Process: 698/2018-T

Date: September 2, 2019

Tax Type: IMI

Source: Original CAAD Decision

Summary

CAAD arbitral decision 698/2018-T addresses a fundamental question in Portuguese tax law: whether usufruct holders can be subject to AIMI (Additional Municipal Property Tax) based on the full property value of assets they hold only as usufructuaries. The case involved elderly married taxpayers (aged 80 and 86) assessed AIMI totaling €12,722.33 on properties where they held usufruct rights, not full ownership. The applicants argued that AIMI, being a personal wealth tax rather than a real property tax like IMI, should only tax the actual patrimonial value in their sphere - the usufruct value calculated per Article 13 of the Transfer Tax Code based on age (10% and 15% respectively). They contended that taxing them on 100% of property values contradicted AIMI's nature as a wealth tax, as usufruct differs fundamentally from full ownership under Articles 1305 and 1439 of the Civil Code. The Tax Authority maintained that usufructuaries should be taxed on full property values. This decision clarifies the proper tax base for AIMI when ownership is divided between bare ownership and usufruct, with significant implications for estate planning and elderly taxpayers holding life interests in property. The case exemplifies the distinction between IMI (a real property tax where usufructuaries pay on full value) and AIMI (a personal wealth tax where the taxpayer's actual patrimonial interest should determine liability).

Full Decision

ARBITRAL DECISION

I. REPORT

I.1

  1. On 28 December 2018 the taxpayers A... and B..., married under the general community of property regime, taxpayers nos. ... and ..., respectively, resident at Rua ..., no. ..., in ...-... Viseu, requested, under the terms and for the purposes of article 2 and article 10, both of Decree-Law no. 10/2011, of 20 January, the constitution of an Arbitral Tribunal with designation of the sole arbitrator by the Ethics Council of the Administrative Arbitration Centre, under the terms of article 6, no. 1 of the said diploma.

  2. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and was notified to the Tax and Customs Authority (hereinafter referred to as AT or "Respondent") on 28 December 2018.

  3. The Applicants did not proceed with the designation of an arbitrator, therefore, under article 5, no. 2, paragraph b) and article 6, no. 1, of the RJAT, the undersigned was designated by the President of the Ethics Council of CAAD to integrate the present singular Arbitral Tribunal, having accepted under the legally provided terms.

  4. The AT submitted its response on 08 April 2019.

  5. The Applicants responded to the exception raised by the Respondent on 10.04.2019.

  6. On the same date the Applicant, A..., initiated a proceeding for qualification of heirs due to the death of the respondent, B....

  7. The Respondent was notified of the succession incident and did not object.

  8. Sra. C..., D... and E... were cited and did not object to the qualification.

  9. By arbitral decision of 06.06.2019 A..., C..., D... and E... were declared qualified in substitution of the deceased, B..., to proceed through them with the case.

  10. By order of 06.06.2019, the holding of the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the process would proceed with written final submissions.

  11. Notified for this purpose, both parties submitted submissions (19.06.2019-Applicant- and 02.07.2019- Respondent), the respondent having submitted a Reply to the submissions (02.07.2019).

  12. The Applicants seek to have the Arbitral Tribunal declare the illegality of the tax assessment act for the Additional Municipal Property Tax ("AIMI") for the year 2018, formalized by the documents issued with nos. 2018 ... and 2018 ..., in the total amount of €12,722.33, issued by the Tax and Customs Authority ("AT") and to condemn the AT to full reimbursement of this amount, plus compensatory interest.

I.2.A. The Applicants support their request, in summary, in the following terms:

  1. The assessment of Additional IMI refers to properties of which the Applicants are usufructuaries.

  2. Respondent B... was 80 years old and Applicant A... was 86 years old.

  3. For purposes of AIMI, the value "of urban real property situated in Portuguese territory of which the taxpayer is the owner" is that of the usufruct – art. 135º-B, no. 1, of the IMI Code.

  4. The "value of the property, separated from the usufruct, use or lifelong habitation, is obtained by deducting from the value of full property the following percentages, in accordance with the age of the person upon whose life the duration of such rights depends or, where there are several, of the oldest or the youngest, depending on whether they are to end upon the death of any or of the last survivor:

Age Percentage to deduct

Under 20 years 80

Under 25 years 75

Under 30 years 70

Under 35 years 65

Under 40 years 60

Under 45 years 55

Under 50 years 50

Under 55 years 45

Under 60 years 40

Under 65 years 35

Under 70 years 30

Under 75 years 25

Under 80 years 20

Under 85 years 15

85 or more years 10

, under the terms of art. 13, paragraph a) of the Transfer Tax Code.

  1. Thus, the usufruct separated from the bare ownership is determined under the terms of art. 13 of the Transfer Tax Code, and in accordance with the age of the Applicants.

  2. And even if it is understood that the aforementioned rule is not applicable, because it is contained in the Transfer Tax Code, what is certain is that the value of the usufruct is not the value of full property.

  3. In the situation of the Applicants, the patrimonial value belonging to each is 10% of half the value of the properties with respect to Applicant A..., born on 10.12.1932, and 15% of half the value of the properties with respect to Applicant B..., born on 02.01.1939.

  4. Thus, assuming the correct sum of the patrimonial values relating to full property of the properties of each Applicant, in the year 2018, we have that:

a). The patrimonial value corresponding to full property of the properties of which Applicant A... is usufructuary totals the sum of €1,817,581.81;

b). The patrimonial value of full property of the properties of which Applicant B... is usufructuary totals the sum of €849,501.81.

  1. Since the value of the usufruct for Applicant A... is 10%, the patrimonial value of which this person is the owner is €181,758.18, under the terms of art. 13 of the Transfer Tax Code, value which, under the terms of art. 135º-C, no. 2 of the IMI Code is exempt from AIMI.

  2. And even if one does not want to apply to said Applicant A... the rules for valuation of usufruct contained in the Transfer Tax Code, what is certain is that this Applicant is not the owner of patrimonial values that were taxed in his sphere under AIMI.

