Process: 687/2017-T

Date: July 20, 2019

Tax Type: IMI

Source: Original CAAD Decision

Summary

This arbitral decision addresses the legality of AIMI (Additional Municipal Property Tax) assessments on construction land held by three real estate companies in Portugal. Following a Constitutional Court judgment in case 919/18 delivered on May 29, 2019, the CAAD arbitral tribunal was required to reform its original July 4, 2018 decision. The applicant companies challenged AIMI assessments for 2017, arguing that construction land designated for commercial, industrial, or services purposes should be excluded from AIMI taxation. Their core argument centered on Article 135º-B(2) of the Municipal Property Tax Code, which excludes properties used in economic activities from AIMI. The companies contended that as real estate businesses whose corporate purpose involves buying, selling, constructing, and leasing properties, their land holdings constitute essential business inventory rather than demonstrable wealth. They argued that the legislature intended AIMI to tax only residential property wealth, not assets instrumental to commercial activities. The applicants maintained that taxing construction land designated for non-residential purposes contradicts the tax's fundamental purpose and imposes an illegitimate burden on economic activity. This case highlights the tension between AIMI's wealth taxation objectives and its application to properties held by real estate companies as business assets, raising critical questions about whether construction land zoned for commercial purposes falls within AIMI's scope when held by entities whose business model depends on such property holdings.

Full Decision

ARBITRAL DECISION

The present arbitral decision is rendered as a result of the judgment of the Constitutional Court delivered on 29-05-2019 in the appeal case no. 919/18, which has already become final, which determines the reform of the arbitral decision of 04-07-2018.

I – REPORT

  1. A..., SA, with the tax identification number ... and with registered office at ..., no., Lisbon, B..., SA, with the tax identification number ... and with registered office at ..., no...., ..., Lisbon and C..., SA, with the tax identification number ... and with registered office at ..., no...., ..., Lisbon, presented, on 27-12-2017, a request for constitution of the arbitral tribunal, in accordance with articles 2º and 10º of Decree-Law no. 10/2011, of 20 January (Legal Framework of Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with article 102º of the Code of Tax Procedure and Process (CPPT), in which the Tax and Customs Authority is requested (hereinafter referred to only as Respondent, or ATA).

  2. The Applicants intend, with their request, the declaration of illegality of the tax acts assessing the Additional Municipal Property Tax – AIMI – with nos. 2017..., 2017... and 2017..., with reference to the year 2017, with the consequent reimbursement of the tax paid, as well as the recognition of the right to compensatory interest.

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

3.1. The Applicants did not proceed to appoint an arbitrator, whereby, under the provisions of paragraph a) of no. 2 of article 6º and paragraph b) of no. 1 of article 11º of the RJAT, the President of the Deontological Council appointed the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the appointment within the deadline.

3.2. On 14-02-2018 the parties were notified of the appointment of the arbitrator, with no objection having been raised.

3.3. In accordance with the provisions of paragraph c) of no. 1 of article 11º of the RJAT, the arbitral tribunal was constituted on 06-03-2018.

3.4. In these terms, the Arbitral Tribunal is regularly constituted to examine and decide the subject matter of the case.

  1. To support the request for arbitral pronouncement, the Applicants allege, in summary, the following:

The Applicants are real estate companies whose corporate purpose includes the purchase, sale and lease of real property, holding for this purpose a vast real estate portfolio.

The creation of AIMI aimed to require a greater tax effort from taxpayers who, allegedly, reveal higher indices of wealth, thus configuring itself as a tribute of a personal nature that affects urban real estate wealth. Assuming a progressive character, AIMI affects wealth materialized in the right of ownership, usufruct or surface rights over "certain" urban properties, located in Portuguese territory.

It results, by exclusion, from the wording of art. 135º-B of CIMI that only urban properties intended for residential purposes and land for construction, as defined in article 6º of the Municipal Property Tax Code, are subsumed under the taxation rules of this Additional Tax.

The AIMI assessments under analysis suffer from a defect of violation of law, due to errors in the factual and legal presuppositions and, as such, they should be annulled with all legal effects.

The legislator aimed to ensure that urban properties affected by economic activities would not be subject to AIMI taxation, recognizing that the mere holding of such property does not constitute (and cannot constitute) a factor demonstrating wealth, nor a sufficient indicator of the contributory capacity of the holders of such property. In these terms, it is evident that the legislative intent underlying the rule of exclusion of objective incidence, enshrined in no. 2 of article 135º-B of the Municipal Property Tax Code, was based essentially on the intention of not imposing an additional fiscal burden on taxpayers who, by force of their economic activities, hold property for the pursuit of their corporate purpose.

The Applicants cannot accept – or understand – that the AT, through the assessment acts now disputed, has considered, in determining the tax asset values subject to AIMI, "land for construction" whose potential use coincides with "commercial, industrial or services" purposes.

Given that the corporate purpose of the Applicants is limited to carrying out operations related to the lucrative operation of real property – e.g. activities of purchase, sale, construction, lease, etc. – the holding of property assumes an instrumental function in the pursuit of the economic activity of these companies, i.e., such properties are necessary or essential to the carrying out of their corporate purpose.

In fact, the holding of this type of property constitutes the substratum of all the activity of real estate companies. Wherefore, in view of this relationship of dependence – ownership of the property right over these assets versus the maintenance of economic activity – it can never be presumed that the portfolio of properties held by these entities is demonstrative of wealth or an indicator of their contributory capacity to be considered for AIMI taxation purposes.

In instituting AIMI, the legislator intended to create an effective tax on real estate wealth. In these terms, it is evident that the legislative intent underlying the rule of exclusion enshrined in no. 2 of article 135º-B of the Municipal Property Tax Code was based on the intention of not imposing an additional fiscal burden on taxpayers who, by force of their economic activity, hold property for the pursuit of their corporate purpose. Indeed, the properties constitute true elements of the productive process of the activity of the Applicants, whether as rental properties or as true inventories intended for future transformation, intended exclusively for the pursuit of their respective activity and can never be compared with elements demonstrating their wealth. Wherefore, the holding of those properties represents, in truth, the substratum of all the activity of the Applicants – it is inherent, necessary, indispensable to the pursuit of the same.

Thus, it is evident that AIMI – as provided in articles 135º-A et seq. of the Municipal Property Tax Code – can never affect the properties held by the Applicants within the scope of their respective activities, since the underlying principles of taxation under analysis are not verified. Taxing these properties would mean directly taxing an "economic activity" – something that the legislator expressly intended to avoid when creating AIMI.

Furthermore, the AT counted, for the purposes of determining the taxable value of this tax, the asset value of a "land for construction" intended for the construction of properties intended for those purposes – which cannot be accepted.

In instituting AIMI, the legislator intended to tax only properties – already built properties and land – for residential purposes. Such intention results from the wording of the law and, moreover, was at the genesis of the creation of this additional tax. To understand that "lands for construction" intended, according to their respective property records, for purposes of "commerce, industry, services" or "other", are subject to AIMI – as has been understood by the AT – is manifestly contrary to the spirit of the law and, moreover, illegal. Indeed, the subjection of these "lands for construction" to AIMI provokes a greater tax burden on this type of urban property and, consequently, will not fail to have an impact on the economic activities that will potentially be developed on these properties.

