Process: 679/2017-T

Date: June 24, 2018

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 679/2017-T) addresses whether construction land (terrenos para construção) classified with a 'services' location coefficient is subject to the Adicional ao IMI (AIMI) when held by companies for economic activities. The claimant, a real estate company, challenged an AIMI assessment of €18,150.56 for fiscal year 2017, arguing that properties used for economic activities should be exempt under Article 135-B(2) of the Municipal Property Tax Code (CIMI), which excludes industrial, commercial, and service properties. The company contended that the legislative intent was to avoid overburdening businesses holding real estate as productive assets, not wealth demonstrations. Additionally, the claimant alleged violation of constitutional equality principles (Articles 13 and 104(3) of the Portuguese Constitution), arguing differential treatment between construction land used for economic versus residential purposes was unconstitutional. The Tax Authority countered that AIMI explicitly applies to all residential properties and construction land regardless of intended use, as the law references Article 6 CIMI without distinction. The AT emphasized that AIMI functions as a real property tax on specific asset categories, not a personal wealth tax, and that the legislature deliberately chose classification-based criteria (industrial/commercial/services) over use-based determinations. The exclusion provision was intentionally limited and cannot be extended by interpretation to encompass construction land merely because it serves business purposes. The decision underscores the strict statutory interpretation of AIMI exemptions and the distinction between property classification and actual economic use in Portuguese tax law.

Full Decision

Arbitral Decision

The arbitrator Raquel Franco, designated by the Deontological Council of the Administrative Arbitration Center to form the Arbitral Tribunal, constituted on 06-03-2018, decides in the following terms and with the grounds that follow:

Report

The company "A..., S.A.", tax identification number..., with registered office at..., ..., no...., ...-... Porto Salvo, filed a request for the constitution of a single arbitral tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (AT) is respondent, with a view to the annulment of the assessment act for the Additional Municipal Property Tax (AIMI), relating to the fiscal year 2017, with number 2017..., which ascertained a total amount payable of €18,150.56 (eighteen thousand, one hundred and fifty euros and fifty-six cents).

The request for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD and automatically notified to the Tax and Customs Authority on 27-12-2017.

In accordance with the provisions of paragraph a) of article 6, no. 2, and paragraph b) of article 11, no. 1, of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated the undersigned as arbitrator of the single arbitral tribunal and notified the parties of this designation on 14-02-2018.

Thus, in compliance with the provision of paragraph c) of article 11, no. 1, of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 06-03-2018, followed by the pertinent legal procedures.

On 18.04.2018, the Tribunal notified the Parties of the dispensation of the meeting provided for in article 18 of the RJAT and of the deadline for submission of written pleadings.

Preliminary Determination

The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, no. 1, paragraph a), and 10, no. 1, of Decree-Law no. 10/2011, of 20 January, and is competent.

The Parties possess legal capacity and standing, are legitimate and are adequately represented (articles 4 and 10, no. 2, of the same statute, and article 1 of Administrative Rule no. 112-A/2011, of 22 March).

The proceedings do not suffer from any defects.

Positions of the Parties

The Claimant contends that the AIMI assessment in question is vitiated by violation of law, due to error on the factual and legal presuppositions, and is further unlawful for violation of the constitutional principle of equality.

In summary, the Claimant submits that:

  • In creating the AIMI, the legislature safeguarded properties used for economic activities;

  • The ratio legis underlying the exclusion provision contained in article 135-B, no. 2, of the Municipal Property Tax Code (CIMI) was to avoid excessively burdening taxpayers who, due to their economic activity, hold immovable property for the pursuit of their corporate purpose;

  • The Claimant, in light of the activity it conducts, is the owner of multiple immovable properties – this being the substratum of its economic activity and such properties being true elements of its productive process, whether as rental properties or as properties that appear in the inventory for future transformation;

  • The holding of immovable property by a company such as the Claimant cannot be considered a demonstration of wealth capable of leading to taxation under AIMI;

  • Furthermore, the inclusion of immovable properties constituting "land for construction" that are used for economic activities within the scope of taxation is unlawful because the scope of taxation encompasses only properties used for residential purposes;

  • The Claimant further contends that the AIMI regime is contrary to the principle of equality provided for in article 13 of the Constitution and to the principles of tax equality and contributive capacity provided for in article 104, no. 3, also of the Constitution, if interpreted in the sense of treating all land for construction equally, without distinguishing between that used for economic activities and that used for residential purposes;

  • Finally, the Claimant petitions for payment of compensatory interest on the amount of tax it believes was paid unduly, sustaining this request on the provisions contained in articles 43 and 100 of the General Tax Code (LGT).

