Process: 683/2017-T

Date: July 12, 2018

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 683/2017-T) addresses whether AIMI (Additional Municipal Property Tax) applies to real estate held by a real estate company for commercial exploitation. The Claimant, a real estate company, challenged an AIMI assessment of €25,010.88 for 2017, arguing that properties registered as 'residential' were actually dedicated to tourism/hotel activities under contracts with an operating company. The Claimant contended AIMI should only apply to residential properties and construction land, not properties used for economic activities. The company argued that the legislative intent behind Article 135-B(2) of the IMI Code was to exclude properties instrumental to business operations, recognizing they don't demonstrate wealth or contributory capacity. Subsidiarily, the Claimant raised constitutional challenges, alleging Articles 135-A and 135-B of the IMI Code violate equality principles by creating unjustified differentiation between taxpayers holding property for economic activities versus residential purposes. A critical jurisdictional issue emerged regarding whether CAAD arbitral tribunals have competence to rule on constitutional matters, as these questions typically fall under Constitutional Court jurisdiction. The case illustrates the tension between formal property classifications in tax rolls versus actual economic use, the scope of AIMI's application to business assets, and the limits of arbitral tribunal jurisdiction when constitutional questions arise in tax disputes.

Full Decision

ARBITRAL DECISION

I – REPORT

A..., S.A., a legal entity no. ... (hereinafter referred to as "Claimant"), with registered office at ..., ..., ..., ...-... ..., has, pursuant to Article 2, paragraph 1, letter a) and Articles 10 et seq. of the Legal Regime of Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as "RJAT") and Articles 1 and 2 of Order no. 112-A/2011, of 22 March, filed a request for arbitral determination on the illegality of the assessment of the Additional Municipal Property Tax (AIMI) with the number 2017 ... relating to the year 2017, in the amount of € 25,010.88, seeking a declaration of illegality of said assessment and its consequent annulment, as well as reimbursement of the amount paid, plus compensatory interest. Subsidiarily, the Claimant requests that Articles 135-A and 135-B of the IMI Code be disapplied in the present case on grounds of unconstitutionality, for violation of the principle of equality, and consequently that the illegality of the AIMI assessment act sub judice be declared, as it is based on unconstitutional norms, and that it be annulled, with the legal consequences flowing therefrom.

The Tax Authority and Customs Service (hereinafter referred to as "AT" or "Respondent") is the Respondent.

The petition for constitution of the arbitral tribunal was accepted by the Director of the Administrative Arbitration Centre (CAAD) on 28/12/2017 and automatically notified to the Respondent in accordance with the relevant regulations.

Pursuant to the provisions of letter a) of paragraph 2 of Article 6 and letter b) of paragraph 1 of Article 11 of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council of CAAD appointed the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the appointment within the legal timeframe.

On 14/02/2018, the Parties were duly notified and did not express, within the legal timeframe and terms, any intention to refuse the appointment of the arbitrator (Article 11, paragraph 1, letters a) and b) of the Legal Regime of Tax Arbitration (RJAT), in conjunction with Articles 6 and 7 of the Code of Ethics).

In accordance with the provisions of letter c) of paragraph 1 of Article 11 of RJAT, the Arbitral Tribunal was constituted on 06/03/2018.

Duly notified, the Tax Authority and Customs Service filed a reply in which it defended the lack of merit of the petition and requested that the Public Prosecutor's Office be notified of the final decision.

The hearing referred to in Article 18 of RJAT was waived.

The Claimant did not file arguments and the Respondent filed its written submissions on 29/05/2018, reiterating, in summary, the position assumed in its reply.

The Claimant supports its petition, in summary, arguing that:

  • It is a real estate company whose corporate purpose includes the purchase and sale of real estate and holds real estate assets.

  • The Claimant was notified of an AIMI assessment relating to the year 2017, with reference to its real estate assets, in the total amount of € 25,010.88, which, although it understood not to be due, it paid on 19.09.2017.

  • According to its conception, the Claimant maintains that AIMI applies only to urban properties dedicated to residential purposes and land for construction as defined in Article 6 of the IMI Code.

  • The legislator excluded, according to the Claimant, urban properties dedicated to economic activities, recognizing that the mere holding of such real estate does not constitute a factor demonstrating wealth, nor a sufficient indicator of the contributory capacity of the holders of such real estate.

  • This ratio legis, according to the Claimant, lies at the genesis of the rule excluding objective scope, enshrined in paragraph 2 of Article 135-B of the IMI Code, and is based essentially on not imposing additional tax burden on taxpayers who, by virtue of their economic activities, hold real estate for the pursuit of their corporate purpose.

  • Real estate companies, such as the Claimant, have their purpose limited to the performance of operations related to the onerous exploitation of real estate, and thus the holding of real estate assumes an instrumental function in the pursuit of the economic activity of these companies.

  • Therefore, according to the Claimant, a tax that does not apply to "economic activities" cannot be imposed on the assets of these companies.

  • The Claimant's real estate, which is the subject of this assessment, is devoted to "services," although it is registered in the assessment roll as real estate devoted to "residential purposes."

  • However, according to the Claimant, this dedication is not up to date, which was due to multiple delays in the issuance of tourism use licenses for the same.

  • The real estate is exploited exclusively, according to the Claimant, within the scope of hotel activity conducted by company B..., which takes place through the execution of a preliminary contract between the Claimant and this company, dated 1998, through which the exploitation of the tourism establishments and apartments in question in the present proceedings was transferred, and subsequently the agreed contract was executed to which new real estate properties built in the meantime were included.

  • In this manner, none of the real estate in question is actually devoted to residential purposes, the requirements for the application of AIMI are not met.

  • The substance must be considered over the form, and therefore, according to the Claimant, the real estate devoted to "residential purposes" as recorded in the property cards does not apply.

  • Subsidiarily, the Claimant alleges that the legislator intended to ensure, with AIMI, that real estate devoted to economic activities would not be subject to AIMI taxation, and in this case, these real estate properties constitute true elements of the production process of the Claimant's activity and cannot be compared to elements demonstrating its wealth, and therefore the application of AIMI could never have been legitimate.