Furthermore, the taxation methodology adopted by the AT, in the sense of including in the taxable value for AIMI purposes the taxpayers holding "lands for construction" with the purposes identified by no. 2 of article 135º-B of the Municipal Property Tax Code, constitutes a discriminatory treatment that violates, plainly, the principle of equality, constitutionally enshrined in articles 13º and 104º, no. 3, of the Constitution of the Portuguese Republic ("CRP") and in articles 5º and 55º of the General Tax Law ("LGT").

As a subsidiary matter, and without prejudice to what was expounded above, it is important to note that the taxation regime of AIMI is contrary to the fundamental principle of equality, enshrined in article 13º of the CRP and, in parallel, contrary to the principle of tax equality and contributory capacity enshrined in article 104º, no. 3 of the same diploma.

In the application of AIMI to the real estate portfolio held by those entities – as occurs with the Applicant companies – the essential prerequisite of taxation is not verified, i.e., the prerequisite that the ownership of those properties constitutes an indication of increased contributory capacity or wealth. The application of AIMI to properties held by these entities penalizes in an unjustifiably aggravated manner this sector of activity, to the detriment of the others. The entities of this sector would thus assume an additional burden in relation to the generality of companies, based on a "hypothetical index of contributory capacity" that has no correspondence with reality.

Notwithstanding that they are structurally distinct, the truth is that it becomes inevitable to note the all too evident similarities between the revoked item 28 of the TGIS and the legal regime of AIMI, so that the constitutionality issues raised within the scope of item 28.1 of the TGIS will not have been eliminated with its repeal, with the same now being arguable in respect of AIMI. Similarly to what occurred with item 28 of the TGIS, the legislator confused manifestations of wealth with factors of production of that wealth, by promoting blind taxation in AIMI, not only in the sphere of taxpayers who present economic robustness to support the tax burden of this additional tax – because they are actually holders of superior economic capacity – but also in the sphere of entities whose holding of properties constitutes a means to the pursuit and sustenance of their economic activities – as occurs in the case of the Applicants.

In fact, the imposition of this taxation has no relationship whatsoever with the real income from the activity carried out by these entities – at the limit, burdening them even if they have negative results.

Conclude, therefore, the Applicants that the assessments subject to the arbitral request are illegal.

  1. The Tax and Customs Authority presented a response, invoking in summary, the following:

As follows from article 135º-b of CIMI, AIMI applies to properties classified as residential and as lands for construction — regardless of their potential use (given that the law refers, simply, to article 6º of the Municipal Property Tax Code) – insofar as they do not expressly appear in the norm of negative delimitation of incidence.

With regard to AIMI applicable to urban properties of which are owners, usufructuaries or surface rights holders legal entities and equivalent structures (no. 2 of art. 135º-A of CIMI), the tax assumes the nature of a real tax, insofar as the modeling of the amount to be paid abstracts from the economic dimension of the entities, specifically the qualification as a small, medium or large enterprise, as well as does not affect the totality of the net assets of the entities.

Thus, the Applicants are not correct when they characterize AIMI "as a tribute of a personal nature that affects urban real estate wealth", for, as a matter of conceptual rigor, it is important to say that we are not dealing with a personal tax, in line with the construction of doctrine.

The legislator excluded from incidence urban properties classified as "industrial, commercial or services" and "other", but expressly chose to maintain other properties that also form part of companies' assets, such as those classified as residential or lands for construction, by not including them in the negative delimitation enshrined. That is, it did not guarantee in all cases that "urban properties affected by economic activities would not be subject to AIMI taxation", contrary to what is said by the Applicants.

The wording of the law does not permit the Applicants to impute to the AT an error in its interpretation, for, contrary to what they claim, the wording given to the cited legal provision shows that the legislator chose to formulate the restriction taking into account the classification of the properties, with nothing in the wording of the law indicating that such exclusion could be expanded, specifically extended to the other properties not included therein when they are the substratum of a specific economic activity of the tax subject.

The Applicants seek an abrogative interpretation of the norm, introducing into it a meaning that was not enshrined by the legislator in the wording of the law, even if only in an imperfectly expressed manner, thus expanding the scope of the exclusion from taxation to encompass all the properties held by them.

In the delimitation of real incidence it is clear 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 verifications of the actual purpose given to the properties. Indeed, the different valuation and taxation of a property with residential use as against a property intended for commerce, industry or services results from the different aptness of the properties in question, which supports the different treatment given by the legislator who, for economic and social reasons, decided, within the scope of its conforming freedom, to exclude from the incidence of the tax properties intended for purposes other than residential.

It is, therefore, unequivocal that we are dealing with a norm of objective incidence of a general and abstract character, applicable uniformly to all cases in which the respective factual and legal presuppositions are met, and the tax under examination does not aim at generic taxation of assets. What is at issue is only a partial tax on certain manifestations of contributory capacity. That is, the legislator defined a specific economic prerequisite (constitutionally valid as is explained below) to achieve the goal of taxation of realities particularly revealing wealth and thus legitimate a complementary contribution to budgetary consolidation.

Even though the taxed properties may be considered the substratum of the activity of the Applicants, this does not, however, permit the conclusion that we are dealing with assets devoid of value, for they are assets with market value and intrinsic economic value that derives from different factors, such as location, constructive aptness (in the case of lands for construction) and even their tendency towards scarcity. Differently, the properties excluded from subjection to AIMI, in terms of no. 2 of art. 135º-B of CIMI, are those that perform an instrumental function to industrial, commercial or services economic activities, insofar as they constitute buildings that serve as support for the operation of such activities, and are not themselves generators of income.

Nor are the Applicants correct as to the fact that the AT has improperly assessed AIMI on all lands for construction, even if the potential use is for commerce, industry or service.

On the date of AIMI taxation of lands for construction, account should only be taken of the actual reality of the land, as it is legally characterized, and taking into account the tax asset value shown in the property register, not a future building, with the consequent type of urban property that may subsequently arise, including autonomous units or floors susceptible to independent use that may eventually exist, which are truly mere virtual abstractions of situations not established either legally or factually.

Nor does the legislative intent of the exclusion from taxation provided for in article 135º-B, no. 2 of the Municipal Property Tax Code have the scope intended by the Applicants, for the criterion, objective – as was seen – chosen by the legislator, was the classification of urban properties as industrial, commercial or for services and other – chosen precisely to the detriment of others that would appeal to case-by-case verifications of the actual purpose given to the properties, as defended by the Applicant.

The Law being the normative standard that governs its action, it does not fall to the Administration, as is obvious, to issue judgments of constitutionality on norms, as it is not enabled to do so, contrary to what occurs with the Courts. Thus, the Administration is subject to law and to law and its organs and agents should be the first to comply with it; consequently, it cannot be required to pronounce on the options of the legislator, for these, after being set down in law, are the normative discipline within which it exercises its attributions in the pursuit of the public interest. That is, bound by the principle of legality, the AT cannot, by force thereof, waive the application of norms based on the interpretation it makes as to their unconstitutionality.