The Respondent, for its part, submits the following:

  • The AIMI applies to properties classified as residential and as land for construction – regardless of their potential use – given that the law refers, simply, to article 6 of the Municipal Property Tax Code;

  • The regime foreseen permits deduction of the AIMI from corporate income tax collection, with this deduction being limited to the fraction corresponding to income generated by immovable property and subject to corporate income tax, within the scope of rental or hospitality activities; alternatively, the charge for AIMI payment may be considered as a tax-deductible expense for purposes of determining taxable profit (see article 135-J of the Municipal Property Tax Code);

  • With regard to AIMI applying to urban properties of which legal entities and equivalent structures are owners, usufructuaries or superficiary holders (no. 2 of article 135-A of CIMI), the tax assumes the nature of a real tax, insofar as the quantification of the amount to be paid disregards the economic dimension of the entities, namely their classification as small, medium or large enterprises, and does not affect the totality of the net assets of the entities;

  • Thus, the Claimant is incorrect when it qualifies the AIMI "as a tax of a personal nature applying to urban immovable wealth," as, as a matter of conceptual rigor, one is not dealing with a personal tax, in the line of doctrinal construction (cf., Sérgio Vasques, Manual of Tax Law, Almedina 2011, page 193): "Personal taxes are those that weigh the social condition of the taxpayer (…) The distinction between personal and real taxes concerns, therefore, their internal structure and their adequate relationship to the economic strength of the taxpayer, to the composition of his family unit and to the essential expenses which the latter is obliged to incur and which diminish his capacity to pay the tax."

  • As to the ratio legis present in article 135-B of the Municipal Property Tax Code, the legislature excluded from incidence urban properties classified as "industrial, commercial or for services" and "other" but expressly chose to maintain other properties that also integrate the assets of enterprises, such as those classified as residential or land for construction, by not including them in the negative delimitation enshrined;

  • It was not legally guaranteed in all cases that "urban properties used for economic activities would not be subject to AIMI taxation," contrary to what the Claimant states, so that, the impugned assessments having been made in compliance with the law, there is no error of fact and law attributable to the AT;

  • Only a partial tax on certain manifestations of contributive capacity is at issue, so that, contrary to what the Claimant seeks to suggest, the ratio legis of the exclusion of taxation provided for in article 135-B, no. 2, of the Municipal Property Tax Code cannot have the scope sought by the Claimant – that is, to encompass equally residential urban properties and land for construction not mentioned therein, when these constitute property subject to the economic activity of the taxpayers, since the criterion chosen by the legislature – the classification of urban properties as industrial, commercial or for services and other – was precisely at the expense of others that would require case-by-case verifications of the actual intended use of the properties;

  • At the date of AIMI taxation of land for construction, only the real nature of the land itself, as it is legally characterized, and taking into account the taxable property value (VPT) contained in the property tax register, not a future building, with the consequent type of urban property that may subsequently arise, including autonomous fractions or floors capable of independent use that might eventually exist, which are truly mere virtual abstractions of situations not constituted either legally or factually;

  • As to the alleged violation of the constitutional principles of equality and contributive capacity, not only, as is uniformly recognized by case law, can the AT not disapply legal norms on the grounds of unconstitutionality, but further, there is no unconstitutionality defect alleged by the Claimant;

  • In accordance with no. 2 of article 266 of the Constitution, the Administration is obliged to act in accordance with the principle of legality, with this principle being implemented at the infra-constitutional level in no. 1 of article 3 of the Code of Administrative Procedure (CPA), which in turn provides that: "Organs of the Public Administration must act in obedience to law and to law, within the limits of the powers conferred on them and in accordance with their respective purposes." Thus, the AT could not/cannot refuse the application of a norm or fail to comply with the law by invoking or questioning its (un)constitutionality, as it is subject to the principle of legality, as provided for in articles 266, no. 2, of the Constitution, 3, no. 1, of the CPA, and 55 of the LGT;

  • With respect to no. 3 of article 104 of the Constitution, doctrine warns that the principle of equality, as concerning property, must be interpreted restrictively, in the sense that it does not involve a particular and autonomous legal content of the principle of equality in the sphere of taxation of property;

