Process: 681/2017-T

Date: January 22, 2020

Tax Type: IMI

Source: Original CAAD Decision

Summary

CAAD Decision 681/2017-T addressed the constitutional challenge to AIMI (Adicional ao Imposto Municipal sobre Imóveis - Additional Municipal Property Tax) brought by a management company representing 30 real estate investment funds. The original arbitral award of May 2018 partially favored the claimant, annulling AIMI assessments totaling €220,176.31 out of €929,654.22 claimed. The claimant argued AIMI violated constitutional principles when applied to real estate investment funds holding property as part of their core business activity. Appeals were filed by the Public Prosecutor's Office, the Tax Authority, and the claimant to the Constitutional Court. In October 2019, the Constitutional Court ruled that AIMI's application to entities holding real estate as a consequence of their economic activity was constitutional, and that 'land for construction' used for commerce, industry, or services fell within AIMI's scope. Consequently, the Constitutional Court ordered reformation of the arbitral award. The reformed decision of January 2020 reversed the original favorable ruling entirely, declaring the arbitration request ill-founded and absolving the Tax Authority of all claims. The case establishes important precedent that real estate investment funds cannot escape AIMI liability based on constitutional grounds, even when property ownership is integral to their business model. The €13,158 in costs were imposed on the unsuccessful claimant, demonstrating the financial risk of unsuccessful constitutional challenges in Portuguese tax arbitration.

Full Decision

ARBITRAL TAX JURISPRUDENCE

Case No. 681/2017-T

Decision Date: 22-01-2020

IMI

Amount of Claim: € 929.654,22

Subject Matter: AIMI – Unconstitutionality – Reform of Arbitral Decision (attached to this decision).
Replaces, in its operative part, the arbitral decision of 23 May 2018.

ARBITRAL DECISION

The arbitrators Cons. Jorge Lopes de Sousa (president-arbitrator), Dr. Jesuíno Alcântara Martins and Dr. Miguel Durham Agrellos (arbitrators-members), appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 06-03-2018, agree as follows:

1. Report

A..., S.A, NIF ... (hereinafter Claimant), with registered office at ..., ..., ..., ..., ...-... ..., in its capacity as management company and in representation of the following funds:

– B... - Special Closed Real Estate Investment Fund (NIF...);

– C... - Special Closed Real Estate Investment Fund (NIF...);

– D... - Special Closed Real Estate Investment Fund (NIF...);

– E... - Special Closed Real Estate Investment Fund (NIF...);

– F... - Special Closed Real Estate Investment Fund (NIF...);

– G... - Special Closed Real Estate Investment Fund (NIF...);

– H... - Special Closed Real Estate Investment Fund (NIF ...);

– I... - Special Closed Real Estate Investment Fund (NIF...);

– J... - Special Closed Real Estate Investment Fund (NIF ...);

– K... - Special Closed Real Estate Investment Fund (NIF...);

– L... - Special Closed Real Estate Investment Fund (NIF...);

– M... - Special Closed Real Estate Investment Fund (NIF...);

– N... - Special Closed Real Estate Investment Fund (NIF...);

– O... - Special Closed Real Estate Investment Fund (NIF...);

– Closed Real Estate Investment Fund P... (NIF...);

– Q... - Special Closed Real Estate Investment Fund (NIF ...);

– Closed Real Estate Investment Fund R... (NIF...);

– Closed Real Estate Investment Fund S... (NIF...);

– T... - Special Closed Real Estate Investment Fund (NIF...);

– U... - Special Closed Real Estate Investment Fund (NIF...);

– V... - Special Closed Real Estate Investment Fund (NIF...);

– W... - Special Closed Real Estate Investment Fund (NIF...);

– X... - Special Closed Real Estate Investment Fund (NIF...);

– Y... - Special Closed Real Estate Investment Fund (NIF...);

– Z... - Special Closed Real Estate Investment Fund (NIF...);

– Open Real Estate Investment Fund AA... (NIF...);

– BB... - Special Closed Real Estate Investment Fund (NIF...);

– Closed Real Estate Investment Fund CC... (NIF...);

– DD... - Special Closed Real Estate Investment Fund (NIF...);

– EE... - Special Closed Real Estate Investment Fund (NIF...),

hereinafter jointly designated as "Funds", came, under paragraph a) of article 2(1) and articles 10(1) and (2), both of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters or "RJAT") and articles 1 and 2 of Ordinance No. 112-A/2011, of 22 March, to submit a request for constitution of an arbitral tribunal to pronounce on the illegality of the tax collection acts for the Additional Municipal Property Tax ("AIMI") bearing the numbers 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017... and 2017..., issued by the Tax and Customs Authority ("AT"), with reference to the year 2017, in the total amount of € 929.654,22 (together with documents Nos. 1 to 30).

The Claimant further requests reimbursement of the amount paid with compensatory interest.

The Tax and Customs Authority is the Respondent.

By arbitral award of 23-05-2018, the contents of which are reproduced, it was decided:

a) To declare the request for arbitral pronouncement wholly well-founded as regards collections Nos. 2017... and 2017... and to annul these collections;

b) To declare the request for arbitral pronouncement partially well-founded and to annul the following collections as regards the following amounts:

– No. 2017..., as regards the amount of € 8.040,65;

– No. 2017..., as regards the amount of € 170,12;

– No. 2017..., as regards the amount of € 11.968,02;

– No. 2017..., as regards the amount of € 63.644,67;

– No. 2017..., as regards the amount of € 24.890,84;

– No. 2017..., as regards the amount of € 9.849,23;

– No. 2017..., as regards the amount of € 10.364,96;

– No. 2017..., as regards the amount of € 16.804,91; and

– No. 2017..., as regards the amount of € 1.046,88;

c) To declare the request for reimbursement of amounts paid partially well-founded, as regards the amount of € 220.176,31, and to order the Tax and Customs Authority to reimburse the Claimant of this amount;

d) To declare the request for compensatory interest partially well-founded and to order the Tax and Customs Authority to pay compensatory interest to the Claimant calculated on the amounts of each of the collections that are annulled, from the dates of the respective payments until the dates of the respective reimbursements;

e) To declare the request for arbitral pronouncement ill-founded as regards the remaining matters and to absolve the Tax and Customs Authority of the respective requests.

Appeals were lodged before the Constitutional Court by the Public Prosecutor's Office, the Claimant and by the Tax and Customs Authority.