On the other hand, the principle of equality requires that what is necessarily equal be treated equally and what is essentially different be treated differently, but does not, however, prevent differential treatment, but only arbitrary, unreasonable discriminations, i.e., distinctions in treatment that have no justification and sufficient material foundation.

From the teleology of the tax it appears that it aims, in the first instance, to affect a portion of the assets of the tax subjects, affecting real properties constituting a portfolio, legally recognizable as capital of a given entity (singular or collective), regardless of whether it is affected by any productive process or generator of income - it is believed to be the purpose of no. 1 of article 135º-B of the Municipal Property Tax Code.

It is unequivocal that we are dealing with a norm of objective incidence of a general and abstract character, applicable uniformly to all cases in which the respective factual and legal presuppositions are met. What is at issue is only a partial tax on certain manifestations of contributory capacity. That is, the legislator defined a specific economic prerequisite constitutionally valid to achieve the goal of taxation of realities particularly revealing wealth and thus legitimate a complementary contribution to budgetary consolidation. Thus, given that what is at issue is the provision of partial taxation of the total assets of the taxpayers, it is held that it is not normatively adequate to proceed to a comparison between the overall value of the assets of other taxpayers.

Contrary to what the Applicants claim, it is understood that it is not possible to configure the unconstitutionality of a tax norm based simply on the fact that it has a significant influence on the economic decisions of the taxpayers, given that, by nature, that is a typical effect of tax rules. Being that there is no significant influence on the holding of properties by real estate companies, given that AIMI does not have general scope, but has its scope of application limited to urban properties located in Portugal regardless of the nature of the owner, usufructuary or surface rights holder.

It will not, therefore, be the circumstance that other taxpayers holding identically valuable real estate assets are exempt from the tax that will justify a specific constitutional censure of the norm under examination.

The allegation that in the case of the Applicants, the properties are true elements of their productive process, that is, means for the exercise of their activity and not manifestations of contributory capacity, is nothing more than a fallacy, for the properties, including lands for construction, at issue here are goods in an economic sense, because their utility and scarcity allows them to be assigned a market price, whose appreciation contributes to the profitability of the invested capital.

Furthermore, AIMI is a deductible expense, influencing negatively the taxable profit of the year, or deductible from the corporate income tax collection, when revenues generated by properties, subject to it, are included in the taxable matter within the scope of rental or hospitality activity, as follows from nos. 1 and 2 of art. 135º-J CIMI.

Nor are the Applicants correct as to the fact that AIMI applies to all lands for construction, even if the potential use is for commerce, industry or service, claiming this implies a violation of the principle of equality.

It is neither relevant nor in accordance with the principle of equality to make relevant, for the purposes of a judgment of constitutional compliance of AIMI, the eventual component of the future construction concerned in the land for construction, given that the only tax asset value shown in the property register in terms of the Municipal Property Tax Code on which annual AIMI taxation affects is the tax asset value of the land for construction itself existing and not that of those units still non-existent, whose tax asset value will only arise when, after construction, a urban property intended for services, industry or commerce is encountered and not already a land for construction.

There is no question here of any possibility of judging the unconstitutionality of AIMI based on the violation of the principle of equality departing from premises that are based on a comparison between incomparable situations, i.e., on the one hand what is factual, on the other mere judgments of prognosis, virtual abstractions and speculations about situations not established and that may never come to be.

Concludes the Respondent for the legality of the assessment acts contested by the applicant, which should thus be maintained, sustaining that, in any circumstance, compensatory interest cannot be required.

  1. By order of 28-05-2018, the meeting provided for in article 18º of the RJAT was dispensed with, as well as, with the consent of the parties, the presentation of arguments.

II – EXAMINATION

8.1. The tribunal is competent and regularly constituted.

8.2. The parties have legal personality and capacity, are legitimate and are regularly represented (articles 4º and 10º, no. 2, of the RJAT and article 1º of Ordinance no. 112-A/2011, of 22 March), with the coalition of applicants requested being admitted, as what is at issue is the examination of the same circumstances of fact and the interpretation and application of the same principles or rules of law (art. 3º, no. 1 of the RJAT).

8.3. The case does not suffer from nullities.

8.4. The cumulation of requests is legal, given the same art. 3º, no. 1.

8.5. No exceptions were raised that prevent knowledge of the merits of the case.

III – REFORM OF THE DECISION

III.1. Factual Matters

Taking into account the positions assumed by the parties and the documentary evidence attached to the case, the following facts are considered, with relevance for the examination and decision of the issues raised:

a) The Applicants are real estate companies whose corporate purpose includes the purchase, sale and lease of real property;

b) Being, within the scope of their activity, owners of various properties;

c) They were notified by the AT of AIMI assessments, for the year 2017, with nos. 2017..., 2017... and 2017...;

d) Such assessments relate to urban properties intended for housing and two lands for construction, one intended for housing and the other, registered in the urban property register under article ..., of the parish of ..., Cascais, intended for "commerce", having been valued as such;

e) The assessed taxes were paid on 18 and 27 September 2017.

Substantiation of the factual matter:

The factual matter given as proven is based on the critical examination of the documentary evidence presented and not contested, which is hereby reproduced, as well as of the administrative case attached to the file.

There are no other facts with relevance for the examination of the merits of the case that have not been proven.

III.2. Matter of Law

In accordance with the original arbitral decision, the request for arbitral pronouncement was judged to have merit and, as a consequence, the illegality of the assessment acts of the additional municipal property tax with nos. 2017..., 2017... and 2017..., relating to the year 2017 was declared and, consequently, the Tax and Customs Authority was ordered to reimburse the amount of tax paid.

Such decision was based, in particular, on the understanding contained in the judgment of the Constitutional Court no. 250/2017, of 24-05-2017, which, for the purposes of Stamp Tax, considered that item 28.1 of the TGIS materialized a violation of tax equality when applied indiscriminately to taxpayers with and without the necessary contributory strength, specifically to owners of lands for construction, an understanding which we then considered extensible to AIMI.

What happened is that the judgment of the same Constitutional Court of 29-05-2019, which determines the reform of the arbitral decision, rendered following the filing of an appeal, was decided:

– Not to judge unconstitutional the norm extractable from article 135º-B, nos. 1 and 2 of the Municipal Property Tax Code, added by article 219º of Law no. 42/2016, of 28.2, in the segment in which it subjects to taxation in the additional municipal property tax (AIMI) the ownership of properties intended for housing and of lands for construction for properties intended for housing, belonging to companies that have as their purpose the commercialization of real estate.

Thus, in compliance with the provisions of article 2º of Law no. 28/82, of 15-11, the decision previously rendered is reformed since, with the Constitutional Court having decided with binding force in the present case, it must be concluded that the disputed assessments, which applied the provisions of no. 2 of article 135º-B of the Municipal Property Tax Code to land for construction held by a real estate company, do not suffer from the defects that the Applicants claim.