  • Much worked upon, jurisprudentially and doctrinally, the principle postulates that equal treatment be given to essentially equal factual situations and unequal treatment to unequal factual situations (conversely prohibiting unequal treatment of equal situations and equal treatment of unequal situations) – see, among many others, and beyond the already cited Decision no. 186/90, Decisions nos. 39/88, 187/90, 188/90, 330/93, 381/93, 516/93 and 335/94, published in the said official journal, Series I, of 3 March 1988, and Series II, of 12 September 1990, 30 July 1993, 6 October of the same year, and 19 January and 30 August 1994, respectively.

  • For several reasons, the norms enshrined do not result in unjustified differences in treatment between taxpayers contrary to those constitutional principles. Let us see:

  • From the teleology of the tax it is apparent that it aims, at a first stage, to reach a portion of the assets of the taxpayers of the tax, applying to immovable property constituting a portion of a patrimony, legally recognizable as capital of a given entity (singular or collective), regardless of whether it is used for any productive process or revenue-generating activity – it is believed this is the purpose of no. 1 of article 135-B of the Municipal Property Tax Code;

  • The legislature then, at a second stage, delimits negatively the incidence of the tax, excluding from the AIMI immovable property which, by their potential use, can be economically recognized as production factors, in the form of capital, that is, as intermediate goods which, combined with other factors of production, produce new utilities – economic goods that satisfy needs;

  • The fact that a given good serves as a "factor in the production of wealth" is not sufficient to contradict the finding that the corresponding holder possesses an immovable property only accessible to one of peculiar wealth and, thus, capable of supporting an additional contribution for the desired budgetary consolidation;

  • It is neither relevant nor consistent with the principle of equality to make relevant, for purposes of a judgment of constitutional conformity of the AIMI, the possible component of the future construction in question on the land for construction, given that the only taxable property value (VPT) contained in the property tax register in accordance with the Municipal Property Tax Code on which the annual AIMI taxation applies is the VPT of the land for construction itself in existence.

Matters of Fact

Proven Facts

The following facts are considered proven:

  • The Claimant is a commercial company whose corporate purpose includes "real estate development, purchase and sale of immovable property, urban developments and subdivisions, civil construction, management of immovable property."

  • The impugned assessment relates to the Additional Municipal Property Tax (AIMI), bears number 2017..., relates to the year 2017, and applies to the taxable property value of the following urban properties:

    • Property registration article no...., of the Parish of ..., Municipality of ..., District of Lisbon, registered in the property tax register as "land for construction" and having as location coefficient type "services";

    • Property registration article no...., of the Parish of ..., Municipality of ..., District of Lisbon, registered in the property tax register as "land for construction" and having as location coefficient type "services";

    • Property registration article no...., of the Parish of ..., Municipality of ..., District of Lisbon, registered in the property tax register as "land for construction" and having as location coefficient type "services";

    • Property registration article no...., of the Parish of ..., Municipality of ..., District of Lisbon, registered in the property tax register as "land for construction" and having as location coefficient type "services";

  • The Claimant paid the impugned assessment in its entirety.

Unproven Facts

There are no facts relevant to the decision of the case that have not been proven.

Grounds for the Determination of Matters of Fact

The facts were established as proven based on documents attached to the request for arbitral determination, on the administrative file, and on facts stated by the parties in their respective procedural submissions regarding which there is no controversy.

With respect to matters of fact, the Tribunal need not pronounce on everything alleged by the Parties; rather, its duty is to select the facts that matter for the decision and to distinguish between proven and unproven matters (cf. article 123, no. 2, of the Code of Tax Procedure and Process (CPPT) and article 607, no. 3, of the Code of Civil Procedure (CPC), applicable by virtue of article 29, no. 1, paragraphs a) and e), of the RJAT). Facts are selected in accordance with their legal relevance, which is determined in light of the various possible solutions for the case (cf. the former article 511, no. 1, of the CPC, now 596, applicable by virtue of article 29, no. 1, paragraph e), of the RJAT).

Having regard to the positions assumed by the Parties, the facts enumerated above are considered proven, with relevance for the decision, with no relevant facts remaining unproven.