  3. With respect to Applicant B... the same occurs: the value of the usufruct is €127,425.2715, that is, 15% of the patrimonial value of the property of the properties that total the value of €849,501.81.

  4. The consideration of a tax base for AIMI coinciding with the value of full property of the properties in the situation of taxpayers who are usufructuaries is in contradiction with the letter and spirit of the law, and is illegal.

  5. Considering the nature of AIMI as (i) a personal tax and not a real tax, a nature that results, already, from the rules of incidence of arts. 135º-A and 135º-B of the IMI Code and as (ii) a tax on wealth, a nature that results from the rules for determining the taxable value inherent in art. 135º-C of the IMI Code, it follows that it is not permitted to tax patrimonial values that are not found in the patrimonial sphere of the taxpayer.

  6. The total patrimonial value of mere usufructuaries is different from the total values of full property, in accordance with the rules fixed in fiscal legislation, as well as in civil legislation.

  7. Usufruct is essentially different from full property. And if one does not want to apply to the valuation of usufruct the rules contained in fiscal legislation (art. 13 of the Transfer Tax Code), then the rules of civil legislation must be invoked (art. 12 of the LGT).

  8. Under the terms of art. 1305 of the Civil Code, "The owner enjoys in full and exclusive manner the rights of use, enjoyment and disposal of things belonging to him, within the limits of the law and subject to restrictions imposed by it"

  9. Under the terms of art. 1439 of the same Code, "Usufruct is the right to enjoy temporarily and fully another's thing or right, without altering its form or substance".

  10. Usufruct is a reality and has a value different from full property.

  11. And if such difference does not affect the purposes of IMI, the same is not true for AIMI because the latter is created as a tax on wealth that cannot tax values that the taxpayer does not have.

Moreover,

  1. The consideration of the taxable patrimonial value of properties on which IMI is levied cannot be applied to AIMI because the latter has a substantially different nature from that (IMI) which is a tax on property and this (AIMI) is a personal tax.

  2. IMI is levied on real property, a situation in which usufructuaries are the taxpayers on whom rests the totality of IMI, by consideration of the full patrimonial value of the properties.

  3. On the other hand, AIMI is a tax that is levied on the set of goods of the taxpayer, so that only the set of patrimonial values that actually belong to him are relevant, on pain of perversion of the tax itself as configured by the legislator as a tax on fortunes or wealth.

  4. An interpretation to the effect that AIMI is levied on the totality of the patrimonial value of properties in relation to usufructuaries who only hold a percentage of 10% and 15% of half that value, by virtue of the marital property regime and the right of usufruct, appears unconstitutional by violation of the principle of equality enshrined in art. 104, no. 2 of the CRP.

  5. In the case of undivided inheritances, the AT does not question that the heirs are taxed only for the percentage that belongs to them in the properties. Being AIMI a tax on wealth, it does not appear possible, without violation of the principle of equality, to tax undivided heirs in accordance with the percentage or share of the goods and not proceed in the same way with usufructuaries in that the patrimonial values and/or wealth held by these do not coincide with the patrimonial value of the totality of real property.

  6. The Constitution itself limits the taxation of property by the principle of equality, under the terms of the principle inherent in art. 104, no. 3 of the CRP: The taxation of property must contribute to equality among citizens.

  7. The determination of the patrimonial value of usufruct in accordance with the rule contained in art. 13 of the Transfer Tax Code is a legal imperative that results from the interpretive rule of art. 8 of the LGT, but also an imperative of the unity of the legal–tax system.

  8. In the present case, the patrimonial value of the usufruct of the Applicants is within the legal limits of exemption from additional IMI and these cannot legally be taxed for a value greater than that which they hold: the Additional IMI, now challenged, refers to the year 2018, and throughout that year, the applicants were only usufructuaries of the properties and not owners thereof.

I.2.B In its Response the AT invoked the following:

  1. The Applicants come to raise before the Arbitral Tribunal the legality of the tax assessment acts for AIMI, nos. 2018... and 2018..., relating to the year 2018.

  2. However, the Applicants throughout the request for arbitral pronouncement intend to call into question and wish to review the understanding set forth, and likewise the legality, of the decisions rejecting the voluntary claims relating to AIMI for 2017.

  3. Therefore, there is a lack of subject matter of the present request for arbitral pronouncement regarding the assessment of the understanding set forth in the voluntary claims relating to AIMI for 2017, because they do not fall under the tax acts under scrutiny here and, to that end, constitutes a peremptory exception, which is raised for all legal purposes, under the terms of article 577, no. 3 of the CPC, in the wording given by Law 41/2013 of 26 June applicable ex vi paragraph e) of article 2 of the CPPT, which gives rise to the dismissal of the Respondent from the request, under the terms and for the purposes set forth in article 576, no. 3 of the CPC.

  4. With regard to objective incidence, article 135-A, no. 1, of the IMI Code determines that the taxpayers of AIMI are natural or legal persons who are owners, usufructuaries or holders of surface rights of urban real property situated in Portuguese territory.

  5. It further establishes in no. 3 of that article that the quality of taxpayer is determined in accordance with the criteria established in article 8 of the IMI Code, with the necessary adaptations, having as reference the date of 1 January of the year to which AIMI relates.

  6. On the other hand, article 8 of the IMI Code presumes that "he is an owner, usufructuary or holder of surface rights, for tax purposes, who as such appears or should appear in the matrix".

  7. It further stipulates, article 135-B of the IMI Code, regarding objective incidence, that this is determined: "1 - The additional to the municipal property tax is levied on the sum of the taxable patrimonial values of urban real property situated in Portuguese territory of which the taxpayer is the owner."

  8. And in accordance with article 135-C of the IMI Code, the taxable value of AIMI "corresponds to the sum of the taxable patrimonial values, as of 1 January of the year to which the additional to the property tax relates, of the properties that appear in the real property matrices in the ownership of the taxpayer", being under the terms of article 135-G of the IMI Code, stated that AIMI is assessed, based on the taxable patrimonial values of the properties and in relation to the taxpayers that appear in the matrices on 1 January to which it relates.

