Process: 678/2017-T

Date: September 6, 2018

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 678/2017-T) addresses the application of AIMI (Additional Municipal Property Tax) to a real estate company owning properties including building land (terrenos para construção). The claimant, a real estate company operating a science and technology park, challenged the 2017 AIMI assessment of €102,881.24 on three grounds: (1) AIMI should not apply to real estate companies operating within their corporate purpose; (2) building land designated for commercial, industrial, or service purposes falls outside AIMI's objective scope under Article 135-B(2) of the IMI Code, which excludes such property classifications; and (3) alternatively, the AIMI regime violates constitutional principles of equality (Article 13) and tax equality/contributive capacity (Article 104(3)) when applied to all building land. The tribunal analyzed the AIMI legal framework introduced by Law 42/2016, which taxes the aggregate taxable patrimonial value of urban properties held by individuals and legal entities at rates of 0.7% and 0.4% respectively. Article 135-B(2) explicitly excludes properties classified as commercial, industrial, services, or 'other' under Article 6(1)(b) and (d) of the IMI Code. The decision examines whether building land constitutes a separate classification or falls within these excluded categories, and whether differential treatment of such land violates constitutional equality guarantees. This case establishes important precedent for real estate companies regarding AIMI liability and the tax treatment of development land portfolios.

Full Decision

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Maria Antónia Torres and Suzana Fernandes da Costa, designated by the Ethics Council of the Centre for Administrative Arbitration to form an Arbitral Tribunal, hereby decide as follows:

I – REPORT

On 26 December 2017, A..., S.A. (hereinafter briefly referred to as the "Claimant"), holder of tax identification number ..., with registered office at ..., no. ..., ...-... ..., filed a request for constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter briefly referred to as RJAT), seeking the declaration of illegality of the tax assessment acts for the Additional Municipal Property Tax ("AIMI") with number 2017..., issued by the Tax and Customs Authority ("AT"), referring to the year 2017, in the total amount of €102,881.24.

To substantiate its request, the Claimant alleges, in summary, that:

  • it is illegal, due to errors in factual and legal prerequisites, the application of AIMI to the Claimant, by virtue of the ownership of real property within the framework of its activity;

  • alternatively, it is illegal to tax "land for construction" intended for "commercial, industrial or service" or "other" purposes, since they are not covered by the objective scope of the norms under analysis;

  • alternatively, the legal regime of AIMI is unconstitutional, to the extent that it applies to all "land for construction", contrary to the principle of equality enshrined in Article 13 of the CRP and to the principles of tax equality and contributive capacity enshrined in Article 104, no. 3 of that Fundamental Law.

On 27-12-2017, the request for constitution of the arbitral tribunal was accepted and automatically notified to AT.

The Claimant did not proceed to appoint an arbitrator, therefore, pursuant to Article 6, no. 2, paragraph a) and Article 11, no. 1, paragraph a) of RJAT, the President of the Ethics Council of CAAD designated the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

On 14-02-2018, the parties were notified of these designations and did not express any intention to refuse any of them.

In accordance with Article 11, no. 1, paragraph c) of RJAT, the collective Arbitral Tribunal was constituted on 06-03-2018.

On 17-04-2018, the Respondent, duly notified for this purpose, filed its response defending itself by way of objection.

Under Articles 16, paragraphs c) and e), and Article 29, no. 2, both of RJAT, the meeting referred to in Article 18 of RJAT was dispensed with.

Having been granted a period for submission of written submissions, the parties refrained from doing so.

A period of 30 days was fixed for issuance of the final decision, after the expiry of the period for submission of submissions by the Respondent. Subsequently, that initial period was extended until the expiry of the period fixed in Article 21/1 of RJAT.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with Articles 2, no. 1, paragraph a), 5 and 6, no. 1, of RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with Articles 4 and 10 of RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The case is not affected by any nullities.

Thus, there is no obstacle to the examination of the case.

Having considered all of the foregoing, it is appropriate to render

II. DECISION

A. FACTUAL MATTERS

A.1. Facts established as proven

  • The Claimant is a real property company whose corporate purpose includes the "establishment and development, promotion and management of a science and technology park (property administration)."

  • In that capacity, the Claimant was notified of the tax assessment act for AIMI, subject of the present arbitral action, relating to the year 2017, concerning the real property portfolio held by it.

  • In the said assessments AT included the following real properties:

[Details of properties listed]

  • The Claimant proceeded to pay, in full and in a timely manner, the tax assessment act in question, in a total amount of €102,881.24.
A.2. Facts established as not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning of the proven and unproven factual matters

With respect to factual matters, the Tribunal does not need to pronounce on everything alleged by the parties, but rather has the duty to select the facts that matter for the decision and to distinguish the proven facts from the unproven ones (cf. Article 123, no. 2, of CPPT and Article 607, no. 3 of CPC, applicable by virtue of Article 29, no. 1, paragraphs a) and e), of RJAT).