Matters of Law

Given the requests presented by the Claimant and the opposition between the Parties, it is necessary to analyze and decide the following issues:

  1. Does the exclusion of taxation provided for in article 135-B of the Municipal Property Tax Code include land for construction whose location coefficient type is "commerce, industry or services"?

  2. Does the norm in question violate the provisions of article 13 and/or 103 of the Constitution?

Let us begin with the first issue.

The "Additional Municipal Property Tax" ("AIMI"), which entered into force on 1 January 2017, having been introduced into the Municipal Property Tax Code by Law no. 42/2016, of 28 December, practically replaced the taxation that had previously been in effect under stamp tax (IS) on high-value properties (i.e., taxable property value equal to or exceeding €1 million), provided for in item 28 of the General Stamp Tax Table (TGIS).

Following a series of problems caused by the interpretation and application of item 28 of the TGIS, an attempt was made, whilst maintaining the principle of aggravated taxation of high-value real estate portfolios[1], to eliminate some of the controversies raised during the period of application of that stamp tax.

The AIMI regime consists of 13 articles: 135-A to 135-M of the Municipal Property Tax Code.

On the matter of subjective incidence, article 135-A provides the following:

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

2 – For the purposes of no. 1, any structures or centers of collective interests without legal personality that appear in the property tax registers as passive taxpayers of the municipal property tax are equated to legal persons, as is the undivided estate represented by the head of household.

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

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

With respect to subjective incidence, article 135-B provides the following:

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

2 – Excluded from the additional municipal property tax are 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.

Article 6 of the Municipal Property Tax Code, in turn, provides the following:

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 licensed for such or, in the absence of a license, that have as their normal purpose each of these uses.

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

(Amended by article 93 of Law 64-A/2008, of 31 December)

4 – Encompassed in the provision of paragraph d) of no. 1 are land situated within an urban agglomeration that are neither land for construction nor are covered by the provision of no. 2 of article 3, as well as buildings and constructions licensed or, in the absence of a license, that have as their normal purpose uses other than those referred to in no. 2, and also those falling within the exception of no. 3.

The Respondent submits that, as a result of the combined application of the provision of article 135-B with the provision of article 6 of the Municipal Property Tax Code, urban properties used for residential purposes and land for construction, as defined in article 6, no. 1, paragraphs a) and c), of the Municipal Property Tax Code, are subject to AIMI.

However, it seems to us that a correct interpretation of the provision of article 135-B of the Municipal Property Tax Code entails going somewhat further than the AT appears willing to go. Indeed, we ask ourselves whether land for construction whose taxable property values were determined on the basis of location coefficient types "commerce," "industry," and "services" should not also be understood as covered by the exclusion effected by no. 2 of article 135-B of the Municipal Property Tax Code – in essence, similarly to what occurs with urban properties used for commerce, industry or services.

In fact, and as is stated in the Arbitral Decision issued in the course of case 681/2017-T, with whose reasoning we agree, it would not be coherent to not apply the AIMI to buildings intended for commerce, industry or services while applying it to land intended for their construction whose value is incorporated in the value of the buildings. Thus, referring to the words pronounced in that decision: "(...) from a perspective that has in mind the unity of the legal system (article 9, no. 1, of the Civil Code), which has decisive interpretative value, imposed by the principle of axiological or value-based coherence of the legal order ( 2 ), should the exclusion provided for in no. 2 of article 135-B of the Municipal Property Tax Code regarding urban properties classified as "commercial, industrial or for services" be interpreted extensively as expressing a legislative intention to exclude also from taxation land intended for the construction of such properties. In any case, should a literal interpretation of this norm be adopted, with the meaning that all land for construction is encompassed by the incidence of the AIMI, it would be materially unconstitutional, being incompatible with the principle of equality (article 13 of the Constitution), by making the fact of ownership of land for construction of properties intended for commerce, industry or services the tax event and not the fact of ownership of identical land with the buildings that are constructed thereon, as it constitutes a disadvantageous treatment of taxpayers in the former situation, without material justification, since the contributive capacity indicated by the immovable property patrimony in those situations must necessarily be lesser, and must be present, and with increase, in the latter."

Similarly, this tribunal considers that article 135-B of the Municipal Property Tax Code, when interpreted in the sense of including within the scope of application of the AIMI "land for construction" for purposes of commerce, industry, services or other – is manifestly contrary to the principle of equality, constitutionally enshrined.

