Process: 693/2018-T

Date: July 12, 2019

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 693/2018-T) addresses whether AIMI (Additional Municipal Property Tax) applies to land licensed for construction of commercial properties. The claimant, a supermarket operator owning over 70 stores in Portugal, challenged a 2018 AIMI assessment of €21,026.02 levied on the tax property value (VPT) of nine properties. The core dispute concerns Article 135-B(2) of the IMI Code's objective scope. The claimant argued that AIMI should not apply to lands designated for commercial construction, asserting that if completed commercial buildings are exempt from AIMI, then buildings under construction for commercial purposes should likewise be excluded. The company contended that the Tax Authority's literal interpretation violates constitutional principles of tax equality, as it would paradoxically tax properties during construction while exempting them upon completion. The claimant presented evidence including use certificates showing four supermarkets were already operational before January 1, 2018, and construction licenses demonstrating the remaining properties were authorized for commercial use, not residential subdivision. The Tax Authority defended its assessment, arguing that properties classified as 'construction lands' under Article 6 of the IMI Code fall within AIMI's objective incidence regardless of their intended commercial purpose. This case highlights critical interpretative questions regarding AIMI's application to commercial real estate during construction phases and whether property classification should consider economic destination or purely technical legal status under the IMI Code's classification system.

Full Decision

ARBITRAL DECISION

I. Report

  1. A..., LDA. (NIF/NIPC ...), with registered office at Rua ..., n.º ..., ..., ..., ... ("CLAIMANT"), submitted, under paragraph a) of section 1 of article 2 and articles 10 et seq. of Decree-Law no. 10/2011, of 20 January, on 27/12/2018, a request for arbitral pronouncement on the legality of the assessment act for the Additional Municipal Property Tax (AIMI) relating to 2018, in the amount of € 21,026.02, in accordance with the assessment statement attached to the file as Doc. no. 1.

  2. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Respondent.

2.1. The Claimant did not proceed with the appointment of an arbitrator, wherefore, in accordance with the provisions of section 1 of article 6 and paragraphs a) and b) of section 1 of article 11 of the RJAT, the President of the Deontological Council of CAAD appointed the undersigned as arbitrator of the single arbitral tribunal, who communicated acceptance of the appointment within the applicable time limit.

2.2. The parties were duly notified of this appointment and did not express their wish to refuse the arbitrator's appointment, in accordance with the combined provisions of article 11, section 1, paragraphs a) and b), of the RJAT, and articles 6 and 7 of the Deontological Code.

2.3. Thus, in accordance with the provisions of paragraph c) of section 1 of article 11 of the RJAT, the Arbitral Tribunal was constituted on 7 March 2019.

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

a) The AIMI assessment in question was issued on the sum of the VPT [Tax Property Value] of 9 (which are identified in Doc. no. 1 attached) of the more than 70 supermarkets that the Claimant operates in national territory.

b) The Claimant is engaged in wholesale and retail commerce through the operation of all these supermarkets of which it is the owner (see company contract attached as Doc. no. 4).

c) The properties on whose VPT the AIMI was levied constitute, in their entirety, supermarkets already built or supermarkets whose construction is about to be completed. Indeed, four of the supermarkets on whose VPT the AIMI was levied opened to the public before 1 January 2018 (see certificates of use attached as Doc. no. 5).

d) The challenged assessment is, thus, illegal due to lack of the incidence requirement, in accordance with section 2 of article 135-B combined with section 2 of article 6 and section 1 of article 10, all of the IMI Code, since it was levied on commercial properties. But, even in the other cases, concerning A... supermarkets whose opening date is later, they constitute lands licensed or authorized for construction operations affected by commerce (see construction licenses attached as Doc. no. 6).

e) Such lands are not, nor were they at the date of the tax event, lands licensed or authorized for subdivision or construction operations affected by housing. The supermarkets under construction are intended, thus, for commerce and AIMI does not apply, nor could, therefore, apply to them.

f) The legislator evidently did not wish to tax under AIMI the holder of commercial buildings during the phase of their construction, while exempting him from AIMI with regard to his already constructed commercial buildings. It would be absurd if the legislator wanted to exempt the holder of constructed commercial buildings from AIMI if, at the same time, he understood that he wished to tax it during the construction phase of those same commercial buildings.

g) The challenged assessment penalizes the taxpayer while he employs his resources to build namely supermarkets, while exempting him as soon as, and once, the construction is finished, the property becomes able to generate wealth.

h) The Claimant is not unaware that the Tax Administration has disclosed a merely mechanical and literal subsumption of construction lands – whatever their affectation or destination – to the normative provision of article 135-B of the IMI Code. This is, however, an interpretation that underestimates the text, disregards the purpose, exceeds the sense and violates the Constitution, producing the effect that the legislator determinedly wanted to prevent.

i) If AIMI does not apply to operating stores, one cannot consider, a fortiori, that it applies to stores under construction. That is, if AIMI does not tax the VPT of constructed supermarkets, AIMI does not tax, a maiori ad minus, the VPT of supermarkets under construction.