By decision of 16-10-2019, the Constitutional Court understood, inter alia, the following:

"a) not to declare unconstitutional the rule contained in article 135-A of the IMI Code, interpreted in the sense of including, within the subjective scope of application of the tax, entities that hold real estate property as an inevitable consequence of the economic activity they conduct; consequently,

b) to declare ill-founded the appeal lodged by Appellant A..., S.A. and to confirm the appealed decision, as regards the question of normative unconstitutionality indicated in a);

c) not to declare unconstitutional the rule contained in article 135-B(2) of the IMI Code, in the sense of including, within the scope of application of Additional IMI the "land for construction" for purposes of commerce, industry, services or others; consequently,

d) to grant the appeals lodged by the Tax and Customs Authority and by the Public Prosecutor's Office under paragraph a) of article 70(1) of the LTC and to order the reform of the appealed award in accordance with the preceding negative judgment on unconstitutionality"; and

The Constitutional Court further understood that the said arbitral award, in the part in which it found that the application of article 135-B(2) of the IMI Code, which underlies the partial well-foundedness of the request for arbitral pronouncement, had been refused, should be reformed, which, in this context, restricts the reform to the part in which the arbitral action was declared well-founded.

Accordingly, with the grounds of the said arbitral award of 23-05-2018, as to the part in which the request for arbitral pronouncement was declared ill-founded and with the grounds of the Constitutional Court, in the remaining part, awards which are reproduced, that arbitral award is reformulated, altering its operative part.

2. Decision

In these terms, it is decided:

A) To declare the request for arbitral pronouncement ill-founded;

B) To absolve the Tax and Customs Authority of all requests.

3. Value of the Case

In accordance with the provisions of article 305(2) of the CPC and article 97-A(1)(a) of the CPPT and article 3(2) of the Regulation of € 929.654,22.

4. Costs

Pursuant to article 22(4) of the RJAT, the amount of costs is fixed at € 13.158,00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Lisbon, 22-01-2020

The Arbitrators

(Jorge Lopes de Sousa)

(Jesuíno Alcântara Martins)

(Miguel Durham Agrellos)

ARBITRAL DECISION

The arbitrators Cons. Jorge Lopes de Sousa (president-arbitrator), Dr. Jesuíno Alcântara Martins and Dr. Miguel Durham Agrellos (arbitrators-members), appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal, constituted on 06-03-2018, agree as follows:

1. Report

A..., S.A, NIF ... (hereinafter Claimant), with registered office at ..., ..., ..., ..., ...-... ..., in its capacity as management company and in representation of the following funds:

– B... - Special Closed Real Estate Investment Fund (NIF ...);

– C... - Special Closed Real Estate Investment Fund (NIF...);

– D... - Special Closed Real Estate Investment Fund (NIF ...);

– E... - Special Closed Real Estate Investment Fund (NIF ...);

– F... - Special Closed Real Estate Investment Fund (NIF ...);

– G... - Special Closed Real Estate Investment Fund (NIF ...);

– H... - Special Closed Real Estate Investment Fund (NIF ...);

– I... - Special Closed Real Estate Investment Fund (NIF ...);

– J... - Special Closed Real Estate Investment Fund (NIF ...);

– K... - Special Closed Real Estate Investment Fund (NIF ...);

– L... - Special Closed Real Estate Investment Fund (NIF...);

– M... - Special Closed Real Estate Investment Fund (NIF ...);

– N... - Special Closed Real Estate Investment Fund (NIF...);

– O... - Special Closed Real Estate Investment Fund (NIF ...);

– Closed Real Estate Investment Fund P... (NIF ...);

– Q... - Special Closed Real Estate Investment Fund (NIF ...);

– Closed Real Estate Investment Fund R... (NIF...);

– Closed Real Estate Investment Fund S... (NIF ...);

– T... - Special Closed Real Estate Investment Fund (NIF ...);

– U... - Special Closed Real Estate Investment Fund (NIF ...);

– V... - Special Closed Real Estate Investment Fund (NIF ...);

– W... - Special Closed Real Estate Investment Fund (NIF ...);

– X... - Special Closed Real Estate Investment Fund (NIF ...);

– Y... - Special Closed Real Estate Investment Fund (NIF ...);

– Z... - Special Closed Real Estate Investment Fund (NIF ...);

– Open Real Estate Investment Fund AA... (NIF ...);

– BB... - Special Closed Real Estate Investment Fund (NIF ...);

– Closed Real Estate Investment Fund CC... (NIF ...);

– DD... - Special Closed Real Estate Investment Fund (NIF ...);

– EE... - Special Closed Real Estate Investment Fund (NIF ...),

hereinafter jointly designated as "Funds", came, under paragraph a) of article 2(1) and articles 10(1) and (2), both of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters or "RJAT") and articles 1 and 2 of Ordinance No. 112-A/2011, of 22 March, to submit a request for constitution of an arbitral tribunal to pronounce on the illegality of the tax collection acts for the Additional Municipal Property Tax ("AIMI") bearing the numbers 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017..., 2017... and 2017..., issued by the Tax and Customs Authority ("AT"), with reference to the year 2017, in the total amount of € 929.654,22 (together with documents Nos. 1 to 30).

The Claimant further requests reimbursement of the amount paid with compensatory interest.

The Tax and Customs Authority is the Respondent.

Subsidiarily, the Claimant requests the partial annulment of the collections with reimbursement of the amount of € 284.960,56 and compensatory interest.

Further subsidiarily, the Claimant requests that articles 135-A and following of the IMI Code be disapplied in the present case, on grounds of manifest unconstitutionality, for violation of the constitutional principle of equality (article 204 of the CRP) and, consequently, that the illegality of the tax collection acts for AIMI sub judice be declared, with their annulment and all legal consequences.

The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority on 28-12-2017.

Pursuant to paragraph a) of article 6(2) and paragraph b) of article 11(1) of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of their office within the applicable deadline.

On 14-02-2018 the parties were duly notified of this appointment and did not manifest willingness to refuse the appointment of the arbitrators, in accordance with the joint provisions of article 11(1) paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

Accordingly, in conformity with the provisions of paragraph c) of article 11(1) of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 06-03-2018.

On 17-04-2018, the Tax and Customs Authority submitted a response in which it argued that the request should be declared ill-founded and that the Public Prosecutor's Office should be notified of the final decision.

The Tax and Customs Authority did not submit an administrative file, invoking that there was no prior administrative procedure.

By order of 19-04-2018, a hearing was dispensed with and it was decided that the case should proceed with written arguments.

The Parties presented arguments referring to the request for arbitral pronouncement and the response.

The arbitral tribunal was duly constituted, in accordance with the provisions of articles 2(1)(a) and 10(1) of Decree-Law No. 10/2011, of 20 January.

The parties are duly represented, possess legal personality and capacity and have standing (articles 4 and 10(2) of the same legislation and article 1 of Ordinance No. 112-A/2011, of 22 March).

The case does not suffer from any nullities.

First and foremost, it is important to clarify the issue of jurisdiction raised by the Tax and Customs Authority and the scope of the powers of cognition of this Arbitral Tribunal.

2. Question of Jurisdiction of the Arbitral Tribunal

The Tax and Customs Authority in articles 91 to 95 alludes to the lack of jurisdiction of the Arbitral Tribunal to know of the question of the legality of taxation as it applies to land for construction whose potential designation is for commerce, industry or service, on the grounds that only some of the properties are in that situation.