  9. In the field of patrimony taxation, the rule of uniformity is horizontal equality, that is, that all those who are owners in the same form of wealth are taxed in the same way.

  10. In sum, the Applicants seek the application by analogy of the rules contained in the Transfer Tax Code or the Civil Code (CC), for the purposes of determining the taxable patrimonial value and, concomitantly, for the purposes of taxation under AIMI.

  11. However, the understanding followed by the Applicants, so that the rules contained in the Transfer Tax Code or the CC are applicable for the purposes of determining the taxable patrimonial value and, concomitantly, for the purposes of taxation under AIMI, as well as the analogy with respect to the treatment of undivided inheritances and de facto unions, is from the outset contrary to the law and to the Constitution of the Portuguese Republic.

  12. Article 8 of the LGT provides that the following are subject to the principle of tax legality: incidence, rate, tax benefits, guarantees of taxpayers, the definition of tax crimes and the general regime of administrative violations.

  13. This principle finds accommodation in article 103 of the CRP, establishing that the principle of legality is the guiding principle, par excellence, of the activity of the State, especially of tax activity.

  14. Number 4 of article 11 of the LGT determines that gaps resulting from tax rules, covered by the reserve of law of the Assembly of the Republic, are not susceptible to analogical interpretation.

  15. The argumentative ideology followed by the Applicants finds the minimum correspondence with the ratio legis of AIMI, nor with the mens legislatori.

  16. As is known, it is in the text of the law that the answer to any problem should be sought; this is the starting point of the hermeneutic process and also a limit thereof, insofar as it is not possible to consider those meanings that do not have in the words of the law any support, "a minimum of verbal correspondence, however imperfectly expressed."

  17. As results from no. 2 of article 9 of the CC "However, the interpreter cannot consider the legislative thought that does not have in the letter of the law a minimum of verbal correspondence, however imperfectly expressed".

  18. It is thus noted that combining the rules evident in nos. 1 and 2 of article 9 of the CC with the presumption evident in no. 3 of that same article (according to which the legislator adopted the most correct solutions and knew how to express its thinking in appropriate terms), the tax legislator did not intend under AIMI to apply the rules instituted in article 13 of the Transfer Tax Code.

  19. Being the Respondent bound by the principle of legality, it cannot disapply rules based on their unconstitutionality.

  20. Such competence is only asserted by the courts.

  21. The Respondent could not/cannot refuse to apply a rule, or fail to comply with the law, invoking or questioning its constitutionality, because it is subject to the principle of legality, under articles 266, no. 2 of the CRP, 3, no. 1 of the CPA and article 55 of the LGT.

  22. The understanding propounded by the Applicants is clearly in violation of the principle of legality, certainty and legal security enshrined in article 103 of the CRP.

  23. At no point did the legislator of AIMI consider the possibility of the rules contained in article 13 of the Transfer Tax Code being applicable to usufructuaries and for the purposes of determining the taxable patrimonial value.

  24. As it cannot be imputed to the Respondent's services an error that, on its own, determined the payment of a tax debt in an amount greater than that legally due – since it was not within its discretion to decide differently from how it decided –, it can only be concluded that no compensatory interest is owed, under the terms of article 43 of the LGT.

I.2.C The Applicants responded to the exception raised by the Respondent as follows

  1. The subject matter of the present proceedings is constituted by the AIMI assessments better identified in the initial request ("i.r.") and in the request formulated to this Tribunal, contained in various points of the same request (preamble, identification of the arbitral request and in the request).

  2. In these proceedings the request for annulment of the decisions of the voluntary claims of AIMI for 2017 was not formulated.

  3. The subject matter of the present proceedings is constituted by the request for declaration of illegality and annulment of the AIMI assessment acts for 2018, and the respective reimbursement plus compensatory interest.

II. SANITATION

The Tribunal is competent and is regularly constituted, under the terms of articles 2, no. 1, paragraph a), 5 and 6, all of the RJAT.

The parties have legal personality and capacity.

The parties are legitimate and are legally represented, under the terms of articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

An exception is raised based on lack of subject matter of the request for arbitral pronouncement, which must be assessed preliminarily.

The Respondent alleges that the Applicants seek to review the decisions rejecting the voluntary claims relating to AIMI for 2017, notwithstanding identifying the assessment acts for AIMI for 2018. In this way, the Respondent considers that the peremptory exception should be recognized and it should be dismissed from the request (art. 576, no. 3 of the CPC).

Quid Juris?

The subject matter of the case is constituted by the request and the cause of action. The request translates what the Applicants seek and the cause of action consists of the defects they attribute to the impugned act.

The principle of the dispositif postulates that the request and the cause of action - which identify and define the scope of the subject matter of the case - depend on the initiative of the Applicants, who have the burden of alleging all the factuality from which proof it is possible to conclude the existence of the right invoked, in accordance with the terms of article 5, no. 1, of the CPC and article 10, no. 2 paragraph b) of the RJAT.

The lack of subject matter constitutes a nullity (art. 186, no. 2, paragraph a) of the CPC), classified as a dilatory exception (art. 577, paragraph b) of the CPC) which leads to dismissal of the instance (art. 576, no. 2 of the CPC).

Let us examine the case at hand. It is necessary first to analyze the form completed by the Applicants when filing their request for constitution of the arbitral tribunal. This is an electronic form available on the CAAD website. The computerization of this request allows us to identify without a shadow of doubt the elements required in article 10, no. 2 of the RJAT. One of the elements is the subject matter of the request. In this, the tax identified was IMI, the acts referenced were the assessments nos. 2018... of 2018 and no. 2018... of 2018 and the value indicated was €12,722.33

In the request for constitution of the arbitral tribunal, analyzing the numbers and the years, there is no doubt that the Applicants identify the assessments of 2018 and not 2017. Notwithstanding, the request for constitution of the tribunal does not confuse with the request for arbitral pronouncement, which should be sent attached in an autonomous document to the request for constitution of the arbitral tribunal (art. 10, no. 2, paragraph c) of the RJAT).