For the aforesaid reasons, we consider that the impugned assessment must be deemed illegal, as it applies to the taxable property value of the land for construction indicated in paragraph b) of the matters of fact established, which justifies its annulment, in accordance with the provision of article 163, no. 1, of the Code of Administrative Procedure, subsidiarily applicable in accordance with article 2, paragraph c), of the LGT.

And as to the issue of unconstitutionality?

As to the argument of unconstitutionality based on taxation of the substratum of an economic activity, the Claimant contends that account should be taken of the nature of the passive taxpayers burdened with the resulting taxation, specifically the fact that entities exercising, as an activity comprised in their corporate purposes, the activity of purchase, sale, construction and rental of immovable property are covered by the AIMI; – in the case of commercial companies (or other entities) that develop an activity of that nature, ownership of immovable property constitutes the patrimonial substratum of the economic activity itself, being an essential (almost sole) means for the pursuit of such activity, so that the essential taxation presupposition is not verified, that is, the presupposition that ownership of those properties constitutes an indication of an increased contributive capacity or wealth.

The AT, in addition to disagreeing with the understanding regarding unconstitutionality, defends itself by stating that it is obliged to apply the law and cannot disapply it on the ground of unconstitutionality.

Article 13 of the Constitution provides as follows:

  1. All citizens have the same social dignity and are equal before the law.

  2. No one may be privileged, benefited, prejudiced, deprived of any right or exempted from any duty on account of ancestry, sex, race, language, territory of origin, religion, political or ideological convictions, education, economic situation, social condition or sexual orientation.

Article 103 of the Constitution provides as follows:

  1. The tax system aims at meeting the financial needs of the State and other public entities and at a fair distribution of income and wealth.

  2. Taxes are created by law, which determines the incidence, the rate, tax benefits and taxpayer guarantees.

  3. No one may be obliged to pay taxes that have not been created in accordance with the Constitution, that have a retroactive nature or whose assessment and collection are not carried out in accordance with the law.

Article 104 of the Constitution provides as follows:

  1. The tax on personal income aims at reducing inequalities and shall be sole and progressive, taking into account the needs and income of the family unit.

  2. The taxation of enterprises focuses fundamentally on their actual profit.

  3. The taxation of property should contribute to equality among citizens.

  4. The taxation of consumption aims to adapt the structure of consumption to the development of economic needs and social justice, and should burden luxury consumption.

The Claimant contends that the legal regime of AIMI, specifically article 135-B of the Municipal Property Tax Code – when interpreted in the sense of including within the scope of application of the AIMI "land for construction" for purposes of commerce, industry, services or other – is contrary to the principle of equality constitutionally enshrined, both by leading to the taxation of the substratum of an economic activity and by disregarding the legal criterion of the use of the property. As has been amply noted by the case law of the Constitutional Court[2] and of the superior courts, the principle of tax equality as a limit to legislative discretion does not prohibit all and any freedom of choice by the legislature in deciding to tax certain tax facts at the expense of others. The principle only prohibits arbitrariness, that is, distinction without rational criterion among potential tax facts.

Now, just as is stated in the Arbitral Decision issued in case 681/2017-T, "the exclusion of taxation of properties especially intended for productive activity, namely those "commercial, industrial or for services," finds constitutionally acceptable grounds in the obligation of the State to promote an increase in economic well-being, which presupposes the proper functioning of productive activities and constitutes one of its priority tasks in the economic sphere [article 81, paragraph a), of the Constitution]. Furthermore, in the line of what was understood in the arbitral decision of 17-03-2016, issued in case no. 507/2015-T, it should be understood that, while ownership of immovable property intended for residential use of high value is a reliably indicative sign of economic affluence, greater than that of the general body of citizens, one cannot consider that there is a reliable sign of superior contributive capacity when dealing with ownership of rights over immovable property intended for the exercise of economic activities (commercial, industrial, provision of services or similar), as these must be adequate to the functioning of the respective enterprises, with their size and corresponding value being no indication of affluence. Thus, the restriction of the incidence of the AIMI to residential properties and land for construction of residential properties, which was enshrined in the version approved for no. 2 of article 135-B of the Municipal Property Tax Code, in the interpretation adopted above, will have constitutionally acceptable grounds."