  • AIMI – as results from Articles 135-A and following of the IMI Code – could never be applied to real estate held by the Claimant in the scope of its activity, since the principles underlying the taxation under analysis are not met.

  • In conclusion, the Claimant submits that the AIMI assessment issued on the real estate held by the Claimant is illegal due to errors in the factual and legal presuppositions and must be annulled.

  • Finally, subsidiarily, the Claimant contends that the legal regime of AIMI is unconstitutional.

  • The Claimant understands that the AIMI taxation regime is contrary to the principle of equality and contributory capacity.

  • The legal regime of AIMI, specifically Articles 135-A and 135-B, both of the IMI Code, and the taxation resulting therefrom, promote differentiated treatment and unjustified inequality among taxpayers.

  • According to the Claimant, the legislator intended to tax real estate for residential purposes as manifestations of wealth, and it was clear, according to the Claimant, the legislator's intention to exclude from the scope of AIMI all real estate dedicated to economic activities, and therefore, with regard to the taxation of "land for construction," it should be understood, according to the Claimant, that those dedicated to economic activities are also excluded.

  • Under penalty of, if this interpretation is not made, generating situations of discrimination without legal basis.

  • In the constitutional analysis, the Claimant further raises the nature of the passive subjects burdened with taxation, excluding those who, like the Claimant, engage in the activity of buying and selling, construction, and rental of real estate, provided it is included in their statutory purposes, since, in these cases and for these subjects, the presupposition of taxation under AIMI is not met, an increased contributory capacity.

  • Giving rise, if it is not understood otherwise, according to the Claimant, to unjustified negative discrimination against legal entities that hold real estate as productive factors or means for the exercise of their activity.

  • Therefore, Article 135-A of the IMI Code should be interpreted in the sense that it is not applied to legal entities that develop real estate activity.

  • Regarding land for construction by entities that promote economic activities, the application of AIMI, according to the Claimant, promotes differentiated treatment and unjustified inequality among taxpayers, in clear violation of the principle of fiscal equality and contributory capacity.

  • In any case, the Claimant petitions for the annulment of the AIMI assessment, requesting reimbursement of the amount paid and compensatory interest.

For its part, the Respondent supports its position, in summary, arguing that:

  • The matter concerns an assessment for AIMI relating to properties registered in the assessment roll as dedicated: to "residential purposes" and "land for construction."

  • The sum of the property tax value considered as the taxable matter of the tax relates to urban properties with residential dedication and in the form of land for construction – letters a) and c) of paragraph 1 of Article 6 of the IMI Code, thus registered in the assessment roll on 01.01.2017.

  • According to the Respondent, the properties fall within the scope of objective incidence enshrined in paragraph 1 of Article 135-B of the IMI Code, and the exclusion contained in paragraph 2 of the same provision does not apply to them.

  • The AT maintains that it could not have acted otherwise, being that, pursuant to paragraph 2 of Article 266 of the Constitution of the Portuguese Republic (CRP), the Administration is obliged to act in accordance with the principle of legality, with such principle being implemented at the infra-constitutional level in paragraph 1 of Article 3 of the Administrative Procedure Code (CPA).

  • The AT contends that it could not/cannot refuse to apply a norm or fail to comply with the law by invoking or questioning its constitutionality, as it is subject to the principle of legality, as established in Articles 266, paragraph 2 of the CRP, 3, paragraph 1 of the CPA, and 55 of the General Tax Law (LGT).

  • With respect to AIMI imposed on urban properties of which the owners, usufructuaries, or emphyteutic tenants are legal entities and equivalent structures (paragraph 2 of Article 135-A of the IMI Code), the tax assumes the nature of a real tax, insofar as the modeling of the amount payable abstracts from the economic dimension of the entities, specifically the qualification as a small, medium, or large enterprise, and does not affect the totality of the net assets of the entities.

  • With respect to legal entities and equivalent structures, AIMI has the nature of real taxation, thus reflecting the idea that the elements comprising the real estate assets held by these entities perform, as a rule, an economic function, not representing, therefore, a mere accumulation of wealth.

  • According to the AT, the framework in which the legislator moved in drawing up the configuration of the subjective and objective scope of AIMI, also balancing its choices by other specific considerations such as the mitigation of the impact of this imposition on the exercise of business activities in general, through the exclusion of urban properties for industrial, commercial, and service purposes, and "others."

  • With respect to paragraph 3 of Article 104 of the CRP, according to the AT, the principle of equality, with regard to assets, 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 field of taxation on assets.

  • The principle of equality is concretized and has, therefore, various dimensions, such as (i) the prohibition of arbitrariness, (ii) the prohibition of discrimination, and (iii) the obligation of differentiation.

  • According to the AT, it is necessary to determine whether the choices underlying the delimitation of the objective scope of AIMI, made within the margin of "freedom of legislative configuration," constitute a violation of the principle of equality, by the fact that taxpayers with equal contributory capacity may be unequally affected by the tax due to the different weight that urban properties for residential purposes and land for construction may represent in their respective total assets.

  • The comparison of contributory capacities in order to determine the observance of the principle of fiscal equality presupposes resorting, within the scope of taxation of assets, to a general or synthetic tax on assets.

  • The Claimant, not questioning this choice according to the AT, comes to invoke the unconstitutionality of the AIMI regime for violation of the principles of equality (Article 13 of the CRP) on the basis of negative discrimination against companies engaged in real estate activity in relation to other companies, individual taxpayers, and undivided estates.

  • As well as it invokes said unconstitutionality for AIMI being applied to all land for construction, even if classified as commercial, industrial, and service purposes.

  • However, according to the AT, no unjustified differences in treatment of taxpayers result from the established norms in violation of those constitutional principles.

  • The choices underlying the delimitation of the objective scope of AIMI are made within the margin of "freedom of legislative configuration."

  • Attempting to point out, according to the AT, the teleology of the tax, it aims, firstly, to reach a portion of the assets of the tax subjects, applying to real estate goods that constitute assets, legally recognizable as capital of a certain entity (singular or collective), regardless of whether it is devoted to any production process or income-generating activity – it is believed that this is the purpose of paragraph 1 of Article 135-B of the IMI Code.