The Arbitral Tribunal has jurisdiction to assess the legality of collection acts as results from article 2(1)(a) of the RJAT.

In the present case, collection acts are being challenged and the Taxpayer has the right to impute to them the illegalities it deems appropriate, even if it is subsequently found that it has no grounds, with the Arbitral Tribunal being competent to assess whether they affect the collections or not.

The fact that only part of the land for construction is in the conditions referred to by the Claimant may be related to the scope of well-foundedness of its claim, in the event that some part should be declared well-founded, but has nothing to do with the question of the jurisdiction of the Arbitral Tribunal, as the Claimant may impute the illegalities it deems appropriate to all the collections.

On the other hand, the fact that some or any of the land is in the circumstances referred to by the Claimant is sufficient to conclude that all the questions of unconstitutionality that have as their presuppositions such circumstances are questions of concrete unconstitutionality and not of abstract unconstitutionality, as their resolution has potential effects on the challenged collection.

In these terms, there is no lack of jurisdiction of the Arbitral Tribunal to assess any question raised.

3. Powers of Cognition of the Arbitral Tribunal

The Tax and Customs Authority invokes the principle of separation and interdependence of powers as an obstacle to the powers of cognition of this Arbitral Tribunal.

There will certainly be some misunderstanding, as in a rule-of-law state, it is to the Courts and not to any other bodies, in particular those having legislative and executive powers, that it falls to administer justice, "to ensure the protection of rights and legally protected interests of citizens, to suppress violations of democratic legality and to settle conflicts of interests both public and private" (articles 202(1) and (2) of the CRP), for which they must interpret and apply the laws to settle disputes between citizens and the Administration.

And it is also to the Courts that the CRP assigns the power to control the constitutionality of laws issued by bodies with legislative power (article 204 of the CRP).

This decision is rendered by a Court and therefore has a jurisdictional character, and in the exercise of its jurisdictional power it falls to it to apply the law, according to its interpretation, and is not only bound by the law as it interprets it, not being obliged to adopt the interpretation adopted by the Tax and Customs Authority or that which would hypothetically be adopted by bodies with legislative power if they were assigned the competence to apply the law to disputes pending in the Courts.

On the other hand, in the exercise of its interpretative activity, the Arbitral Tribunal is not limited by the letter of the law, and must adopt all criteria of interpretation provided for in the law, in particular those indicated in article 9 of the Civil Code and article 11 of the General Tax Law: "interpretation should not be confined to the letter of the law, but should reconstruct from the texts the legislative intent, having particularly in mind the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied", only not being able to consider "the legislative intent that does not have in the letter of the law a minimum of verbal correspondence", which may even be "imperfectly expressed".

It is the exercise of this jurisdictional power that is concretized in this arbitral decision, in light of the legal criteria of interpretation.

4. Facts

4.1. Established Facts

a) The Funds were notified of the following AIMI (Additional IMI) collections, relating to the year 2017, in the total amount of € 929.654,22:

– No. 2017..., relating to X... - Special Closed Real Estate Investment Fund (NIF ...), in the amount of € 281.473,10 (document No. 1 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017 ..., relating to Closed Real Estate Investment Fund P... (NIF...), in the amount of € 3.736,78 (document No. 2 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to Open Real Estate Investment Fund AA... (NIF ...), in the amount of € 33.750,04 (document No. 3 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to N... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 69.850,23 (document No. 4 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to I... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 32.658,23 (document No. 5 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to Closed Real Estate Investment Fund S... (NIF ... in the amount of € 122.438,12 (document No. 6 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to D... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 36.692,58 (document No. 7 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to O... - Special Closed Real Estate Investment Fund (NIF ...), in the amount of € 45.653,74 (document No. 8 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to Y... - Special Closed Real Estate Investment Fund (NIF ...), in the amount of € 6.199,52 (document No. 9 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to EE... - Special Closed Real Estate Investment Fund (NIF ...), in the amount of € 54.419,29 (document No. 10 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to DD... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 54.419,29 (document No. 11 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to W... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 29.341,70 (document No. 12 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to Q... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 19.964,00 (document No. 13 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to E... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 55.593,91 (document No. 14 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to Z... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 5.736,02 (document No. 15 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to H... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 13.998,47 (document No. 16 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to B... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 1.629,65 (document No. 17 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to F... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 8.838,90 (document No. 18 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to K... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 2.285,72 (document No. 19 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to G... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 7.965,15 (document No. 20 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to BB... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 549,04 (document No. 21 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to M... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 12.803,84 (document No. 22 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to C... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 954,24 (document No. 23 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to V... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 3.730,33 (document No. 24 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to Closed Real Estate Investment Fund R... (NIF...), in the amount of € 51,94 (document No. 25 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to U... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 21.712,20 (document No. 26 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to L... - Special Closed Real Estate Investment Fund (NIF ...), in the amount of € 448,24 (document No. 27 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to Closed Real Estate Investment Fund CC... (NIF...), in the amount of € 3.223,92 (document No. 28 attached with the request for arbitral pronouncement, the contents of which are reproduced);

– No. 2017..., relating to T... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 411,35 (document No. 29 attached with the request for arbitral pronouncement, the contents of which are reproduced); and

– No. 2017..., relating to J... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 1.116,68 (document No. 30 attached with the request for arbitral pronouncement, the contents of which are reproduced);

b) The Funds are real estate investment funds and are managed and administered by the Claimant;

c) The Funds are holders of the real properties with the articles indicated in the collections, in addition to others (property records that are contained in document No. 32, the contents of which are reproduced);

d) In the aforementioned collections, the Tax and Customs Authority excluded, for the determination of the taxable amount of AIMI, the real properties of the Funds allocated to "commercial, industrial or services" purposes or "others", as defined in article 6(1) paragraphs b) and d) of the CIMI, but included the value of land for construction intended for those purposes, as shown in the following tables and the respective property records, which are contained in document No. 32 attached with the request for arbitral pronouncement, the contents of which are reproduced:

e) The Fund D... - Special Closed Real Estate Investment Fund (NIF...), did not make payment of the amount of € 36.692,58, determined in collection No. 2017... (document No. 1 attached with the response);

f) The other Funds paid their respective collections;

g) The Claimant has the Management Regulations contained in document No. 32 attached with the request for arbitral pronouncement, the contents of which are reproduced;

4.2. Unestablished Facts

It was not established that the Fund D... - Special Closed Real Estate Investment Fund (NIF...) made payment of the amount of € 36.692,58, determined in collection No. 2017....

The Tax and Customs Authority invoked non-payment, attaching document No. 1 with the response, with the objective of proving non-payment, and the Claimant said nothing in its arguments.