Add that, given the wording of article 135º-B of CIMI, excluded from the incidence of AIMI are "the urban properties classified as "commercial, industrial or for services" and "other" in accordance with paragraphs b) and d) of no. 1 of article 6º (...)" of the Municipal Property Tax Code (CIMI), whereby only urban properties intended for residential purposes and lands for construction, as defined in that article 6º, are covered.

In the case submitted for examination, lands for construction are at issue, whereby it is unquestionable that they are included in the objective incidence of the tax, since, at least in the literal wording of the law, we are not within the scope of its exclusion.

The literality of articles 135º-A, no. 1 and 135º-B, nos. 1 and 2 of CIMI is clear and does not appear to lend itself to interpretive doubts.

The Constitutional Court has recently understood, similarly to what occurs with the decision which is now being complied with, that there is no judgment of unconstitutionality regarding its application to lands for construction, even if affected by real estate activities.

In compliance with what was decided by the Constitutional Court, it is concluded that no unconstitutionality occurs, with the disputed assessment acts meriting no censure.

IV. DECISION

In these terms, this Arbitral Tribunal decides:

a) To judge the arbitral request filed totally without merit, absolving the Respondent of all requests.

b) To condemn the Applicant in the costs of the case.

V. VALUE OF THE CASE

The value of the case is fixed at €13,613.39, in accordance with article 97º-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of no. 1 of article 29º of the Legal Framework of Tax Arbitration and no. 2 of article 3º of the Regulation of Costs in Tax Arbitration Proceedings.

VI. COSTS

The value of the arbitration fee is fixed at €918.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, in accordance with articles 12º, no. 2, and 22º, no. 4, both of the Legal Framework of Tax Arbitration, and article 4º, no. 4, of the cited Regulation.

Lisbon, 20 July 2019

The Arbitrator

(António Alberto Franco)

ARBITRAL DECISION

I – REPORT

  1. A…, SA, with the tax identification number … and with registered office at …, no.…, Lisbon, B…, SA, with the tax identification number … and with registered office at Avenue …, no.…, …, Lisbon and C…, SA, with the tax identification number … and with registered office at Avenue …, no.…, …, Lisbon, presented, on 27-12-2017, a request for constitution of the arbitral tribunal, in accordance with articles 2º and 10º of Decree-Law no. 10/2011, of 20 January (Legal Framework of Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with article 102º of the Code of Tax Procedure and Process (CPPT), in which the Tax and Customs Authority is requested (hereinafter referred to only as Respondent, or ATA).

  2. The applicant intends, with its request, the declaration of illegality of the tax acts assessing the Additional Municipal Property Tax – AIMI – with nos. 2017…, 2017… and 2017…, with reference to the year 2017, with the consequent reimbursement of the tax paid, as well as the recognition of the right to compensatory interest.

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

3.1. The applicant did not proceed to appoint an arbitrator, whereby, under the provisions of paragraph a) of no. 2 of article 6º and paragraph b) of no. 1 of article 11º of the RJAT, the President of the Deontological Council appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the deadline.

3.2. On 14-02-2018 the parties were notified of the appointment of the arbitrators, with no objection having been raised.

3.3. In accordance with the provisions of paragraph c) of no. 1 of article 11º of the RJAT, the collective arbitral tribunal was constituted on 06-03-2018.

3.4. In these terms, the Arbitral Tribunal is regularly constituted to examine and decide the subject matter of the case.

  1. To support the request for arbitral pronouncement, the applicant alleges, in summary, the following:

The Applicants are real estate companies whose corporate purpose includes the purchase, sale and lease of real property, holding for this purpose a vast real estate portfolio.

The creation of AIMI aimed to require a greater tax effort from taxpayers who, allegedly, reveal higher indices of wealth, thus configuring itself as a tribute of a personal nature that affects urban real estate wealth. Assuming a progressive character, AIMI affects wealth materialized in the right of ownership, usufruct or surface rights over "certain" urban properties, located in Portuguese territory.

It results, by exclusion, from the wording of art. 135º-B of CIMI that only urban properties intended for residential purposes and lands for construction, as defined in article 6º of the Municipal Property Tax Code, are subsumed under the taxation rules of this Additional Tax.

The AIMI assessments under analysis suffer from a defect of violation of law, due to errors in the factual and legal presuppositions and, as such, they should be annulled with all legal effects.

The legislator aimed to ensure that urban properties affected by economic activities would not be subject to AIMI taxation, recognizing that the mere holding of such property does not constitute (and cannot constitute) a factor demonstrating wealth, nor a sufficient indicator of the contributory capacity of the holders of such property. In these terms, it is evident that the legislative intent underlying the rule of exclusion of objective incidence, enshrined in no. 2 of article 135º-B of the Municipal Property Tax Code, was based essentially on the intention of not imposing an additional fiscal burden on taxpayers who, by force of their economic activities, hold property for the pursuit of their corporate purpose.

The Applicants cannot accept – or understand – that the AT, through the assessment acts now disputed, has considered, in determining the tax asset values subject to AIMI, "lands for construction" whose potential use coincides with "commercial, industrial or services" purposes.

Given that the corporate purpose of the Applicants is limited to carrying out operations related to the lucrative operation of real property – e.g. activities of purchase, sale, construction, lease, etc. – the holding of property assumes an instrumental function in the pursuit of the economic activity of these companies, i.e., such properties are necessary or essential to the carrying out of their corporate purpose.

In fact, the holding of this type of property constitutes the substratum of all the activity of real estate companies. Wherefore, in view of this relationship of dependence – ownership of the property right over these assets versus the maintenance of economic activity – it can never be presumed that the portfolio of properties held by these entities is demonstrative of wealth or an indicator of their contributory capacity to be considered for AIMI taxation purposes.

In instituting AIMI, the legislator intended to create an effective tax on real estate wealth. In these terms, it is evident that the legislative intent underlying the rule of exclusion enshrined in no. 2 of article 135º-B of the Municipal Property Tax Code was based on the intention of not imposing an additional fiscal burden on taxpayers who, by force of their economic activity, hold property for the pursuit of their corporate purpose. Indeed, the properties constitute true elements of the productive process of the activity of the Applicants, whether as rental properties or as true inventories intended for future transformation, intended exclusively for the pursuit of their respective activity and can never be compared with elements demonstrating their wealth. Wherefore, the holding of those properties represents, in truth, the substratum of all the activity of the Applicants – it is inherent, necessary, indispensable to the pursuit of the same.

Thus, it is evident that AIMI – as provided in articles 135º-A et seq. of the Municipal Property Tax Code – can never affect the properties held by the Applicants within the scope of their respective activities, since the underlying principles of taxation under analysis are not verified. Taxing these properties would mean directly taxing an "economic activity" – something that the legislator expressly intended to avoid when creating AIMI.

Furthermore, the AT counted, for the purposes of determining the taxable value of this tax, the asset value of a "land for construction" intended for the construction of properties intended for those purposes – which cannot be accepted.

