Process: 662/2017-T

Date: June 28, 2018

Tax Type: IMI

Source: Original CAAD Decision

Summary

CAAD arbitration case 662/2017-T addressed whether a rural property (prédio rústico) could be subject to AIMI (Adicional ao Imposto Municipal sobre Imóveis) taxation. The claimant, A… SA, challenged an AIMI assessment of €9,034.88 for 2017 on a property initially classified as urban land for construction. The property, consisting of 1,000,000 m² of pine forest with scrubland, was located in the Natura 2000 Network and REN (National Ecological Reserve). The taxpayer successfully filed a claim to reclassify the property from urban to rural status in August 2016, which was granted by the Finance Department in August 2017. However, the Tax Authority issued the AIMI assessment based on the previous urban classification with a tax property value of €2,258,720.00, rather than the reclassified rural value of €135,000.00. The claimant argued the assessment violated Article 135-B of the IMI Code, as rural properties are excluded from AIMI taxation. The Portuguese Tax Authority (AT) failed to submit a response despite being notified. The arbitral tribunal dispensed with the oral hearing given the purely legal nature of the issue and AT's non-response, proceeding directly to written submissions. This case illustrates the fundamental distinction between rural and urban property classification for AIMI purposes and demonstrates taxpayers' right to challenge assessments through CAAD arbitration when the Tax Authority applies AIMI to properties that should be exempt due to their rural classification.

Full Decision

ARBITRAL DECISION

I – REPORT

The Parties and the Constitution of the Arbitral Tribunal

A… SA, with the Tax Identification Number…, with registered office at …, no.…– …-…, Lisbon, (hereinafter referred to as "Claimant"), requested the constitution of a single Arbitral Tribunal, pursuant to the provisions of article 2, no. 1, paragraph a) and 10, nos. 1 and 2 of Decree-Law no. 10/2011, of January 20, hereinafter referred to as "RJAT" and of Ordinance no. 112 – A/2011, of March 22, to challenge the assessment of the additional tax on municipal property tax (AIMI), for the year 2017, in the amount of €9,034.88, seeking its annulment, with reference to the urban property located in …, Parish of …, in the Municipality of….

In the present arbitral request, the claimant challenges the additional AIMI assessment indicated above, issued on 30-06-2017, with no. 2017… and payment date during the month of September 2017, in the amount of €9,034.88.

The request for constitution of the Arbitral Tribunal was presented by the Claimant on 20-12-2017, was accepted by the Esteemed President of CAAD on 21-12-2017, and notified to the Tax and Customs Authority on 22-12-2017. The Claimant opted not to designate an arbitrator, wherefore, pursuant to the provisions of no. 1, article 6 of the RJAT, the undersigned was designated by the Deontological Board of the Administrative Arbitration Centre on 07-02-2017 as arbitrator to constitute the single Arbitral Tribunal.

Thus, in accordance with the provisions of paragraph c), no. 1, article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of December 31, the Arbitral Tribunal was constituted on 27-02-2018. On the same date an arbitral order was issued, for the Tax and Customs Authority (AT) to submit a response within the legal period, in accordance with the terms and purposes provided in nos. 1 and 2 of article 17 of the RJAT.

The respondent AT did not submit a response within the fixed period, wherefore, on 22-05-2018, the arbitral tribunal issued the following order: "Considering that within the period fixed for Response the AT did not pronounce itself, that the Claimant in its arbitral request does not indicate witness testimony and that from the elements attached to the file (arbitral request, challenged assessment and remaining documents attached as annexes) it is concluded that the issue under examination is exclusively one of law and given the simplicity of the matter at hand, there is no apparent utility in holding the meeting provided for in article 18 of the RJAT.

Thus, pursuant to the principles of the Tribunal's autonomy in conducting the proceedings, celerity, simplification and procedural informality (articles 19, no. 2, and 29, no. 2, of the RJAT), the holding of the meeting provided for in article 18 is dispensed with, and it is determined that the proceedings shall continue with optional written submissions from the parties, for a period of 10 days, equal and successive.

The Taxpayer shall pay the subsequent arbitration fee by the deadline for submission of written submissions.

The probable date for rendering the arbitral decision is set as June 29, 2018."

The parties did not submit written submissions. On 05-06-2018, the Claimant, in compliance with the arbitral order previously issued, submitted to the file proof of payment of the subsequent arbitration fee.

B) OF THE REQUEST FORMULATED BY THE CLAIMANT:

The claimant formulates the present request for arbitral pronouncement, arguing for the illegality of the AIMI assessment attached to the file, on the grounds that in the present case, at the time of the tax event (year 2017), the property identified in the file could not be subject to tax levy, as it is a rural property. Therefore, the Claimant alleges that the AIMI assessment is illegal, by violation of the provisions of article 135-B of the IMI Code.

