, industrial, or for services and others", in accordance with the definitions contained in paragraphs b) and d) of Article 6 of the IMI Code.

In this manner, we believe it is necessary from the outset to take into account the letter of the law as the first element of interpretation, and that, by virtue of Article 9 of the Civil Code, it must be presumed that the legislator knew how to express its intention in adequate terms.

Accordingly, the legislator of AIMI, in the negative delimitation of the scope, expressly states that this tax does not apply to urban properties classified as "commercial, industrial, or for services and as 'others'", as they are classified by virtue of Article 6, no. 1, paragraphs b) and d). It would be even more correct or precise to state that Article 135-B excluded from taxation properties classified as commercial, industrial, or for services, which should be considered as those that are licensed for such purposes (see Arbitral Decision no. 664/2017-T). It is not without merit, therefore, to state that only the technical criterion for definition of properties thus classified provided in the aforementioned Article 6 of the IMI Code applies.

Therefore, the letter of the law does not support the Claimant's intention to include in the rule of non-application applicable to the set of properties that in Article 135-B are excluded from taxation the properties held for commerce by their owner, since the letter of the law defined their qualification only as properties and not their allocation or use for which they are apt. As stated in the cited Arbitral Decision, "the scope of the objective application, as a result of the reference to that Article 6, was thus defined not only by reference to a certain species of urban properties, but also by reference to the administrative procedure through which the classification was effected or, in the absence of a license, to the normal designation of such properties for commercial, industrial, and service purposes or others."

This is precisely what Arbitral Decision no. 675/2017-T states: "... if the legislative intention of excluding application to properties directly allocated to the functioning of legal entities had been maintained in the final wording of the Budget, the reference to this allocation that appeared in the proposal and which clearly expressed this legislative option would certainly have been maintained.

"(...), and since this reference to the allocation of properties was suppressed, there is no legal basis to conclude that residential properties and land for construction allocated to the functioning of legal entities are not relevant for the application of AIMI".

The properties of which the Claimant is the owner, taking into account the matter established as fact, are urban properties that are not classified as commercial, industrial, or for services or "others", according to the rules of Article 6 of the IMI Code, and therefore are not excluded from the scope of application regardless of whether they are designated for commerce, because, as stated in Arb. Dec. no. 574/2018-T, the "relevant criterion chosen by the legislator, within its broad margin of discretion, was the classification of properties in relation to Article 6 of the IMI Code and not their allocation to the economic activity of the Claimant, either as an element of tangible fixed assets or of current assets, as merchandise (properties intended for sale) or raw materials (land intended for construction)".

As stated in Decision no. 299/2017, of 16/01/2019, of the Constitutional Court, "… In its definitive form, and focusing attention on the taxation of collective entities, AIMI went on to tax all real estate patrimony of the subject, without deduction, while the norm of no. 2 of the provision went on to attend solely to the classification of the property in accordance with Article 6 of the IMI Code, without regard to the sector of activity or the effective designation".

Thus, the Claimant's position cannot be sustained as it has no support in the letter of the law, the assertion that it was the legislator's intention to exclude from taxation, as derived from no. 2 of Article 135-B, the owners of properties allocated to economic activities on the ground that its objective was not to tax the means of production of wealth but only wealth itself, manifested by the simple right of ownership over the property.

Under these circumstances, the arbitral claim can only be dismissed.

4.2 Unconstitutionality of Article 135-B of the IMI Code

The Claimant further alleges that Article 135-B would be unconstitutional by reason of violation of the principle of equality in the aspect of contributive capacity, when interpreted in the sense of permitting the taxation of a taxpayer with respect to properties held for the exercise of activities of buying and selling real property that are intended for the pursuit of an economic activity that constitutes its corporate purpose.

This is because taxation in such cases constitutes discriminatory treatment generating disproportionate and inappropriate differentiations among taxpayers because the legislator's intention was to tax wealth, manifested by the capacity for use or enjoyment, and not the mere act of holding as the object of a commercial activity. In fact, the right of ownership of a property allocated to the achievement of social purposes does not permit its owner to make personal use of it.