Thus, the facts pertinent to the judgment of the case are chosen and defined according to their legal relevance, which is established with regard to the various plausible solutions of the legal question(s) (cf. former Article 511, no. 1, of CPC, corresponding to current Article 596, applicable by virtue of Article 29, no. 1, paragraph e), of RJAT).

Thus, taking into account the positions assumed by the parties in light of Article 110/7 of CPPT, and the documentary evidence attached to the file, the facts listed above were considered proven, with relevance to the decision.

Allegations made by the parties and presented as facts consisting of strictly conclusive statements, incapable of proof and whose veracity must be assessed in relation to the specific factual matter above established, were not given as proven or unproven.

B. LAW

Law No. 42/2016, of 28 December (State Budget Law for 2017) introduced the "Additional Municipal Property Tax" ("AIMI"), which came into force on 1 January of that same year.

The regulation of AIMI was included in a specific section added to the IMI Code, comprising Articles 135-A to 135-K.

For present purposes, Articles 135-A, nos. 1 and 3 of the IMI Code establish that the passive taxpayers of AIMI are "natural persons or legal entities who are owners, usufructuaries or superficiaries of urban properties situated in Portuguese territory" on 1 January of the year to which the Additional relates.

No. 2 of the same article provides that: "any structures or centres of collective interests without legal personality that appear in the cadastre as passive taxpayers of municipal property tax are deemed to be equivalent to legal entities, as well as undivided succession represented by the head of household."

AIMI is levied, in accordance with Article 135-B, no. 1 of the IMI Code, "on the sum of the tax patrimonial values of urban properties situated in Portuguese territory of which the passive taxpayer is owner" – and from this sum, the amount of €600,000 shall be deducted whenever the passive taxpayer is a natural person or an undivided succession.

Excluded from the objective scope of this Additional are "urban properties classified as "commercial, industrial or for services" and "other" in accordance with paragraphs b) and d) of Article 6, no. 1 of this Code", as provided in no. 2 of that same article.

The applicable rate is 0.4% for legal entities and 0.7% for natural persons and undivided successions, provided that the taxable value does not exceed €1,000,000, in accordance with Article 135-F, no. 1 of the IMI Code, and in cases where the taxable value exceeds €1,000,000, a rate of 1% is applicable when the passive taxpayer is a natural person.

Under Article 135-G, no. 1 and Article 135-H of the IMI Code, the additional tax in question is assessed annually in the month of June, based on the tax patrimonial values of the properties subject to tax and in respect of passive taxpayers listed in the cadastre on 1 January of each year, and must be paid by the end of September.

As seen above, the Claimant raises the following issues:

  • illegality, due to errors in factual and legal prerequisites, of the application of AIMI, by virtue of the ownership of real property within the framework of its activity;

  • alternatively, the illegality of the taxation of "land for construction" intended for "commercial, industrial or service" or "other" purposes, since they are not covered by the objective scope of the norms under analysis;

  • also alternatively, the unconstitutionality of the legal regime of AIMI, to the extent that it applies to all "land for construction", contrary to the principle of equality enshrined in Article 13 of the CRP and to the principles of tax equality and contributive capacity enshrined in Article 104, no. 3 of that Fundamental Law.

The issues raised in the present arbitral proceedings have already been the subject of various arbitral decisions, in some cases with divergent outcomes. Reference may be made, for this purpose, to the arbitral awards rendered in cases 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, and 6/2018-T[1].

Let us proceed.

a.

The Claimant contends that the legislator "in instituting AIMI, intended to create an actual tax on real property wealth" and "sought to ensure that urban properties devoted to economic activities would not be subject to AIMI taxation, recognizing that the mere ownership 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" as well as that "it is evident that the legislative purpose underlying the rule of exclusion from objective scope, enshrined in Article 135-B, no. 2 of the IMI Code, was based essentially on the intention not to tax excessively the passive taxpayers who, by virtue of their economic activities, own properties for the pursuit of their corporate purpose."

For its part, the Claimant alleges that the properties it owns are the true elements of its "productive process (...), whether as rental assets, or as true inventories intended for future transformation, intended exclusively for the pursuit of the activity and never capable of being compared with elements demonstrating wealth", that "the ownership of those properties represents, in truth, the substrate of all of the Claimant's activity – it is inherent, necessary, indispensable to the pursuit of it", and that "to tax these properties would mean to tax directly an "economic activity" – something that the legislator expressly sought to avoid when creating AIMI."