  • However, the legislator opted in paragraph 2 of that provision for a negative delimitation of scope, excluding from AIMI real estate that, by their potential dedication, may be economically recognized as factors of production, by way of capital, that is, as intermediate goods that, combined with the other factors of production, produce new utilities – economic goods that satisfy needs.

  • For this purpose, it resorted to a criterion, according to the AT, that invokes the structure of typologies of urban property provided for in Article 6 of the IMI Code and that operates through the subtraction from AIMI of urban properties that, as a result of the licensing of use declared by municipalities or, in its absence, their normal destination, are reduced to the typologies of letters b) and d) of paragraph 1 of that provision.

  • The universe of urban properties subject to AIMI, according to the AT, is determined using the remaining two typologies contained in paragraph 1 of Article 6: residential urban properties and land for construction.

  • In this delimitation of real incidence, it is clear that the criterion adopted intends 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 verifications of the actual destination given to the properties.

  • The different valuation and taxation of a property with residential dedication as opposed to a property intended for commerce, industry, or services results from its different capacity of the properties in question, which supports the different treatment given by the legislator who, for economic and social reasons, decided, within its power of configuration, to remove from the scope of the tax properties intended for purposes other than residential.

  • It is, therefore, unequivocal, according to the AT, that we are dealing with a norm of objective incidence of a general and abstract character, applicable indistinctly to all cases in which its factual and legal presuppositions are met.

  • The tax under review does not aim at generic taxation of assets. Nor is this, moreover, required by paragraph 3 of Article 104 of the CRP. It is, according to the AT, only a partial tax on certain manifestations of contributory capacity.

  • The legislator defined a specific economically constitutionally valid presupposition to achieve the aim of taxation of realities particularly revealing of wealth and to legitimize, consequently, an additional contribution to budget consolidation.

  • Within the framework of a partial taxation of assets, in the present case, relating to residential urban properties and land for construction, the terms that should appropriately be taken as the basis of comparison to assess the observance of the principle of equality are the assets of real estate entities.

  • By selecting the legislator an element of the assets to tax, it is necessarily consistent that taxpayers (singular or collective) holding that asset are burdened.

  • In this way, AIMI respects partial taxation of assets without specifically targeting companies, as it includes all kinds of passive subjects who hold the real rights mentioned over the properties in question, regardless of whether they assume a business character or not, thus including, beyond companies, foundations, associations, and individual persons.

  • Being, therefore, according to the AT, infeasible to invoke, in view of the scope of application of the norm under consideration, principles of strictly business vocation.

  • Contrary to what the Claimant intends, the Respondent understands that it is not possible to configure the unconstitutionality of a fiscal norm on the basis alone that it has significant influence on the economic decisions of taxpayers – by nature, this is a typical effect of fiscal rules.

  • According to the AT, land for construction is not merely instrumental to the exercise of the activity; on the contrary, it integrates the very core of the economic activity, it is the object of commerce or industry, as they are intended for resale or transformation if constructions are erected on them for subsequent sale.

  • Differently, the real estate excluded from subjection to AIMI, pursuant to paragraph 2 of Article 135-B of the IMI Code, perform an instrumental function to industrial, commercial, or service economic activities, insofar as they constitute buildings that serve as support for the operation of such activities, and are not themselves income-generating.

  • And even if land for construction may prove instrumental to the activity of the real estate promotion company, the AT concludes that such land is suitable to indicate that that legal entity is the holder of goods that, in themselves, evidence specific wealth in relation to other real estate owners.

  • Any derivation in the opposite sense of what is stated is not relevant, since the taxation embodied in AIMI translates into a specific imposition on assets (cf. Article 4, paragraph 1 of the LGT) and not on income.

  • Like any tax on assets, AIMI is dissociated from a possible realization of profit with the sale of real estate, 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 property tax value of the land.

  • AIMI is, moreover, a deductible expense, negatively influencing the taxable profit of the fiscal year, or is deductible from the corporate income tax collection when the properties in the taxable matter include income generated by properties, subject to it, within the scope of rental or hospitality activity (paragraphs 1 and 2 of Article 135-J IMI Code).

  • As to the fact that AIMI applies to all land for construction, even if classified as commercial, industrial, and service purposes, the judgment of unconstitutionality in the face of an alleged, but non-existent, violation of the principle of equality is based on the difference that would exist in relation to individual persons.

  • As results from the factuality described, without prejudice to the Claimant having been taxed by reference to land for construction with residential dedication, as well as by reference to properties of a residential kind.

  • Moreover, it is prohibited to discuss the legality, as it is abstract, since it does not have effective connection with the factuality that must be given as proven by the Tribunal.

  • Without such a nexus of dependency between the subject matter of the dispute and the grounds of the judgment of unconstitutionality of the norm in question, everything is limited to an abstract valuation of the confrontation between the norm or the constitutional principle and the ordinary norm, therefore, without direct and effective connection with the "case submitted to judgment" (Article 204 of the CRP), with the consequence of determining the disapplication of a norm for unconstitutionality based on grounds inapplicable to the subject matter of the dispute.

  • Which, consequently, determines the incompetence of the Arbitral Tribunal to hear the matter, which is requested.

  • The understanding that it is unconstitutional, by infraction of the principle of equality, the taxation of land for construction without regard to the type of property that may be built on them, does not proceed.

  • Because the factual reality of the case and its subsumption to the legal norms is not altered by the configuration, in singular terms, of this potential dedication, under penalty of the present Tribunal making a (prohibited) judgment of vertical partial unconstitutionality.

  • What is here at issue in the situation configured for the purposes of the judgment of unconstitutionality is simply the normative-tax characterization of urban property, which results from the concepts proper to the IMI Code (cf. Article 6) and where land for construction is one of the types of urban properties provided for therein.

  • Thus, by force of the exclusion of taxation provided for in paragraph 2 of Article 135-B of the IMI Code, the assessment must be made, as results from what is provided there, in accordance with the typology provided for in Article 6 of the IMI Code.

