Process: 695/2017-T

Date: October 15, 2018

Tax Type: IMI

Source: Original CAAD Decision

Summary

This arbitration decision addresses whether properties used for hotel-type tourist accommodation are subject to AIMI (Additional Municipal Property Tax) in Portugal. The claimant, A... Lda., contested an AIMI assessment of €63,460.88 for 2017 on 97 urban properties forming the B... tourism enterprise, a 4-star tourist village operating continuously since 1992. The Tax Authority initially assessed AIMI treating these properties as residential dwellings. The claimant argued the properties should be excluded from AIMI under Article 135-B, paragraph 2 of the IMI Code, which exempts urban properties classified as 'commercial, industrial or for services' under Article 6(1)(b) and 'others' under Article 6(1)(d). The properties are dedicated exclusively to tourist accommodation services, located in a zone designated for hotel establishments according to the Urban Plan, and feature full accommodation units with daily housekeeping, reception, bars, swimming pools, tennis courts, and other hotel facilities. During proceedings, the Tax Authority acknowledged that property register corrections were underway following the claimant's submission of IMI Model 1 declarations in December 2016 requesting reclassification to 'Services'. The tribunal suspended proceedings to allow completion of these corrections. This case establishes important precedent that properties genuinely devoted to hotel-type tourist accommodation services should be classified as service properties rather than residential, thus falling outside AIMI's scope of taxation, which primarily targets residential real estate holdings.

Full Decision

ARBITRAL DECISION

The arbitrators Dr. Alexandra Coelho Martins (presiding arbitrator), Dr. Ana Luísa Ferreira Cabral Basto and Prof. Doctor Jónatas Machado (member arbitrators), designated by the Ethics Council of the Center for Administrative Arbitration ("CAAD") to form the present Arbitral Tribunal, constituted on 6 March 2018, agree as follows:

REPORT

  1. A..., Lda., hereinafter referred to as the "Claimant", legal entity number..., with registered office at Avenue ..., ..., in ..., notified of the assessment of the Additional Municipal Property Tax ("AIMI") for the year 2017, issued on 30 June 2017, under number 2017..., in the amount of € 63,460.88, filed a request for constitution of a Collective Arbitral Tribunal and for an arbitral pronouncement, under the terms set forth in articles 2, paragraph 1, subsection a) and 15 et seq. of the Legal Regime of Tax Arbitration ("RJAT"), approved by Decree-Law No. 10/2011, of 20 January, with the Tax and Customs Authority ("AT") being the Respondent.

  2. The Claimant herein requests a declaration of illegality of the tax act concerning AIMI, with the consequent annulment and the condemnation of the AT to repay the amount of tax paid on 2 October 2017, of € 63,460.88, plus compensatory interest counted until full and effective reimbursement of the tax.

  3. As the basis for its claim, the Claimant alleges a substantive defect consisting of error in the legal prerequisites, as the AIMI assessment in question was issued on the sum of the tax property values ("VPT") of urban properties situated in ..., in the parish of ... and municipality of..., which form part of the B... tourism enterprise, as if they were residential dwellings. However, since 1992 to the present day, all such properties have been devoted to tourist accommodation services and are located, in accordance with the Urban Plan of ..., in an area designated for "hotel establishments, complementary tourist accommodation facilities and/or tourist complexes", for principal and exclusive tourist use.

  4. The accommodation units, fully equipped and ready for use, enjoy daily cleaning and housekeeping service, replenishment of towels, bed linen and personal hygiene consumables and have complementary equipment, support infrastructure, sports and leisure facilities, such as reception, bar, outdoor and indoor swimming pools, 3 tennis courts, gymnasium, football field, lawn bowling field, among others, including a small supermarket.

  5. In this context, the Claimant concludes that the impugned act is illegal because it falls within the provision of article 135-B, paragraph 2 of the Municipal Property Tax Code ("IMI"), which excludes from AIMI taxation urban properties classified as "commercial, industrial or for services" and "others", under the terms of subsections b) and d) of paragraph 1 of article 6 of the same Code.

  6. The Claimant attached 15 (fifteen) documents and requested the production of evidence by witness testimony, by party statements and by inspection of the tourism enterprise.

  7. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and followed its normal procedural course, notably with notification to the AT, made on 29 December 2017.

  8. In accordance with articles 5, paragraph 3, subsection a), 6, paragraph 2, subsection a) and 11, paragraph 1 of the RJAT, the Ethics Council designated as arbitrators of the Collective Arbitral Tribunal the undersigned, who communicated acceptance of the assignment within the applicable period.