Therefore, the law must be interpreted so as to treat unequally the owner who cannot make use or enjoyment of it from one who can do so because he does not designate properties for commerce.

The legislator's intention was not to increase the fiscal burden on productive sectors, with a view to promoting investment needs and economic growth, even if holders of high-value real estate patrimony, but to tax only owners who manifest through ownership a special contributive capacity.

These theses have likewise already received in-depth analysis in numerous CAAD decisions and by the Constitutional Court itself, whose conclusions are subscribed to, affirming from the outset that the Claimant is not correct. Indeed, all the Arbitral Decisions cited address the question with an understanding different from what the Claimant seeks to obtain from reading the law.

First, it must be taken into account that the law did not base its criterion of application on issues related to the allocation of the properties to be taxed, but only excluded from taxation those which, according to the IMI Code, are classified in the property registries as commercial, industrial, or for services or "others".

As stated in Decision no. 420/2018-T, "… The wording of Article 135-B of the IMI Code that was approved does not exclude the application of AIMI to properties dedicated to housing and land for construction used by legal entities in the course of their economic activity.

The legislative concern to 'avoid the impact of this tax on economic activity' was announced in the Draft Law of the State Budget for 2017 and was concretized, to some extent, through the exclusion from the scope of application of 'urban properties classified as "industrial"', as well as urban properties licensed for tourist activity, these latter provided that their designation is properly declared and proven' and the deduction from the taxable value of the amount of '€600,000.00, when the subject is a legal entity with agricultural, industrial, or commercial activity, for properties directly allocated to its functioning'.

However, it was not on the basis of the activity to which the properties are dedicated that the exclusion of application was defined, since in the wording that was approved, the non-application was defined only on the basis of the types of properties indicated in Article 6 of the IMI Code, without any reference to allocation to the functioning of legal entities.

Thus, since this reference to the allocation of properties was suppressed, there is no legal support to conclude that residential properties and land for construction allocated to the activity of legal entities are not relevant for the application of AIMI.

Therefore, it is to be concluded that the allocation of properties to the economic activities of legal entities does not exclude taxation under AIMI (outside cases where these are properties that previously had been exempt or not subject to taxation under IMI, which are not taken into account for purposes of AIMI, in accordance with no. 3 of Article 135-B of the IMI Code).

Contrary to what is affirmed, it was not the purpose of the law to tax wealth arising from the right of ownership or use of properties of high value. The justification for the definition of these taxation rules was only of an economic-tax nature with a view to strengthening Social Security resources.

Subscribing to the theses of this Decision, we agree that "AIMI does not intend to burden the taxation of luxury properties, as was primarily aimed at with Item 28.1 of the TGIS, since real estate patrimony of considerable value can be constituted by a plurality of properties of reduced value, but rather to create another avenue for subsidizing the social security system, which is one of the constitutional incumbent duties of the State, provided for in Article 63, no. 2, of the Constitution of the Portuguese Republic.

… Article 13 of the Constitution of the Portuguese Republic proclaims the principle of equality of citizens before the law. As has been uniformly understood by the Constitutional Court, the principle of equality, as a limit to legislative discretion, does not require the equal treatment of all situations, but rather 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 lacking sufficient material basis. The principle of equality does not prohibit the establishment of distinctions, but rather arbitrary distinctions, devoid of objective and rational justification.

… The contributive capacity of business legal entities, relevant to assessing the application of the principle of tax equality, is not evidenced only by income, namely by the results of the activity for which the properties are designated. In fact, 'patrimony provides its owner with a special contributive capacity, advantages that by their nature escape the tax on personal income: thus, the ownership of patrimony facilitates the obtaining of credit, strengthens the negotiating position of its owner in the conclusion of various contracts, makes it easier to multiply wealth allowing him to take risks where in principle he would not. In this perspective, the tax on patrimony is seen as something more than an extension of the tax on personal income - it is not a matter of overburdening here income that is already subject to it but of reaching manifestations of contributive capacity that truly escape it' (...) Taxes on patrimony are justified by allowing the transfer of resources for the benefit of the working class, instituting a "qualitative progressivity" complementary to the progressivity in quantity of taxes on personal income'".