The specific situation of companies that hold immovable property intended for the development of their activity, with such property being covered by the aggravated taxation under AIMI, does not appear, just as it did not appear in that case with regard to real estate investment funds, to merit special treatment relative to natural persons or to other companies that do not engage in activities related to the real estate sector. The holding, by such companies, of immovable property intended for high-value residential use reveals a special economic capacity to contribute additionally to the Financial Stabilization Fund of Social Security, to which AIMI revenue is assigned, and which "corresponds to the objective of the government program to broaden the financing base of Social Security" (Budget Report for 2017, page 57).

For the aforesaid reasons, the imposition of AIMI on companies, such as the Claimant, whose corporate purpose includes immovable property activities with respect to their asset consisting of residential immovable property and land for construction intended for residential use does not appear materially unconstitutional, in light of the principles of equality and contributive capacity.

Finally, as to the request for compensatory interest, the Claimant makes a request for reimbursement of the amounts collected by the AT plus payment of compensatory interest, while the AT argues that, as an organ of the Public Administration, it has no competence to decide on the non-application of norms regarding which doubts of unconstitutionality are raised and, consequently, the AT's services cannot be attributed any error of fact or law, given compliance with the law that informs all of its activity.

In accordance with the provision of paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of a claim against which there is no appeal or challenge binds the Tax Administration from the end of the period provided for appeal or challenge, and the latter must, in the exact terms of the success of the arbitral decision in favor of the passive taxpayer and until the end of the period provided for the voluntary execution of decisions by tax court decisions, "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been performed, adopting the necessary acts and operations for that purpose," which is in harmony with the provision of 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 gracious claim, judicial challenge or appeal in favor of the passive taxpayer, to the immediate and complete restoration of the legality of the act or situation that is the subject of the dispute, including the payment of compensatory interest, if applicable, from the end of the period for execution of the decision." Although article 2, no. 1, paragraphs a) and b), of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals that function at CAAD, making no reference to condemnatory decisions, it should be understood that included in its competences are the powers that in judicial challenge proceedings are attributed to tax courts, and this is the interpretation that is in harmony with the sense of the legislative authorization on which the Government relied to approve the RJAT, in which it is proclaimed, as the first directive, that "the tax arbitration process should constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters."

The judicial challenge process, despite being essentially a process for the annulment of tax acts, admits condemnation of the Tax Administration in the payment of compensatory interest, as is evident from article 43, no. 1, of the LGT, which establishes that "compensatory interest is owed when it is determined, in a gracious claim or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount exceeding that legally due" and from article 61, no. 4, of the CPPT (in the version given by Law no. 55-A/2010, of 31 December, to which corresponds no. 2 in the initial version), which states "if the decision that recognized the right to compensatory interest is a judicial decision, the payment period is calculated from the beginning of the voluntary execution period." Thus, no. 5 of article 24 of the RJAT, in stating that "the payment of interest, irrespective of its nature, is due in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process," should be understood as permitting recognition of the right to compensatory interest in the arbitration process. On the other hand, since the right to compensatory interest depends on the right to reimbursement of amounts paid unduly, which are its calculation basis, implicit in the possibility of recognition of the right to compensatory interest is the possibility of examination of the right to reimbursement of those amounts. It falls, therefore, to examine the request for reimbursement of the amounts unduly paid and for payment of compensatory interest.

In consequence of the total illegality of the assessment act, there is grounds for reimbursement of unlawfully paid tax, by virtue of the aforementioned articles 24, no. 1, paragraph b), of the RJAT and 100 of the LGT, as this is essential to "restore the situation that would exist if the tax act that is the subject of the arbitral decision had not been performed." This is the case in the present instance, where a ruling of total illegality of the AIMI assessment act has already been made.

As to the request for compensatory interest, it results from the foregoing that the illegality of the assessment does not derive from unconstitutionality, but rather from a mistaken interpretation of no. 2 of article 135-B of the Municipal Property Tax Code, for which the AT is responsible. Thus, the case law invoked by the Tax and Customs Authority regarding the non-existence of a right to compensatory interest in cases in which the illegality of the assessment derives from unconstitutionality does not apply here.

The Claimant thus has the right to reimbursement of the amount unduly paid and to payment of compensatory interest, in accordance with articles 43, no. 1, of the LGT and 61 of the CPPT, with respect to the amount to be reimbursed. The compensatory interest shall be paid from the date on which the Claimant made payment of the unlawful assessment until the full payment of the amount that is to be reimbursed, at the legal supplementary rate, in accordance with articles 43, no. 4, and 35, no. 10, of the LGT, article 61 of the CPPT, article 559 of the Civil Code, and Administrative Rule no. 291/2003, of 8 April.