On this basis, the Claimant concludes that "it cannot (...) accept – or understand – that AT, through the assessment act now contested, has caused this new AIMI to apply to the property portfolio it holds" nor that that Authority "has considered, in determining the tax patrimonial value subject to AIMI, the "land for construction" whose potential use coincides with "commercial, industrial or service" purposes."

The Claimant seeks, in summary, in this part, an exclusion from the subjective scope of AIMI, including within it "passive taxpayers who, by virtue of their economic activities, own properties for the pursuit of their corporate purpose," and specifically and for present purposes, real property companies.

On this issue, the guidance of CAAD jurisprudence has been that taxation operates independently of the nature of the activity carried out, and reference may be made, by way of example, to the following decisions (regardless of the final decision on whether or not the arbitral petition is well-founded):

a) regarding Real Estate Investment Funds – Case No. 664/2017-T and Case No. 686/2017-T;

b) financial institutions – Case No. 676/2017-T;

c) financial leasing institutions – Case No. 696/2017-T;

d) construction and urban development companies – Case No. 6/2018-T.

In this regard, it was written in the aforementioned case no. 664/2017-T:

"In all this context, the view that it was intended to exclude from the scope of the tax properties devoted to economic activities, on the pretext that it was legislative intention not to tax excessively passive taxpayers who own properties as a result of their corporate purpose, has no support in the letter of the law nor in the rational and systematic elements of interpretation.", concluding that "the intended extension of the legislative formula used to properties devoted to the company's economic activity, regardless of the specific characterization as commercial, industrial or service properties, has no place in light of the general criteria of legal hermeneutics."

Also here that understanding is followed, noting additionally that the argumentation presented by the Claimant is deficient in several of its premises.

Thus, the understanding that the legislator "in instituting AIMI, intended to create an actual tax on real property wealth" is not subscribed to; rather, it is considered that AIMI corresponds in substance to its form, being an additional to IMI, embodying what had been the understanding of some, including the Constitutional Court[2], who considered that "item 28.1 of TGIS was assumed to be a "complementary IMI rate"."

Nor are the Claimant's conclusions subscribed to, according to which the legislator "sought to ensure that urban properties devoted to economic activities would not be subject to AIMI taxation, recognizing that the mere ownership 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" as well as that "it is evident that the legislative purpose underlying the rule of exclusion from objective scope, enshrined in Article 135-B, no. 2 of the IMI Code, was based essentially on the intention not to tax excessively the passive taxpayers who, by virtue of their economic activities, own properties for the pursuit of their corporate purpose."

In fact, in this regard, it is considered that the non-application of economic activities by AIMI was not the ultimate purpose of the legislator in creating AIMI, but rather a factor considered by it at various levels in designing the legal regime thereof.

Thus, and in the first place, as the Claimant points out, the legislator excluded from the scope of AIMI urban properties classified as "commercial, industrial or for services" and "other."

Beyond this, however, the legislator created different rates for legal entities and for natural persons, including an increase in cases where the taxable value exceeds €1,000,000, restricted to the latter, which cannot fail to be based, if not entirely, at least in large part, on the consideration that properties held by legal entities, as a rule, will be devoted to economic activities.

The understanding that the legislator recognized "that the mere ownership 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" is likewise not considered acceptable. Indeed, and this will be a notorious reality and, as such, unavoidable, it will be undeniable that a legal entity owning properties valued at €100,000,000.00 reveals a contributive capacity (from the perspective of the tax in question) manifestly superior to another legal entity which, with the same purpose, owns properties valued at €100,000.00.

On the other hand, and as has been mentioned, AIMI should be understood and treated as such, that is, as an additional to IMI. Now, thus being the case, the contributive capacity evidenced by legal entities through the ownership of properties, even when devoted to their productive activity, is precisely the same, whether with respect to subjection to AIMI or with respect to subjection to IMI.

Thus, and in light of all the foregoing, it is considered appropriate to dismiss the arbitral petition in this part.

b.

With respect to the first subsidiary petition filed, the Claimant considers that "the legislator intended to tax properties (...) with residential purposes. That intention results from the wording of the law and, moreover, was at the genesis of the creation of this additional."

The Claimant further states that "Having been clear the legislator's intention to exclude, through Article 135-B, no. 2 of the IMI Code, the application of AIMI to properties devoted to economic activities, it must necessarily be understood that the "land for construction" devoted to those activities are equally included in that exclusion rule", and for the Claimant, "To understand that "land for construction" intended, according to their respective property records, for purposes of "commerce, industry, services" or "other", are subject to AIMI – as has been understood by AT – is manifestly contrary to the spirit of the law and, moreover, illegal."

The Claimant further points out that "only by mere absurdity would it be considered comprehensible and adequate to the purposes intended by AIMI the hypothesis of AT taxing a "land for construction" with potential use for "industry" and not taxing a property (constructed) with the same use – even if that property is not in fact being exploited in the context of the exercise of an economic activity."