  9. The parties, duly notified of this designation, did not lodge any objection and the Collective Arbitral Tribunal was constituted on 6 March 2018, in accordance with article 11, paragraph 1, subsections b) and c), and paragraph 8 of the RJAT and with articles 6 and 7 of the CAAD Code of Ethics.

  10. The Respondent submitted a reply, in which it informed that correction of the history of the property registers which form the basis of the AIMI assessment is underway (with consequences on the AIMI assessment itself), due to the fact that the Claimant had submitted, on 6 December 2016, IMI Model 1 declarations to the Tax Office of..., requesting the alteration of the respective classification to "Services".

  11. In view of the information provided by the Respondent, which anticipated the conclusion with the utmost brevity of the property register rectification procedure, this Tribunal ordered the suspension of proceedings, by order of 23 April 2018, under the terms of article 269, paragraph 1, subsection c), of the Code of Civil Procedure ("CPC"), by reference to article 29, paragraph 1, subsection e) of the RJAT, until 31 May 2018. It further ordered that evidence by inspection would only take place if, following the production of the remaining evidence, the Tribunal considered such diligence necessary, which was not the case.

  12. Upon termination of the suspension without the correction having been made by the AT, the meeting referred to in article 18 of the RJAT was scheduled, which, after being postponed due to a party impediment, took place on 17 September 2018. Taking into account the procedural vicissitudes of the evidentiary phase, the Tribunal decided to extend by two months the deadline for delivering the arbitral decision, under article 21, paragraph 2 of the RJAT.

  13. At that meeting, the testimony of party C..., in his capacity as manager of the Claimant, and of the witness called by the Claimant, D..., were heard.

  14. With the agreement of the parties, the Tribunal dispensed with the production of final arguments and designated 4 November 2018 as the deadline for delivering the decision. Finally, the Claimant was warned to, by that date, pay the subsequent arbitration fee, under the terms set forth in article 4, paragraph 3 of the Regulation on Costs in Tax Arbitration Proceedings and communicate such payment to CAAD.

PRELIMINARY RULING

  1. The Tribunal was regularly constituted and is competent ratione materiae, given the configuration of the subject matter of the proceedings (cf. articles 2, paragraph 1, subsection a) and 5 of the RJAT).

  2. The request for arbitral pronouncement is timely, as it was submitted within the period provided in subsection a), paragraph 1, of article 10 of the RJAT.

  3. The parties have legal personality and capacity, have standing and are regularly represented (cf. articles 4 and 10, paragraph 2 of the RJAT and article 1 of Order No. 112-A/2011, of 22 March).

  4. The proceedings do not suffer from nullities, and no exceptions have been invoked.

GROUNDS

SUBSTANTIVE FACTS

  1. With relevance to the decision, it is important to consider the following facts which the Tribunal deems proved:

A. A..., Lda., here the Claimant, is the owner of a set of urban properties totalling 97..., situated in ..., in the parish of ... and municipality of..., which form part of the B... tourism enterprise, installed in the ... – cf. documents 1, 2 and 3 attached by the Claimant with the request for arbitral pronouncement (ppa).

B. The opening of the B... tourism enterprise resulted from authorization granted by the then General Directorate of Tourism, granted in August 1992, following inspection carried out on the establishment, under the terms and for the purposes set forth in article 4 of Decree-Law No. 328/86, of 30 September. The enterprise has maintained continuous exercise of its activity to the present day – cf. documents 3 to 7 attached with the ppa.

C. Following various legislative changes that occurred in 1997 (notably the repeal of Decree-Law No. 328/86, of 30 September, by article 81 of Decree-Law No. 167/97, of 4 July, and the approval of Regulatory Decree No. 34/97, of 17 September), the B... enterprise was reclassified as a 4 (four) star tourist village, a classification that it continues to maintain in the national tourism register of Tourism of Portugal, under number ... – cf. document 3 attached with the ppa.

D. Each of the urban properties referred to in subsection A above, inserted in the B... enterprise, constitute one or more tourist accommodation units, fully equipped and ready for occupancy and use, with daily cleaning and housekeeping service, replenishment of towels, bed linen and personal hygiene consumables – cf. documents 3 and 4 attached with the ppa, testimony of the witness and statements of the party.

E. The same enterprise also has complementary equipment, support infrastructure, sports and leisure facilities, such as reception, bar, outdoor and indoor swimming pools, 3 tennis courts, gymnasium, football field, lawn bowling field, among others, including a small supermarket – cf. documents 3 and 4 attached with the ppa, testimony of the witness and statements of the party.