Decision

In accordance with the foregoing, the Arbitral Tribunal decides as follows:

  1. To declare the claim for annulment of the impugned assessment well-founded, which determines the annulment of such assessment;

  2. To declare the claim for reimbursement of the amount of unlawfully paid tax well-founded;

  3. To declare the claim for payment of compensatory interest well-founded;

  4. To condemn the Respondent in the costs of the proceedings.

The Respondent requests, by appeal to the provision of article 280, no. 3, of the Constitution and article 72, no. 3, of the Constitutional Court Act, that notification of the arbitral decision be directed to the Public Prosecution Service. Since the Public Prosecution Service does not have special representation before the arbitral tribunals that function at CAAD (article 4, no. 1, of the Statute of the Public Prosecution Service), this decision shall be communicated to the Office of the General Prosecutor, for such purposes as it may deem appropriate.

Value of the Proceedings

In accordance with the provision of article 296, no. 1, of the Code of Civil Procedure and 97-A, no. 1, paragraph a), of the Code of Tax Procedure and Process and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €18,150.56 (eighteen thousand, one hundred and fifty euros and fifty-six cents).

Costs

The amount of costs is fixed at €1,224.00 (Table I attached to the Regulation of Costs in Tax Arbitration Proceedings), with payment of such costs being the responsibility of the Tax and Customs Authority (article 22, no. 4, of the RJAT).

Lisbon, 24 June 2018

The Arbitrator

(Raquel Franco)

[1] The revenues of which are directed to financing Social Security, in accordance with article 1, no. 2, of Decree-Law no. 287/2003, of 12 November.

[2] Can be seen, among others, the following decisions of the Constitutional Court: no. 143/88, of 16-6-1988, issued in case no. 319/87, published in the Bulletin of the Ministry of Justice no. 378, page 183; no. 149/88, of 29-6-1988, issued in case no. 282/86, published in the Bulletin of the Ministry of Justice no. 378, page 192; no. 118/90, of 18-4-90, issued in case no. 613/88, published in the Bulletin of the Ministry of Justice no. 396, page 123; no. 169/90, of 30-5-1990, issued in case no. 1/89, published in the Bulletin of the Ministry of Justice no. 397, page 90; no. 186/90, of 6-6-1990, issued in case no. 533/88, published in the Bulletin of the Ministry of Justice no. 398, page 81; no. 155/92, of 23-4-1992, issued in case no. 204/90, published in the Bulletin of the Ministry of Justice no. 416, page 295; no. 335/94, of 20-4-1994, issued in case no. 61/93, published in the Bulletin of the Ministry of Justice no. 436, page 129; no. 468/96, of 14-3-1996, issued in case no. 87/95, published in the Bulletin of the Ministry of Justice no. 455, page 152; no. 1057/96, of 16-10-1996, issued in case no. 347/91, published in the Bulletin of the Ministry of Justice no. 460, page 284; no. 128/99, of 3-3-1999, issued in case no. 140/97, published in the Bulletin of the Ministry of Justice no. 485, page 26.