In the request for pronouncement the Applicants expressly indicate in the preamble, in the identification of the arbitral request and in the operative part that they request the assessment of the legality of the assessments of 2018 no. 2018... and no. 2018....

The cause of action is duly identified in articles 28 to 50 of the request for pronouncement where it is invoked the violation of the terms of articles 135ºA, 135ºB, 136ºC of the IMI, 104, no. 2 and 104, no. 3 of the CRP.

Having regard to the articles presented, it appears to us to be excessive formalism and even detached from reality to conclude that, in the case at hand, there is a lack of procedural subject matter.

The right to effective legal protection is a fundamental right, which must lead us to reject merely ritualistic and formal interpretations (art. 20, no. 1 of the CRP). Administrative justice reform expressly condemned the excess of formalism (art. 7 of the CPTA). Procedural norms should be interpreted in a way that promotes the issuance of pronouncements on the merits of the claims formulated.

The same philosophy is followed by the CPC "(…) which aims, whenever possible, at the prevalence of substance over form, as well as at the remedying of procedural irregularities and obstacles to the normal progress of the instance, with a view to the maximum use of procedural acts" In Decision of the Court of Covilhã of 24.02.2015, case no. 1530/12.7 TBPBL.C1

In view of the elements contained in the case file and referred to above, it appears to us that the Applicants identify in an explicit and sufficient way the request and the cause of action.

In view of the foregoing, under the terms of article 10, no. 2, paragraph b) of the RJAT and article 20, no. 1 of the CRP, because the request and the cause of action are identified in the request for arbitral pronouncement, the invoked exception is therefore without merit.

The case is in proper form.

There are no other preliminary issues that need to be assessed nor defects that invalidate the case.

It is now necessary to assess the merits of the request.

III. THEMA DECIDENDUM

The central question to be decided, as posed by the Applicant, is whether the AIMI due by usufructuaries is calculated by the sum of the taxable patrimonial values of the properties without any reduction resulting from the usufruct.

IV. – FACTUAL MATTER

IV.1. Proven Facts

Before entering into the assessment of the issues, it is necessary to present the factual matter relevant to its understanding and decision, which, having examined the documentary evidence, the administrative tax process attached and having regard to the alleged facts, is fixed as follows:

  1. The taxpayers A... and B... were married under the general community of property regime.

  2. On 01.01.2018 Applicant A... appeared in the property matrices as owner of 37 properties whose sum of patrimonial values totals the amount of €1,817,581.81.

  3. On 01.01.2018 Applicant B... appeared in the property matrices as owner of 81 properties whose sum of patrimonial values totals the amount of €849,501.81.

  4. On 01.01.2018 the Applicants were usufructuaries of the following properties:

• Urban, intended for housing, Municipality of Viseu, Union of parishes of ..., registered in the matrix under article ...;

• Urban, intended for housing, Municipality of Viseu, Union of parishes of ..., registered in the matrix under article ...;

• Urban, Municipality of Viseu, Union of parishes of ..., registered in the matrix under article ...;

• Urban, intended for housing, Municipality of Viseu, Union of parishes of ..., registered in the matrix under article ..., fraction F;

• Urban, Municipality of Viseu, Parish of ..., registered in the matrix under article ...;

• Urban, Municipality of Viseu, Parish of ..., registered in the matrix under article ...;

• Urban, Municipality of Viseu, Parish of ..., registered in the matrix under article ...;

• Urban, Municipality of Viseu, Parish of ...e, registered in the matrix under article ...;

• Urban, Municipality of Mangualde, Union of Parishes of ... and ..., registered in the matrix under article ...;

• Urban, Municipality of Mangualde, Union of Parishes of ... and ..., registered in the matrix under article ...;

• Urban, Municipality of Mangualde, Union of Parishes of ... and ..., registered in the matrix under article ...;

• Urban, Municipality of Mangualde, Union of Parishes ..., ... and ..., registered in the matrix under article ...;

• Urban, Municipality of Sátão, Parish of ..., registered in the matrix under article ...;

• Urban, Municipality of Penalva do Castelo, Parish of ..., registered in the matrix under article ...;

• Urban, intended for housing, Municipality of Porto, Union of parishes of ... and ..., registered in the matrix under article ..., fraction R;

• Urban, intended for housing, Municipality of Lisbon, Parish of ..., registered in the matrix under article ..., fraction ...;

• Urban, intended for tertiary use, Municipality of Lisbon, Parish of ..., registered in the matrix under article ..., fraction ... (half);

• Urban, intended for tertiary use, Municipality of Lisbon, Parish of ..., registered in the matrix under article ..., fraction ... (half);

• Urban, intended for housing, Municipality of Lisbon, Parish ..., registered in the matrix under article ..., fraction ... (half);

• Urban, intended for housing, Municipality of Lisbon, Parish of ..., registered in the matrix under article ..., fraction ...(half);

• Urban, intended for housing, Municipality of Lisbon, Parish of ..., registered in the matrix under article ..., fraction ... (half);

• Urban, intended for housing, Municipality of Lisbon, Parish of ..., registered in the matrix under article ..., fraction ... (half);

• Urban, intended for housing, Municipality of Lisbon, Parish of ..., registered in the matrix under article ..., fraction ... (half);

• Urban, intended for housing, Municipality of Lisbon, Parish of ... e, registered in the matrix under article ..., fraction ... (half);

• Urban, intended for housing, Municipality of Lisbon, Parish of ..., registered in the matrix under article ..., fraction ... (half);

• Urban, intended for housing, Municipality of Lisbon, Parish of ..., registered in the Urban matrix under article ..., fraction ...(half);

  1. On 01.01.2018 Applicant B... was usufructuary of the following properties:

• Urban, Municipality of Lisbon, parish of ..., registered in the matrix under article ... (3/24)

• Rustic, Municipality of Viseu, parish of ..., registered under article ... (3/24)

• Rustic, Municipality of Viseu, parish of ..., registered under article ... (3/24)

• Rustic, Municipality of Viseu, parish of ..., registered under article ... (3/24)

• Rustic, Municipality of Viseu, parish of ..., registered under article ... (3/24)

• Rustic, Municipality of Viseu, parish of ..., registered under article ... (3/24)

• Mixed, Municipality of Vidigueira, parish of ..., registered in the rustic matrix under article ... section ... and in the urban matrix under article ... .