  • It is not relevant, according to the AT, nor in accordance with the principle of equality, to make the eventual component of the future building on the land for construction relevant for the purposes of a judgment of constitutional conformity of AIMI.

  • In this way, on the date of taxation in AIMI of the land for construction, only the actual reality of the land itself, as legally characterized, and taking into account the VAL contained in the assessment roll, should be considered.

  • Not a future building, with the consequent species of urban property that may subsequently emerge, including the autonomous units or floors susceptible to independent use that may exist, which truly are merely virtual abstractions of situations not constituted nor legally nor factually.

  • This would mean, ultimately, that taxation would be determined, instead of current and effective contributory capacity, on the basis of future and eventual contributory capacity.

  • The judge, in applying the law, cannot discriminate between equal situations, and the legislator cannot enact laws that entail unequal treatments of equal situations.

  • The AT concludes that, considering everything stated above, there can therefore be, in the present discourse, no censure regarding the legal-constitutional conformity of AIMI.

  • The impugned assessment deserving no censure, the arbitral petition should be judged without merit, with the other legal consequences.

  • With respect to the payment of compensatory interest, for all that has been said above, the assessment act is understood not to suffer from a defect that should dictate its annulment/declaration of nullity.

  • However, and without conceding, it will be said that, although the Claimant does not specify in what terms it petitions for the respective interest, such interest is not due since no error of fact or law can be attributed to the AT services, given the compliance with the law that informs all its activity.

II – PRELIMINARY RULING ON ADMISSIBILITY

The Parties possess legal personality and judicial capacity, are legitimate as to the petition for arbitral determination, and are duly represented, pursuant to the provisions of Articles 4 and 10 of RJAT and Article 1 of Order no. 112-A/2011, of 22 March.

Regarding the jurisdiction of the Tribunal.

The Respondent raises the incompetence of the Arbitral Tribunal to consider any questions that exceed the consideration of taxation by reference to land for construction with residential dedication, as well as by reference to properties of a residential kind, since, as for the rest, not having, according to the Respondent, effective connection with the factuality that must be given as proven by the tribunal, it is prohibited to discuss the legality, as it is abstract.

According to the Respondent, without such a nexus of dependency between the subject matter of the dispute and the grounds of the judgment of unconstitutionality of the norm in question, everything is limited to an abstract valuation of the confrontation between the norm or the constitutional principle and the ordinary norm, therefore, without direct and effective connection with the "case submitted to judgment" (Article 204 of the CRP), with the consequence of determining the disapplication of a norm for unconstitutionality based on grounds inapplicable to the subject matter of the dispute.

Furthermore, according to the Respondent, there is no possibility of judgment of unconstitutionality of AIMI based on the violation of the principle of equality and contributory capacity, proceeding from premises based on a comparison between what is factual and what are mere prognostic judgments on situations not constituted.

As to this, which being a procedural presupposition, must be considered before the disputed material relationship at issue in the present proceedings, it follows that a decision must be made:

The Arbitral Tribunal has its jurisdiction determined in Article 2, paragraph 1, letter a) of RJAT regarding the consideration of the legality of assessment acts.

In the case under review, an assessment act has been impugned in relation to which the Claimant raises illegalities in the exercise of its right of review of the said act.

In this way, it falls to the Arbitral Tribunal to consider the alleged defects and whether or not they affect the assessment.

The issues raised by the Claimant and the way it frames the matter constitute the scope of the merit or lack thereof of the petition, and therefore, in this line, it will always fall to the Tribunal to determine, having nothing to do with or compromising the jurisdiction of the Arbitral Tribunal.

The configuration of the object of the challenge, of the circumstances in which the Claimant frames it, is sufficient for these to be concrete issues, particularly with regard to constitutionality, since the position assumed has potential effects on the assessment under review.

Thus, it is concluded that the Arbitral Tribunal is competent to consider the issues raised.

There is no other matter of exception to consider; the proceedings do not suffer from nullities, and therefore it is necessary to proceed to the consideration of the merits of the case.

III. MERITS

FACTUAL MATTERS

Proven and not proven facts

It falls to the tribunal to select the facts that matter for the decision of the case and to discriminate the proven matter from the not proven (pursuant to Article 123, paragraph 2 of the Code of Tax Procedural Law (CPPT) and Article 607, paragraph 3 of the Code of Civil Procedure (CPC), applicable ex vi Article 29, paragraph 1, letters a) and e), of RJAT).

Thus, the facts relevant for the judgment of the case are chosen and delimited based on their legal relevance, which is established in regard to the various plausible solutions of the legal issue(s) (pursuant to the earlier Article 511, paragraph 1 of the CPC, corresponding to the present Article 596, applicable ex vi Article 29, paragraph 1, letter e), of RJAT).

Thus, having regard to the positions assumed by the parties and the documentary evidence attached to the file, the following facts were considered as proven, with relevance for the decision.

  • The Claimant is a real estate company whose corporate purpose includes the purchase and sale of real estate and holds real estate assets.

  • The Claimant was notified of the tax assessment act for AIMI with the number 2017..., dated 30.06.2017, relating to the year 2017, in the amount of € 25,010.88 (Document No. 1 filed with the arbitral petition).

  • For the purpose of the additional AIMI assessment, the sum of the property tax values of the ten properties of which the Claimant is the owner with the property register numbers ..., ..., ..., ..., ..., ..., ..., ..., ... and..., Municipality of ..., registered in the assessment roll as dedicated: to "residential purposes" and "land for construction" (In accordance with Document No. 1 filed with the arbitral petition and property cards filed with the Reply).

  • The property registers ..., ..., ..., ... and..., correspond to land for construction with the mention of "residential purposes" in the type of location coefficient, as for the other registers they have the mention of "residential purposes" in the type of location coefficient (see property cards filed with the Reply).

  • The Claimant proceeded, on 19.09.2017, to pay the said assessment (Document No. 2 filed with the arbitral petition).