j) Since its creation, AIMI never aimed to affect real estate property affected by commerce, industry or services, only properties not affected by any economic activity, as confirmed by the entire legislative process underlying it.

k) Being the properties in question in these proceedings real estate assets affected by a commercial activity, both in physical and economic terms, and in the terms in which the law defines them, AIMI does not apply to their ownership.

l) It is not even conceivable that the law – precisely for the purpose of preventing a negative impact on economic activity – would exclude from AIMI incidence constructed commercial buildings, but would not equally exclude from incidence commercial buildings still under construction.

m) It seriously offends the principle of tax equality, in its most elementary formulation, that equal or greater contributory capacity revealed by another taxpayer could give rise to no AIMI tax burden, merely because, by chance or fortune, through the completion of his commercial building construction, he managed to exempt himself from such burden.

n) There can be no doubt that ownership of a commercial building still under construction expresses less contributory capacity than ownership of the construction authorized or provided for therein.

o) Even if it were understood – which is not conceded – that the Tax Administration's understanding finds support in the text, purpose and meaning of the norm of section 2 of article 135-B of the IMI Code – and that this is incapable of either enunciative interpretation or interpretation in accordance with the Constitution, in the terms the Claimant proposed – one would still have to conclude for its flagrant unconstitutionality and, consequently, for the illegality of the AIMI assessment on the Claimant based on this norm.

3.1. The Claimant ends by requesting that the arbitral action be judged entirely proven and meritorious and, by that means, the AIMI assessment act of 2018 in question be declared illegal and annulled, with all legal consequences, namely the condemnation of the Tax Administration to refund to the Claimant the respective amount paid on 27 September 2018, plus the corresponding indemnity interest that accrues until the complete and effective reimbursement of the tax.

  1. The Tax and Customs Authority (hereinafter abbreviated as "Respondent" or "TA") submitted a reply, invoking, in summary, the following:

a) Article 135-B of the IMI Code expressly establishes the classification of article 6 of the same code as a factor of incidence or exclusion of properties from AIMI taxation.

b) The properties subject to AIMI taxation, contained in the assessment and above described in the assessment statement, are classified as "construction lands." Therefore, the determination of the taxable value of AIMI, contained in the assessment subject to the present request for arbitral pronouncement, was carried out in accordance with the objective incidence norms defined in the IMI Code, that is, observing the classification of article 6 of the IMI Code.

c) In the case of lands licensed or authorized for construction operations affected by commerce, which were in such state on 01-01-2017 (date of the tax event for AIMI purposes), it is not clear on what legal grounds they could be classified as properties affected by commercial purposes, instead of "construction lands." For purposes of AIMI, and unlike item 28.1 (where the Respondent attempts, in vain, to support its argument), the law does not specify that only "construction lands whose authorized or planned building is for housing" are covered by the incidence, and if the letter of the law does not distinguish, it is not up to the interpreter to do so.

d) The Claimant is mistaken in defending the thesis that construction lands on which, on 01-01-2017, construction of buildings was already underway, under a building permit prior to that date, are excluded from AIMI incidence, by constituting commercial buildings, albeit in the construction phase. Furthermore, the inference that "if AIMI does not apply to operating stores," it also does not apply to "stores under construction," has no support in the law.

e) The change in the classification of the property "construction land" after any building has already been erected on it, and the VPTs arising therefrom, at this moment, are nothing more than mere prognostic judgments, virtual abstractions and speculations about situations not established and which may never be established.

f) The thesis that construction lands are subject to AIMI taxation, even when construction of the buildings is already underway, is not invented by the TA, it follows from the law, to whose observance it is strictly bound (article 55 of the LGT), nor is it unclear how such interpretation contends with the principle of equality.

g) It is neither relevant nor in accordance with the principle of equality to give weight, for purposes of a judgment on constitutional conformity of AIMI, to the eventual component of the future building in question on the construction land, since the only VPT contained in the tax roll in accordance with the IMI Code on which annual AIMI taxation is levied is the VPT of the construction land itself, and not that of still non-existent fractions, whose VPT will only arise when, after construction, one is confronted with an urban property affected by services and no longer with a construction land.

h) AIMI establishes particular taxation on property, in accordance with real and objective taxation, in which the respective taxpayer is determined simply by the quality of being a holder of a certain real right over properties with legislatively fixed characteristics.

i) What will be built on land with an affectation other than housing cannot be brought into comparison here in terms of comparability, because such future building will always, and ultimately, depend on a choice of the owner regarding what type of building he will or will not build.

j) The properties in question were, on the date of the tax event, classified as "construction lands." The determination of the taxable value of AIMI was carried out in accordance with the objective incidence norms defined in the IMI Code.

4.1. The TA concludes by requesting that the present request for arbitral pronouncement be judged unmeritorious, as unproven, and, consequently, the Respondent be absolved of all requests, in the terms petitioned, all with the due and legal consequences.