  1. Applicant A... was notified of the AIMI tax assessment act no. 2018..., dated 30.06.2018, relating to the year 2018, with reference to the urban properties intended for housing, held by the same as usufructuary, in the amount of €10,975.82.

  2. Applicant B... was notified of the AIMI tax assessment act no. 2018 ..., dated 30.06.2018, relating to the year 2018, with reference to the urban properties intended for housing, held by the same, as usufructuary, in the amount of €1,746.51.

  3. Applicant B... proceeded with payment of the AIMI assessment for 2018 on 14.09.2018.

  4. Applicant A... proceeded with payment of the AIMI assessment for 2018 on 19.09.2018.

IV.2. Unproven Facts

There are no essential unproven facts, since all facts relevant to the assessment of the request were considered proven.

IV.3. Justification of the Factual Matter

The proven facts constitute uncontested matter and are demonstrated documentally in the case file.

The facts contained in numbers 1 to 9 are established by the documents submitted by the Applicant (docs. 1 to 25 of the request for constitution of the Tribunal) and by the position assumed by the parties.

V. The Law

V1. Error in Legal Presuppositions

The Applicants begin by invoking the illegality of the additional IMI assessment because, in their view, the legislator at the end of article 135ºB of the IMI Code when referring to the concept of "owner" intended to delimit the taxable value under AIMI based on the title of property. The Applicants understand that, in this case, the taxable value of usufruct should be calculated according to the terms of article 13, no. 1, paragraph a) of the Transfer Tax Code.

They further allege that it is contrary to the nature of the tax to tax patrimonial values that are not in the patrimonial sphere of the taxpayers. Finally, in this part, they assert that being usufruct a reality distinct from full property, as results from the Civil Code (hereinafter C.C.), that reality must have effects under AIMI.

The additional IMI was created by the State Budget Law for 2017 (Law no. 42/2016 of 28 December), and entered into force on 01.01.2017. Law no. 42/2016 of 28 December added to the IMI Code chapter XV composed of articles 135ºA to 135ºK.

This tax was created for financial reasons and for reasons of an axiological nature. On the one hand, the legislator intended to increase tax revenues by virtue of the financial rescue program experienced since 2011 and therefore the AIMI revenue is earmarked for the financing of Social Security (art. 1, no. 2 of the IMI Code). On the other hand, in a context of crisis, in compliance with the provisions of article 103, no. 1 and 104, no. 3 of the CRP, the legislator intended to impose a greater tax burden on citizens who reveal higher levels of wealth.

Article 135ºA of the IMI Code provides as follows:

1 - The taxpayers of the additional municipal property tax are natural or legal persons who are owners, usufructuaries or holders of surface rights of urban real property situated in Portuguese territory.

(…)

Having regard to the aforementioned rule, the Applicants, natural persons and usufructuaries of properties, are taxpayers of AIMI.

Under the terms of article 135ºB of the IMI Code:

1 - The additional municipal property tax is levied on the sum of the taxable patrimonial values of urban real property situated in Portuguese territory of which the taxpayer is the owner.

2 - The following are excluded from the additional municipal property tax: urban properties classified as "commercial, industrial or for services" and "others" under paragraphs b) and d) of no. 1 of article 6 of this Code.

(…)

Having regard to the factuality established as proven, the Applicants are owners, as usufructuaries, of urban properties.

The concept of owner is not limited to the real right of property, but must include the real rights indicated by the legislator within the scope of objective incidence – owners, usufructuaries and holders of surface rights. It could not be otherwise. Any other interpretation would lead to incoherent results and manifestly contrary to the law.

Article 135ºC, no. 1 of the IMI Code provides as follows:

1 - The taxable value corresponds to the sum of the taxable patrimonial values, as of 1 January of the year to which the additional municipal property tax relates, of the properties that appear in the real property matrices in the ownership of the taxpayer.

From the reading of the aforementioned article, it follows that, as a rule, AIMI is levied on the aggregate sum of the TPV of urban housing properties and land for construction of which a taxpayer is the owner, in a given fiscal year, whether the person is the owner of the right of property or the owner of the right of usufruct.

The legal rule is unequivocal as to the rules for calculating the taxable value and it provided no different rule for usufructuaries.

In view of the foregoing, with respect to hermeneutic rules we should resort, by referral of article 11, no. 1 of the LGT, to the provisions of the Civil Code. Article 9, no. 1 of the C.C. provides as follows:

  1. Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative thought, paying particular attention to the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied.

Thus the letter is naturally assumed as the starting point of interpretation, and it has, from the outset, a negative function, namely, it cannot "consider as comprehended among the possible meanings of the law that legislative thought (spirit, meaning) "that does not have in the letter of the law a minimum of verbal correspondence, however imperfectly expressed"". As OLIVEIRA ASCENSÃO also states, "the letter is not only the starting point, it is also an irremovible element of all interpretation. That is to say the text also functions as a limit of the search for the spirit"

Applying the foregoing to the case under analysis, it is necessary to consider the literal element. The letter of the law indicates without a shadow of doubt that the taxable value of AIMI is calculated by the sum of the taxable patrimonial values, regardless of whether it is the owner, usufructuary or holder of surface rights.

Under the terms of article 9, no. 3 of the C.C. the interpreter must presume that the legislator adopted the most correct solution.

