Process: 746/2014-T

Date: June 5, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

This arbitration case (Process 746/2014-T) involves a challenge to an additional Municipal Property Tax (IMI) assessment of €39,250.36 for the year 2010. The claimant, A... S.A., contested the Tax Authority's (AT) decision to assess IMI on two building plots (registration articles from an extinct parish) that the company argued no longer existed as undeveloped land in 2010. The core dispute centers on alleged double taxation: the AT had already assessed and collected IMI on three completed urban buildings constructed on the rustic properties in question for the same tax year 2010. The claimant argued it was legally impossible for the same physical reality to be simultaneously classified as both building plots and completed urban properties on December 31, 2010. The claimant raised multiple grounds for annulment: (1) lack of substantiation (falta de fundamentação) in violation of Article 268(3) of the Portuguese Constitution and Article 77(1) of the General Tax Law, arguing the assessment failed to explain how building plots could exist after construction was completed and use licenses obtained; (2) procedural defects, including the AT's failure to conduct requested second evaluations under the general regime before issuing the assessment, as required by Article 76 of the Municipal Property Tax Code (CIMI); (3) substantive illegality for violating Articles 6, 8, 9, and 10 of CIMI, which establish that urban properties resulting from construction on rustic land eliminate the underlying rustic property registration; and (4) improper taxpayer designation regarding a parcel subject to surface rights held by a third party. The claimant also alleged the AT improperly refused to issue a certificate under Article 37 of the Tax Procedure Code. The Tax Authority filed no response and claimed no administrative file existed for the contested assessment. The case proceeded to written arguments without an evidentiary hearing.

Full Decision

ARBITRAL DECISION

I. REPORT

A..., S.A., with registered office at …, n.º …, ….º floor, …-… Lisbon, holder of the single registration and identification number for legal persons …, hereinafter simply designated as the Claimant, filed a request for the constitution of an arbitral tribunal in tax matters and a request for arbitral pronouncement, under the provisions of Articles 2º no. 1 a) and 10º no. 1 a), both of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, abbreviated as RJAT), petitioning the declaration of illegality and annulment of the additional assessment act of Municipal Property Tax (IMI), which applied to two urban properties, relating to the year 2010, in the total amount of € 39,250.36, as well as the condemnation of the Tax Authority (AT) to reimburse the tax paid by the Claimant, plus default interest.

To support its request, it alleges, in summary:

a) The Claimant was notified of the additional IMI assessment, referring to the year 2010, and affecting two building plots, corresponding to the registration articles … and …, of the parish of …;

b) In 2010, such properties could not be recorded in the property register as building plots, since in that year: i) the construction works that were being developed on the rustic properties, which according to the AT gave rise to those building plots, had been completed; and ii) the three urban properties (registration articles …, … and …, all of the extinct parish of …) built thereon had already begun to be used for their intended purposes, with at least two respective municipal use and/or operation licences having been obtained;

c) Under the combined provisions of Articles 8.º, no. 1, 9.º, no. 1, paragraphs a) and c) and 10.º, no. 1 of the Code of Municipal Property Tax (CIMI), urban properties resulting from works performed on existing rustic properties are considered subject to taxation under IMI, eliminating from the register the properties on which such buildings were implemented;

d) In 2011, the AT assessed IMI on the said three urban properties built on the rustic properties recorded in the register under articles … and …, both of section … of the extinct parish of …, with reference to the year 2010, and not on any building plots, the Claimant having paid the corresponding assessment;

e) Although it had proceeded to evaluate the three urban properties built and had imposed IMI on them, referring to 2010, the AT assessed IMI, precisely for that same year, on the alleged building plots, a date on which they could not have been recorded in the register;

f) The evaluation and recording of the building plots, carried out by the AT, only in 2013, but with reference to 2009 and with effects for 2010, is nothing but a mere fiction, as in that year there was nothing left to record or evaluate, beyond the urban properties built thereon;

g) From the assessment notified to the Claimant it is not possible to ascertain how the AT was able to proceed to the retroactive registration in the property register of two building plots;

h) Either the AT believes that, on 31 December 2010, there were only building plots, and not built urban properties, and reimburses the Claimant the IMI paid in 2010; or it cannot maintain that the same physical reality, on 31 December 2010, can constitute both a built urban property and a building plot;