  1. Having not raised exceptions and there being no contested matter of fact, as the issues to be decided are of law, the Arbitral Tribunal, through order of 1 July 2019, considered testimonial evidence and inspection production dispensable and waived the meeting provided for in article 18 of the RJAT, which it did under the principles of autonomy in case management and to promote celerity, simplification and informality thereof. The date of 12 July 2019 was also set for delivery of the arbitral decision.

II. Sanitation

  1. The arbitral tribunal was regularly constituted and is materially competent, as provided in articles 2, section 1, paragraph a), and 4, both of the RJAT.

  2. The parties enjoy legal personality and capacity, are legitimate and are represented (see articles 4 and 10, section 2, of the same instrument, and articles 1 to 3 of Ordinance no. 112-A/2011, of 22 March).

  3. Given the foregoing, and given that no nullities are found, knowledge of the merits of the request must be undertaken.

III. Issue to be decided

  1. In the arbitral petition, the Claimant alleges that "the proceedings [shall] proceed to the assessment of the legality and consequent annulment of the assessment that may be indicated, if it is different from that identified in the introduction" because the same is "[illegal, since in the remaining amount of the assessment] constitute lands licensed or authorized for construction operations affected by commerce." In the Claimant's view, "the legislator evidently did not wish [...] to tax under AIMI the holder of commercial buildings during the phase of their construction, while exempting him from AIMI with regard to his already constructed commercial buildings."

9.1. The Claimant considers that there was a serious violation of the principle of tax equality and further alleges that, "even if it were understood – which is not conceded – that the Tax Administration's understanding finds support in the text, purpose and meaning of the norm of section 2 of article 135-B of the IMI Code – and that this is incapable of either enunciative interpretation or interpretation in accordance with the Constitution, in the terms the Claimant proposed – one would still have to conclude for its flagrant unconstitutionality and, consequently, for the illegality of the AIMI assessment on the Claimant based on this norm."

  1. Given the foregoing, the essential issue to be decided in the present proceedings concerns the assessment of the conformity of the said act with the provisions of the IMI Code.

IV. Merits

IV.1. Matter of Fact

  1. With relevance to the assessment and decision of the merit issue, the following facts are taken as established and proven:

A. The Claimant is engaged in wholesale and retail commerce through the operation of all the supermarkets of which it is the owner (see company contract attached to the file as Doc. no. 4).

B. On 30/6/2018, AIMI 2018 was assessed, with a collection of €27,192.46 being determined. The said assessments and collection were successively revised and corrected, with the Claimant ultimately challenging the collection paid and in force on the date of the challenge, in the amount of €21,062.02 (assessment no. ...).

C. According to the Respondent, the said amount was partially annulled on 15/3/2019, with a collection amount of €16,861.50 becoming due (assessment no. ...), this being the last tax calculation operation – which is why this is the amount under review here.

D. The corrections and amendments mentioned above were due to the fact that – as also mentioned by the Respondent in its reply – "works were completed on various construction lands and, subsequently, from the declarations filed [...] [produced] their effects on the date of verification of the tax event in AIMI. Nothing prevents, therefore, the partial annulment and respective reimbursement on property that gave rise to another."

E. At the origin of the AIMI assessment in question, for the corrected amount of €16,861.50, are the Claimant's lands for (and in) construction, licensed or authorized for construction operations affected by commerce (see Docs. nos. 6, 7 and 8).

F. The Claimant filed its request for constitution of an arbitral tribunal on 27/12/2018.

IV.2. Unproven Facts

  1. There are no other facts with relevance to the assessment of the merits of the case that have not been proven.

IV.3. Justification for fixing the matter of fact

  1. The Tribunal does not have to pronounce itself on all details of the matter of fact that was alleged by the parties, with the duty incumbent upon it to select the facts that are relevant to the decision and to discriminate the matter it deems proven and declare what it considers unproven (see article 123, section 2, of the CPPT, and article 607, section 3, of the CPC, applicable ex vi article 29, section 1, paragraphs a) and e), of the RJAT).

  2. In this way, the facts pertinent to the judgment of the case are selected and shaped according to their legal relevance, which is established with regard to the various solutions for the subject matter of the dispute under applicable law (see article 596, section 1, of the CPC, applicable ex vi article 29, section 1, paragraph e), of the RJAT).

  3. The conviction of the Arbitral Tribunal was based on the free assessment of the positions assumed by the Parties (in the matter of fact) and on the content of the documents attached to the file, not contested by the Parties.

IV.4. Matter of Law

  1. The Claimant alleges in the present proceedings that "the challenged assessment [apart from cases in which the same has been levied on commercial properties completed on the date of verification of the tax event in AIMI – since, as to these, the TA will have made the due correction, as was acknowledged by the Respondent in its reply and is reflected in the reduction made in the amount to be considered here] [is] even in the other cases [illegal, since in them] constitute lands licensed or authorized for construction operations affected by commerce (see construction licenses attached as Doc. no. 6)."

  2. The Claimant bases its assertion on the understanding that "the legislator evidently did not wish to tax under AIMI the holder of commercial buildings during the phase of their construction, while exempting him from AIMI with regard to his already constructed commercial buildings." It adds, in the same sense, that "it is not even conceivable that the law – precisely for the purpose of preventing a negative impact on economic activity – would exclude from AIMI incidence constructed commercial buildings, but would not equally exclude from incidence commercial buildings still under construction."