In instituting AIMI, the legislator intended to tax only properties – already built properties and lands – for residential purposes. Such intention results from the wording of the law and, moreover, was at the genesis of the creation of this additional tax. To understand that "lands for construction" intended, according to their respective property records, for purposes of "commerce, industry, services" or "other", are subject to AIMI – as has been understood by the AT – is manifestly contrary to the spirit of the law and, moreover, illegal. Indeed, the subjection of these "lands for construction" to AIMI provokes a greater tax burden on this type of urban property and, consequently, will not fail to have an impact on the economic activities that will potentially be developed on these properties.

Furthermore, the taxation methodology adopted by the AT, in the sense of including in the taxable value for AIMI purposes the taxpayers holding "lands for construction" with the purposes identified by no. 2 of article 135º-B of the Municipal Property Tax Code, constitutes a discriminatory treatment that violates, plainly, the principle of equality, constitutionally enshrined in articles 13º and 104º, no. 3, of the Constitution of the Portuguese Republic ("CRP") and in articles 5º and 55º of the General Tax Law ("LGT").

As a subsidiary matter, and without prejudice to what was expounded above, it is important to note that the taxation regime of AIMI is contrary to the fundamental principle of equality, enshrined in article 13º of the CRP and, in parallel, contrary to the principle of tax equality and contributory capacity enshrined in article 104º, no. 3 of the same diploma.

In the application of AIMI to the real estate portfolio held by those entities – as occurs with the Applicant companies – the essential prerequisite of taxation is not verified, i.e., the prerequisite that the ownership of those properties constitutes an indication of increased contributory capacity or wealth. The application of AIMI to properties held by these entities penalizes in an unjustifiably aggravated manner this sector of activity, to the detriment of the others. The entities of this sector would thus assume an additional burden in relation to the generality of companies, based on a "hypothetical index of contributory capacity" that has no correspondence with reality.

Notwithstanding that they are structurally distinct, the truth is that it becomes inevitable to note the all too evident similarities between the revoked item 28 of the TGIS and the legal regime of AIMI, so that the constitutionality issues raised within the scope of item 28.1 of the TGIS will not have been eliminated with its repeal, with the same now being arguable in respect of AIMI. Similarly to what occurred with item 28 of the TGIS, the legislator confused manifestations of wealth with factors of production of that wealth, by promoting blind taxation in AIMI, not only in the sphere of taxpayers who present economic robustness to support the tax burden of this additional tax – because they are actually holders of superior economic capacity – but also in the sphere of entities whose holding of properties constitutes a means to the pursuit and sustenance of their economic activities – as occurs in the case of the Applicants.

In fact, the imposition of this taxation has no relationship whatsoever with the real income from the activity carried out by these entities – at the limit, burdening them even if they have negative results.

Conclude, therefore, the Applicants that the assessments subject to the arbitral request are illegal.

  1. The Tax and Customs Authority presented a response, invoking in summary, the following:

As follows from ARTICLE 135º-b of CIMI, AIMI applies to properties classified as residential and as lands for construction — regardless of their potential use (given that the law refers, simply, to article 6º of the Municipal Property Tax Code) – insofar as they do not expressly appear in the norm of negative delimitation of incidence.

With regard to AIMI applicable to urban properties of which are owners, usufructuaries or surface rights holders legal entities and equivalent structures (no. 2 of art. 135º-A of CIMI), the tax assumes the nature of a real tax, insofar as the modeling of the amount to be paid abstracts from the economic dimension of the entities, specifically the qualification as a small, medium or large enterprise, as well as does not affect the totality of the net assets of the entities.

Thus, the Applicants are not correct when they characterize AIMI "as a tribute of a personal nature that affects urban real estate wealth", for, as a matter of conceptual rigor, it is important to say that we are not dealing with a personal tax, in line with the construction of doctrine.

The legislator excluded from incidence urban properties classified as "industrial, commercial or services" and "other", but expressly chose to maintain other properties that also form part of companies' assets, such as those classified as residential or lands for construction, by not including them in the negative delimitation enshrined. That is, it did not guarantee in all cases that "urban properties affected by economic activities would not be subject to AIMI taxation", contrary to what is said by the Applicants.

The wording of the law does not permit the Applicants to impute to the AT an error in its interpretation, for, contrary to what they claim, the wording given to the cited legal provision shows that the legislator chose to formulate the restriction taking into account the classification of the properties, with nothing in the wording of the law indicating that such exclusion could be expanded, specifically extended to the other properties not included therein when they are the substratum of a specific economic activity of the tax subject.

The Applicants seek an abrogative interpretation of the norm, introducing into it a meaning that was not enshrined by the legislator in the wording of the law, even if only in an imperfectly expressed manner, thus expanding the scope of the exclusion from taxation to encompass all the properties held by them.

In the delimitation of real incidence it is clear 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 verifications of the actual purpose given to the properties. Indeed, the different valuation and taxation of a property with residential use as against a property intended for commerce, industry or services results from the different aptness of the properties in question, which supports the different treatment given by the legislator who, for economic and social reasons, decided, within the scope of its conforming freedom, to exclude from the incidence of the tax properties intended for purposes other than residential.

It is, therefore, unequivocal that we are dealing with a norm of objective incidence of a general and abstract character, applicable uniformly to all cases in which the respective factual and legal presuppositions are met, and the tax under examination does not aim at generic taxation of assets. What is at issue is only a partial tax on certain manifestations of contributory capacity. That is, the legislator defined a specific economic prerequisite (constitutionally valid as is explained below) to achieve the goal of taxation of realities particularly revealing wealth and thus legitimate a complementary contribution to budgetary consolidation.

Even though the taxed properties may be considered the substratum of the activity of the Applicants, this does not, however, permit the conclusion that we are dealing with assets devoid of value, for they are assets with market value and intrinsic economic value that derives from different factors, such as location, constructive aptness (in the case of lands for construction) and even their tendency towards scarcity. Differently, the properties excluded from subjection to AIMI, in terms of no. 2 of art. 135º-B of CIMI, are those that perform an instrumental function to industrial, commercial or services economic activities, insofar as they constitute buildings that serve as support for the operation of such activities, and are not themselves generators of income.

Nor are the Applicants correct as to the fact that the AT has improperly assessed AIMI on all lands for construction, even if the potential use is for commerce, industry or service.

On the date of AIMI taxation of lands for construction, account should only be taken of the actual reality of the land, as it is legally characterized, and taking into account the tax asset value shown in the property register, not a future building, with the consequent type of urban property that may subsequently arise, including autonomous units or floors susceptible to independent use that may eventually exist, which are truly mere virtual abstractions of situations not established either legally or factually.

Nor does the legislative intent of the exclusion from taxation provided for in article 135º-B, no. 2 of the Municipal Property Tax Code have the scope intended by the Applicants, for the criterion, objective – as was seen – chosen by the legislator, was the classification of urban properties as industrial, commercial or for services and other – chosen precisely to the detriment of others that would appeal to case-by-case verifications of the actual purpose given to the properties, as defended by the Applicant.