On the other hand, while it is true that the different designations of properties do not necessarily imply a distinction in the level of contributive capacity, the exclusion from taxation of properties especially suited for productive activity, namely 'commercial, industrial, or for services', will find another justification (in addition to the presumed greater contribution of these activities to Social Security through contributions), since it is ultimately reducible to the promotion of these activities, which harmonizes with (and therefore will have constitutionally acceptable basis in) the obligation of the State to promote the increase of economic well-being, which presupposes the proper functioning of wealth-creating activities and is one of its priority incumbencies in the economic domain [Article 81, paragraph a), of the Constitution of the Portuguese Republic]. Being this a constituent duty considered constitutionally as a priority, the first listed in this provision, it will certainly not be incompatible with the Constitution to give it preferential protection when confronted with the constitutional duties of the State regarding housing indicated in Article 65 of the Constitution, which, obviously, are also protected through the proper functioning of wealth-creating activities.

Thus, while it is true that the AIMI regime creates situations of discrimination in the taxation of companies with the same contributive capacity evidenced by patrimony, on the assumption that there is a need for money and new forms of collecting it must be found (as mentioned in the Budget Report for 2017), there may be some justification for imposing taxation on some companies and not on others with the same or greater contributive capacity inherent to patrimony, especially in light of the prevailing constitutional case law cited by the Tax and Customs Authority, which reveals that it is constitutionally permissible for the interests of the State collecting taxes (in this case, the sustainability of Social Security, demanded by the principles of confidence and security) to take precedence over strict observance of the principle of equality.

This interpretation is essentially the one that the Constitutional Court came to endorse in Decision no. 299/2019, of 21/05, and Dec. no. 399/2019, of 04/07, in which the first of these decisions adds: "… However, the relationship of equality presupposed in the rule of application does not have the same content as the relationship of equality required by the rule of non-application. The former rule, because it describes the fact giving rise to the tax obligation, cannot fail to take into account the economic strength the taxpayer has to bear the tax; the latter rule, because it defines a negative element of the legal type of the tax fact, should take into account the criterion chosen by the legislator in delimiting that negative element. That is, the rules differ both in their effects and in their purposes: while the rule of application represents an interference in the taxpayer's patrimonial sphere, referring to the withdrawal of monetary payment from the taxpayer to the State, the rule of tax exclusion projects more comprehensive economic effects, of which the mitigation of the negative impact on the taxpayer's patrimonial sphere is an instrument; while the rule of application has the purpose of revenue collection, the rule of non-application functionalizes the tax to other purposes".

Taking into account this case law which we adopt, the alleged unconstitutionality of Article 135-B of the IMI Code as to violation of the principle of equality in the aspect of contributive capacity does not stand.

V – Matters of Knowledge Prejudiced

In light of the foregoing, knowledge of the request for reimbursement of the amount paid plus indemnification interest is prejudiced.

VI – Decision

For the foregoing reasons, the Tribunal decides:

a. To dismiss the arbitral claim;

b. Not to declare unconstitutional the provision of Article 135-B, no. 2, of the IMI Code;

c. To absolve the Tax and Customs Authority of all claims;

d. To condemn the Claimant to payment of the arbitral fee.

VII – Value of the Process

The value of the process is fixed at €3,151.09, in accordance with Article 97-A, no. 1, paragraph a), of the CCP, applicable by virtue of no. 3 of Article 3 of the Regulations of Costs in Tax Arbitration Processes.