i) The AT did not comply with the Claimant's request for the issuance of a certificate under Article 37.º of the Code of Tax Procedure and Process (CPPT);

j) Notified of the disputed assessment, the Claimant requested the carrying out of a second evaluation, under the terms and for the purposes of Articles 76º nos. 1 and 2 of the CIMI;

k) The Claimant was not notified of the result of the second evaluation requested prior to notification of the assessment, having only been notified of the second evaluation carried out by the AT, under the terms and for the purposes of Articles 76º nos. 4 and 5 of the CIMI;

l) Under this second evaluation carried out by the AT, the building plots recorded in articles … and … of the extinct parish of …, were evaluated at, respectively, € 6,014,897.28 and € 449,550.00;

m) Notwithstanding the taxable property value assigned to the identified articles … and …, the AT assessed IMI relating to the identified properties, based on the taxable property values resulting from the first evaluation;

n) In summary, the notification of the additional IMI assessment does not clarify the reason why the AT assessed IMI in 2010 on two realities that, on 31 December of that year could not be recorded in the register nor exist, taking into account, for this purpose, the taxable property value determined in the first evaluation;

o) The additional assessment act notified to the Claimant lacks substantiation, and should therefore be declared illegal and annulled for formal defect, under the provisions of Articles 268.º, no. 3 of the CRP and 77.º, no. 1 of the LGT;

p) Being IMI a periodic tax with annual character, which is considered due as soon as one of the facts provided for in Article 9.º of the CIMI occurs, the AT cannot impose IMI, on the date of 31 December 2010, on either building plots or built urban properties, referring to the same physical reality, under penalty of an inadmissible duplication of IMI incidence;

q) Having a right of surface been constituted in favour of a third-party company over a parcel of the rustic property recorded in the property register under article … section …, in 2010, only the surface rights holder can, in 2010, be the passive taxpayer of IMI with respect to that parcel – cf. nos. 1 and 2 of Article 8.º of the CIMI;

r) The additional assessment is illegal and should be annulled for violation of the provisions of Articles 6.º, 8.º, 9.º and 10.º of the CIMI.

s) The assessment is further illegal because the AT did not carry out the second evaluations of the properties, under the general regime, requested by the Claimant, constituting a failure in the IMI assessment procedure, under the provisions of nos. 1 and 2 of Article 76.º of the CIMI.

The Claimant attached thirty (30) documents and called two witnesses.

In the request for arbitral pronouncement, the Claimant chose not to designate an arbitrator, and therefore, under the provisions of Article 6º no. 1 of the RJAT, the signatory was designated by the Ethics Council of the Centre for Administrative Arbitration, the appointment having been accepted under the legally provided terms.

The arbitral tribunal was constituted on 05 January 2015.

Notified under the terms and for the purposes of Article 17º of the RJAT, the Respondent presented no response and did not submit a copy of the administrative file.

Notified to attach to the proceedings a copy of the administrative file, the Respondent reported that no administrative file exists regarding the tax act in question.

Given the position assumed by the parties and there being no need for additional production of evidence, the holding of the meeting referred to in Article 18º of the RJAT was dispensed with, the proceedings continuing to written arguments, with the Claimant having submitted written arguments.

II. QUESTIONS TO BE DECIDED

In these proceedings the questions to be decided are:

a) To determine whether the additional IMI assessment act suffers from lack of substantiation;

b) To determine whether the additional IMI assessment act is illegal because the legal prerequisites of fact and law are not met or due to procedural defect.

III. FACTUAL MATTERS

a. Proven Facts:

With relevance to the decision to be rendered in these proceedings, the following facts were established as proven:

  1. By public deed executed on 21 September 2009, the Claimant purchased from "B…" the following properties: i) rustic property recorded in the register under article … of section …; and ii) rustic property recorded in the register under article … of section …, both of the extinct parish of …, municipality of ..., district of Setúbal;

  2. The rustic property recorded in the register under article … of section … had a total area of 10,399200 ha and the rustic property recorded in the register under article … of section … had an area of 1,498500 ha;