  • The Claimant executed a so-called preliminary contract for the cession of exploitation on 14/01/1998, and a so-called contract for cession of exploitation with B..., Lda., of a restaurant establishment, bar and pool complex, tourism apartments, and support facilities, located in..., in the municipality of..., ... (Documents nos. 3 and 4 filed with the arbitral petition).

  • The petition for constitution of the arbitral tribunal was filed on 27.12.2017.

No other facts with relevance for the decision of the case were proven, considering the possible legal solutions.

Having regard to the positions assumed by the parties, the documentary evidence attached to the file, and that the facts that result as proven from these evidentiary elements, with relevance for the decision, the following enumerated fact was not proven.

  • Which real estate form part of the scope of the object of the preliminary contract for the cession of exploitation and the final contract for cession of exploitation referred to in letter f) above.

Reasoning regarding the factual matters

The facts were proven based on the documents filed by the Parties, as well as on the positions assumed by the Parties in their written submissions.

As for the facts given as not proven, with relevance to the case, the burden of proof for which lay with the Claimant and which the latter did not discharge.

From the property cards attached to the file, ten properties of the Claimant are identified, from the Municipality of ..., registered in the assessment roll as dedicated: to "residential purposes" and "land for construction," as given as proven above.

From the content of the property cards, it results, from the description of the properties, that they are either land for construction or properties in which the described construction is held in full ownership without floors or divisions susceptible to independent use, and that, for the properties in question, IMI Model 1 was always filed after 2012.

It is from the documentary support that we proceed, and even if we gave prevalence to substance over formal declaration, the truth is that the latter involves a probative exercise that sets aside this formal element and allows, with certainty, concluding that the material relationship is distinct, and therefore should prevail over the documentary element, in the present case, the content of the property cards.

Which was not at all verified in the present proceedings.

From the preliminary contract for the cession of exploitation, executed in 1998, and from which, according to the Claimant, its effects immediately began, results the identification of the object of this preliminary contract – in Annex I of this document by reference to the preamble A. – in which the infrastructure of an establishment is described, such as the pool, the restaurant, the bar, the wellness center, and a set of 36 apartments (of different typologies) and 3 residences, but from which no correspondence is permitted with the one or the other, all or in part, of the properties in question in the proceedings.

In the very preamble A of the preliminary contract, the Claimant describes the property of which it is the owner, but with no reference whatsoever to any one of the properties in question, or even whether it refers to part of them or all of them. It mentions, instead, that the Claimant is the owner and rightful possessor of a "restaurant establishment, bar and pool complex, tourism apartments, and support facilities located in..., in the municipality of..., ..., identified in the list attached to this preliminary contract and forming an integral part thereof as Annex I."

From the ownership of this establishment and set of infrastructure of the Claimant, we are directed to Annex I, as mentioned, but from which we also do not obtain any other information that could allow us to make the correspondence between this "complex" and any one of the properties in question in the proceedings.

To which is added the fact that, with the contract for cession of exploitation, this the final contract, refers to annexes, with identification of properties, without them resulting from any part of the contract with the description that permits making this correspondence with what is under analysis in this process.

Even if it could be admitted that the object of the final contract was the same as the preliminary contract, the truth is that in this final contract the parties refer to another 10 apartments – in accordance, namely, with preamble D of the contract for cession of exploitation – and therefore with an object different from the preliminary contract, but which, at no moment are the same identified, nor did the Claimant do so, as was incumbent upon it, in this process to be able to set aside the formal element by giving prevalence to substance.

Thus, given the content of the contracts, the description of the establishment and other hotel complex that results therefrom does not permit us to make a correspondence with the properties in question in the proceedings, whether in part or in whole, considering the description of the properties contained in the property cards.

Thus, from the content of the property cards of the real estate of which the Claimant is the owner, and there being no demonstration of a different dedication that would permit us to conclude which properties are dedicated to a purpose other than "residential purposes," whether in whole or in part, we must limit ourselves to the content of these as given as proven.

To set aside this dedication constituted a burden of the Claimant which it did not fulfill, that is, it would always have been incumbent upon the Claimant to demonstrate that, materially, the properties had a different dedication, considering that it asserts that all real estate are devoted to exploitation within the scope of hotel activity, whether those existing at the time of execution of the preliminary contract, or other apartments, new ones, built in the meantime and inserted within the scope of the final contract, but, from the content of the documents it files, this exercise of subsumption is not possible.

The truth is that there is no annexation or description in any one of the contracts from which results any identification of the properties, or any form of definitive identification that would permit, at least with a description even if not the property register itself, making correspondence with any of the real estate in question in the proceedings.

From the documentary content and, consequently, the evidence produced, there is no definitive identification that permits concluding that the properties in question in the proceedings are included within the scope of the object of any one of those transactions.

From the evidence produced by the Claimant, we give as not proven the fact above described.

In this way, even if the Claimant files contracts in the proceedings, at no moment – considering even the content of the documents that refers concretely to annexes, whether referring to a part of the contract or to another element or support, to identify which properties would be included in the transaction – can we, given the evidence produced by the Claimant or its absence, and to whom it was incumbent to do so, conclude that the properties in question in the proceedings, part of them or all, form part of the scope of the object of the preliminary contract and the contract for cession of exploitation referred to in letter f) above.

In this way, we give as not proven that the real estate that may be included within the scope of the said contracts are, currently, the ten properties of which the Claimant is the owner with the property registers nos. ..., ..., ..., ..., ..., ..., ..., ..., ... and..., from the Municipality of ..., registered in the assessment roll as dedicated: to "residential purposes" and "land for construction," and which were considered for the purpose of the additional AIMI assessment under consideration in the present proceedings.

2. MATTERS OF LAW

2.1. Principal Issues

From what is petitioned by the Claimant result the following substantive issues to be considered in this process and which we enumerate below:

  1. Regarding the objective scope of AIMI based on the dedication to economic activities of the properties and the relevance, for purposes of incidence, of properties held by commercial companies, such as the Claimant.

  2. The determination of the property tax value subject to AIMI in urban properties classified as "commercial, industrial, and for services" and of "land for construction" whose potential use coincides with purposes of "commercial, industrial, or services."