4.3. Grounds for Establishment of Facts

The established facts are based on the documents attached by the Claimant with the request for arbitral pronouncement and with the response.

The Tax and Customs Authority did not attach any administrative file and does not challenge what is stated by the Claimant regarding the nature of the properties indicated in the tables contained in paragraph d) of the facts, so it is accepted that they are land for construction with the purposes indicated there.

5. Matter of Law

5.1. Positions of the Parties

The Claimant bases its position on the following terms:

– the legal regime established by Law No. 42/2016, of 28 December, excludes from the incidence of AIMI "urban properties classified as "commercial, industrial or for services" and "others" in accordance with paragraphs b) and d) of article 6(1)" of the Municipal Property Tax Code (CIMI), so that only urban properties allocated to residential purposes and land for construction, as defined in that article 6, are covered;

– it was intended to create a tax on real estate wealth, in which urban properties allocated to economic activities would not be subject to taxation in AIMI, recognizing that mere holding of such properties does not constitute a factor demonstrating wealth, nor a sufficient indicator of the contributory capacity of the owners of such properties;

– the ratio legis that was at the basis of the rule excluding objective incidence, enshrined in article 135-B(2) of the IMI Code, was based essentially on the intention not to impose additional tax burdens on taxpayers who, by virtue of their economic activities, hold properties for the pursuit of their social purpose;

– AIMI cannot be levied on the properties of the Funds, which are intended for the economic activities that real estate investment funds are legally authorized to carry out, in pursuit of their social purpose.

Subsidiarily, the Claimant argues that "land for construction" whose potential use coincides with purposes of "commerce, industry or services" cannot be considered in determining the patrimonial value subject to AIMI, as occurs with the land for construction referred to in paragraph d) of the facts as established. The Claimant considers that taxation affecting land for construction with these purposes is incompatible with the constitutional principle of equality.

Subsidiarily, the Claimant considers that the legal regime of AIMI is contrary to the constitutional principle of equality and to the principle of fiscal equality and contributory capacity, enshrined in articles 13 and 104(3) of the CRP.

The Tax and Customs Authority argues as follows, in summary:

– AIMI has the nature of real and not personal taxation;

– the legislator removed from incidence urban properties classified as "industrial, commercial or services" and "others" but expressly chose to maintain other properties that also form part of the assets of companies, such as those classified as residential or land for construction, by not including them in the negative delimitation enshrined, so it did not remove from incidence all properties allocated to economic activities;

– the restriction was carried out having regard to the classification of properties and not to their link with a particular economic activity;

– the Claimant seeks an abrogating interpretation of the rule, introducing a meaning that was not enshrined by the legislator in the letter of the law, even if only imperfectly expressed, thus broadening the scope of the exclusion from taxation to encompass all the properties held by the Funds;

– as regards the ratio legis, AIMI aims to reach a portion of the patrimonial assets of the taxpayers of the tax, affecting real property that forms part of an estate, legally recognizable as capital of a given entity (singular or collective), but in article 135-B(2) it was opted for a negative delimitation of incidence, excluding from AIMI real properties that, by their potential allocation, may be economically recognized as factors of production, as capital, that is, as intermediate goods that, combined with the other factors of production, produce new utilities – economic goods that satisfy needs;

– in this delimitation of real incidence it is evident that the criterion adopted is intended to be universally objective, inducing greater uniformity and equality in the treatment of the properties subject to taxation, to the detriment of other criteria that would appeal to case-by-case assessments of the actual purpose given to the properties;

– within its freedom of configuration, the legislator removed from the incidence of the tax properties allocated to purposes other than residential;

– the criterion chosen by the legislator – the classification of urban properties as industrial, commercial or for services and others – was adopted to the detriment of others that would appeal to case-by-case assessments of the actual purpose given to the properties;

– the intention to ensure "the absence of impact on economic activity" did not, however, lead to the exclusion from the incidence of the tax of commercial companies and other equivalent entities that, by having as their purpose the pursuit of economic activities, would be affected to greater or lesser degree by the burden of the tax;

– the negative delimitation of incidence was enshrined in objective incidence and not in subjective incidence;

– the goods in question and especially land for construction are not merely instrumental to the exercise of the Fund's activity, they integrate the very core of the economic activity, they are the object of commerce or industry, as they are intended for resale or, in the case of land for construction, also for transformation in the event that buildings are erected on them for subsequent sale;

– the properties excluded from subjection to AIMI, pursuant to article 135-B(2) of the CIMI, are those that perform an instrumental function to industrial, commercial or services economic activities, insofar as they constitute buildings that serve to support the operation of the said activities, and are not themselves income-generating;

– the Funds, such as the one represented by the Claimant, are structures for collective investment of capital obtained from investors, and the paradigm underlying the tax regime applicable to them has been oriented by the principle of neutrality which consists of designing the taxation of the Funds, as far as possible, in the same terms as would apply if the persons investing directly in the immovable or movable assets that constitute the patrimonies of the funds were taxed;

– if the legislator were to grant them an exceptional regime, it would be privileging indirect investment in immovable assets through resort to this financial product and would be opening the door to tax evasion behavior;

– the Claimant's interpretation is clearly an abrogating interpretation of the law, transposed with legislative impulse and, if accepted, violates the constitutional principle of separation and interdependence of powers, enshrined in articles 2 and 111 of the CRP, constituting itself as reference and limit to the powers of cognition of the courts in the exercise of its function within the rule-of-law state (cf. articles 202 and 203 of the CRP);

– unconstitutionality does not occur for violation of the principles of equality and contributory capacity;

– the Tax and Customs Authority cannot refrain from applying the law on the grounds of unconstitutionality, as it is subject to the principle of legality;

– no compensatory interest is due if the legal regime of AIMI is found to be unconstitutional.

Indicating the Claimant an order of subsidiarity in the imputation of defects to the challenged collection, it should be observed in its assessment, as results from paragraph b) of article 124(2) of the CPPT, applicable to tax arbitration proceedings by virtue of the provisions of article 29(1)(c) of the RJAT.

5.2. Question of the Scope of Objective Incidence of AIMI as a Function of Allocation to Economic Activities of Residential Properties and Land for Construction

Law No. 42/2016, of 28 December (State Budget for 2017) added to the CIMI chapter XV, with articles 135-A to 135-K, which contains the regime of the Additional Municipal Property Tax (AIMI).

Article 135-A defines the subjective incidence of this tax, establishing that "taxpayers of the additional municipal property tax are natural or legal persons who are owners, usufructuaries or superficiaries of urban properties situated in Portuguese territory", being "equivalent to legal persons any structures or centers of collective interests without legal personality that figure in the property records as taxpayers of the municipal property tax".

Article 135-B defines the objective incidence of this additional tax as follows:

Article 135-B

Objective Incidence

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

2 - The following are excluded from the additional municipal property tax: urban properties classified as "commercial, industrial or for services" and "others" in accordance with paragraphs b) and d) of article 6(1) of this Code.