C – THE RESPONSE OF THE RESPONDENT

The respondent AT, duly notified for this purpose, did not submit a response, nor did it attach the administrative file to the proceedings.

II - PROCEDURAL REQUIREMENTS

The Arbitral Tribunal is regularly constituted and is materially competent, pursuant to article 2, no. 1, paragraph a) of the RJAT.

The Parties enjoy legal personality and capacity, are legitimate and are legally represented (cf. articles 4 and 10 no. 2 of the RJAT and article 1 of Ordinance no. 112/2011, of March 22).

The proceedings do not suffer from defects that would invalidate it.

Taking into account the documentary evidence attached to the file by the claimant, it is necessary to establish the factual matter relevant to the understanding of the decision, which is established as follows.

III – Factual Matter

Proven Facts

As relevant factual matter, the present tribunal deems the following facts as established:

The claimant is the owner of the property located in the Parish of… of the Municipality of…, contained in the land registration entry no. … of this Parish, described as a rural property, composed of pine forest with scrubland, with an area of 1,000,000 m².

On 10-08-2016, the claimant submitted a claim regarding the tax registry of the property in question, as until then the property was recorded in the registry as urban, described as land for construction.

The factual grounds for the claim regarding the tax registry are contained in document no. 2 attached as an annex to the arbitral request, which is deemed reproduced, consisting in summary of:

"The land is located in an area without construction, outside urban agglomerations, situated between… and…, integrated into the Natura 2000 Network;

It is included in the REN – National Ecological Reserve;

The Regulations of the Municipal Master Plan (PDM) of…;

For construction to be lawful on the property, it was necessary to alter its classification, excluding it from areas classified as REN, which did not occur (…);

Therefore, the property in question appears unfit for construction and building (…); we are dealing with land in which "the competent entities [prohibited] any of those operations [for subdivision or construction], in particular [because it is] located in green zones, protected areas."

This is a case that the IMI Code expressly ordered to exclude from classification as "land for construction" (cf. its article 6, no. 3) and to include in the classification as "rural property" (cf. its article 3, no. 1);

Consequently, its inclusion in the urban property registry appears manifestly improper, and therefore should be corrected, which is requested." (Cf. Doc no. 2 attached to the arbitral request).

The claim substantiated by the facts enumerated was granted by Order of the Head of the Finance Department of…, dated 28-08-2017, as shown in Document no. 3 attached to the file as an annex to the arbitral request.

The property in question was then reclassified under the new land registration entry no. …, described as a rural property, with a Tax Property Value (VPT) of €135,000.00 as shown in document no. 3 attached to the arbitral request.

On 30-06-2017, an additional AIMI assessment was issued, with no. 2017…, on the VPT of €2,258,720.00 attributed while classified as urban property, that is, without considering the reclassification of the same as rural land.

The additional assessment was notified to the claimant, with payment deadline during the month of September 2017.

The claimant made the payment of the amount in question on 28-09-2017, as evidenced by proof attached to the file together with the tax assessment (doc 1 attached to the arbitral request).

On 20-12-2017, the Claimant submitted the present arbitral request.

Unproven Facts

With relevance to the decision, there are no facts that should be considered as unproven.

SUBSTANTIATION OF PROVEN FACTS

The facts described were deemed proven based on the documentary evidence that the claimant attached to the arbitral request, namely: claim regarding the property tax registry, Granting of the claim regarding the property registry submitted by the claimant, issued by the competent Finance Department, Property registry record and proof of payment of the additional assessment challenged, whose authenticity was not questioned.

IV – ON THE LAW: substantiation of the decision on the merits

With the factual matter established, it is necessary to address the legal issue raised by the Claimant, which consists of determining whether the property described above can be subject to AIMI taxation, with reference to the year 2017. A decision is required.

THE SCOPE OF APPLICATION OF AIMI

The Additional Municipal Property Tax (AIMI) was created by article 219 of Law no. 42/2016, of December 28, which approved the State Budget for 2017, which resulted in articles 135-A to 135-K, added to the IMI Code. It is, therefore, these regulatory provisions that establish the respective legal regime of AIMI.

Article 135-A of the IMI Code defines the scope of subjective incidence of AIMI, in the following terms:

Article 135-A

Subjective Incidence

1 – The taxpayers of the additional municipal property tax are natural or legal persons who are owners, usufructuaries or surface holders of urban properties located in Portuguese territory.