In this context, for the Claimant, "the subjection of these lands for construction to AIMI causes a greater tax burden on this type of urban property and, consequently, will necessarily have an impact on the economic activities that could potentially be developed on these properties", and therefore "the taxation methodology adopted by AT, in the sense of including in the taxable value for purposes of AIMI passive taxpayers holding "land for construction" with the purposes identified by Article 135-B, no. 2 of the IMI Code, constitutes discriminatory treatment that violates, without more, the principle of equality, constitutionally enshrined in Articles 13 and 104, no. 3, of the Constitution of the Portuguese Republic ("CRP") and in Articles 5 and 55 of the General Tax Law ("LGT")."

Thus, the Claimant concludes, "the AIMI tax assessment act, to the extent that it taxes "land for construction" intended for "commercial, industrial or service" or "other" purposes – here corresponding to the amount of tax of €96,347.40 (...) is tainted with manifest illegality, due to error in factual and legal prerequisites, and should be partially annulled."

With respect to this subsidiary petition, the Claimant seeks, in summary, the expansion of the objective exclusions from AIMI subjection, enshrined in Article 135-B, no. 2 of CIMI, in order to include also urban properties classified as "land for construction", provided that the construction planned on them falls within one of the types referred to in said no. 2, that is, urban properties intended for "commercial, industrial or service" or "other" purposes.

With respect to this issue, now presented for decision by the Claimant, the arbitral jurisprudence has been divided.

Thus, for example, the decision rendered in case 686/2017-T concluded that "land for construction" without residential purpose, that is, with "commercial, industrial or service" or "other" purposes, should be excluded from AIMI taxation.

That decision, based on the unity of the legal system, defends the possibility of extensive interpretation of the exclusion provided for in Article 135-B, no. 2 of CIMI, in that case, regarding urban properties classified as "for services," "as expressing a legislative intention also to exclude from taxation lands intended for the construction of those properties."

For that Arbitral Tribunal, "Given that the tax fact chosen as an index of contributive capacity is ownership of real estate property of value considered elevated….", it would be a lack of coherence not to apply AIMI to buildings intended for commerce, industry or services and to apply it to lands intended for their construction, especially since the value of the lands is incorporated into the value of the buildings.

That same Tribunal further noted that, if it did not decide thus, it would conclude to the unconstitutionality of the rule providing for such taxation.

On the other hand, in the decisions rendered in cases no. 676/2017-T and 664/2017-T (the first concerning Real Estate Investment Funds and the second concerning a credit institution), the claims of the claimants therein were decided unfavorably, in the sense of ruling out the taxation of "land for construction," even if the planned construction is for "commercial, industrial or service" purposes.

Regarding the taxation of land for construction with non-residential purposes, both of the referred decisions converge, and the following may be read in the first:

"Given that the legislator defined an exclusion clause by express and precise reference to certain species of urban properties, which are immediately identifiable in the context of the law, it is not possible to carry out an extensive interpretation in order to include other typologies that the legislator manifestly did not wish to consider. One cannot even arrive at that interpretive result on the basis of mere considerations of a pragmatic order or of teleological identity."

Not contesting that from the perspective of fiscal policy the solution could have been different, and with all due respect to other opinions, it is considered that the exclusion of taxation of all or part of "land for construction" was not the solution adopted, since no. 2 of Article 135-B of CIMI only provides for exclusion of taxation regarding AIMI of urban properties classified as "commercial, industrial or for services" and "other," precisely in accordance with paragraphs b) and d), of Article 6, no. 1, which necessarily leads to the taxation of the properties provided for in the two remaining paragraphs of that same Article 6 of CIMI, that is, urban properties classified as "residential" (para. a)) or as "land for construction" (para. c)).

Covered by the taxation in question, in accordance with the letter of the law, are all urban properties classified as "residential" and all urban properties classified as "land for construction," and not merely some of them, and if the legislator, in its rule of exclusion from taxation, intended to exclude a part of the properties referred to in paragraphs a) and c), of Article 6, no. 1 of CIMI, it would have had all the means to do so.

Similarly, the legislator could have altered the species of urban properties provided for in Article 6 of CIMI, for example, by subdividing lands for construction according to the purposes for which they were intended, which did not happen.

Regarding the possibility of extensive interpretation of the exclusion enshrined in said Article 135-B, no. 2 of CIMI, in order to encompass lands for construction not intended for residential purposes – the solution adopted in the decisions that accepted claims similar to those of the Claimant, now in question – it is considered, always with respect due to other understandings, that it should not be accepted.