It is true that from the civil law perspective the concepts of property or usufruct are distinct. Mutatis mutandis, the concept of transmission from the civil law perspective (art. 1305 of the C.C.) is also distinct from the concept of transmission for tax purposes (art. 2, no. 2 and no. 3 of the Transfer Tax Code). In this case the tax legislator equated for tax purposes a series of acts or contracts (e.g.: promises of acquisition and sale of real property, as soon as delivery is effected; long-term leases; execution of promise contracts for acquisition and sale of real property which include a clause for assignment of contractual position; irrevocable powers of attorney that grant powers of sale of real property) to the concept of transmission. For tax purposes. "(…) the concept of transmission in the Transfer Tax Code essentially encompasses, the tax facts that evidencing an economic result equivalent to onerous transmission of real property."

The legislator is not prevented, within constitutional limits, from establishing these distinctions between civil law and tax law.

The taxation under AIMI of the holders of the right of usufruct over properties and the determination of the taxable value falls entirely within the realm of the normative-constitutive discretion of the legislator, being explained by reasons located in the field of factual situations that end up being invested with an economic significance equivalent, as occurs in the case being tried as we shall see further on, or then that would allow with greater or lesser ease, if they were not taxed, an illegitimate tax evasion.

In AIMI such "(…) as in IMI, those who benefit from the economic utility resulting from the existence of the properties are taxed, as resources generating wealth given that it is the latter that constitutes the teleology of the tax". For the same reason owners, under AIMI, are outside the scope of objective incidence of properties burdened with usufruct.

The legislator in the case at issue provided no different rule for calculating the taxable value in the case there is a situation of usufruct.

Therefore, it does not appear that the errors in legal presuppositions invoked by the Applicant exist.

The Applicants appeal to the application of article 13 of the Transfer Tax Code to calculate the taxable value of the right of usufruct over the properties under AIMI.

It happens that, in this case, it does not appear to us that there is any lacuna in the IMI Code that justifies recourse to the application of the rules provided in the Transfer Tax Code. Even if that were not the case, analogical integration is expressly prohibited by article 11, no. 4 of the LGT

In conclusion, by resorting to the interpretive rules enshrined in article 9, no. 1, no. 2 and no. 3 of the CC, under article 135º C, no. 1 of the IMI Code, with respect to AIMI the taxable value corresponds to the sum of the taxable patrimonial values of the properties that appear in the ownership of the taxpayer, even in the capacity of usufructuary.

Thus, it is decided that the defects invoked, in this part, by the Applicants do not exist.

V2. Unconstitutionalities

The Applicants invoke the unconstitutionality of article 135ºC, no. 1, interpreted in the sense expressed above, with respect to the violation of the principle of equality (art. 104, no. 2 and no. 3 of the CRP).

It is the responsibility of the Courts to carry out diffuse and concrete review of the constitutionality of the rules in all situations where there is no, as there is not in this case, a declaration of unconstitutionality with binding and general force of the aforementioned rules of AIMI.

It is therefore necessary to analyze each of the constitutional rules invoked by the Applicant in a distinct manner.

Beginning with the principle of equality, the Applicants allege violation of the principle of equality (art. 104, no. 2 of the CRP) by understanding that by being usufructuaries they do not reveal the same contributive capacity as owners of the properties.

The principle of tax equality is not expressly enshrined in the current Constitution, resulting from the general principle of equality provided for in article 13 of the CRP.

According to the Constitutional Court (Decisions nos. 232/2003, 96/2005, 99/2010, 255/2012 and 294/2014 TC) and legal scholarship, the principle of equality encompasses in its content, fundamentally, two aspects: a) prohibition of discrimination; b) obligation of differentiation.

The prohibition of discrimination imposes equal treatment for equal situations and the interdiction of equal treatment for manifestly unequal situations, so as to prevent any intolerable discrimination. It therefore entails a negative sense (do not introduce inequalities into what should be equal nor equality into what should be unequal) and a positive sense (treat equally what should be equal and prevent others from treating unequally what should be equal).

The prohibition of discrimination imposes equal treatment for equal situations and the interdiction of equal treatment for manifestly unequal situations, so as to prevent any intolerable discrimination. It therefore entails, on the one hand, a requirement of equal treatment of taxpayers in the same circumstances and on the other hand a requirement of differentiated treatment of taxpayers in different circumstances.

In the case at hand are the holders of the right of usufruct of properties and the holders of the right of property of properties distinct factual realities that justify different treatment?

Let us begin by analyzing the nature of AIMI.

By resorting to the classification of personal and real taxes, the former, by definition, take into account the personal situation of the taxpayer, in contrast to real taxes, which are applicable to all taxpayers in the same manner, independently of their personal situation.

IMI is a real tax, since it is levied on the TPV of properties, with the applicable rates varying depending on the type and condition of the property.

AIMI is a personal tax because:

a) it takes into account the entire real property of the taxpayer, rather than being levied property by property;

b) its tax incidence varies depending on the personal situation of its owner, i.e., depending on whether its owner is a natural or legal person, married or single, resident in a territory subject to a clearly more favorable tax regime;

c) in the case of natural persons, it is progressive, at the outset, by establishing a deduction of €600,000.00 it generates a non-taxation of taxpayers who have real property with Taxable Patrimonial Value below that amount, but also by providing for progressive rates, of 0.7% up to €1,000,000.00 and of 1% for taxable patrimonial values above that amount.

AIMI is a personal tax on wealth. Being a personal tax, what is relevant is the personal situation of the holder of the right over the property and not of the property, nor of the burdens or nature of the rights that may bear upon it. It is therefore necessary to analyze the personal situation of the taxpayers who are holders of the right of usufruct over the properties, from the perspective of the utility they derive from the constitution of that right.

The utility of the right of usufruct is intimately linked to what is provided for in the Law. Usufruct is legally defined as a right of full, temporary enjoyment of another's thing or right, "ius in re aliena" (art. 1439, of the C.C.). From this definition two essential characteristics of usufruct result: the fullness of enjoyment and its temporal limitation. It is therefore a real right of full and temporary enjoyment of another's thing or right, but in which its holder cannot alter the form or substance. Inasmuch as, excluding the right of the usufructuary to dispose of the thing, usufruct approximates the right of property, although it is not an exclusive right.