2 – For the purposes of no. 1, legal persons are equivalent to any structures or centers of collective interests without legal personality that appear in the registries as taxpayers of the municipal property tax.

3 – The status of taxpayer is determined in accordance with the criteria established in article 8 of this Code, with the necessary adaptations, with reference to the date of January 1 of the year to which the additional municipal property tax pertains.

4 – Municipal enterprises are not taxpayers of the additional municipal property tax.

In turn, article 135-B defines the objective incidence of AIMI, establishing the following:

Article 135-B

Objective Incidence

1 – The additional municipal property tax is levied on the sum of the tax property values of urban properties located in Portuguese territory of which the taxpayer is the owner.

2 – The following are excluded from the additional municipal property tax: 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.

There is no doubt, in light of the letter of the law, that the provision in no. 2 of this article 135-B excludes from the scope of AIMI "the 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 the IMI Code. Which means that only urban properties for residential purposes and land for construction are covered, as defined in article 6.

Article 6 of the IMI Code classifies the types of urban properties, establishing the following:

Article 6

Types of Urban Properties

1 – Urban properties are divided into:

 a) Residential;

 b) Commercial, industrial or for services;

c) Land for construction;

d) Other.

2 – Residential, commercial, industrial or for services are buildings or constructions, for which a license has been issued or, in the absence of a license, which have as their normal purpose each of these uses.

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

4 – The provision of paragraph d) of no. 1 encompasses land located within an urban agglomeration that is not land for construction nor is covered by the provision of no. 2 of article 3, and also buildings and constructions licensed or, in the absence of a license, which have as their normal purpose uses other than those referred to in no. 2, and also those of the exception in no. 3."

From the delineation of the scope of AIMI contained in articles 135-A and 145-B of the IMI Code, it is concluded that:

Taxpayers of the additional municipal property (AIMI) tax are natural or legal persons who are owners, usufructuaries or surface holders of urban properties located in Portuguese territory, which, without more, excludes rural properties (Cf.: article 135-A, no. 1 IMI Code);

Corroborating the provision of article 135-A, no. 1, the legislator establishes in article 135-B, in no. 2 of article 135-B, both of the IMI Code, the legislator establishes that the following are excluded from the additional municipal property tax: 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.

Thus, there is no doubt that a rural property is not subject to the new tax designated as AIMI.

The Legal Nature of the Property Described in the File, at the Time of the Tax Event

In the case of the present file, it was proven that in 2016 the property in question was recorded in the urban property registry in the parish of …, …, and a change in its legal nature from urban property to rural was requested, by claim regarding the registry submitted on 10-08-2016. This claim was granted, expressly, by Order of the competent Head of Finance, on August 28, 2017, that is, more than one year after the request submitted by the claimant.

Now, no. 8 of article 130 of the IMI Code, regarding "Claims regarding the registries", provides that:

(…)

"The effects of claims, as well as of corrections made by the competent finance service head, made on any of the grounds provided for in this article, shall only be produced in the assessment pertaining to the year in which the request is submitted or the rectification is made." (underlined)

In the case of the present file, we are dealing with a change in the registry following a claim or request of the taxpayer, wherefore, the effects of granting such request are produced in the assessment pertaining to the year in which the request was submitted, that is, 2016, as the claim was submitted on 10-08-2016.

From the provision of the aforementioned regulation (no. 8, article 130 of the IMI Code), it follows that the effects of granting the request (only) retroact to the moment of submission of the request to change the registry, which, in the case of the present file, means that in 2017 the property in question shall have to be qualified as rural, for all legal purposes, in particular for tax purposes.

Thus, being in question an additional AIMI assessment for the year 2017, this had as its objective scope a rural property, which is expressly excepted by the legislator from the scope of AIMI. There is no doubt that, at the time of the tax event in question, the challenged assessment should not have been issued, on pain of violation of law due to error as to the factual and legal prerequisites, in accordance with the terms and for the reasons here set forth.

Nevertheless, finally, due account must be taken of the legislator's purpose with the introduction of AIMI into our legal tax system. The legislator intended to create a tax on real estate wealth, excepting rural properties, because of their low economic profitability and urban properties devoted to economic activities of relevance for the development of the country's economy. Therefore, it did not subject them to AIMI taxation.

The legislator's concern with "avoiding the impact of this tax on economic activity" was duly clarified in the recitals of the Draft State Budget Law for 2017. It suffices to consider the reasons stated there to substantiate the exclusion from the scope of application of urban properties classified as "industrial," urban properties licensed for tourism activity, the latter provided that their use is duly declared and proven, and, further, by the deduction from the taxable amount of "€600,000.00, when the taxpayer is a legal person with agricultural, industrial or commercial activity, for the properties directly assigned to its operation."