  3. Regarding the unconstitutionality of the AIMI taxation regime for violation of the principle of equality, enshrined in Article 13 of the CRP, and of the principles of fiscal equality and contributory capacity enshrined in Article 104, paragraph 3 of the CRP.

The Claimant indicates an order of subsidiarity in the imputation of defects to the impugned assessment, and it will be necessary to observe it in its consideration, as results from letter b) of paragraph 2 of Article 124 of the Code of Tax Procedural Law (CPPT), applicable to tax arbitration proceedings by virtue of the provisions of Article 29, paragraph 1, letter c) of RJAT.

It is necessary to decide:

2.1.1. Regarding the objective scope of AIMI based on the dedication to economic activities of the properties and the relevance, for purposes of incidence, of properties held by commercial companies, such as the Claimant.

The Additional Municipal Property Tax, added to the IMI Code by Law no. 42/2016, of 28 December, with subsequent amendments, establishes, in its Article 135-A, that:

1 - The passive subjects of the additional municipal property tax are individuals or legal entities who are owners, usufructuaries, or emphyteutic tenants of urban properties situated in Portuguese territory.

2 - For the purposes of paragraph 1, legal entities are equated with any structures or centers of collective interests without legal personality that appear in the assessment rolls as passive subjects of the municipal property tax, as well as the undivided estate represented by the head of the household.

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

4 - Municipal enterprises are not passive subjects of the additional municipal property tax.

As to the objective scope of this additional tax, the following is established:

Article 135-B

Objective scope

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

2 - Urban properties classified as "commercial, industrial or for services" and "others" are excluded from the additional municipal property tax, pursuant to letters b) and d) of paragraph 1 of Article 6 of this Code.

The Claimant maintains that this regime excludes from the objective scope of AIMI "urban properties classified as 'commercial, industrial or for services' and 'others' pursuant to letters b) and d) of paragraph 1 of Article 6" of the Municipal Property Tax Code (IMI Code), and that therefore only urban properties dedicated to residential purposes and land for construction, as defined in that Article 6, are covered.

Article 6 of the IMI Code 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 for services are buildings or constructions 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 shall be considered as land situated within or outside an urban agglomeration, for which a license or authorization has been granted, preliminary notification admitted, or favorable preliminary information issued for a subdivision or construction operation, and also those that have been so declared in the acquisition title, excepting land in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas, or which, in accordance with municipal territorial planning plans, are dedicated to public spaces, infrastructure, or equipment.

4 - Letter d) of paragraph 1 encompasses land situated within an urban agglomeration that are neither land for construction nor are covered by the provision of paragraph 2 of Article 3, as well as buildings and constructions licensed or, in the absence of a license, that have as their normal destination purposes other than those referred to in paragraph 2, as well as those of the exception in paragraph 3.

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

On this question, which comprehensively includes both economic activities and the specific passive subject holding the properties, we follow the position adopted by the arbitral decision of 04.05.2018, in case 675/2017-T (which can be consulted at www.caad.org.pt), which we transcribe:

"The legislative concern to 'avoid 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 the 'industrial' type, as well as urban properties licensed for tourism activity, the latter provided that their destination is duly declared and proven' and the deduction from the taxable value of the amount of '€ 600,000.00, when the passive subject is a legal entity with agricultural, industrial or commercial activity, for properties directly dedicated to its operation.'

However, it was not on the basis of the activity to which the properties are dedicated that the exclusion of incidence came to be defined, as in the final approved text, the non-incidence was defined only on the basis of the types of properties indicated in Article 6 of the IMI Code, without any reference to the dedication or non-dedication to the operation of legal entities.

If the final version of the Budget had maintained the legislative intention to avoid incidence on properties directly dedicated to the operation of legal entities, the reference to this dedication that was contained in the proposal, which clearly expressed that legislative option, would certainly have been maintained.

Thus, having been suppressed this reference to the dedication of the properties, there is no legal support to conclude that residential properties and land for construction dedicated to the operation of legal entities are not relevant for the incidence of AIMI."

As results from the decision, whose position we endorse, "in the absence of other elements that induce the choice of the less immediate sense of the text, the interpreter must opt in principle for that sense that better and more immediately corresponds to the natural meaning of the verbal expressions used, and particularly to their technical-legal meaning, in the assumption (not always exact) that the legislator knew how to express its thinking correctly."[1]

In the situation we are analyzing, there is no reason to conclude that the legislator did not know how to express its thinking in appropriate terms, as must be presumed, by force of the provisions of Article 9, paragraph 3 of the Civil Code.

Therefore, it is to be concluded that the fact that the Claimant holds the properties referred to in the proceedings within the scope of its economic activities, even if dedicated to "residential purposes," does not preclude the incidence of AIMI.

2.1.2. The determination of the property tax value subject to AIMI in urban properties classified as "commercial, industrial and for services" and of "land for construction" whose potential use coincides with purposes of "commercial, industrial or services"

In the understanding of the Claimant, it is expressly excluded from the objective scope of this Additional tax the "urban properties classified as commercial, industrial or for services," which, as the Claimant has presented it, would be the case.

In fact, the Claimant filed a preliminary contract for cession of exploitation and a final contract, but it does not result from any of the documents which properties fall within the scope of those transactions.

The Claimant did not fulfill the burden of proof incumbent upon it to demonstrate, materially, the dedication of each one of the properties in question in the proceedings, since, and this is indeed demonstrated, from the property cards filed, each one of the properties in question is destined for "residential purposes," which was not updated, according to the Claimant, due to "multiple delays in the issuance of tourism licenses for the same."

Considering that the preliminary contract referred to is from 1998 and, based on this, according to the Claimant, already at that time (1998) the exploitation was transferred, little credible is it that the delay in the said licenses lasted twenty years.

In any case, and regardless of this, from the documentary elements existing, it results, indeed, that for each one of the properties, the dedication is "residential purposes," and this reality is not set aside, which would always have been incumbent upon the Claimant to do, here referring to the reasoning of the factual matters given as not proven above.