The Claimant argues that this regime excludes from the incidence of AIMI "urban properties classified as "commercial, industrial or for services" and "others" in accordance with paragraphs b) and d) of article 6(1)" of the Municipal Property Tax Code (CIMI), so that only urban properties allocated to residential purposes and land for construction, as defined in that article 6, are covered.

Article 6 of the CIMI establishes the following:

1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Land for construction;

d) Others.

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

3 - Land for construction is considered to be land situated within or outside an urban agglomeration for which a license or authorization has been granted, prior notice admitted or favorable prior information issued for a subdivision or construction operation, and also land that has been thus declared in the acquisition title, with the exception of land where the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal spatial planning plans, are allocated to public spaces, infrastructure or facilities.

4 - Under the provision of paragraph d) of article 1 are included land situated within an urban agglomeration that are not construction land nor are covered by the provision of article 3(2) and also buildings and constructions licensed or, in the absence of a license, that have as their normal destination purposes other than those referred to in (2) and also those in the exception of article 3.

From this negative delimitation of incidence, the Claimant draws the conclusion that it was intended to create a tax on real estate wealth, in which urban properties allocated to economic activities would not be subject to taxation in AIMI.

The legislative concern to "prevent the impact of this tax on economic activity" was announced in the Draft State Budget Law for 2017 and was implemented through the exclusion from the scope of incidence of "urban properties classified as "industrial" species, as well as urban properties licensed for tourist activity, the latter provided that their purpose is duly declared and proven" and the deduction from the taxable amount of "€ 600,000.00, when the taxpayer is a legal person with agricultural, industrial or commercial activity, for properties directly allocated to its operation".

However, the exclusion of incidence was not defined based on the activity to which the properties are allocated, as in the final wording that was approved the non-incidence was defined only based on the types of properties indicated in article 6 of the CIMI, without any allusion to allocation or non-allocation to the operation of legal persons.

If the final wording of the Budget had maintained the legislative intent to remove incidence from properties directly allocated to the operation of legal persons, the reference to this allocation that appeared in the proposal and which clearly expressed that legislative option would certainly have been maintained.

Thus, as the allusion to the allocation of the properties has been removed, there is no legal support for concluding that residential properties and land for construction allocated to the operation of legal persons are not relevant to the incidence of AIMI.

"In the absence of other elements that induce the choice of the less immediate sense of the text, the interpreter should in principle opt for that meaning which best and most directly corresponds to the natural meaning of the verbal expressions used, and especially to their technical-legal meaning, in the assumption (not always correct) that the legislator knew how to express its intent correctly. ( )

In the present case, given the departure from the proposed wording in which significance was given to the allocation of properties, there is no reason to conclude that the legislator did not know how to express its intent in adequate terms, as must be presumed by virtue of the provision of article 9(3) of the Civil Code.

For this reason, it must be concluded that the fact that the Fund is allocating the properties referred to in these proceedings to its economic activities does not preclude the incidence of AIMI.

5.3. Question of the Impossibility of Considering in the Determination of the Patrimonial Value Subject to AIMI "Land for Construction" Whose Potential Use Coincides with Purposes of "Commerce, Industry or Services"

The Claimant argues that article 135-B of the CIMI should be interpreted in the sense that land for construction not intended for residential purposes is not relevant for purposes of AIMI, in coherence with the legislative option of excluding from incidence properties classified as "commercial, industrial or for services".

Furthermore, the Claimant argues that the application of AIMI to land for construction for the purposes referred to, in parallel with the exclusion of properties with those purposes, is incompatible with the constitutional and legal principle of equality (articles 13 and 104(3) of the CRP and articles 5 and 55 of the General Tax Law).

For this reason, the Claimant argues that the values of land for construction indicated in paragraph d) of the facts as established, which are indicated in the property records having been determined on the basis of location coefficient types for commerce, industry or services, should not be relevant for the determination of the taxable value of AIMI.

It is not disputed that the land referred to is intended for construction of properties for commerce, industry or services, as the types of location coefficients used lead to the conclusion.

Since the taxable fact chosen as an index of contributory capacity is the holding of real property of value considered high, it would not be coherent not to apply the tax to buildings intended for commerce, industry or services and to apply it to the land intended for their construction, the value of which is incorporated in the value of the buildings.

Thus, from a perspective that has in mind the unity of the legal system (article 9(1) of the Civil Code), which has decisive interpretative value, imposed by the principle of axiological coherence or value of the legal order, the exclusion provided for in article 135-B(2) of the CIMI relating to urban properties classified as "commercial, industrial or for services" should be interpreted extensively as expressing a legislative intent to exclude from taxation also land intended for the construction of such properties.

In any case, adopting a literal interpretation of this rule, in the sense that all land for construction is covered by the incidence of AIMI, it would be materially unconstitutional, being incompatible with the principle of equality (article 13 of the CRP), by considering as taxable fact the holding of land for construction of properties intended for commerce, industry or services and not the holding of identical land with the properties that would be built on it, as it constitutes underprivileged treatment of taxpayers in the first situations, without material justification, as the contributory capacity indicated by real estate property in those situations would necessarily be lower, which must be present, and with an increase, in the second.

In situations of unjustified discriminatory treatment, reflected in the imposition of a duty or burden with violation of the principle of equality, what is illegitimate is, in principle, the act of imposition of the duty only on some of the taxpayers, the inequality being resolved with the elimination of duties or burdens for those who were discriminatorily burdened with them. ( )

For the foregoing, the challenged collections are illegal in the parts in which they include in the taxable value the patrimonial value of the land for construction indicated in paragraph d) of the facts as established, so that their annulment in the respective part is justified, in accordance with the provision of article 163(1) of the Administrative Procedure Code subsidiarily applicable pursuant to article 2(c) of the General Tax Law.

Accordingly, in their entirety the following collections are illegal, relating entirely to land for construction indicated in that paragraph d) of the facts as established, which should be annulled in their entirety:

– No. 2017..., relating to EE... - Special Closed Real Estate Investment Fund (NIF...) in the amount of € 54.419,29;

– No. 2017..., relating to W... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 29.341,70.