  3. The Claimant further alleges that "it seriously offends the principle of tax equality in its most elementary formulation, that equal or greater contributory capacity revealed by another taxpayer could give rise to no AIMI tax burden, merely because, by chance or fortune, through the completion of his commercial building construction, he managed to exempt himself from such burden."

  4. Finally, the Claimant concludes that the proceedings shall "proceed to the assessment of the legality and consequent annulment of the assessment that may be indicated, if it is different from that identified in the introduction" because, "even if it were understood – which is not conceded – that the Tax Administration's understanding finds support in the text, purpose and meaning of the norm of section 2 of article 135-B of the IMI Code – and that this is incapable of either enunciative interpretation or interpretation in accordance with the Constitution, in the terms the Claimant proposed – one would still have to conclude for its flagrant unconstitutionality and, consequently, for the illegality of the AIMI assessment on the Claimant based on this norm."

  5. In its reply, the Respondent considers that "the properties subject to AIMI taxation, contained in the assessment and above described in the assessment statement, are classified as 'construction lands.' Therefore, the determination of the taxable value of AIMI, contained in the assessment subject to the present request for arbitral pronouncement, was carried out in accordance with the objective incidence norms defined in the IMI Code, that is, observing the classification of article 6 of the IMI Code."

  6. The Respondent adds that, "in the case of lands licensed or authorized for construction operations affected by commerce, which were in such state on 01-01-2017 (date of the tax event for AIMI purposes), it is not clear on what legal grounds they could be classified as properties affected by commercial purposes, instead of 'construction lands.' For purposes of AIMI, and unlike item 28.1 (where the Respondent attempts, in vain, to support its argument), the law does not specify that only 'construction lands whose authorized or planned building is for housing' are covered by the incidence, and if the letter of the law does not distinguish, it is not up to the interpreter to do so." The Respondent adds, in this regard, that, "if the building is not yet completed, it is absurd to classify, whether for tax purposes or for any other purpose, as a commercial building a work in progress, or not even yet started, albeit with authorized project."

  7. The Respondent further alleges that "the understanding that it is unconstitutional, by violation of the principles of equality and contributory capacity, the taxation of construction lands without regard to the type of property that may be built thereon [...] 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 affectation."

  8. The Respondent concludes that, "having the assessments in question been levied on the taxable value of urban properties of which the claimants are owners, classified as 'residential' or 'construction lands,' the same are made in accordance with the norms in question, in the wording given to them by Law no. 42/2016, of 28/12."

  9. Let us see, then.

  10. The essential issue that is at stake here has already been the subject of extensive analysis in arbitral proceedings. The widely prevailing understanding of CAAD's arbitral jurisprudence is that which will also be defended here, for agreeing with it, for the reasons that will be set out below.

  11. In accordance with the provisions of section 3 of article 6 of the IMI Code, "construction lands are considered those lands situated within or outside an urban agglomeration for which a license or authorization has been granted, prior communication admitted or favorable prior information issued for a subdivision or construction operation, and also those that have been so declared in the acquisition title, with the exception of lands on which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land planning plans, are affected by public spaces, infrastructure or equipment."

  12. On the other hand, it is also necessary to keep in mind what is provided by Law no. 42/2016, of 28/12 (OE for 2017), which would amend the IMI Code by adding articles 135-A to 135-K, in which the regime of the Additional Municipal Property Tax (AIMI) is contained.

  13. It is necessary to keep in mind not only the text of the articles mentioned (with emphasis, in this case, on article 135-B), but also what is contained in the Report of that Budget, to the extent that such may make it possible to understand what the ratio and scope of the introduced amendments are: "The measures to increase revenue, in addition to updating IECs and ISV by 3%, focus on the introduction of two new taxes: a progressive additional on IMI and an expansion of the IABA base to soft drinks. The two measures together represent only about 0.5% of total tax revenue. In both cases the revenue is earmarked. The earmarking of progressive property taxation to the Financial Stability Fund of Social Security corresponds to the government program's objective to expand the financing base of Social Security, while introducing a tax that falls on holders of larger real estate properties, reinforcing the overall progressivity of the system. [...]. The additional municipal property tax introduces into real estate taxation a progressive element of personal basis, taxing more heavily the larger properties, with a marginal rate of 0.3% applied to properties exceeding €600,000 per taxpayer. To prevent the impact of this tax on economic activity, rural, mixed, industrial properties and those affected by tourist activity are excluded from incidence, with companies also allowed to exempt properties affected by their productive activity up to €600,000. The possibility of deducting the amount of tax paid to the collection relating to property income constitutes additionally an incentive for the leasing and productive use of property. This tax replaces the former 1% stamp duty on the value of property above 1 million euros. With a much lower rate (0.3%) it is also more fair for taking into account the overall value of real estate property and not, individually, the value of each property." (emphasis ours).