F. The E... tourism enterprise offers exclusively hotel-type accommodation services, is sought for non-residential purposes and use by all its clients is limited to short periods of time – weeks – intended for rest and leisure – cf. documents 3 to 7 attached with the ppa, testimony of the witness and statements of the party.

G. The entire area of Plot AL4 in which B... is located, and which includes all the buildings referred to in subsection A above (97...), has urban planning classification in the Urban Plan of ... and is covered, for purposes of land use and occupation, by a subunit or zone SUT, whose principal and exclusive use is tourist – cf. documents 8 and 9 and 12 to 15 attached with the ppa.

H. By order of the President of the City Council of ..., of 29 November 2016, the use/alteration of the B... enterprise for tourist purposes was approved, covering the urban properties referred to in subsection A above, annulling the previous certificates of habitability – cf. document 4 attached with the ppa.

I. Following the submission, by the Claimant, on 6 December 2016, of IMI Model 1 declarations, relating to all urban properties that formed the basis of the AIMI assessment here impugned, with a request for alteration of the respective classification to "Services", the corresponding property registers were altered by the AT, now showing the classification as "Services" with effect from December 2016 (in some cases as of 14 December and in others as of 20 December) – cf. property registers attached by the Claimant (document 2) and by the Respondent.

J. The Claimant was notified of the AIMI assessment act, issued under number 2017..., on 30 June 2017, relating to the same year, in the amount of € 63,460.88, resulting from the application of the rate of 0.4% to the taxable base of € 15,865,220.00, corresponding to the sum of the tax property values ("VPT") of the urban properties referred to in subsection A above, better identified in this assessment act, and which constitute the urban properties owned by the Claimant that form part of the B... enterprise – cf. document 1 attached with the ppa, which is reproduced for all purposes.

K. The Claimant paid the AIMI assessment, in the amount of € 63,460.88, on 2 October 2017 – cf. document 1 attached with the ppa.

L. On 29 December 2017, the Claimant filed the request for constitution of this Collective Arbitral Tribunal in the CAAD computer system.

FINDINGS AND UNPROVEN FACTS

  1. The facts relevant to the decision of the case were selected and defined according to their legal relevance, in view of the plausible solutions to the legal questions, under the terms of the combined application of articles 123, paragraph 2, of the Code of Tax Procedure and Process ("CPPT"), 596, paragraph 1 and 607, paragraph 3 of the CPC, applicable by virtue of article 29, paragraph 1, subsections a) and e) of the RJAT.

  2. With respect to the facts proved, the conviction of the arbitrators was based on the positions assumed by the parties, which was consensual, and on critical analysis of the documentary evidence attached to the record.

  3. The statements of manager C... and witness D..., the latter being an official auditor and sole statutory auditor of the Claimant, although revealing themselves to be objective and credible, were limited to corroborating facts regarding which the Tribunal's conviction was formed by analysis of the documentary evidence.

  4. With relevance to the decision, there are no alleged facts that should be considered unproven.

DELIMITATION OF THE QUESTIONS TO BE DECIDED

  1. The fundamental question to be examined concerns the alleged non-occurrence of the prerequisites for AIMI taxation, due to the situation sub iudice falling within the negative delimitation norm of article 135-B, paragraph 2 of the IMI Code, specifically due to the fact that the urban properties held by the Claimant are exclusively devoted to the activity of providing hotel-type accommodation services. The Tribunal must also pronounce on the request for compensatory interest.

LAW

Negative delimitation of taxation – exclusion of properties devoted to "services" under article 135-B, paragraph 2 of the IMI Code

  1. The AIMI is levied on "the sum of the tax property values of urban properties situated in Portuguese territory of which the taxpayer is the owner", in accordance with that stated in article 135-B, paragraph 1 of the IMI Code.

  2. However, excluded from the scope of the tax are "urban properties classified as 'commercial, industrial or for services' and 'others', under the terms of subsections b) and d) of paragraph 1 of article 6" of the same Code, as provided for by the negative delimitation norm of taxation set forth in paragraph 2 of the aforementioned article 135-B.

  3. The classification of urban properties for purposes of property taxation is contained in article 6 of the IMI Code which, in its paragraph 1, divides it into 4 species:

  • Residential;
  • Commercial, industrial or for services;
  • Land for construction; and, residually,
  • Others.

  1. Paragraph 2 of this provision clarifies that residential buildings, commercial, industrial or for services buildings are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes.