The Law being the normative standard that governs its action, it does not fall to the Administration, as is obvious, to issue judgments of constitutionality on norms, as it is not enabled to do so, contrary to what occurs with the Courts. Thus, the Administration is subject to law and to law and its organs and agents should be the first to comply with it; consequently, it cannot be required to pronounce on the options of the legislator, for these, after being set down in law, are the normative discipline within which it exercises its attributions in the pursuit of the public interest. That is, bound by the principle of legality, the AT cannot, by force thereof, waive the application of norms based on the interpretation it makes as to their unconstitutionality.

On the other hand, the principle of equality requires that what is necessarily equal be treated equally and what is essentially different be treated differently, but does not, however, prevent differential treatment, but only arbitrary, unreasonable discriminations, i.e., distinctions in treatment that have no justification and sufficient material foundation.

From the teleology of the tax it appears that it aims, in the first instance, to affect a portion of the assets of the tax subjects, affecting real properties constituting a portfolio, legally recognizable as capital of a given entity (singular or collective), regardless of whether it is affected by any productive process or generator of income - it is believed to be the purpose of no. 1 of article 135º-B of the Municipal Property Tax Code.

It is unequivocal that we are dealing with a norm of objective incidence of a general and abstract character, applicable uniformly to all cases in which the respective factual and legal presuppositions are met. What is at issue is only a partial tax on certain manifestations of contributory capacity. That is, the legislator defined a specific economic prerequisite constitutionally valid to achieve the goal of taxation of realities particularly revealing wealth and thus legitimate a complementary contribution to budgetary consolidation. Thus, given that what is at issue is the provision of partial taxation of the total assets of the taxpayers, it is held that it is not normatively adequate to proceed to a comparison between the overall value of the assets of other taxpayers.

Contrary to what the Applicants claim, it is understood that it is not possible to configure the unconstitutionality of a tax norm based simply on the fact that it has a significant influence on the economic decisions of the taxpayers, given that, by nature, that is a typical effect of tax rules. Being that there is no significant influence on the holding of properties by real estate companies, given that AIMI does not have general scope, but has its scope of application limited to urban properties located in Portugal regardless of the nature of the owner, usufructuary or surface rights holder.

It will not, therefore, be the circumstance that other taxpayers holding identically valuable real estate assets are exempt from the tax that will justify a specific constitutional censure of the norm under examination.

The allegation that in the case of the Applicants, the properties are true elements of their productive process, that is, means for the exercise of their activity and not manifestations of contributory capacity, is nothing more than a fallacy, for the properties, including lands for construction, at issue here are goods in an economic sense, because their utility and scarcity allows them to be assigned a market price, whose appreciation contributes to the profitability of the invested capital.

Furthermore, AIMI is a deductible expense, influencing negatively the taxable profit of the year, or deductible from the corporate income tax collection, when revenues generated by properties, subject to it, are included in the taxable matter within the scope of rental or hospitality activity, as follows from nos. 1 and 2 of art. 135º-J CIMI.

Nor are the Applicants correct as to the fact that AIMI applies to all lands for construction, even if the potential use is for commerce, industry or service, claiming this implies a violation of the principle of equality.

It is neither relevant nor in accordance with the principle of equality to make relevant, for the purposes of a judgment of constitutional compliance of AIMI, the eventual component of the future construction concerned in the land for construction, given that the only tax asset value shown in the property register in terms of the Municipal Property Tax Code on which annual AIMI taxation affects is the tax asset value of the land for construction itself existing and not that of those units still non-existent, whose tax asset value will only arise when, after construction, a urban property intended for services, industry or commerce is encountered and not already a land for construction.

There is no question here of any possibility of judging the unconstitutionality of AIMI based on the violation of the principle of equality departing from premises that are based on a comparison between incomparable situations, i.e., on the one hand what is factual, on the other mere judgments of prognosis, virtual abstractions and speculations about situations not established and that may never come to be.

Concludes the respondent for the legality of the assessment acts contested by the applicant, which should thus be maintained, sustaining that, in any circumstance, compensatory interest cannot be required.

  1. By order of 28-05-2018, the meeting provided for in article 18º of the RJAT was dispensed with, as well as, with the consent of the parties, the presentation of arguments.

II – EXAMINATION

8.1. The tribunal is competent and regularly constituted.

8.2. The parties have legal personality and capacity, are legitimate and are regularly represented (articles 4º and 10º, no. 2, of the RJAT and article 1º of Ordinance no. 112-A/2011, of 22 March), with the coalition of applicants requested being admitted, as what is at issue is the examination of the same circumstances of fact and the interpretation and application of the same principles or rules of law (art. 3º, no. 1 of the RJAT).

8.3. The case does not suffer from nullities.

8.4. The cumulation of requests is legal, given the same art. 3º, no. 1.

8.4. No exceptions were raised that prevent knowledge of the merits of the case.

III – FACTUAL AND LEGAL MATTERS

III.1. Factual Matters

Taking into account the positions assumed by the parties and the documentary evidence attached to the case, the following facts are considered, with relevance for the examination and decision of the issues raised:

f) The Applicants are real estate companies whose corporate purpose includes the purchase, sale and lease of real property;

g) Being, within the scope of their activity, owners of various properties;

h) They were notified by the AT of AIMI assessments, for the year 2017, with nos. 2017…, 2017… and 2017…;

i) Such assessments relate to urban properties intended for housing and two lands for construction, one intended for housing and the other, registered in the urban property register under article…, of the parish of …, Cascais, intended for "commerce", having been valued as such;

j) The assessed taxes were paid by the Applicant on 18 and 27 September 2017.

Substantiation of the factual matter:

The factual matter given as proven is based on the critical examination of the documentary evidence presented and not contested, which is hereby reproduced, as well as of the administrative case attached to the file.

9.3. There are no other facts with relevance for the examination of the merits of the case that have not been proven.

III.2. Matter of Law

As results from the arbitral request, the Applicants manifest their disagreement with the disputed assessment acts, on the understanding that AIMI, instituted by art. 135º-B of the Municipal Property Tax Code, translates into a tax on real estate wealth, whereby properties affected by an economic activity, and which are held for its pursuit, would not be subject to it: In any case, they maintain that lands for construction that are intended for the construction of buildings intended for commercial, industrial or services purposes can never be subject to AIMI. Subsidiarily they defend that the taxation in AIMI of lands for construction intended for those purposes – commerce, industry, services or other – constitutes discriminatory treatment, devoid of legal basis, generating disproportionate and inadequate differentiations, which configures its unconstitutionality.

Let us then see:

Having regard to the provisions of art. 124º of CPPT, when it determines that the judge should know of the defects whose merit determines more effective protection of the defended interests, thus we will analyze the defects and arguments invoked by the Applicant.

TAXATION IN AIMI OF LANDS FOR CONSTRUCTION

Law 42/2016, of 28 December added to CIMI, among others, art. 135º-A which establishes: "are passive subjects of the additional municipal property tax natural or legal persons who are owners, usufructuaries or surface rights holders of urban properties located in Portuguese territory".