  14. Considering the excerpt cited and, on the other hand, the fact that, in accordance with section 2 of article 135-B of the IMI Code, only "urban properties classified as 'commercial, industrial or for services' and 'other' in accordance with paragraphs b) and d) of section 1 of article 6 of this Code" can be "excluded from the additional municipal property tax" – knowing that paragraph c) of article 6 provides for "construction lands" – it becomes clear the conclusion, which we here share with, e.g., the Arbitral Decision of 23/4/2019 (proc. 559/2018-T), that "the negative delimitation of the AIMI incidence scope that would be approved does not take as its basis the activity to which urban properties are affected, but is instead defined by reference to the species listed in article 6 of the IMI Code, regardless of its affectation to business economic activity."

  15. Indeed, and as also well noted, in this regard, by the Arbitral Decision of 15/1/2019 (proc. 420/2018-T), "the wording of article 135-B of the IMI Code that was approved does not preclude AIMI incidence on real estate affected by housing and construction lands used by legal entities within their economic activity. The legislative concern to 'prevent the impact of this tax on economic activity' was announced in the Draft Law of the State Budget for 2017 and was partly concretized through the exclusion of the incidence scope of 'urban properties classified in the species "industrial," as well as urban properties licensed for tourist 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 taxpayer is a legal entity with agricultural, industrial or commercial activity, for properties directly affected by its operation.' However, it was not on the basis of the activity to which properties are affected that the exclusion of incidence was defined, since in the wording that was approved it was defined only on the basis of the types of properties indicated in article 6 of the IMI Code, without any reference to affectation to the operation of legal entities. The affectation of a property and the purpose to which it is destined, the 'normal destination,' underlying the classifications of properties, referred to in section 2 of article 6 of the IMI Code, are distinct concepts. If it had been maintained, in the final wording of the Budget, the legislative intent to prevent incidence on properties directly affected to the operation of legal entities, it would certainly have maintained the reference to this affectation that was in the proposal and that clearly expressed this legislative choice. Thus, having suppressed this reference to the affectation of properties, there is no legal basis to conclude that residential properties and construction lands affected to the activity of legal entities do not have relevance for AIMI incidence." (emphasis ours).

  16. No other conclusion can be imposed than to consider, as does abundant arbitral jurisprudence, that the affectation of real estate to the economic activities of legal entities does not preclude AIMI taxation (in the same sense here expressed and coincident with the Arbitral Decisions already cited, and with those cited below, see, e.g.: no. 678/2017-T, no. 682/2017-T, no. 683/2017-T, no. 684/2017-T, no. 690/2017-T, no. 6/2018-T, no. 310/2018-T, no. 401/2018-T, no. 502/2018-T, no. 506/2018-T, no. 517/2018-T, no. 535/2018-T and no. 574/2018-T).

  17. Note also that the interpretative issue raised by the Claimant finds minimal shelter in the legal text in question. As well noted, in this regard, by the Arbitral Decision of 16/7/2018 (proc. 676/2017-T), "the literalness of articles 135-A/1 and 135-B/1 and 2 of the IMI Code is clear and does not lend itself to any interpretative doubt. As the letter of the law, or grammatical element, is the first element to be invoked in legal hermeneutics, and as it is to be presumed that the legislator knew how to express his thought in adequate terms (section 3 of article 9 of the Civil Code), it will not be necessary to invoke other elements from among those available in the hermeneutical arsenal. Indeed, it is clear that the legislator, in defining the negative delimitation of the scope of the tax by reference to urban properties classified as 'commercial, industrial or for services' and 'other' in accordance with paragraphs b) and d) of section 1 of article 6' of the IMI Code, is precisely intending to refer to this typology of properties in accordance with its own characterization that the Code attributes to it. As was stated in the Arbitral Award delivered in process no. 664/2017-T, whose jurisprudence we now follow, for agreeing with it, 'The exclusion from the tax covers, therefore, properties classified as commercial, industrial or for services, understood as buildings or constructions licensed for such purposes or which have as their normal destination each of these purposes. It also encompasses the residual species referred to in paragraph d) of section 1 of that article 6, where lands situated within or outside an urban agglomeration that are neither construction lands nor rural properties are included, as well as buildings and constructions that do not fit into any of the preceding classifications. The scope of objective incidence, by effect of the referral to that article 6, was thus defined not only by reference to a certain species of urban properties, but also by reference to the administrative procedure through which the classification was made or, in the absence of a license, to the normal destination of these properties for commercial, industrial and service purposes or others.' It is true that the legislative concern to 'prevent the impact of this tax on economic activity' was announced in the Draft Law of the State Budget for 2017 and was partly concretized through the exclusion of the incidence scope of 'urban properties classified in the species "industrial," as well as urban properties licensed for tourist 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 taxpayer is a legal entity with agricultural, industrial or commercial activity, for properties directly affected by its operation.' However, it was not on the basis of the activity to which properties are affected that the exclusion of incidence was defined, since in the wording that was approved, as we have seen, 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 affectation or non-affectation to the operation of legal entities." (emphasis ours).