Thus, we conclude that the properties in question in the proceedings are destined for "residential purposes."

In this way, the properties in question fall within the objective scope of AIMI, there being nothing further to consider on this question due to the absence of demonstration that the properties are destined for a purpose different from what appears in the property card, namely: "residential purposes."

Regarding land for construction:

The Claimant alleges, with great acuity, that Article 135-B of the IMI Code should be interpreted in the sense that for purposes of AIMI, land for construction not intended for residential purposes should not be considered, in coherence with the option to exclude the incidence on properties classified as "commercial, industrial or for services."

But, and regardless of what the Claimant alleges regarding the future building, the truth is that, as was given as proven, the type of location coefficient is "residential purposes," and no other purpose for such land has been demonstrated as would have been incumbent upon the Claimant to do.

Similarly, the same must be said regarding the preliminary contracts for cession of exploitation and exploitation filed, which are silent as to the definitive identification of the properties subject of the transaction.

Thus, there is nothing to consider since the Claimant, as was incumbent upon it, would have had to demonstrate and prove from the outset – which it did not – that the potential use coincides with purposes of "commercial, industrial or services."

Which, having not been proven, and considering the type of dedication contained in the property card, the property falls within the objective scope of AIMI.

2.1.3. Regarding the unconstitutionality of the AIMI taxation regime for violation of the principle of equality, enshrined in Article 13 of the CRP, and of the principles of fiscal equality and contributory capacity enshrined in Article 104, paragraph 3 of the CRP.

The Claimant invokes, also, in the alternative, the unconstitutionality of AIMI, with arguments that we consider separately:

2.1.3.1. The taxation of "land for construction": the (illegal) disregard of the legal criterion of property dedication

The Claimant maintains "that the AIMI taxation regime is contrary to the fundamental 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, paragraph 3 of the same law.

It maintains that the legal regime of AIMI, specifically, its Articles 135-A and 135-B of the IMI Code – when interpreted in the sense of including within the scope of application of AIMI "land for construction" for purposes of commerce, industry, services, or others – promote differentiated treatment and unjustified inequality among taxpayers, in manifest violation of the principle of equality enshrined in Article 13 of the CRP.

Since, in the present case, there is no land for construction whose dedication is for purposes of commerce, industry, or services, this question has already been considered in the previous point, and so reference is made to what was stated there.

2.1.3.2. Unconstitutionality for taxation of the substrate of an economic activity and of the nature of the passive subjects

On this subject, once again, we adopt the position of the arbitral decision rendered by CAAD on 04.05.2018, in case 675/2017-T (which can be consulted at www.caad.org.pt), which we hereby cite:

"Regarding the invoked obligation of the Tax Authority and Customs Service to apply the law, it not being incumbent upon it to oversee constitutionality, it is irrelevant to the assessment of the legality of the impugned assessment, as this Arbitral Tribunal has such competence, as it cannot 'apply norms that infringe the provisions of the Constitution or the principles enshrined therein' (Article 204 of the CRP).

Therefore, the obligation of the Tax Authority and Customs Service to apply the law does not constitute grounds to set aside the possible illegality of the assessment.

Article 13 of the Constitution of the Portuguese Republic proclaims the principle of equality of citizens before the law, and Article 104, paragraph 3 of the CRP establishes that 'the taxation of assets should contribute to equality among citizens.'

As has been consistently understood by the Constitutional Court, the principle of equality, as a limit on legislative discretion, does not require equal treatment of all situations, but rather implies that those in equal situations be treated equally and those in unequal situations be treated unequally, in a manner that does not create arbitrary and unreasonable discriminations, because they lack sufficient material foundation.

The principle of equality does not prohibit the establishment of distinctions, but rather distinctions devoid of objective and rational justification.[2]

The creation of AIMI, as a complementary tax on real estate assets, which aimed to introduce in taxation 'a progressive element of a personal basis, taxing higher amounts of larger assets' (Report of the State Budget for 2017, page 60), is compatible with the objective that taxation of assets should contribute to equality among citizens, as stated in paragraph 3 of Article 104 of the CRP, as progressivity has as its corollary, tending to impose higher taxation on those with higher contributory capacity.

On the other hand, the exclusion of taxation of properties specially dedicated to productive activity, specifically 'commercial, industrial or for services,' finds constitutionally acceptable grounds in the obligation of the State to promote the increase of economic welfare, which presupposes the proper functioning of productive activities and constitutes one of its priority incumbent duties in the economic sphere (Article 81, letter a) of the CRP).

Furthermore, in line with what was understood in the arbitral decision of 17-03-2016, rendered in case 507/2015-T, it should be understood that, while the ownership of high-value real estate assets intended for residential use is a tendentially secure indication of economic affluence, superior to that of most citizens, one cannot consider that there is a secure indication of superior contributory capacity when one is dealing with the ownership 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 functioning of the respective companies, and their dimension and related value is not an indication of affluence."

Regarding the ownership of these residential properties and land for construction of residential properties, as is the case, and regardless of the activity they pursue, it does not appear to merit discriminatory (positive) treatment in relation to other citizens.

The issue of constitutionality, as the legislator framed it, finds foundation when it restricts the incidence of AIMI to residential properties and land for construction of residential properties, which, moreover, came to be enshrined in the text approved for paragraph 2 of Article 135-B of the IMI Code (and with the interpretation that results with respect to land for construction), whoever its owner is and whatever activity they engage in.

This restriction that the legislator made by excluding properties dedicated to commercial, industrial, or service activities finds constitutional foundation, but, in line with the decision we have been following, "(…) the ownership of high-value real estate assets evidences, as in relation to any owner of property intended for residential use, a special economic capacity to be able to contribute additionally to the Financial Stabilization Fund of Social Security, to which AIMI revenue is dedicated, and which 'corresponds to the objective of the government's program to expand the financing base of Social Security' (Report of the State Budget for 2017, page 57).

Therefore, the imposition on the generality of holders of residential properties or land for construction of residential properties does not appear to be materially unconstitutional, in light of the principles of equality and contributory capacity."