Thus, and first of all, it is believed that the identity of situations does not exist in light of the legally relevant criteria, necessary to carry out the said extension of the exclusion clause from objective subjection, that is, it does not appear that lands for construction are in a situation identical to constructed properties, from the perspective of the teleology of that exclusion clause.

From a teleological perspective, such a clause will primarily have as its underlying purpose the objective of not burdening with AIMI properties devoted, or susceptible to immediate devotion, to productive processes, whereas lands for construction do not have such characteristics, given that while a constructed property will be, or will be susceptible to being immediately, devoted to productive processes, construction lands are not in such a situation.

As, moreover, the Constitutional Court itself has already recognized, there are fundamental and relevant differences between a constructed property and land for construction.

In the words of that high Court[4]:

"For tax purposes, properties (...) are clearly distinguished from land for construction, in accordance with Article 6 of the Municipal Property Tax Code (CIMI), the first of which categories consists of buildings or existing constructions (...), while the second comprises exclusively lands for which it is consolidated by an administrative act of prior control of an urbanistic operation the right to construct buildings intended for that or other purposes.

Thus, while buildings (...) correspond to an actual buildability, definitively incorporated into the legal sphere of their owner, lands for construction correspond to merely potential buildability, legally consolidated in the legal sphere of the property owner, but not yet materialized.

That is, the taxation of properties (...) is based on existing reality, on corporeal things, in contrast to the taxation of lands for construction, which is based on construction rights, on future things, as indeed evidenced by Article 45 of CIMI, in establishing that the tax patrimonial value of these latter is determined exclusively by the volume and quality of the construction to be built on the land, and not by its current characteristics.

It will be said, with accuracy, that both of these correspond to real estate property (...). And that, by their real estate value, both are apt to translate a certain form of wealth. But the comparisons end there, because, precisely, the different nature of these goods does not permit equating the contributive capacity of their respective owners, current or future, solely on the basis of their purpose and their tax patrimonial value (VPT)."

Indeed, already constructed properties possess a material reality corresponding to the typology that falls to them. That is, to a constructed and licensed property for, or that has as its normal purpose, commerce, industry or services, will correspond a material reality adequate to such purposes and, for present purposes, objectively distinct from a constructed and licensed property, or with normal purpose, for residential use.

Lands for construction, on the other hand, are distinguished from other lands on a merely legal plane, that is, as a function of an action of a public entity (grant of license or authorization, admission of prior notification or issuance of favorable prior information of subdivision or construction operation - cf. Article 6/3 and 37/3 of CIMI) or of the owners (declaration of purpose in the acquisition document; cf. Article 6/3 of CIMI), to which the Law attributes certain legal effects.

Thus, in function of the noted material differentiation, the alteration of the purpose of a land for construction, from the perspective of the notes relevant to the issue in question, may be simple, requiring, for example, a mere declaration in the acquisition document, the presentation and admission of prior notification, or the presentation and approval of a prior information request.

The alteration of the purpose of an already constructed building, from residential to commerce/industry/services, or vice versa, will, under a normal perspective, entail the carrying out of more or less extensive works (and necessary licenses).

It further follows that a constructed property has incorporated therein a significant value corresponding to the construction, which, even in cases where it is not concretely devoted to the intended use, will constitute a natural incentive to its economic exploitation since, always from a normal perspective, an unoccupied constructed property not only will not generate income, but will depreciate (as a function of its deterioration) by non-use.

A land for construction, on the other hand, not only does not incorporate, per se, any natural incentive for its construction and subsequent devotion to a productive activity, but also, from a normal perspective, the opposite may well occur, that is, as a function of certain market conditions that create expectations of merely speculative gains, there may be incentives for their owners to maintain their status as undeveloped lands.

In this regard, the Claimant states that subjection of the lands for construction in question to AIMI "causes a greater tax burden on this type of urban property and, consequently, will necessarily have an impact on the economic activities that could potentially be developed on these properties."

Now, in light of the teleology captured from the interpreted norm, set out above, the fact is that such impact may well be positive, to the extent that the taxation of lands for construction may constitute an incentive to their construction, thereby accelerating the actual use of the properties in productive activities.

All that has been expounded, it is believed, will justify a distinction of treatment, in line with the legally enshrined regime, and in contrast to the extension of the non-subjection clause through interpretive extension.

Notwithstanding, it should further be added that a comprehensive understanding of AIMI within the framework of the IMI regime will point, precisely, to the actual purpose of the legislator to subject to it all lands for construction, and not merely those intended for residential use.

Else, let us see.

In the design of AIMI, and following the evolution of taxation under item 28.1 of CIS, the legislator made very clear (by virtue, first of all, of the nomenclature and systematics of the taxation created, as well as the express reference to the applicable IMI rules) its intention that the categories relevant to the taxation in question be delineated according to the criteria specific to CIMI.