  18. Furthermore, as well noted by the Arbitral Decision of 4/5/2018 (proc. 675/2017-T), "if it had been maintained, in the final wording of the Budget, the legislative intent to prevent incidence on properties directly affected to the operation of legal entities, it would certainly have maintained the reference to this affectation that was in the proposal and that clearly expressed this legislative choice. [...] [not having been made any reference] to the affectation of properties, there is no legal basis to conclude that residential properties and construction lands affected to the operation of legal entities do not have relevance for AIMI incidence. [As referred to by Baptista Machado, in Introduction to Law and to Legitimizing Discourse, p. 182] 'In the absence of other elements that induce the choice of the less immediate sense of the text, the interpreter should opt in principle for that sense which best and most immediately corresponds to the natural meaning of the verbal expressions used, and namely to their technical-legal meaning, in the supposition (not always exact) that the legislator knew how to express his thought correctly.' In the case at hand, in view of the departure from the wording proposed in which significance was given to the affectation of properties, there is no reason to conclude that the legislator did not know how to express his thought in adequate terms, as must be presumed, by virtue of the provisions of article 9, section 3, of the Civil Code." (emphasis ours).

  19. Also in the same sense, see, again, the Arbitral Decision of 16/7/2018 (proc. 676/2017-T): "there is no reason to the [understanding according to which it should be considered] that "construction lands" affected to those [...] [economic activities] are equally included in that exclusion rule [...]. It happens that [such understanding] starts, from the outset, as has already been demonstrated, from the wrong presupposition regarding the meaning and scope of the provisions of article 135-B, section 2, of AIMI, according to which, having been the legislator's intention to subtract from taxation properties affected to economic activities, one should also consider excluded from the scope of AIMI incidence construction lands whose potential use coincides with the purposes of 'commercial, industrial or services.' The letter of the law constituting the starting point and limit of interpretation, the interpreter cannot arrive at a result that does not have in the letter of the law the minimum verbal correspondence, even if imperfectly expressed (see section 2 of article 9 of the Civil Code). This thesis, in addition to starting from a wrong presupposition (in the alleged intention of the legislator to exempt construction lands affected to economic activity), has no support in the letter of the provision. In fact, article 135-B, section 2, of the IMI Code merely excluded from the additional properties classified as 'commercial, industrial or for services' and 'other,' referring to the characterization that is effected in article 6 of that Code as to those species of urban properties. [...]. Construction lands are, as results from section 3 of article 6, lands that have been covered by a subdivision or building license operation and are not intended for other urbanistic purposes, and are not confused with properties classified as "commercial, industrial or for services," which are those that are licensed for such purposes or, in the absence of a license, have as their normal destination each of such purposes. As was stated in the Arbitral Award delivered in process no. 664/2017-T, 'Having the legislator defined an exclusion clause by express and precise reference to certain species of urban properties, which are immediately identifiable in the context of the law, it is not possible to undertake an extensive interpretation so as to include other typologies that the legislator clearly did not want to consider. It is not even possible to arrive at that interpretative result based on mere considerations of a pragmatic order or of teleological identity. Even if it were justified, from the perspective of fiscal policy, to grant construction lands intended for buildings for commercial, industrial or service purposes the same status that came to be attributed to properties classified as "commercial, industrial or for services," the fact is that this was not the legislative choice, which merely excluded from the scope of the tax these types of properties and not those others that potentially could be used for those same purposes.'" (emphasis ours).

  20. Despite what has been said so far, the Claimant defends that, "even if it were understood – which is not conceded – that the Tax Administration's understanding finds support in the text, purpose and meaning of the norm of section 2 of article 135-B of the IMI Code – and that this is incapable of either enunciative interpretation or interpretation in accordance with the Constitution, in the terms the Claimant proposed – one would still have to conclude for its flagrant unconstitutionality and, consequently, for the illegality of the AIMI assessment on the Claimant based on this norm."

  21. Thus, analysis of the alleged unconstitutionality is warranted.

  22. In this regard, we will follow, for agreeing with it entirely, the understanding that was defended, for example, in the Arbitral Decision of 16/7/2018 (proc. 676/2017-T): the "interpretation [defended by the Tribunal] does not constitute any discriminatory treatment and violation of the principle of equality since we are talking about diverse realities from the outset because construction lands are not assimilable to already built urban properties [...]. As was stated in the Arbitral Award that we have been following [of 26/6/2018, delivered in process no. 664/2017-T]. 'the Constitutional Court has emphasized that one of the essential constitutionally defined objectives of the fiscal system, alongside the satisfaction of the financial needs of the State and other public entities, is that of fair distribution of income and wealth, as can be inferred from article 103, section 1, of the Constitution. It is this binding of the fiscal system to the idea of social justice and the reduction of inequality in the social distribution of income and wealth that requires it to be progressive. [...]. The progressivity of the fiscal system also constitutes a requirement of the principle of material equality. [...] [and] the principle of tax equality can be implemented through diverse aspects: a first is in the generality of the tax law, in its application to all without exception; a second, in the uniformity of the tax law, in treating in the same way taxpayers who are in equal situations and differently those who are in different situations, to the extent of the difference, as determined by contributory capacity; a last, is in the prohibition of arbitrariness, in preventing the introduction of discrimination between taxpayers [provided] they are devoid of rational foundation (see Constitutional Court awards nos. 306/2010 and 695/2014).' (emphasis ours).