Frequently Asked Questions

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What is the Adicional ao IMI (AIMI) and how does it apply to construction land in Portugal?
The Adicional ao IMI (AIMI) is a surtax on the Municipal Property Tax (IMI) that applies to urban properties in Portugal. For construction land (terrenos para construção), AIMI applies regardless of the location coefficient classification or intended use. Under Article 135-A of the CIMI, AIMI taxes the aggregate taxable value of urban properties exceeding certain thresholds. Legal entities are subject to AIMI on all urban properties classified as residential or construction land, calculated at progressive rates. Construction land with a 'services' location coefficient remains subject to AIMI unless it falls within the specific exclusions of Article 135-B(2) CIMI, which covers only properties classified as industrial, commercial, or for services in their typological classification, not their location coefficient. The tax is assessed annually based on the taxable patrimonial value (VPT) of properties held on January 1st of each fiscal year.
Are construction land plots with a 'services' location coefficient exempt from AIMI under Article 135.º-B of the CIMI?
No, construction land plots are not exempt from AIMI under Article 135-B of the CIMI, even if they have a 'services' location coefficient. The CAAD tribunal in Process 679/2017-T ruled that the exemption in Article 135-B(2) applies exclusively to properties with the typological classification of 'industrial, commercial or for services' and 'other' categories. Construction land (terrenos para construção) constitutes a separate classification under Article 6 CIMI and is expressly included in the AIMI tax base. The location coefficient—which influences property valuation—does not determine exemption eligibility; rather, the primary typological classification controls. The legislature deliberately chose a classification-based exemption criterion rather than a use-based or economic activity criterion. Therefore, companies holding construction land for development, rental, or other business purposes remain subject to AIMI, regardless of whether the land is designated for future service-sector construction or currently used in economic activities. Only properties with the actual typological classification as service properties qualify for the Article 135-B(2) exclusion.
How did the CAAD rule on the exclusion of economically active properties from AIMI in process 679/2017-T?
The CAAD ruled against the claimant's argument that construction land used for economic activities should be exempt from AIMI. The tribunal held that Article 135-B(2) CIMI creates a limited, classification-based exemption that does not extend to all properties used in business operations. The decision emphasized that the legislature expressly excluded only properties classified as 'industrial, commercial or for services' and 'other,' while deliberately maintaining AIMI applicability to residential properties and construction land held by businesses. The tribunal rejected the claimant's teleological interpretation that the exemption's ratio legis was to shield all business-held properties from AIMI. Instead, the court found that the legislature adopted an objective classification criterion to avoid case-by-case determinations of actual use. The ruling characterized AIMI as a real property tax on specific asset categories, not a wealth tax requiring consideration of business purpose. The tribunal concluded that no error of law or fact occurred in the assessment, as the Tax Authority correctly applied the statutory framework. This interpretation prioritizes legislative intent expressed through explicit classifications over broader economic rationales, establishing that business use alone does not trigger exemption for construction land.
Does the AIMI violate the constitutional principle of equality when applied to construction land used for economic activities?
The CAAD tribunal rejected the constitutional challenge, finding no violation of the equality principle when AIMI applies to construction land used for economic activities. The decision distinguished between personal taxes (which must account for individual capacity and circumstances) and real property taxes (which target specific asset categories). The tribunal characterized AIMI as a real tax on particular property classifications, making differential treatment based on property type constitutionally permissible. The court noted that Article 135-B(2) CIMI establishes a legitimate classification-based distinction, exempting industrial, commercial, and service properties while taxing residential properties and construction land. This categorical approach serves administrative efficiency and legal certainty by avoiding subjective determinations of actual use. Furthermore, the AIMI regime provides compensatory mechanisms: businesses may deduct AIMI from corporate income tax (limited to income from rental/hospitality activities subject to corporate tax) or treat it as a deductible expense when calculating taxable profit under Article 135-J CIMI. These provisions mitigate the tax burden on economically active properties. The tribunal concluded that the legislature's choice of objective classification criteria, rather than use-based criteria, represents a reasonable policy decision within constitutional bounds and does not create arbitrary or unjustified discrimination violating Articles 13 or 104(3) of the Portuguese Constitution.
What is the legal basis for challenging an AIMI assessment through tax arbitration at CAAD?
The legal basis for challenging an AIMI assessment through tax arbitration at CAAD derives from Articles 2 and 10 of Decree-Law 10/2011 (the Legal Framework for Arbitration in Tax Matters - RJAT). Article 2(1)(a) grants arbitral tribunals jurisdiction over challenges to tax acts, including AIMI assessments, as alternatives to administrative and judicial courts. Taxpayers may request constitution of an arbitral tribunal to annul assessment acts they consider unlawful due to legal violations, factual errors, or constitutional infringements. The request must be filed within the statutory deadline after the assessment becomes final or enforceable. In Process 679/2017-T, the claimant invoked this framework to challenge the 2017 AIMI assessment, alleging violation of law due to erroneous legal and factual presuppositions and unconstitutional discrimination. The arbitral tribunal's jurisdiction encompasses reviewing the legality of the assessment, interpreting applicable tax law provisions (particularly Articles 135-A, 135-B, and 135-J CIMI), and determining compliance with constitutional principles. CAAD arbitration offers advantages including specialized tax expertise, procedural efficiency, and finality. The arbitrator is designated by CAAD's Deontological Council, and decisions have the same authority as judicial court rulings. This mechanism provides taxpayers an effective remedy for contesting AIMI assessments they believe violate statutory or constitutional requirements.