For the same reasons, they are partially illegal, should be annulled in the parts in which they are based on values of land for construction referred to in paragraph d) of the facts as established, the following collections:

– No. 2017..., relating to X... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 281.473,10, which is illegal as to the amount of € 8.040,65;

– No. 2017..., relating to Closed Real Estate Investment Fund P... (NIF...), in the amount of € 3.736,78, which is illegal as to the amount of € 170,12;

– No. 2017..., relating to Open Real Estate Investment Fund AA... (NIF...), in the amount of € 33.750,04, which is illegal as to the amount of € 11.968,02;

– No. 2017..., relating to N... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 69.850,23, which is illegal as to the amount of € 63.644,67;

– No. 2017..., relating to I... - Special Closed Real Estate Investment Fund (NIF..., in the amount of € 32.658,23, which is illegal as to the amount of € 24.890,84;

– No. 2017..., relating to Closed Real Estate Investment Fund S... (NIF...), in the amount of € 122.438,12, which is illegal as to the amount of € 9.849,23;

– No. 2017..., relating to D... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 36.692,58, which is illegal as to the amount of € 10.364,96;

– No. 2017..., relating to O... - Special Closed Real Estate Investment Fund (NIF ...), in the amount of € 45.653,74, which is illegal as to the amount of € 16.804,91;

– No. 2017..., relating to Y... - Special Closed Real Estate Investment Fund (NIF...), in the amount of € 6.199,52, which is illegal as to the amount of € 1.046,88.

5.4. Question of Unconstitutionality of AIMI

Subsidiarily, the Claimant raises the question of unconstitutionality of AIMI, with a dual argument, which it is appropriate to assess separately.

5.4.1. The Indiscriminate Taxation of All "Land for Construction": the (Illegal) Disregard of the Legal Criterion of Property Allocation

The Claimant argues "that the taxation regime in AIMI is contrary to the basic principle of equality, enshrined in article 13 of the CRP and, in parallel, contrary to the principle of fiscal equality and contributory capacity enshrined in article 104(3) of the same Code", also referred to in articles 5 and 55 of the General Tax Law.

Explaining its allegation of unconstitutionality, the Claimant argues, in the first place, that "the legal regime of AIMI, in particular the respective article 135-B of the IMI Code - when interpreted in the sense of including in the scope of application of AIMI the "land for construction" for purposes of commerce, industry, services or others - is manifestly contrary to the principle of equality, constitutionally enshrined.

This is the question that has already been assessed in the previous point, so reference is made to what was stated there, which only applies to collections and parts of collections that have as their presupposition values of land for construction intended for commerce, industry and services, which are indicated there.

5.4.2. Unconstitutionality due to Taxation of the Substrate of an Economic Activity

In the Claimant's view, in summary:

– the nature of the taxpayers burdened with the resulting taxation should be considered, in particular the fact that they are covered by AIMI entities that exercise, as an activity included in their statutory purposes, the activity of purchase, sale, construction and leasing of real property;

– in the case of commercial companies (or other entities) that develop an activity of that nature, the ownership of properties constitutes the patrimonial substrate of the economic activity itself, being an essential (almost only) means for its pursuit, so the essential prerequisite for taxation is not met, i.e., the prerequisite that the ownership of those properties constitutes an indication of increased contributory capacity or wealth;

– in the case of real estate investment funds, given the activity they are legally able to conduct, the properties are productive factors and means for the exercise of their economic activity that are not an indication of increased contributory capacity;

– AIMI penalizes in an unjustifiably aggravated manner this sector of activity, to the detriment of the remaining ones;

– the imposition of this taxation has no relationship whatsoever with the actual income of the activity carried out by these entities - in the limit, burdening them even if they have negative results;

– article 135-A of the IMI Code - when interpreted in the sense of including in the subjective scope of application of AIMI entities that conduct real estate activity -, promotes differentiated treatment and an unjustified inequality between taxpayers, in manifest violation of the principle of equality, enshrined in article 13 of the CRP and the principle of fiscal equality and contributory capacity, enshrined in article 104(3) of the same Code;

– especially concerning land for construction, the reasons on which the Constitutional Court based itself in Decision No. 250/2017, of 24 -05-2017, are applicable.

The Tax and Customs Authority argues, in the first place, that it is obliged to apply the law and cannot disapply it on the grounds of unconstitutionality.

Furthermore, the Tax and Customs Authority argues, in essence:

– that the choices underlying the delimitation of the objective incidence of AIMI were made within the margin of "freedom of legislative configuration" and do not violate the principles of equality and taxation based on contributory capacity, in light of the doctrine and jurisprudence of the Constitutional Court;

– one is faced with a "partial tax on certain manifestations of contributory capacity", so it is "normatively appropriate to proceed to a comparison between the global value of the assets of other taxpayers", and instead should take as the basis of comparison, to assess compliance with the principle of equality, the assets of other Funds with the same social purpose;

– "the different valuation and taxation of a property with residential allocation as opposed to a property intended for commerce, industry or services results from the different suitability of the properties in question, which supports the different treatment given by the legislator who, for economic and social reasons, decided, within its freedom of configuration, to exclude from the incidence of the tax properties intended for purposes other than residential";

– the circumstance that other taxpayers holding identical valuable real estate property become exempt from the tax that would justify specific constitutional censure of the rule under review;

– real estate investment funds are holders of goods deemed by the legislator as a manifestation of particular wealth;

– the properties are not merely instrumental to the exercise of the Funds' activity, as they integrate the very core of the economic activity, they are the object of commerce or industry, as they are intended for resale or, in the case of land for construction, for transformation in the event that buildings are erected on them for subsequent sale;

– differently, the properties excluded from subjection to AIMI, pursuant to article 135-B(2) of the CIMI, perform an instrumental function to industrial, commercial or services economic activities, insofar as they constitute buildings that serve to support the operation of those activities, and are not themselves income-generating;

– the circumstance that a given asset is worth, as a "factor of production of wealth" is not sufficient to contradict the finding that the corresponding owner holds a property only accessible to one with particular wealth and thus able to bear additional contribution to the desired budgetary consolidation;

– the principle of equality imposes horizontal equality, that is, that all those who are holders of the same form of wealth are taxed in the same way;

– like any tax on property, AIMI is dissociated from any possible realization of profit from the sale of real property, as well as from the existence or non-existence of a negative or positive net situation, being relevant to the economy of the tax only the patrimonial value of the land.

As regards the invoked obligation of the Tax and Customs Authority to apply the law, as it does not fall within its competence to oversee unconstitutionality, this is irrelevant to the assessment of the legality of the challenged collections, as this Arbitral Tribunal has such competence, as it cannot "apply rules that infringe the provisions of the Constitution or the principles enshrined in it" (article 204 of the CRP).

For this reason, the obligation of the Tax and Customs Authority to apply the law does not constitute grounds for averting the possible illegality of the collections.

Article 13 of the Constitution of the Portuguese Republic proclaims the principle of equality of citizens before the law and article 104(3) of the CRP establishes that "taxation of property should contribute to equality between citizens".

As has been uniformly understood by the Constitutional Court, the principle of equality, as a limit to legislative discretion, does not require equal treatment of all situations, but rather implies that those in equal situations are treated equally and those in unequal situations are treated unequally, so as not to create arbitrary and unreasonable discriminations, because they lack sufficient material foundation. The principle of equality does not prohibit distinctions from being made, but rather distinctions devoid of objective and rational justification. ( )

The creation of AIMI, as a supplementary tax on real estate property, which aimed to introduce into the taxation "a progressive element on a personal basis, taxing more heavily the more substantial estates" (Report on the 2017 Budget, page 60) is compatible with the objective that taxation of property should contribute to equality between citizens, stated in article 104(3) of the CRP, as progressivity has as its corollary, tendentially, to impose higher taxation on those with greater contributory capacity.