And, under this Code, lands – which is the category that now concerns us – may be included in the categories of:

  • rustic; or
  • urban;
    • "for construction" of buildings intended for residential, commercial, service or industrial purposes;
    • intended for "other" purposes.

The legislator, in the AIMI regime created, excluded from subjection to it lands qualified as "rustic," by way of the exclusive subjection of urban properties in Article 135-A, no. 1, and lands qualified as "urban" intended for "other" purposes, by way of the exclusion clause of no. 2 of that referred article, and the non-exclusion of "construction" lands for buildings with certain purposes (specifically commerce, services or industry) cannot fail to be considered sufficiently grounded in considerations of a material order, as has been seen already.

Finally, it cannot fail to be considered relevant in this matter that the STA has understood that for the determination of the VPT of lands for construction, the purpose of the projected construction is irrelevant.

Thus, in the STA Decision of 20-04-2016, rendered in case 0824/15[5], it was considered that:

"It follows from this provision that the formula transcribed above only applies to the urban properties discriminated therein, that is, those which, already built, are for residential, commercial, industrial and service purposes.

However, the legislator did not include therein lands for construction which it also classifies as urban properties in Article 6 of CIMI.

For the determination of the tax patrimonial value thereof there is the provision of Article 45 already referred to where only the area of implantation of the building to be constructed and the adjacent land and the characteristics of no. 3 of Article 42 are relevant.

The remaining coefficients are not included therein because they can only respect buildings, as such.

The purpose coefficient can only be relevant in the face of proven use of the constructed property and likewise that of comfort and quality.

Such multiplying coefficients of the tax patrimonial value only respect the constructed but do not have real basis of support in the potential that the land for construction offers."

And, further on, in the same decision:

"But having regard to reality, the legislator enshrined for the determination of the tax patrimonial value of this species of property a specific rule – that contained in Article 45 where it is reiterated that account is taken of the value of the area of implantation of the building to be constructed and the value of the land adjacent to the implantation as well as the characteristics of accessibility, proximity, services and location described in no. 3 of Article 42. Taking into account the approved construction project and the provision of no. 2 of Article 45 of C.I.M.I.

Which means that in the determination of the tax patrimonial value of lands for construction, the mathematical formula enshrined in Article 38 of CIMI does not apply.

And being thus, the coefficients of purpose and quality and comfort related to the property to be constructed also cannot and should not be taken into account in that evaluation.

Indeed, the purpose coefficient has to do with the type of use of the already constructed property and the same may be said of the coefficient of quality and comfort.

In lands under construction the approved buildings are merely potential and it is the value of that constructive capacity, generating increase in patrimonial value or wealth for its owner that is sought to be taxed. And not factors still not materialized."

That understanding was sanctioned by a decision of the Plenary of the Tax Contentious Division of the STA of 21-09-2016, rendered in case 01083/13[6], in whose summary it is synthesized that:

"III - In the determination of the tax patrimonial value of lands for construction, the provision of Article 45 of the IMI Code must be observed, with no place for consideration of the quality and comfort coefficient (cq).

IV - Article 45 of CIMI is the specific rule governing the determination of the tax patrimonial value of lands for construction.

V - The quality and comfort coefficient, a multiplying factor of the tax patrimonial value contained in the mathematical expression of Article 38 of CIMI with which the tax patrimonial value of urban properties for residential, commercial, industrial and service purposes is determined cannot be applied analogously as it is liable to alter the tax base, interfering with the incidence of the tax."

Thus, it is concluded that in determining VPT within the framework of CIMI, the purpose of the projected construction on "lands for construction" is not relevant, and lands for construction of residential buildings are not distinguished, from the perspective of property taxation and, consequently, demonstration of contributive capacity, from lands for construction of commercial, industrial or service buildings.

On the contrary, and as a function of the application of the purpose coefficient enshrined in Article 41 of CIMI, in constructed buildings, the purpose of the buildings is reflected in the tax patrimonial value, and consequently in the contributive capacity, considered for purposes of taxation.

Within AIMI, given what has already been expounded regarding the nature of this taxation (as an additional to IMI), there will be no justifications for diverging from such criterion, that is, for considering that the ownership of "lands for construction" with buildings projected of distinct purposes signals different contributive capacities.

Taking into account what has been expounded, and considering that it is not appropriate to proceed to the expansion, through extensive interpretation, of the objective exclusions from AIMI subjection, enshrined in Article 135-B, no. 2 of CIMI, in order to include therein also urban properties classified as "lands for construction," provided that the construction thereon planned falls within one of the types referred to in said no. 2, that is, urban properties intended for "commercial, industrial or service" or "other" purposes, this arbitral petition should likewise be dismissed.

c.