  23. Given the foregoing, the referred Arbitral Decision of 16/7/2018 emphasizes that, "as can be read in the Report of the Budget for 2017 (p. 60), [...] the creation of the additional IMI, as a complementary tax on real estate property, aimed to introduce in taxation 'a progressive element of personal basis, taxing more heavily larger properties,' and, in that sense, it is compatible with the principle of tax progressivity to which section 3 of article 104 of the Constitution refers, which has as a corollary the imposing tendency of higher taxation to those with greater contributory capacity. [And,] According to the doctrine, it has also been understood that the taxation of property, alongside the taxation of income, constitutes a projection of contributory capacity, functioning as an extension of personal tax on income and as the reinforcement of qualitative discrimination (Sérgio Vasques, "Contributory Capacity, Income and Property," Fiscality – Journal of Tax Law and Management, no. 23, Coimbra, 2005, pp. 33 and 36). Now, in this context, it is not seen how the taxation of the real estate property of the [Claimant] violates the principle of tax equality and contributory capacity merely because the ownership of real estate constitutes the very object of his economic activity. Indeed, the real estate held by him will be affected by activities freely accessible to the generality of real estate owners and any other entities, even of a business nature, that dedicate themselves to real estate promotion. [...]. [...] the imposition on the generality of holders of residential properties or construction lands of residential properties does not appear materially unconstitutional, in light of the principles of equality and contributory capacity.' (emphasis ours).

  24. On the other hand, recalls, also, the referred Arbitral Decision of 16/7/2018, that "in line with what was understood in the Arbitral Award, of 17 March 2016, delivered in process no. 507/2015-T, 'a distinction must be made between the ownership of real estate property intended for housing which constitutes, in itself, a tendency secure indication of economic well-being, superior to that of the generality of citizens, and the ownership of rights over properties intended for the exercise of commercial, industrial, service provision activities or the like that can be recognized as factors of production and whose dimension and patrimonial value constitutes, not so much a manifestation of wealth, but a standard of adequacy to the company's operation. It thus seems that there is constitutionally acceptable grounds for the restriction of the incidence of the additional tax to residential properties by confrontation with properties classified as commercial, industrial or for service provision, the invoked unconstitutionality being precluded on the basis of the violation of the principles of equality and contributory capacity.' [Indeed, and] Resuming, again, what was stated in the Arbitral Award delivered in process no. 664/2017-T, 'account must be taken of the fact that we are faced with diverse tax facts. In one case, the law subjects to taxation lands that are subject to urbanization which constitute an economic asset by virtue of their aptness for construction. In another case, the law excludes from the tax the built property that performs an instrumental function with respect to productive activity. There is no necessary connection between these two realities. The construction land has a patrimonial value of its own which constitutes, in itself, an indicator of contributory capacity that is susceptible of being the object of an autonomous tax on property, independent of its eventual and future use through the implantation of a building for commercial, industrial or service purposes. The already constructed property that is classified as a commercial, industrial or service property has already an instrumental function with respect to a certain productive activity that the legislator, within his margin of free discretion, may intend to safeguard within the framework of his responsibilities for the promotion of economic and social development, which have constitutional basis (article 81 of the Fundamental Law).' (emphasis ours).

  25. Given the argument cited, with which we agree, it is clear that it would make no sense to exempt from AIMI construction lands (even with construction in progress), as such, given that, enjoying the same merely potential constructive capacity of the type of property to be built (for commerce, industry or services), this could have, as an undesired consequence, the discouragement, by this means, of their building and effective use in a productive activity.

  26. Note, finally, what is referred to in the recent Constitutional Court Award no. 378/2018, of 4 July (even if regarding Item 28.1 of the TGIS) regarding the scope of the constitutional principle of tax equality: "the constitutional program of tax equalization does not require, by way of property taxes, any requirement of positive discrimination of companies as against the remaining taxpayers subject to that type of taxes."

  27. It is concluded, in light of the foregoing, that there is no alleged violation of the principles of fiscal equality and contributory capacity, enshrined in articles 13 and 104, section 3, of the CRP.

  28. The AIMI assessment act, in the part challenged, not suffering from any defect that determines its annulment, for the reasons set out above, it must be concluded that: 1) the request for reimbursement of the amounts paid as additional IMI is prejudiced (which are understood to correspond to the amount of the AIMI assessment meanwhile corrected, in the amount here in question of €16,861.50 – bearing in mind that, as to the difference between the amount of the first assessment no. ... and that of the present assessment no. ..., it was the Respondent itself who admitted, in its reply, that "nothing prevents [...] the partial annulment [of the first assessment] and respective reimbursement"); 2) the payment of the indemnity interest provided for in articles 43 of the LGT and 61 of the CPPT is not due.