On the other hand, the exclusion from taxation of properties especially destined for productive activity, namely "commercial, industrial or for services", finds constitutionally acceptable grounds in the obligation of the State to promote the increase of economic well-being, which presupposes the proper functioning of productive activities and constitutes one of its priority duties in the economic sphere [article 81(a) of the CRP].

Furthermore, in line with what was understood in the arbitral award of 17-03-2016, rendered in case No. 507/2015-T, it should be understood that, while the holding of real property intended for residential purposes of high value is a tendentially reliable indication of economic prosperity, superior to that of the generality of citizens, it cannot be considered that there is a reliable indication of superior contributory capacity when one is faced with the holding of rights over properties intended for the exercise of economic activities (commercial, industrial, provision of services or similar), as they must be adequate to the operation of the respective companies, their size and corresponding value not being an indication of prosperity.

Thus, the restriction of the incidence of AIMI to residential properties and land for construction of residential properties, which came to be enshrined in the approved wording for article 135-B(2) of the CIMI, in the interpretation that was adopted above, would have constitutionally acceptable grounds.

The specific situation of real estate investment funds, as entities for collective investment holding real estate property intended for residential purposes, does not appear to merit special treatment relative to the generality of citizens who individually find themselves in the same situation.

In fact, the activities that the funds may conduct, indicated in article 210 of the General Regime of Collective Investment Bodies, approved by Law No. 16/2015, of 24 February (acquisition of properties for leasing or intended for other forms of paid exploitation; acquisition of properties for resale; acquisition of other rights over properties with a view to their economic exploitation; carrying out improvement works, enlargement and requalification of properties; development of projects for construction and rehabilitation of properties), are freely accessible to the generality of real estate owners, even outside business structures.

On the other hand, the holding of a real estate property of high value by real estate investment funds reveals, as in relation to any owner of residential property, special economic capacity to be able to contribute additionally to the Financial Stabilization Fund of Social Security, to which the revenue from AIMI is assigned, and which "corresponds to the objective of the government program to broaden the financing base of Social Security" (Report on the 2017 Budget, page 57).

For this reason, the non-incidence of AIMI on the values of residential properties or land for construction of residential purposes belonging to real estate investment funds would constitute an unjustified privileged tax treatment relative to the generality of other property owners with those characteristics.

For the foregoing, the imposition on real estate investment funds of AIMI with respect to their property constituted by residential properties and land for construction intended for residential purposes does not appear to be materially unconstitutional, in light of the principles of equality and contributory capacity.

6. Request for Reimbursement of Amount Paid and Compensatory Interest

The Claimant makes a request for reimbursement of the amounts collected by the Tax and Customs Authority, as well as for the payment of compensatory interest.

The Tax and Customs Authority argues, in summary, that in its capacity as a public administration body, it does not have competence to decide on the non-application of rules regarding which questions of unconstitutionality are raised" and "consequently, the AT services cannot be imputed any error of fact or law, given the obedience to law that informs all of its activity.

6.1. Possibility of Assessment in Tax Arbitration Proceedings of Requests for Reimbursement of Paid Tax and Compensatory Interest

In accordance with the provisions of paragraph b) of article 24 of the RJAT, the arbitral decision on the merits of the claim that is not subject to appeal or review binds the Tax Administration from the end of the period provided for appeal or review, and it must, in the exact terms of the well-foundedness of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of decisions of tax courts, "restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been performed, adopting the acts and operations necessary for that purpose", which is in line with the provision of article 100 of the General Tax Law [applicable by virtue of the provision of paragraph a) of article 29(1) of the RJAT] which establishes that "the tax administration is obliged, in the case of total or partial well-foundedness of a complaint, judicial challenge or appeal in favor of the taxpayer, to immediately and fully restore 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 of execution of the decision".

Although article 2(1) paragraphs a) and b) of the RJAT uses the expression "declaration of illegality" to define the competence of the arbitral tribunals operating in the CAAD, making no reference to condemnatory decisions, it should be understood that the competence includes the powers that in a judicial challenge proceeding are attributed to the tax courts, this being the interpretation that is in line with the sense of the legislative authorization on which the Government based itself to approve the RJAT, in which it is proclaimed, as the first directive, that "the tax arbitration proceeding must constitute an alternative procedural means to judicial challenge proceedings and to the action for recognition of a right or legitimate interest in tax matters".

The judicial challenge proceeding, despite being essentially an annulment proceeding of tax acts, admits condemnation of the Tax Administration in the payment of compensatory interest, as can be inferred from article 43(1) of the General Tax Law, in which it is established that "compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services resulting in payment of the tax debt in an amount higher than that legally due" and from article 61(4) of the CPPT (in the wording given by Law No. 55-A/2010, of 31 December, which corresponds to (2) in the original wording), which states "if the decision recognizing the right to compensatory interest is judicial, the period for payment is counted from the beginning of the period for its spontaneous execution".

Accordingly, article 24(5) of the RJAT, by stating that "payment of interest is due, regardless of its nature, under the terms provided for in the general tax law and in the Code of Tax Procedure and Procedure", should be understood as permitting the recognition of the right to compensatory interest in the arbitration proceeding.

On the other hand, since the right to compensatory interest depends on the right to reimbursement of amounts paid unduly, which are its basis of calculation, it is implicit in the possibility of recognition of the right to compensatory interest the possibility of assessment of the right to reimbursement of those amounts.

It is therefore necessary to assess the request for reimbursement of unduly paid amounts and for payment of compensatory interest.

6.2. Right to Reimbursement

Following the total and partial illegality of the collection acts, there is a right to reimbursement of the tax paid illegally, by virtue of the aforementioned articles 24(1)(b) of the RJAT and 100 of the General Tax Law, as this is essential to "restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been performed".

By what was stated, the request for arbitral pronouncement is well-founded only:

– wholly as regards collections Nos. 2017..., in the amount of € 54.419,29, and 2017..., in the amount of € 29.341,70;

– partially as regards collections Nos. 2017... (as to € 8.040,65), 2017 ... (as to € 170,12), 2017... (as to € 11.968,02); 2017 ... (as to € 63.644,67), 2017 ... (as to € 24.890,84), 2017 ... (as to € 9.849,23), 2017 ... (as to € 10.364,96), 2017 ... (as to € 16.804,91) and 2017 ... (as to € 1.046,88).

Accordingly, the total value of the wholly or partially annullable collections is € 230.541,27.

However, as regards collection No. 2017..., which is annullable as to € 10.364,96, it was not established that payment had been made.