In turn, the following article – 135º-B – determines:

"1 that "the additional municipal property tax affects the sum of the tax asset values of urban properties located in Portuguese territory of which the passive subject is the holder.

2 – Are excluded from the additional municipal property tax the urban properties classified as "commercial, industrial or for services" and "other" in accordance with paragraphs b) and d) of no. 1 of article 6º of this Code".

Based on this wording, the Applicants defend that it cannot be relevant for AIMI purposes the taxable value of lands for construction that do not have as their destination the construction of non-residential properties, under penalty of absolute incoherence with the legislative option to exclude from AIMI subjection urban properties that, likewise, do not have housing as their destination.

Now, indeed, we understand that it would be inconsistent with the necessary and intended unity of the legal system to interpret such an article differently, in the sense that every land for construction would be subject to AIMI, regardless of the purpose for which it is intended. It would, moreover, be absolutely contrary to the spirit of the legislator that, for purposes of application of that tax, the interpreter would abstract from the purpose for which the land for construction is intended, making it therefore irrelevant whether housing is involved – the only one to which built properties are subject – or not.

It is known that, in accordance with the provisions of art. 9º of the Civil Code, interpretation should not be limited to the letter of the law, but reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, which has full application in fiscal norms, as determined by no. 1 of art. 11º of the LGT.

In compliance with such dictates, it is manifest that the exclusion provided for in no. 2 of art. 135º-B of CIMI relating to urban properties classified as commercial should be interpreted "in an extensive manner" to include in that exclusion, the legislator's intention, also lands whose construction is intended for the same purpose.

Now, of the lands subject to AIMI taxation subject to this arbitral request, there is one – registered in the urban property register under article…, of the parish of …, Cascais – which corresponds to land for construction intended for "commerce", having been valued as such.

From the above it follows, therefore, that the assessment concerning the land for construction registered in the urban property register under article …, of the parish of …, Cascais, is illegal and should therefore be annulled.

OF THE UNCONSTITUTIONALITY OF AIMI

It is established that the Applicants are real estate companies whose corporate purpose includes the purchase, sale and lease of real property.

The Applicants invoke that it will violate the principle of equality, in the aspect of contributory capacity, art. 135º-A of CIMI by making an indiscriminate taxation of all lands for construction, understanding that all lands for construction affected by economic activities are necessarily excluded from such taxation.

Which is rejected by the Respondent, sustaining that the judgment of unconstitutionality of AIMI based on the violation of the principle of equality departs from premises that are based on a comparison between incomparable situations.

We hold as established that the freedom enjoyed by the legislator requires that the principle of contributory capacity has some flexibility and may yield, up to a certain limit, before other purposes of the State.

Hence, when a situation apparently or tendentially equal is treated in an apparently different manner, one can only speak of tax inequality if there are no compelling reasons that have led the legislator to make the options it did. That is, what is constitutionally forbidden to the legislator is pure arbitrariness, which will not occur when it has in view the pursuit of objectives to which it attributes greater value – as is the paradigmatic case of tax benefits, in which the legislator prefers to forego tax revenue to achieve other objectives.

It is, moreover, within that spirit that the legislator, as far as the case is concerned, only intends to tax properties classified as residential, refraining from making AIMI affect the others. That is, it took a measure of distinction of what is unequal, making a choice whose justification seems clear: not to increase the tax burden on the productive sectors, viewing the much-vaunted needs for investment and economic growth.

We will say, on the other hand, that properties intended for housing constitute goods of enjoyment, and it can be said that their accumulation or high value will reveal a greater index of fortune and, as such, of greater contributory capacity.

Wherefore, even if the revealed contributory capacity may be equal, no violation of the principle of equality is envisioned, given the reasonableness of the distinction and the purposes sought.

Defend, however, the Applicants the circumstance that the properties in question form an integral part of their commercial activity for being that their corporate purpose, whereby it lacks foundation and, on the contrary, would violate the principle of equality, to make AIMI affect such properties, by comparison with other entities, non-real estate, owners of properties.

Invokes, moreover, the similarity of the legal regime with that of the revoked item 28 of the General Stamp Tax Table and of the judicial and arbitral decisions on the matter existing.

On this point it appears to us that the Applicants are right, in accordance with the position which, regarding the aforementioned item 8 of the TGIS, we subscribed to already in case no. 458/2016-T.

There the appeal was made to the arbitral tribunal judgment rendered on 17 March 2016 in case no. 507/2015-T, when it considered that:

  • "It is unequivocal that companies dedicated to the commercialization of lands for construction are subject to an additional significant burden in relation to the generality of companies, based on a hypothetical index of contributory capacity that does not necessarily correspond to reality, since the imposition of taxation has no relationship whatsoever with the real income from the activity carried out by companies and burdens them even if they have negative results, with the taxation being accentuated, cumulated annually, precisely in situations where, due to lack of success of the commercialization activity, the lands are held for several years and, therefore, there would be less justification for the imposition of an additional tax, exclusive to this type of company.

On the other hand, no reason is envisioned to distinguish between companies that commercialize lands for construction of residential buildings and those that commercialize lands for other purposes.

For that reason, also from this perspective, item 28.1 of the TGIS materializes an unjustified negative discrimination of the land commercialization companies, which implies its unconstitutionality in substantive terms, for violation of the principle of equality".

We envisage no reason to alter the understanding that we now subscribe to in the context of AIMI.

As indeed came to be considered in the Judgment of the Constitutional Court no. 250/2017, of 24-05-2017:

  • "if behind the tax imposed on the owner of a residential home with tax asset value exceeding one million euros there may be a taxpayer with sufficient economic strength to support the respective tax burden, behind the tax imposed on the owner of a land for construction there will normally be an entrepreneur, as a rule in the form of a commercial company dedicated to real estate promotion, about whose economic strength we know nothing;

  • we cannot presume that that taxpayer has an economic strength proportional to the value of the land, which is merely instrumental in relation to its economic activity. We are unaware of what profit margin it will derive from its exercise, if it is even in legal and economic conditions to develop it, or if it does not even have a negative net situation".

Concluding then that what is at issue is a violation of the principle of tax equality "…because it does not respect the different contributory capacity of the owners of the properties on which it affects, hitting indiscriminately taxpayers with and without the contributory strength necessary to support the tax, both because the differentiations it introduces between those who are included and excluded from its scope of incidence are not proportional, being inadequate to satisfy the purpose sought by the norm, which is to tax in an aggravated manner real estate assets of greater value in terms that satisfy "the principle of social equity in austerity".

It follows from the above that the Applicant's claim should succeed, declaring the illegality of the remaining assessments and their annulment.

Thus, the examination of the other issues raised is prejudiced.

OF COMPENSATORY INTEREST

In addition to the reimbursement of the tax, the Applicants claim that the right to the payment of compensatory interest be declared.

Such right is enshrined in article 43º of the LGT, which has as its presupposition that it be determined, in gracious reclamation or judicial impugnation - or in tax arbitration – that there was error attributable to the services from which results the payment of the debt in an amount exceeding that legally due.