V. DECISION

Given the foregoing, it is decided:

  • To judge the request for arbitral pronouncement totally unmeritorious, as unproven, absolving the Tax and Customs Authority of all requests, in the terms petitioned, and maintaining in the legal order the challenged act (assessment no. ...).

VI. Value of the case

The value of the case is fixed at €16,861.50 (sixteen thousand eight hundred and sixty-one euros and fifty cents), in accordance with the provisions of article 32 of the CPTA and article 97-A of the CPPT, applicable by virtue of the provisions of article 29, section 1, paragraphs a) and b), of the RJAT, and article 3, section 2, of the Tax Arbitration Costs Regulation (RCPAT).

VII. Costs

In accordance with Table I attached to the RCPAT, costs are in the amount of €1,224.00 (one thousand two hundred and twenty-four euros), to be paid by the Claimant, in accordance with the provisions of articles 12, section 2, and 22, section 4, of the RJAT, and article 4, section 5, of the RCPAT.

Notify.

Lisbon, 12 July 2019.

The Arbitrator

(Miguel Patrício)

Text prepared by computer, in accordance with the provisions
of article 131, section 5, of the CPC, applicable by referral of article 29, section 1, paragraph e), of the RJAT.

The drafting of this decision is governed by the spelling prior to the Orthographic Agreement of 1990.

Frequently Asked Questions

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What types of properties are subject to AIMI (Adicional ao Imposto Municipal sobre Imóveis) under Article 135-B of the IMI Code?
Under Article 135-B of the IMI Code, AIMI applies to urban properties or fractions owned by individual entities when the total tax property value (VPT) exceeds €600,000. However, paragraph 2 of Article 135-B excludes properties that are classified under Article 6(1)(a) of the IMI Code as being allocated to commercial, industrial, or service activities. The critical distinction lies in property classification: residential properties and construction lands may be subject to AIMI, while properties demonstrably allocated to commercial operations are generally excluded from the tax base.
Are commercial properties such as supermarkets exempt from AIMI taxation in Portugal?
Yes, commercial properties such as operating supermarkets are generally exempt from AIMI taxation in Portugal. Article 135-B(2) of the IMI Code explicitly excludes from AIMI incidence properties allocated to commercial, industrial, or service purposes as defined in Article 6 of the IMI Code. However, this case demonstrates a significant controversy: the Tax Authority has taken the position that during the construction phase, even when properties are clearly licensed and intended for commercial use (such as supermarket construction), they may be classified as 'construction lands' and therefore subject to AIMI until construction is completed and the commercial use certificate is obtained. This interpretation creates a temporal gap where commercial properties under construction face AIMI liability despite their intended and authorized commercial destination.
How does Article 135-B, paragraph 2, of the IMI Code define the objective scope of AIMI incidence?
Article 135-B, paragraph 2, of the IMI Code defines AIMI's objective scope by referencing the property classification system established in Article 6 of the IMI Code. Specifically, it excludes from AIMI taxation properties classified under Article 6(1)(a) as allocated to commercial, industrial, or service activities. The provision also references Article 6(2) concerning lands licensed or authorized for subdivision or construction operations. The central interpretative issue is whether 'construction lands' includes all properties under construction regardless of their authorized purpose, or whether lands licensed specifically for commercial construction should be treated as commercial properties exempt from AIMI. The Tax Authority adopts a formalistic approach based on property classification status, while taxpayers argue for a substantive interpretation considering the property's economic destination and authorized use.
Can a company challenge an AIMI assessment on commercial buildings through CAAD arbitration proceedings?
Yes, companies can challenge AIMI assessments through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings. This case demonstrates the procedural framework: the claimant company submitted its arbitration request under Decree-Law 10/2011 of January 20, which establishes the legal regime for administrative tax arbitration. Article 2(1)(a) of the RJAT (Administrative Tax Arbitration Regime) grants jurisdiction to CAAD to review the legality of tax assessment acts, including AIMI. The arbitration process provides companies with an alternative to judicial courts for resolving tax disputes, offering a potentially faster and more specialized forum. In this case, a single arbitrator was appointed by the President of CAAD's Deontological Council after the claimant did not appoint its own arbitrator, demonstrating the flexibility of the arbitration procedures for taxpayers challenging property tax assessments.
Does AIMI apply to land licensed for construction of commercial properties versus land licensed for subdivision (loteamento)?
AIMI application differs significantly between land licensed for construction of commercial properties and land licensed for subdivision (loteamento). Article 135-B(2) of the IMI Code references Article 6(2) and Article 10(1) of the IMI Code regarding lands licensed or authorized for subdivision or construction operations. The critical distinction in this case is the authorized purpose: lands licensed for subdivision (loteamento) intended for residential housing development would typically fall within AIMI's scope, whereas lands licensed specifically for construction of commercial buildings present an interpretative challenge. The claimant argued that lands authorized for commercial construction should be treated as commercial properties exempt from AIMI, not as generic 'construction lands.' The Tax Authority's position treats all construction lands uniformly based on classification status rather than authorized destination, creating potential AIMI liability even for clearly commercial projects until construction completion and formal classification change.