For the foregoing, the request for reimbursement of the amount of € 220.176,31 is well-founded.

6.3. Compensatory Interest

As results from point 5.3, the illegality of the collections does not result from unconstitutionality, but rather from the interpretation that should be made of article 135-B(2) of the CIMI.

Accordingly, the jurisprudence invoked by the Tax and Customs Authority regarding the non-existence of a right to compensatory interest in cases where the illegality of the collection derives from unconstitutionality does not apply here.

The Claimant has the right to reimbursement of the amount of € 220.176,31 and the illegalities of the collections are attributable to the Tax and Customs Authority, as it issued them on its own initiative, with incorrect interpretation of the law, in the parts referred to.

Consequently, the Claimant has the right to compensatory interest, pursuant to articles 43(1) of the General Tax Law and 61 of the CPPT, relative to the amount to be reimbursed.

Compensatory interest shall be paid from the date on which the Claimant made payment of each of the illegal collections until full payment of the amount to be reimbursed, at the legal interest rate, in accordance with articles 43(4) and 35(10) of the General Tax Law, article 61 of the CPPT, article 559 of the Civil Code and Ordinance No. 291/2003, of 8 April.

7. Decision

In these terms, the Arbitral Tribunal agrees on:

a) To declare the request for arbitral pronouncement wholly well-founded as regards collections Nos. 2017 ... and 2017 ... and to annul these collections;

b) To declare the request for arbitral pronouncement partially well-founded and to annul the following collections as regards the following amounts:

– No. 2017 ..., as regards the amount of € 8.040,65;

– No. 2017 ..., as regards the amount of € 170,12;

– No. 2017 ..., as regards the amount of € 11.968,02;

– No. 2017 ..., as regards the amount of € 63.644,67;

– No. 2017 ..., as regards the amount of € 24.890,84;

– No. 2017 ..

Frequently Asked Questions

Automatically Created

What is AIMI (Adicional ao IMI) and how does it apply to real estate investment funds in Portugal?
AIMI (Adicional ao Imposto Municipal sobre Imóveis) is an additional tax on Portuguese real estate exceeding certain thresholds, introduced to tax high-value property holdings. For real estate investment funds in Portugal, AIMI applies to the aggregate taxable value of urban properties held by each fund. The tax rate is 0.7% for individuals on property values exceeding €600,000, and 0.4% for corporate entities (including investment funds) on values exceeding €600,000. Real estate investment funds, despite their specific nature as collective investment vehicles, are treated as separate taxable entities under Article 135-A of the IMI Code. The Constitutional Court in Decision 681/2017-T confirmed that AIMI legitimately applies to investment funds holding real estate as their core business activity, rejecting arguments that such application violated constitutional principles of equality or legitimate expectations.
Can the constitutionality of AIMI be challenged through tax arbitration at CAAD?
Yes, the constitutionality of AIMI can be challenged through tax arbitration at CAAD (Centro de Arbitragem Administrativa), but with limitations. Under the RJAT (Legal Regime for Arbitration in Tax Matters), taxpayers can request arbitral tribunals to declare tax acts illegal, including on constitutional grounds. However, arbitral tribunals cannot directly declare laws unconstitutional - they can only refuse to apply provisions they consider unconstitutional in specific cases. If constitutional questions arise, appeals can be made to the Constitutional Court (Tribunal Constitucional) under Article 70 of the Constitutional Court Law. In Case 681/2017-T, this process occurred: the arbitral tribunal initially refused to apply AIMI provisions it deemed unconstitutional, but the Constitutional Court reversed this decision, confirming AIMI's constitutionality and ordering reformation of the arbitral award. This demonstrates that while constitutional challenges are possible through CAAD arbitration, final constitutional determinations rest with the Constitutional Court.
What are the grounds for reforming an arbitral tax decision under Portuguese law?
Under Portuguese law, arbitral tax decisions can be reformed through constitutional appeal mechanisms when constitutional issues arise. In Case 681/2017-T, reformation occurred following Constitutional Court review under Article 70(1)(a) of the Constitutional Court Law (LTC). The Constitutional Court has authority to reform arbitral awards when it issues negative judgments on unconstitutionality claims - meaning when it confirms a law's constitutionality contrary to the arbitral tribunal's interpretation. The reformation process involves maintaining the factual findings and legal reasoning of the original award where it remains valid, but modifying the operative part (decisão) to align with the Constitutional Court's constitutional determinations. In this case, the Constitutional Court ordered reformation because the original arbitral award had refused to apply AIMI provisions on constitutional grounds. The reformed decision of January 2020 completely reversed the operative part, transforming a partially successful claim into complete rejection, while incorporating the Constitutional Court's reasoning that AIMI's application to real estate investment funds was constitutional.
How does AIMI taxation differ for real estate investment fund management companies compared to individual property owners?
AIMI taxation for real estate investment fund management companies differs significantly from individual property owners in several respects. First, management companies act as representatives of the funds, which are the actual taxpayers - each fund is treated as a separate taxable entity under Article 135-A of the IMI Code. Second, the applicable tax rate differs: corporate entities including investment funds pay 0.4% AIMI on aggregate property values exceeding €600,000, while individuals pay 0.7% (or higher progressive rates for very high values). Third, aggregation rules apply differently - for funds, all properties held by each specific fund are aggregated separately, not consolidated across all funds managed by one company. Fourth, the threshold application differs: each fund has its own €600,000 exemption threshold. In Case 681/2017-T, 30 separate funds managed by A... S.A. each faced individual AIMI assessments. The Constitutional Court confirmed that investment funds cannot claim exemption based on their specialized business nature of holding real estate as inventory or investment, rejecting arguments that their structural obligation to hold property distinguished them from other corporate property owners for constitutional purposes.
What was the outcome of the CAAD decision 681/2017-T regarding the unconstitutionality of AIMI on real estate funds?
The outcome of CAAD Decision 681/2017-T ultimately ruled against the real estate investment funds on all constitutional grounds. While the original May 2018 arbitral award partially favored the claimant by annulling €220,176.31 in AIMI assessments (out of €929,654.22 claimed), this decision was completely reversed after Constitutional Court intervention. The Constitutional Court's October 2019 decision rejected two key constitutional challenges: (1) it held that Article 135-A of the IMI Code constitutionally applies to entities holding real estate as a consequence of their economic activity, including specialized investment funds; and (2) it held that Article 135-B(2) constitutionally includes 'land for construction' used for commerce, industry, or services within AIMI's scope. Following this constitutional determination, the reformed January 2020 decision declared the arbitration request entirely ill-founded and absolved the Tax Authority of all claims. The claimant was ordered to pay €13,158 in arbitration costs. This definitive outcome establishes that Portuguese real estate investment funds cannot escape AIMI liability through constitutional arguments based on their specialized nature or business model, representing a significant precedent for the sector's tax treatment.