Since the petitions for arbitral determination are without merit, the consideration of other questions is rendered moot, as being unnecessary (Article 130 of the Code of Civil Procedure (CPC)), particularly with respect to reimbursement of amounts paid and compensatory interest.

IV. DECISION

The Tribunal hereby decides as follows:

  1. To declare entirely without merit the petitions for arbitral determination and, in consequence, to absolve the Tax Authority and Customs Service of the respective petitions.

  2. To condemn the Claimant to the costs of the proceedings.

V. VALUE OF THE CASE

In accordance with the provisions of Article 306, paragraph 2 of the CPC, Article 97-A, paragraph 1, letter a) of the Code of Tax Procedural Law (CPPT), and Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is valued at € 25,010.88.

VI. COSTS

Pursuant to Article 22, paragraph 4 of RJAT, the amount of costs is set at € 1,530.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

VII. NOTIFICATION TO THE PUBLIC PROSECUTOR'S OFFICE

The Tax Authority and Customs Service requests notification of this arbitral decision to the Public Prosecutor's Office.

Since the Public Prosecutor's Office does not have special representation before the arbitral tribunals functioning at CAAD (Article 4, paragraph 1 of the Statute of the Public Prosecutor's Office), this decision shall be communicated to the General Prosecutor's Office, for such purposes as it may deem appropriate.

Let notice be given.

Lisbon, 12 July 2018

The Arbitrator,

Marisa Almeida Araújo

[1] BAPTISTA MACHADO, Introduction to Law and to the Discourse of Legitimation, page 182.

[2] In this sense, the decisions of the Constitutional Court nos. 149/88, of 29-6-1988, rendered in case 282/86, published in the Bulletin of the Ministry of Justice no. 378, page 192; no. 169/90, of 30-5-1990, rendered in case 1/89, published in the Bulletin of the Ministry of Justice no. 397, page 90; or no. 335/94, of 20-4-1994, rendered in case 61/93, published in the Bulletin of the Ministry of Justice no. 436, page 129, among others.

Frequently Asked Questions

Automatically Created

What is the AIMI (Adicional ao Imposto Municipal sobre Imóveis) and how is it applied to property owners in Portugal?
AIMI (Adicional ao Imposto Municipal sobre Imóveis) is an additional tax on municipal property introduced in Portugal to tax real estate wealth. It applies to individuals with total taxable property value exceeding €600,000 and to legal entities (companies) with Portuguese urban property regardless of value. The tax rate for companies is 0.4% on the sum of taxable patrimonial values (VPT) of urban properties for residential purposes and construction land. Article 135-B of the IMI Code establishes exemptions, notably excluding properties allocated to commercial, industrial, or service activities used directly in those operations, though the interpretation and application of these exclusions has generated significant litigation.
Can the constitutionality of AIMI be challenged before a CAAD arbitral tribunal on grounds of violation of the equality principle?
While taxpayers may raise constitutional arguments before CAAD arbitral tribunals, these tribunals lack jurisdiction to declare norms unconstitutional. Under Portuguese law, only the Constitutional Court has competence to declare legislative unconstitutionality. However, CAAD tribunals can (and must) apply constitutional principles when interpreting tax norms and may disapply apparently unconstitutional provisions in specific cases under the doctrine of 'fiscalização difusa' (diffuse review), refusing to apply norms they consider unconstitutional to the concrete case. If constitutional questions are determinative, tribunals should suspend proceedings and refer the matter to the Constitutional Court. Taxpayers challenging AIMI on equality grounds must typically pursue appeals to administrative courts and ultimately the Constitutional Court for definitive rulings on constitutionality.
Does the CAAD arbitral tribunal have jurisdiction to rule on the unconstitutionality of Articles 135-A and 135-B of the CIMI?
CAAD arbitral tribunals have jurisdiction to hear tax disputes including AIMI assessments under Article 2(1)(a) of the RJAT (Legal Regime of Tax Arbitration). However, their competence regarding unconstitutionality is limited. They cannot declare norms unconstitutional with erga omnes effect—that power belongs exclusively to the Constitutional Court. Nevertheless, arbitral tribunals can refuse to apply specific legal provisions they consider unconstitutional to the case before them (concrete review/diffuse control). When faced with serious constitutional questions like those raised here regarding Articles 135-A and 135-B of the CIMI, tribunals must analyze whether the alleged unconstitutionality is relevant to deciding the case and may need to seek preliminary rulings or acknowledge the limits of their decisional authority on constitutional matters.
What is the procedure for requesting arbitration at CAAD to challenge an AIMI tax assessment?
To request arbitration at CAAD challenging an AIMI assessment, taxpayers must file a written petition within 90 days of notification of the tax assessment or explicit rejection of an administrative claim. The petition must identify the contested act, state grounds for illegality, include supporting documentation, and pay the required procedural fee. The request is submitted electronically through CAAD's platform. Upon acceptance by the CAAD Director, the Tax Authority is automatically notified and has 30 days to respond. An arbitrator is appointed by CAAD's Ethics Council, and parties may challenge the appointment within 10 days. The tribunal is constituted once this period expires, and proceedings continue with optional hearings, written arguments, and a final decision typically within 6 months from tribunal constitution, though extensions occur in complex cases.
Are taxpayers entitled to a refund with compensatory interest if an AIMI liquidation is declared illegal by a CAAD tribunal?
Yes, taxpayers are entitled to a refund with compensatory interest when an AIMI assessment is declared illegal by a CAAD tribunal. Under Article 24(5) of the RJAT and Article 43 of the LGT (General Tax Law), annulment of a tax assessment entitles the taxpayer to reimbursement of amounts paid, plus compensatory interest calculated from the payment date until actual reimbursement. The interest rate is legally defined and aims to compensate for the taxpayer's loss of use of funds wrongly collected. The Tax Authority must execute the arbitral decision within legal deadlines, processing the refund. If the Claimant in this case prevails, the €25,010.88 paid on 19 September 2017 would be refunded with compensatory interest accruing from that date until payment, providing significant additional compensation given potential delays in dispute resolution.