  2. As José Maria Fernandes Pires notes clearly, "only properties devoted to 'housing' and 'land for construction', as defined in article 6 of the IMI Code, are generally subject to AIMI." The author further explains that the exclusion of such a vast universe of properties from the scope of AIMI was due to a legislative policy choice, whose purpose was not to burden the competitiveness of companies in fiscal terms, in a manner similar to that which occurred with the predecessor of AIMI, item 28 of the General Table of Stamp Tax – cf. "The Additional IMI and Personal Taxation of Property", Almedina, 2017, pp. 48 and 50.

  3. Motivated by this concern, the legislator of AIMI continued to avoid the impact of the tax on economic activity, through the exclusion of the taxation of rural, mixed and other properties used as factors of production – commercial, industrial and service properties – as is evident from the Report on the State Budget for 2017, for the Strategy for Promoting Economic Growth and Budget Consolidation, p. 60, available for consultation at

https://www.parlamento.pt/ActividadeParlamentar/Paginas/DetalheIniciativa.aspx?BID=40721.

  1. In view of the legal text and the ratio underlying it, the exclusion of taxation relating to urban properties directly devoted to productive activities cannot fail to include the tourist activity of hotel operations.

  2. In the present case, it was demonstrated in the record that the classification of the Claimant's properties forming part of the B... tourism enterprise, on which the 2017 AIMI assessment fell, belongs to the species "services", as these not only hold a license (permit) for use for tourist purposes, approved by order of the President of the City Council of ..., on 29 November 2016, but also appear in the urban property registers with classification for services. To the formal classification is added the material destination. Indeed, since the date of its opening, the said enterprise has been operated as a hotel-type unit that provides exclusively tourist accommodation services and related services, catering, sports and leisure, devoid of any residential purposes.

  3. In view of the unequivocal exclusive devotion of the properties in question to services and, therefore, to a productive activity, the condition for exclusion from the objective scope of AIMI taxation in accordance with article 135-B, paragraph 2 of the IMI Code, it must be concluded that the taxation effected violates the negative delimitation norm of taxation, with the prerequisites for the Claimant's taxation not being met under AIMI. Thus, the impugned tax assessment act, relating to the year 2017, suffers from a substantive defect and must be annulled, in accordance with the provisions of article 163 of the Code of Administrative Procedure, with the consequent restitution of the AIMI tax payment made by the Claimant.

On the request for compensatory interest

  1. The right to compensatory interest is based on article 43 of the General Tax Law ("LGT") which, in its paragraph 1, makes it dependent on the occurrence of error attributable to the services from which there resulted payment of a tax liability in an amount exceeding that legally due. This provision states that "[c]ompensatory interest is due when it is determined, in a gracious appeal or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due".

  2. When it is a question of erroneous interpretation and application of a tax incidence norm by the AT, it has been universally understood that tax arbitral tribunals have competence to issue condemnatory pronouncements in a manner similar to that which is permitted in judicial challenge proceedings, including, therefore, those arising from the recognition of the right to compensatory interest, under the provisions of articles 24, paragraph 1, subsection b) and paragraph 5 of the RJAT and 43 and 100 of the LGT.

  3. Returning to the situation under analysis, the Claimant proved payment of the amount contained in the AIMI assessment tax act subject to this action, and petitions, as a consequence of the alleged voidability of that act, the repayment of the amount paid, plus compensatory interest.

  4. In the situation of the record, it was concluded that the Claimant bore a tax liability that did not derive from the law, given the provision of article 135-B, paragraph 2 of the IMI Code. This error cannot fail to be attributable to the AT, which issued the AIMI tax assessment act, collecting with an improper character, for being illegal, the tax liability in question.

  5. In these terms, the legal prerequisites required by the provision of article 43, paragraph 1 of the LGT are considered to be met, and compensatory interest is due to be paid by the AT to the Claimant.

  1. Finally, it is important to note that the relevant issues submitted for consideration by this Tribunal were known and examined, those whose decision was foreclosed by the solution given to others not being so.

DECISION

In view of the foregoing, the arbitrators of this Arbitral Tribunal agree to:

  1. Uphold the request for annulment of the AIMI assessment act relating to the year 2017, in the amount of € 63,460.88, with the consequent repayment to the Claimant of the amount paid;

  2. Uphold the request for condemnation of the AT to pay compensatory interest, to be calculated on the aforementioned amount of € 63,460.88, counted from the date on which the respective payment was made until full reimbursement thereof.