In the version that was approved, non-incidence was defined solely and exclusively on the basis of the types of properties indicated in article 6 of the IMI Code, without any reference to allocation or lack thereof to the operation of legal persons. However, in the case of rural land, its exclusion from the scope of objective incidence is crystalline and offers no discussion or doubt.

In the case of the present file, with the rural nature of the property proven with reference to the year 2017, by virtue of the production of effects of the change in the registry, as properly results from the established matter and the statement of reasons that precedes, it is necessary to conclude as to the illegality and consequent annulment of the challenged assessment, for violation of law, which results from error as to the factual and legal prerequisites.

REIMBURSEMENT OF THE AMOUNT PAID AND PAYMENT OF COMPENSATORY INTEREST

In its request, the claimant petitions for the annulment of the assessment, for illegality, with all legal consequences, in particular, the ordering of AT to reimburse the claimant for the AIMI improperly paid, plus compensatory interest accrued and accruing, from the date of the respective payment on September 28, 2017 until the date of its full reimbursement.

Article 24, no. 1, paragraph b), of the RJAT provides that the arbitral decision on the merits of the claim from which no appeal or challenge is available binds the tax administration from the end of the period provided for appeal or challenge, this administration being required, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for spontaneous execution of sentences of tax courts, to restore the situation that would have existed if the tax act subject of the arbitral decision had not been executed, adopting the necessary acts and operations for this purpose, which is in line with the provision in article 100 of the LGT (applicable by virtue of the provision of paragraph a) of no. 1 of article 29 of the RJAT) which establishes that "the tax administration is obliged, in case of total or partial success of a claim, judicial challenge or appeal in favor of the taxpayer, to immediately and fully restore the legality of the act or situation subject of the litigation, including the payment of compensatory interest, if applicable, from the end of the period for execution of the decision."

Article 43, no. 1, of the LGT provides, in turn, that compensatory interest is due when it is determined that there was error attributable to the services, which results in payment of the tax debt in an amount greater than legally owed.

In the present case, the error in the application of the law to the facts proven in the file is attributable to the AT, as it should have proceeded with the revocation of the assessment by virtue of the legal effects resulting from the change in the registry granted at the request of the taxpayer. The AT is bound by the law and must proceed with all the guiding principles of the action of the Public Administration, namely the principle of legality, material truth and justice, among others. Thus, there is no doubt that the amount of tax assessed was entirely the responsibility of AT, as was the failure to revoke the illegal additional assessment. This resulted in the improper payment of tax, in accordance with the terms set out above.

Thus, with the assessment being the result of error with the consequent violation of law, committed by the AT, it is concluded that such error is entirely attributable to it, as the prerequisites contained in article 43 of the LGT are satisfied.

The claimant therefore has the right to be reimbursed the amount improperly paid (pursuant to the provisions of articles 100 of the LGT and no. 1 of article 24 of the RJAT) and, further, to be indemnified for the improper payment through the payment of compensatory interest by the Respondent, from the date of payment of the amount until effective reimbursement thereof, at the legal default rate, in accordance with nos. 1 and 4 of article 43 and no. 10 of article 35 of the LGT, article 559 of the Civil Code and Ordinance no. 291/2003, of April 8.

In conclusion, the claimant has the right to be reimbursed the amount improperly paid (pursuant to the provisions of articles 100 of the LGT and no. 1 of article 24 of the RJAT) and, further, to be indemnified for the improper payment through the payment of compensatory interest by the Respondent, from the date of rejection of the request for reconsideration of the tax act, until reimbursement, at the legal default rate, in accordance with nos. 1 and 4 of article 43 and no. 10 of article 35 of the LGT, article 559 of the Civil Code and Ordinance no. 291/2003, of April 8.

Lastly, regarding the costs of the proceedings, it follows that payment of costs at the end of the proceedings falls to the losing party, in the proportion in which it is losing. However, this shall not be the case if, despite losing, this party did not give rise to the action, which is not the case here, as the AT had the opportunity to revoke the act after being called upon to decide the issue in the context of the registry claim proceeding as well as after notification of the presentation of the present arbitral request. of the tax act. Therefore, by opting not to do so, it gave rise to the present arbitral request, and, to that extent, is responsible for payment of the costs of the proceedings.

Consequently, the AT must bear the costs of the proceedings in their entirety.