VIII – Costs

Arbitral fee to the charge of the CLAIMANT, fixed at €612.00, in accordance with Table I attached to the cited Regulations.

Lisbon, 16 October 2019

The Singular Arbitrator

José Ramos Alexandre

Frequently Asked Questions

Automatically Created

What is AIMI (Adicional ao Imposto Municipal sobre Imóveis) and how is it applied to urban properties in Portugal?
AIMI (Adicional ao Imposto Municipal sobre Imóveis) is an additional tax on municipal property in Portugal that applies to urban real estate wealth. It is levied on owners, usufructuaries, or holders of surface rights over urban properties when the aggregate taxable patrimonial value (VPT) exceeds certain thresholds. In this case, a rate of 0.4% was applied to properties with a combined VPT of €787,771.69. AIMI was instituted as an effective tax on real estate wealth, targeting accumulated property holdings rather than individual property ownership. The tax is assessed annually and is separate from the standard IMI (Imposto Municipal sobre Imóveis).
Can AIMI be challenged on constitutional grounds based on the principles of equality, ability to pay, and proportionality?
Yes, AIMI can be challenged on constitutional grounds in Portuguese tax law. The claimant in Process 641/2018-T specifically argued that AIMI violates the principle of contributive capacity (capacidade contributiva), which requires taxes to reflect taxpayers' ability to pay. Additional constitutional challenges were based on the principles of equality and proportionality. When constitutional issues are raised in tax arbitration proceedings at CAAD, Article 280(3) of the Portuguese Constitution and Article 72(3) of the Constitutional Court Act require notification to the Public Prosecutor if the tribunal considers the constitutional question meritorious, as such matters may ultimately require referral to the Constitutional Court (Tribunal Constitucional).
How did the CAAD arbitral tribunal rule on the constitutionality of AIMI in Process 641/2018-T?
The excerpt does not contain the final ruling of the arbitral tribunal. The document shows the case was constituted on February 26, 2019, with a decision date of October 16, 2019. The tribunal dispensed with an in-person hearing as only legal questions were at issue and granted both parties the opportunity to submit written arguments. The Tax Authority requested absolution from all claims, while the claimant maintained its position on AIMI's unconstitutionality. The tribunal invited the claimant to clarify apparent divergences between the initial claim and subsequent submissions, postponing the decision deadline by two months under Article 21 of RJAT. However, the claimant made no further submissions following this invitation.
What is the procedure for filing an arbitral tax claim against an AIMI assessment at CAAD?
To file an arbitral tax claim against an AIMI assessment at CAAD, taxpayers must follow the procedure established in Decree-Law no. 10/2011 (RJAT - Legal Framework for Tax Arbitration) and Ordinance no. 112-A/2011. The request must be submitted under Article 2(1)(a) and Article 10 of RJAT. In this case, the claimant filed on December 18, 2018, challenging assessment no. 2018... issued on June 30, 2018. The taxpayer can either appoint an arbitrator or allow the CAAD Deontological Board to make the appointment. The request must identify the challenged assessment, the properties involved, the amount contested, and the legal grounds. Once accepted, the Tax Authority is notified and submits a response. The tribunal is constituted after the arbitrator appointment process, typically within approximately two months of filing.
Does AIMI violate the principle of contributive capacity (capacidade contributiva) under Portuguese tax law?
The claimant argued that AIMI does violate the principle of contributive capacity under Portuguese constitutional tax law. The principle of capacidade contributiva, constitutionally enshrined, requires that taxes reflect the taxpayer's actual ability to pay and economic capacity. The claimant contended that even if Article 135-B of the IMI Code legally permits AIMI taxation, the provision itself is unconstitutional for failing to respect this fundamental principle. This argument suggests that AIMI's application to accumulated property values does not adequately consider the taxpayer's genuine economic capacity or ability to generate income from those properties. However, the excerpt does not reveal the tribunal's final determination on whether AIMI indeed violates capacidade contributiva or other constitutional principles such as equality and proportionality.