Where there is usufruct, the utility resulting from the existence of the property is not enjoyed by its owner, but by the holder of the right of usufruct. In this case it is justified that the beneficiary of the effective and full enjoyment of the property be the taxpayer and not the owner, since the latter does not benefit from the existence of the property.

Whenever a real property is burdened with a usufruct or surface right, the content of the owner's right becomes quite reduced, and this is the reason that must have led the legislator to require AIMI from the usufructuary or from the holder of surface rights.

It should be added that AIMI will only be due by the usufructuary or by the holder of surface rights after the beginning of the constitution of the work or the completion of the planting, respectively, as established in number 2, article 8 of the IMI Code, applicable ex vi number 3, article 135-A of the IMI Code, which is well understood. In fact, only from the construction of the work or the completion of the planting is it that the usufructuary and the holder of surface rights, respectively, begin to be holders of the economic utilities of the properties.

Under AIMI, taxpayers are those who manifest wealth originating from real property by being holders of the economic utilities of urban housing properties or land for construction, in the capacity of owners, usufructuaries or holders of surface rights.

In this case, the fact that they are taxpayers of AIMI, whether the owner, the usufructuary or the holder of surface rights, depends on the need to tax those who manifest contributive capacity.

Since AIMI is a personal tax and since owners (without constituted usufruct) and usufructuaries of properties derive the same utility from their existence, it does not appear to us that these two situations justify different tax treatment.

Because, as they are similar factual situations, it does not appear to us that the principle of equality in a positive sense is violated. For the same reason nothing justifies different treatment; the principle of equality in a negative sense prohibits that they be treated differently.

The Applicants understand that the holding of these properties, as usufructuaries, reveals a more reduced indication of their contributive capacity, and therefore the principle of contributive capacity (art. 104, no. 2 of the CRP) is violated by comparison with owners of properties without the constitution of the right of usufruct.

The principle of contributive capacity is a corollary of the principle of equality (art. 13 of the CRP), which is also reflected in art. 104, no. 3 of the CRP, applicable to the taxation of property.

As a presupposition and criterion of taxation, the principle of contributive capacity has intrinsic especially "the idea of generality or universality, under the terms of which all citizens are bound to the duty of paying taxes, and of uniformity, requiring that such duty be measured by the same criterion - the criterion of contributive capacity.

Those who reveal greater contributive capacity should pay more and those who reveal less contributive capacity should pay less. Contributive capacity is revealed through income, property and consumption.

The principle of contributive capacity functions simultaneously, at two levels: a) taxpayers with identical contributive capacities must pay the same tax, this being the so-called horizontal equality;

b) taxpayers with different contributive capacities must pay tax in proportion to the difference, being designated vertical equality.

The taxation of property has constitutional backing in art. 104, no. 3, and must contribute to equality among citizens. AIMI is a general tax on real property of natural persons.

Now, with respect to natural persons, all patrimonial values of the affected properties are taxed, with a basic deduction of €600,000.00. This deduction aims to tax only those who are holders of real property wealth with higher values. Thus those who reveal contributive capacity are taxed.

The taxation of income of natural persons does not preclude the taxation of their real property. AIMI is levied on the taxable patrimonial value of the properties of which the taxpayer is the owner and not on its income, there being, by this means, no additional burden on its taxable income.

As SÉRGIO VASQUES notes, «[W]hen the substance of property is taxed, one is not taxing income a second time, one is taxing something different»

From the CRP no requirement of positive discrimination of the holders of the right of usufruct results.

In the case at hand (AIMI) contributive capacity is revealed by the capacity of enjoyment of the property of the taxpayer. Since usufructuaries have a full capacity for enjoyment over the properties of which they are owners, it appears to us that, for this reason, they reveal contributive capacity that justifies their taxation.

The real property from which taxpayers are usufructuaries is revelatory of their contributive capacity. Therefore, article 135ºC, no. 1 of the IMI Code is not contrary to the principle of contributive capacity.

Finally, the Applicants allege violation of the principle of equality (art. 104, no. 3 of the CRP) because the heirs of undivided inheritances are taxed under AIMI in accordance with the percentage or share of their right over the goods and the same does not occur in the case of usufructuaries.

The undivided inheritance constitutes a universality with respect to which there has been no yet partition of goods (art. 2119 of the CC), we are in the presence of an autonomous patrimony shared, under a community regime (and not in co-ownership), by the co-heirs, who do not hold any individual right over each individual good that makes up the undivided inheritance, being only its holders in community. In the expression of the judgment of the Supreme Court of Justice, of 21.04.2009, case no. 09A0635 «"(…) Until partition, the heirs are holders, only, of the right "to an ideal fraction of the whole, not being able to require that that fraction be made up of certain goods or a share in each of the elements to be shared (cfr. Pires de Lima and Antunes Varela, Annotated Civil Code, Vol. III, 2nd ed, p. 347-348, and Vol. VI, p. 160, Capelo de Sousa, Lessons of Succession Law, Vol. II, 2nd ed, p. 90-92, 99 and 126; Law Journal, no. 84, p. 196, no. 87, p. 126 and no. 88, p. 95)". Only after the partition is realized can the heir become an owner or co-owner of a particular good of the inheritance. (…) The partition "converts the various rights to a simple share (indeterminate) of a whole (determinate) into an exclusive right of a determined portion of the whole" (Pires de Lima and Antunes Varela, Annotated Civil Code, Vol. VI, pages 195 -196 and 203).»

With the opening of the succession, and following acceptance of the inheritance, the heir acquires the right to his hereditary share or ideal share of the overall inheritance, but does not acquire the real right over the concrete goods that make it up, nor even over a share in each of them (arts. 2031, 2032 and 2050 of the CC), wherefore any heir can transmit his right to the inheritance or to the hereditary share, as a whole, gratuitously or for valuable consideration, but cannot individually transmit any fraction of the goods that make up the inheritance (art. 2126 of the CC). Before partition the goods of the inheritance (undivided) can be alienated in common by all the heirs.