Also as a subsidiary matter, the Claimant considers that the taxation regime in AIMI is contrary to the principle of equality enshrined in Article 13, and to the principles of tax equality and contributive capacity enshrined in Article 104, no. 3, both of the CRP, since, in its view, the legal regime of AIMI, in particular Articles 135-A and 135-B thereof, both of the IMI Code, and the taxation resulting therefrom, promote differentiated treatment and an unjustified inequality among taxpayers, and "the application of AIMI to the real estate property held by entities dedicated to real estate exploitation (here including purchase, sale, construction, promotion and rental) could only result from the idea that such properties, productive factors of these companies and means for the exercise of their economic activity, constitute evidence of increased contributive capacity – which cannot be accepted."

The Claimant further relies, in this matter, on Decision No. 250/2017 of the Constitutional Court, of 24 May 2017, rendered in case No. 156/20, already cited above.

In this matter, the Claimant repeats much of the argumentation previously presented.

Thus, the Claimant again considers "evident that, in instituting AIMI, the legislator intended to tax properties with residential purposes, as actual manifestations of wealth" and that "it was clear the legislator's intention to exclude from the scope of application of AIMI all properties devoted to economic activities," which, as has been seen, is not subscribed to.

The Claimant also inquires whether "if "commercial, industrial or service" properties and "other" properties are expressly excluded from the scope of application of AIMI – because devoted to economic activities, which the legislator did not wish to burden – how can "lands for construction" devoted to those same purposes be included in that scope?"

The answer to such a question, as also has been seen, goes in the direction of there being a substantial difference between lands for construction and already constructed buildings, whereby the latter are susceptible to being, or to being immediately, devoted to the activities for which they are intended, in contrast to the former.

Thus, contrary to the Claimant, it is not believed that "In making that distinction – beyond violating the spirit of the law, above already demonstrated – we would be distinguishing realities that cannot be distinguished for this purpose: on the one hand, i) commercial, industrial, service or other already constructed properties and on the other, ii) lands for construction intended for commerce, industry, services or other," the alleged violation of the principle of equality not being verified.

The Claimant further alleges in this respect that "if the taxation in AIMI of the properties held by these entities were to be accepted, the real estate activity sector would be truly penalized, which, naturally, having no rational justification, cannot be accepted" and that "entities in this sector would assume, thus, an additional burden in relation to the generality of companies, based on a "hypothetical index of contributive capacity" that has no correspondence with reality."

In this regard, as also has been seen, the contributive capacity in question is the same as IMI, to which AIMI is added, and the legislator opted to enshrine lighter taxation rates for legal entities, in relation to natural persons.

As for the tax burden of the real estate sector, in relation to other sectors, note, first of all, that within the economic sector in question, companies are treated equally, and that it is contained within the scope of the legislator's freedom of action, being, moreover, common and accepted practice, interference in economic activities, tax-incentivizing some and tax-burdening others.

It further follows that there are other situations pacifically accepted - precisely in homage to the principle of practicability - of abstraction from the personal situation of passive taxpayers, significantly more evident than those pointed out by the Constitutional Court, and which, if the understanding of that High Court were accepted, would be irremediably injured by unconstitutionality. Consider, first of all, the situation of someone who acquires a property with recourse to credit guaranteed by the mortgage of that same property, being, from a perspective not only personal, but also patrimonial, evident the disparity of contributive capacity ("wealth") between said passive taxpayer, and the holder of a property of equal value, but entirely paid for.

On the other hand, duly understood, it is believed that the concerns of the Constitutional Court relate more to the manner of valuation of the property than to its subjection. That is: if the tax patrimonial value is justly fixed, and using the example used by the Constitutional Court, the owner of a luxury residential property in a tourism development in the Algarve and of land for construction of a multi-family residential building in a cooperative regime in the suburbs of Lisbon or Porto, will demonstrate, from the patrimonial perspective, the same contributive capacity, that is, will be holders of a property with identical tax patrimonial value.

Thus, and in light of the foregoing, it is considered that consequences should not be drawn from the Constitutional Court jurisprudence in question, in the context of constitutionality of the AIMI rules applied in the case, in particular with respect to the violation of the Constitutional rules pointed out by the Claimant, the arbitral petition being therefore dismissed also in this part.

C. DECISION

In view of the foregoing, this Arbitral Tribunal decides to find the arbitral petition filed entirely without merit and, in consequence:

  • to dismiss the Respondent of the claim;

  • to keep in the legal order the tax assessment acts subject to the present arbitral action; and

  • to condemn the Claimant in the costs of the proceeding, in the amount set out below.