VI - DECISION

For these reasons, this Arbitral Tribunal decides:

To fully uphold the arbitral request formulated and, consequently, to annul the additional AIMI assessment challenged, with all legal consequences, in particular the reimbursement of the improperly paid tax, in the amount of €9,034.88, plus interest at the legal rate, calculated from the date of payment made until full reimbursement.

To order the AT to bear the costs of the proceedings.

CASE VALUE

The case value is set at €9,034.88, pursuant to article 97-A, no. 1, a), of the CPPT, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of the RJAT and no. 2 of article 3 of the Costs Regulations in Tax Arbitration Proceedings.

COSTS

The arbitration fee is set at €918.00, pursuant to Table I of the Costs Regulations for Tax Arbitration Proceedings, to be paid by the Respondent, since the request was fully successful, in accordance with articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the aforementioned Regulations.

Notify.

Lisbon, June 28, 2018

The Arbitral Tribunal,

(Maria do Rosário Anjos)

Frequently Asked Questions

Automatically Created

What is AIMI (Adicional ao Imposto Municipal sobre Imóveis) and how does it apply to properties in Portugal?
AIMI (Adicional ao Imposto Municipal sobre Imóveis) is an additional tax on municipal property tax in Portugal that applies to high-value property portfolios. It applies to individuals with urban properties exceeding €600,000 in aggregate taxable value, and to companies holding any urban property. AIMI rates vary depending on whether the owner is an individual (0.7% to 1.5%) or a corporate entity (0.4% for properties up to €1 million, increasing for higher values). Crucially, AIMI only applies to urban properties (prédios urbanos) as defined in the IMI Code, not to rural properties (prédios rústicos), which are explicitly excluded from this additional taxation.
Are rural properties (prédios rústicos) subject to AIMI taxation under Portuguese tax law?
No, rural properties (prédios rústicos) are not subject to AIMI taxation under Portuguese tax law. Article 135-B of the IMI Code establishes that AIMI applies exclusively to urban properties. Rural properties are defined in Article 3 of the IMI Code as land located outside urban perimeters used for agricultural, forestry, or livestock purposes. The distinction is critical because properties classified as rural are exempt from AIMI regardless of their value. In case 662/2017-T, the taxpayer successfully challenged an AIMI assessment by demonstrating that the property was improperly classified as urban when it should have been classified as rural land, being located in protected ecological areas where construction was prohibited.
What was the outcome of CAAD arbitration case 662/2017-T regarding the AIMI assessment on a property classified as rural?
In CAAD case 662/2017-T, the tribunal ruled in favor of the taxpayer, annulling the AIMI assessment of €9,034.88. The decision was based on the property's proper classification as rural rather than urban. The property, consisting of 1,000,000 m² of pine forest located within the Natura 2000 Network and National Ecological Reserve (REN), had been incorrectly assessed for AIMI based on its previous urban classification. The Finance Department had already granted the taxpayer's claim to reclassify the property as rural in August 2017, recognizing that construction was prohibited due to environmental protections. Since AIMI only applies to urban properties under Article 135-B of the IMI Code, and the property was definitively classified as rural, the assessment was deemed illegal and invalid.
Can a taxpayer challenge an AIMI tax assessment through CAAD arbitration proceedings in Portugal?
Yes, taxpayers can challenge AIMI tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings in Portugal. Article 2, paragraph 1(a) of Decree-Law 10/2011 (RJAT) grants CAAD jurisdiction over disputes related to AIMI assessments. Case 662/2017-T demonstrates this process: the claimant filed an arbitration request on December 20, 2017, challenging an AIMI assessment. The CAAD President accepted the request, constituted an arbitral tribunal, and notified the Tax Authority. The process offers taxpayers an alternative to judicial courts, providing a faster, specialized forum for resolving tax disputes. Taxpayers must pay arbitration fees and can opt for a single arbitrator or a three-member panel. The arbitral decision has the same legal effect as a court judgment.
What happens when the Portuguese Tax Authority (AT) fails to respond in CAAD arbitration proceedings?
When the Portuguese Tax Authority (AT) fails to respond in CAAD arbitration proceedings, the case proceeds without AT's arguments or evidence. In case 662/2017-T, despite being properly notified, the AT submitted no response and did not attach the administrative file. The arbitral tribunal issued an order noting AT's non-response and, considering the legal nature of the issues and absence of witness testimony needs, dispensed with the oral hearing pursuant to principles of procedural autonomy, celerity, and simplification under Articles 19(2) and 29(2) of RJAT. The tribunal proceeded directly to optional written submissions and then to decision based solely on the claimant's documentation and legal arguments. AT's silence does not automatically result in default judgment but rather allows the tribunal to decide based on available evidence and applicable law.