The value of the case is set at € 63,460.88, in accordance with the provisions of articles 3, paragraph 2 of the Regulation on Costs in Tax Arbitration Proceedings ("RCPAT"), 97-A, paragraph 1, subsection a) of the CPPT and 306, paragraphs 1 and 2 of the CPC, the latter by virtue of article 29, paragraph 1, subsection e) of the RJAT.

Costs in the amount of € 2,448.00, to be borne by the Respondent, in accordance with Table I attached to the RCPAT, and with the provisions of articles 12, paragraph 2 of the RJAT, 4, paragraph 5 of the RCPAT and 527, paragraphs 1 and 2 of the CPC, by virtue of article 29, paragraph 1, subsection e) of the RJAT.

Lisbon, 15 October 2018

[Text prepared by computer, under the terms of article 131, paragraph 5 of the CPC, applicable by reference to article 29, paragraph 1 subsection e) of the RJAT]

The Arbitrators,

Alexandra Coelho Martins

Ana Luísa Ferreira Cabral Basto

Jónatas Machado

Frequently Asked Questions

Automatically Created

Are properties used for tourist accommodation services subject to AIMI (Additional Municipal Property Tax) in Portugal?
Properties used exclusively for hotel-type tourist accommodation services are generally not subject to AIMI in Portugal. Article 135-B, paragraph 2 of the IMI Code excludes from AIMI taxation urban properties classified as 'commercial, industrial or for services' and 'others' under Article 6(1)(b) and 6(1)(d) of the IMI Code. Properties operating as licensed tourism enterprises with hotel characteristics—offering accommodation units, daily housekeeping, reception services, and complementary leisure facilities—should be classified as service properties rather than residential dwellings, making them exempt from AIMI which primarily targets residential real estate.
How does Article 135.º-B, n.º 2 of the Portuguese IMI Code exclude certain urban properties from AIMI taxation?
Article 135-B, paragraph 2 of the Portuguese IMI Code creates specific exclusions from AIMI taxation by exempting urban properties that are classified as 'commercial, industrial or for services' under Article 6(1)(b) of the IMI Code, and properties classified as 'others' under Article 6(1)(d). This means AIMI applies primarily to residential properties and land for construction, while properties genuinely devoted to commercial, industrial, service, or other non-residential purposes fall outside the tax's scope. The proper classification depends on the actual use and characteristics of the property, not merely formal registration, requiring properties to demonstrate genuine operational dedication to qualifying purposes.
What classification must urban properties have under Article 6.º of the IMI Code to be exempt from AIMI?
Under Article 6 of the IMI Code, urban properties must be classified as 'commercial, industrial or for services' (subsection b) or 'others' (subsection d) to be exempt from AIMI taxation. Properties operating as hotel-type tourist accommodation—with licensed tourism enterprise status, accommodation units, daily housekeeping services, reception facilities, and complementary infrastructure like pools, sports facilities, and restaurants—qualify for classification as service properties. To obtain this classification, property owners must submit IMI Model 1 declarations to the relevant Tax Office requesting the alteration from residential to service classification, supported by documentation proving the tourism operation license and actual dedication to tourist accommodation services.
Can hotel-type tourist accommodation properties be treated as residential for AIMI purposes?
Hotel-type tourist accommodation properties should not be treated as residential for AIMI purposes when they are genuinely and exclusively devoted to providing tourist accommodation services. Properties licensed as tourism enterprises (such as tourist villages, aparthotels, or hotel establishments) that offer professional hospitality services—including daily cleaning, linen changes, reception, and shared facilities—are fundamentally different from residential dwellings. The Portuguese IMI Code distinguishes between residential properties (subject to AIMI) and service properties (exempt from AIMI). Misclassification of operational hotel properties as residential constitutes an error in legal prerequisites, making any resulting AIMI assessment illegal and subject to annulment through administrative or arbitral challenge.
What legal remedies are available to challenge an unlawful AIMI assessment before CAAD arbitration tribunals?
Taxpayers can challenge unlawful AIMI assessments before CAAD (Centro de Arbitragem Administrativa) arbitration tribunals by filing a request for constitution of an arbitral tribunal under the Legal Regime of Tax Arbitration (RJAT), approved by Decree-Law No. 10/2011. The request must be submitted within the legal deadline established in Article 10(1)(a) of the RJAT. Claimants can seek declaration of illegality of the tax act, annulment of the assessment, and reimbursement of amounts paid plus compensatory interest. Available grounds include substantive defects such as error in legal prerequisites when properties are incorrectly classified. Claimants may submit documentary evidence, request witness testimony, party statements, and property inspections. The tribunal process offers a faster, specialized alternative to judicial tax courts for resolving property tax disputes.