D. Case Value

The value of the case is fixed at €102,881.24, in accordance with Article 97-A, no. 1, a), of the Code of Procedure and Tax Process, applicable by virtue of paragraphs a) and b) of Article 29, no. 1 of RJAT and no. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The value of the arbitration fee is fixed at €3,060.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Claimant, since the petition was entirely without merit, in accordance with Articles 12, no. 2, and 22, no. 4, both of RJAT, and Article 4, no. 4, of the cited Regulation.

Let notice be given.

Lisbon, 6 September 2018

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Vogal

(Maria Antónia Torres)

The Arbitrator Vogal

(Suzana Fernandes da Costa)

[1] All available at https://caad.org.pt/tributario/decisoes/.

[2] Cf. Decision of 24-05-2017, rendered in case 250/2017, available at: http://www.tribunalconstitucional.pt/tc/acordaos/.

[3] Subject to certain marginal situations regarding properties devoted to public services, or non-business activities, encompassed by the "other" category.

[4] Cf. Decision rendered in case 250/2017, already cited.

[5] Available at www.dgsi.pt.

[6] Ibid.

[7] Except, from 2018, municipal companies; cf. no. 4 of Article 135-A of CIMI.

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 an annual tax introduced by Law 42/2016 that applies to the aggregate taxable patrimonial value of urban properties held in Portuguese territory. For real estate companies (legal entities), AIMI applies at a rate of 0.4% on the total taxable value of urban properties they own, hold usufruct rights over, or surface rights, without the €600,000 deduction available to natural persons. Real estate companies are passive taxpayers under Article 135-A of the IMI Code regardless of whether property ownership relates to their corporate purpose. The tax is assessed annually in June based on cadastral values as of January 1st of the tax year.
Are building land plots (terrenos para construção) subject to AIMI taxation under Portuguese tax law?
The taxation of building land (terrenos para construção) under AIMI depends on their specific classification. Article 135-B(2) of the IMI Code excludes from AIMI's scope urban properties classified as 'commercial, industrial or for services' and 'other' according to Article 6(1)(b) and (d) of the IMI Code. Building land designated for commercial, industrial, or service purposes may fall within these exclusions. However, building land classified for residential purposes or without specific commercial/industrial designation would generally be subject to AIMI. The critical determination involves whether the cadastral classification of the specific building land plots falls within the statutory exclusions, making classification analysis essential for AIMI liability assessment.
Is the AIMI regime constitutional regarding the equal treatment principle under Articles 13 and 104 of the Portuguese Constitution?
The constitutional challenge to AIMI's application to building land raises equality concerns under Articles 13 and 104(3) of the Portuguese Constitution. The claimant argues that taxing all building land regardless of classification or development status violates the principle of equality and contributive capacity, as undeveloped land generates no income yet faces taxation. The principle of tax equality requires that taxpayers in similar situations be treated similarly, and contributive capacity mandates taxation according to wealth manifestation. The argument suggests differential treatment between developed income-producing properties and undeveloped building land lacks reasonable justification. However, the Constitutional Court has generally upheld AIMI's constitutionality, recognizing property ownership itself as manifestation of contributive capacity, though specific applications to building land may warrant individual constitutional analysis based on particular factual circumstances and property classifications.
Can a real estate company challenge AIMI tax assessments through CAAD arbitration proceedings?
Yes, real estate companies can challenge AIMI tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings under the Legal Framework for Arbitration in Tax Matters (RJAT - Decree-Law 10/2011). Article 2(1)(a) of RJAT grants arbitral tribunals jurisdiction over challenges to tax assessment acts, including AIMI. The claimant in this case successfully initiated arbitration by filing a request for constitution of an arbitral tribunal within the statutory deadline, challenging the 2017 AIMI assessment. Legal entities have standing to contest AIMI assessments on grounds including illegality due to errors in factual or legal prerequisites, improper application of exemptions or exclusions, and constitutional violations. The arbitration process provides an alternative to judicial court proceedings, offering specialized tax expertise and potentially faster resolution of AIMI disputes.
How does the AIMI objective scope of incidence apply to building land designated for commercial, industrial, or service purposes?
The AIMI objective scope of incidence is defined by Article 135-B of the IMI Code, which establishes what properties are subject to the tax. Article 135-B(2) creates a critical exclusion: urban properties classified as 'commercial, industrial or for services' under Article 6(1)(b) of the IMI Code, and 'other' properties under Article 6(1)(d), are excluded from AIMI taxation. This exclusion applies to building land designated for commercial, industrial, or service purposes if such land bears these cadastral classifications. The determination requires examining the specific cadastral classification registered with the Tax Authority. Building land intended for these purposes but not yet formally classified may not benefit from the exclusion. The exclusion reflects policy considerations that commercial and industrial properties already contribute to economic activity and municipal revenues through other mechanisms, justifying differential AIMI treatment compared to residential or unclassified urban properties.