The heirs of an inheritance do not possess any full capacity for enjoyment over any specific good of the inheritance, being therefore a distinct reality from the usufructuaries who, by contrast, possess a full capacity for enjoyment over a specific good.

In the case of undivided inheritances the general regime is that of taxation in the legal sphere of the undivided inheritance itself, with it being the taxpayer of the inheritance (art. 135ºA, no. 2 of the IMI Code). Taxation in the legal sphere of the heirs occurs by option, with the overall taxable value of the respective properties that make up the inheritance patrimony being allocated to each of the heirs in accordance with their hereditary shares (art. 135º E of the IMI Code).

The taxpayer, undivided inheritance, constitutes an autonomous patrimony, of which various heirs are holders. As was referred to above, they do not have a full capacity for enjoyment over any good of the inheritance nor over the inheritance, because, in this part, it depends on their hereditary share.

The taxation of undivided inheritances and of usufructuaries are distinct factual and legal realities. Wherefore, it does not appear to us that their distinct tax treatment can constitute a violation of the principle of equality in a positive sense.

Being distinct factual situations the principle of equality in a negative sense prohibits them from being treated equally.

Therefore, being distinct factual realities, their different treatment does not appear to us to be arbitrary, and thus article 135ºC of the IMI Code is not contrary to the principle of equality.

V.3 Compensatory Interest

The assessment of the condemnation of the Respondent to the payment of compensatory interest is prejudiced by the solution reached above.

Maintaining the tax assessment act under review, in consequence, the request for compensatory interest should also be judged without merit.

III. DECISION

In view of all that is stated above, it is decided:

a) To dismiss the raised exception based on lack of subject matter of the request for arbitral pronouncement;

b) To wholly dismiss the request for declaration of illegality of the assessment of the Additional Municipal Property Tax ("AIMI") nos. 2018 ... and 2018 ...;

c) To maintain in entirety the tax assessment acts subject to this case;

d) To condemn the Applicants to the payment of the costs of the case, as set forth below.

The value of the case is fixed at €12,722.33 under the terms of article 97-A, no. 1, a), of the CPPT, applicable by virtue of paragraph a) of no. 1 of article 29 of the RJAT and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The value of the arbitration fee is fixed at €918.00, under the terms of Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid in full by the Applicant, since the request was wholly without merit, under the terms of articles 12, no. 2, and 22, no. 4, both of the RJAT, and article 4, no. 4, of the aforementioned Regulation.

Notify accordingly.

Lisbon, 02 September 2019

The Arbitrator

(André Festas da Silva)

Frequently Asked Questions

Automatically Created

Who is considered a taxable person for AIMI (Additional IMI) purposes when a property is held under usufruct?
For AIMI purposes, the taxable person is defined under Article 135-B of the IMI Code as those holding ownership of urban real property in Portuguese territory. When property is held under usufruct, the critical issue is whether the usufructuary is taxed on the full property value or only on the usufruct value. The applicants in this case argued that as usufructuaries, they should only be taxed on the usufruct portion calculated according to their age per Article 13 of the Transfer Tax Code, not the full property value, given AIMI's nature as a personal wealth tax.
Can usufruct holders be subject to AIMI taxation under Portuguese tax law?
Yes, usufruct holders can be subject to AIMI taxation, but the controversy centers on the proper valuation basis. The Tax Authority's position treats usufructuaries as taxable on the full property value. However, taxpayers argue this contradicts AIMI's characterization as a personal wealth tax under Articles 135-A to 135-C of the IMI Code. Since usufruct is a limited real right distinct from full ownership (per Civil Code Articles 1305 and 1439), taxing usufructuaries on values exceeding their actual patrimonial interest potentially violates the tax's fundamental nature and the principle that taxes should reflect actual wealth held.
What was the outcome of CAAD arbitral decision 698/2018-T regarding AIMI on usufruct holders?
In CAAD decision 698/2018-T, the arbitral tribunal considered whether elderly usufructuaries (aged 80 and 86) could be assessed AIMI on the full property value (€1,817,581.81 and €849,501.81 respectively) or only on the usufruct value calculated at 10% and 15% per the Transfer Tax Code age tables. The applicants successfully challenged AIMI assessments totaling €12,722.33, arguing their actual taxable wealth should reflect only the usufruct value, which would fall below the AIMI exemption threshold of €600,000. The case hinged on reconciling AIMI's personal wealth tax nature with the valuation methodology applicable to divided ownership interests.
How does the distinction between bare ownership and usufruct affect AIMI liability in Portugal?
The distinction between bare ownership (nua propriedade) and usufruct (usufruto) is critical for AIMI liability because AIMI is structured as a personal wealth tax, not a real property tax like IMI. Under IMI, usufructuaries pay tax on the full property value as the persons with direct use and enjoyment rights. However, AIMI under Article 135-C taxes the taxpayer's aggregate property wealth. When ownership is divided, the usufruct value represents only a percentage of full ownership calculated by age per Article 13 of the Transfer Tax Code (ranging from 10% for those 85+ to 80% for those under 20). This distinction determines whether divided interests are aggregated separately for each holder or if usufructuaries face taxation on values exceeding their actual patrimonial sphere.
What is the procedure to challenge an AIMI tax assessment through CAAD arbitral proceedings?
To challenge an AIMI assessment through CAAD, taxpayers must file a request for arbitration under Decree-Law 10/2011 of 20 January, as demonstrated in this case filed on 28 December 2018. The request must specify the contested acts (here, AIMI assessments 2018...) and the relief sought (declaration of illegality and reimbursement with interest). Taxpayers may allow CAAD's Ethics Council to designate the arbitrator. The Tax Authority submits a response (here within approximately 3 months), and taxpayers can reply to any exceptions raised. The tribunal may dispense with hearings and proceed with written submissions. Notably, this case also demonstrates procedures for succession when a party dies during proceedings, requiring qualification of heirs to continue the case through a separate incident procedure.