The recognition of the right to compensatory interest in the arbitral case results from the provisions of article 24º, no. 5 of the RJAT, when it stipulates that "the payment of interest is due, regardless of its nature, in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process".

What happens is that, in the case at hand, the requisites for the award of compensatory interest are not met, as the Respondent rightly defends.

It is true that the AT performed an act which the arbitral tribunal now decides to be illegal.

But, for the Tax Administration to be condemned to the payment of compensatory interest, it is necessary, as was mentioned, that "it be determined [...] that there was error attributable to the services from which results the payment of the tax debt in an amount exceeding that legally due" (no. 1 of article 43º of the LGT).

In this case, the AT did no more than act according to the legal determination resulting from CIMI. And it could not act otherwise, considering its binding to law and the impossibility of waiving it based on a judgment of the supremacy of constitutional law, which does not fall to it to make. In sum, it did not incur in error from which the payment of undue tax resulted, and cannot, in the absence of such error, be condemned to the payment of compensatory interest.

Therefore, the request for condemnation of the Respondent to the payment of compensatory interest is doomed to fail.

IV. DECISION

In these terms, this Arbitral Tribunal decides:

c) To judge the arbitral request filed as having merit and, as a consequence, declare the illegality of the assessment acts of the additional municipal property tax with nos. 2017 …, 2017 … and 2017 …, relating to the year 2017 and, consequently, condemn the Tax and Customs Authority to reimburse the amount of tax paid.

d) To judge the request for payment of compensatory interest as without merit.

e) To condemn the Respondent and the Applicants in the costs of the case, in the proportion of their respective default, that is, of €873.00 and €45.00, respectively.

V. VALUE OF THE CASE

The value of the case is fixed at €13,613.39, in accordance with article 97º-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of no. 1 of article 29º of the Legal Framework of Tax Arbitration and no. 2 of article 3º of the Regulation of Costs in Tax Arbitration Proceedings.

VI. COSTS

The value of the arbitration fee is fixed at €918.00, in accordance with Table I of the Regulation of Costs of Tax Arbitration Proceedings, in accordance with articles 12º, no. 2, and 22º, no. 4, both of the Legal Framework of Tax Arbitration, and article 4º, no. 4, of the cited Regulation.

Notify, including the Public Prosecutor's Office, given the provisions of article 280º, no. 3, of the Constitution of the Portuguese Republic.

Lisbon, 04 July 2018

The Arbitrator

(António Alberto Franco)

Frequently Asked Questions

Automatically Created

What is AIMI (Adicional ao Imposto Municipal sobre Imóveis) and how does it apply to construction land in Portugal?
AIMI (Adicional ao Imposto Municipal sobre Imóveis) is an Additional Municipal Property Tax introduced in Portugal as a progressive wealth tax targeting urban real estate. It applies to the ownership, usufruct, or surface rights over urban properties located in Portuguese territory. Regarding construction land (terrenos para construção), Article 135º-B of the Municipal Property Tax Code establishes that AIMI generally applies to urban properties for residential purposes and construction land as defined in Article 6º of the Code. However, properties allocated to economic activities are excluded under Article 135º-B(2). The controversy arises when construction land is designated for commercial, industrial, or services purposes rather than residential use, with taxpayers arguing such land should be excluded from AIMI's scope as it supports economic activity rather than representing personal wealth.
Can real estate companies challenge AIMI tax assessments through CAAD arbitration proceedings?
Yes, real estate companies can challenge AIMI tax assessments through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings. As demonstrated in this case, three real estate companies (A..., SA, B..., SA, and C..., SA) filed a request for constitution of an arbitral tribunal on December 27, 2017, under Articles 2 and 10 of Decree-Law 10/2011 (RJAT - Legal Framework of Arbitration in Tax Matters) in conjunction with Article 102 of the CPPT (Code of Tax Procedure and Process). The arbitration process allows taxpayers to contest the legality of tax assessments, seek declaration of illegality, obtain reimbursement of taxes paid, and claim compensatory interest. The CAAD system provides an alternative dispute resolution mechanism to administrative courts for resolving tax disputes, with decisions subject to potential Constitutional Court review as occurred in this case.
What was the Constitutional Court's role in reforming the CAAD arbitral decision 919/18 on AIMI legality?
The Constitutional Court's role in case 919/18 was to review the original CAAD arbitral decision dated July 4, 2018, and order its reform (modification). On May 29, 2019, the Constitutional Court delivered a judgment that became final, determining that the arbitral decision required reformation. This demonstrates the Constitutional Court's appellate jurisdiction over CAAD arbitral decisions when constitutional issues are raised. The Court's intervention reflects Portugal's hierarchical judicial system where arbitral tax decisions can be appealed on constitutional grounds. Following the Constitutional Court's ruling, the arbitral tribunal was obligated to issue a reformed decision addressing the constitutional concerns identified. This case illustrates how CAAD arbitration, while providing an alternative to traditional litigation, remains subject to constitutional oversight, ensuring that tax dispute resolutions comply with constitutional principles and fundamental rights. The reform mechanism ensures legal coherence between arbitral tax decisions and constitutional jurisprudence.
Are terrenos para construção (construction land) subject to the Additional Municipal Property Tax (AIMI) under Portuguese tax law?
Under Portuguese tax law, terrenos para construção (construction land) are generally included within AIMI's objective scope according to Article 135º-B of the Municipal Property Tax Code (CIMI). However, significant exceptions apply. The law establishes that AIMI targets urban properties for residential purposes and construction land, but excludes properties 'allocated to economic activities' under Article 135º-B(2). The central dispute concerns whether construction land designated for commercial, industrial, or services purposes constitutes taxable property under AIMI. Real estate companies argue that when construction land is zoned for non-residential purposes and held as business inventory essential to their corporate activities (buying, selling, developing property), it should be excluded as property allocated to economic activity. The Tax Authority has taken the position that such land remains subject to AIMI. The controversy reflects ambiguity in determining whether the 'economic activity' exemption applies based on the land's potential future use, its current classification in property records, or its functional role in the taxpayer's business operations.
What are the grounds for requesting a reform of an arbitral tax decision following a Constitutional Court ruling in Portugal?
In Portugal, requesting reform of an arbitral tax decision following a Constitutional Court ruling requires specific procedural grounds established by the RJAT (Legal Framework of Arbitration in Tax Matters) and constitutional law. As demonstrated in this case, when the Constitutional Court delivers a judgment determining that an arbitral decision requires reformation, the arbitral tribunal must issue a new decision addressing the constitutional concerns identified. The grounds for reform stem from the Constitutional Court's appellate jurisdiction over CAAD decisions when constitutional issues are raised through the appeal process (recurso). The Constitutional Court examines whether the arbitral decision violated constitutional principles, fundamental rights, or constitutional provisions. Once the Constitutional Court's judgment becomes final (trânsito em julgado), as occurred on May 29, 2019 in case 919/18, the arbitral tribunal is legally obligated to reform its prior decision. This reform process ensures that arbitral tax decisions align with constitutional jurisprudence and protects taxpayers' constitutional rights while maintaining the efficiency of the CAAD arbitration system.