  3. On 22 September 2009, the Municipal Council of ... issued, in the name of the Claimant, the building works license permit n.º …/09, relating to the construction of a building with licensed area of 70,434.77 m², intended for commerce, on the rustic properties identified in point 2 above;

  4. On 25 June 2010, the Municipal Council of ... also issued, in the name of the Claimant, the building works license permit n.º …/10, relating to the construction of building "C…" with licensed area of 410.20 m², intended for general use, on the rustic property recorded in the property register under article … of section … of the extinct parish of …;

  5. On 27 July 2010, the Municipal Council of ... issued, in the name of "D…, S.A", the building works license permit n.º …/10, relating to the construction of a fuel supply station with licensed area of 209.68, on the rustic property recorded in the property register under article … of section … of the extinct parish of …;

  6. On 12 November 2010, the Municipal Council of ... granted to "D…, S.A" the operation license permit n.º …/10, for the operation of a Fuel Supply Station for liquid and gaseous fuels for public sale, located in "E…";

  7. By public deed executed on 15 November 2010, the Claimant constituted in favour of the company "F…, Lda" a right of surface over a parcel of land of the rustic property recorded in the property register under article … of section …, of the extinct parish of …, for a period of 20 years, counting from 17/11/2010;

  8. On 16 November 2010, the Municipal Council of ... issued in the name of the Claimant, the license permit for use of the properties referred to in point 2 above, to which the number …/10 was assigned;

  9. On 14 January 2011, the Claimant delivered the IMI Model 1 declaration relating to the rustic property recorded in the register under article … section .. of the extinct parish of …, having declared, as the date of the use license, 16/11/2010;

  10. On 17 January 2011, "F…, Lda" delivered the IMI Model 1 declaration relating to …/… of the rustic property recorded in the register under article … of section … of the extinct parish of …, having declared as the date of completion of works, 17/11/2010;

  11. By official letter dated 01 February 2011, the Claimant was notified of the taxable property value assigned to units A) to P) of the urban property described in the register under article …, of the extinct parish of …;

  12. By official letter dated 08 February 2011, the Claimant was notified of the taxable property value assigned to the urban property described in the register under article …., of the extinct parish of …;

  13. On 21 March 2011, the Claimant delivered the IMI Model 1 declaration relating to the rustic property recorded in the register under article … section … of the extinct parish of …, having declared, as the date of the use license, 12/11/2010;

  14. By official letter dated 29 March 2011, the Claimant was notified of the taxable property value assigned to unit Q) of the urban property described in the register under article …, of the extinct parish of …;

  15. By official letter dated 10 May 2011, the Claimant was notified of the taxable property value assigned to the urban property described in the register under article …, of the extinct parish of …;

  16. On 20 May 2011, the AT assessed IMI relating to the rustic properties recorded in the register under articles … and …, of sections … and the urban property recorded in the register under article …, for the tax year 2010, in the total amount of € 113,666.73;

  17. On 14 June 2011 the AT assessed IMI relating to the urban property recorded in the register under article …, for the tax year 2010;

  18. On 09 July 2011, the AT issued an additional IMI assessment, for the year 2010, in which it included, in addition to the properties referred to in point 16 above, the urban property recorded in the register under article …, in the total amount of € 115,240.41;

  19. The Claimant paid the IMI assessments referred to in points 16 and 18 above, in the total amount of € 115,240.41;

  20. The Claimant was notified of the IMI assessments relating to the rustic properties recorded in the register under articles … and …, of the extinct parish of … and the urban properties recorded in the register under articles … and …, of the extinct parish of …, relating to the years 2011, 2012 and 2013;

  21. On 12 September 2013, the Claimant was notified of the beginning of the external inspection procedure, Service Order n.º OI2013…, of general scope and extension to the tax year 2009;

  22. On 18 November 2013, the Claimant was notified of the taxable property value assigned to the properties recorded in the property register under articles … and … of the extinct parish of … as a result of the evaluation carried out;

  23. Following the evaluation carried out on the properties referred to in point 22 above, the Claimant formulated a request for clarification with the Tax Inspection Service of the Finance Department of Lisbon, questioning the basis of such evaluations;

  24. On 17 December 2013, the Claimant submitted to the Finance Service of ... two applications by means of which it petitioned the annulment of the evaluation process of the properties recorded in the urban property register of the extinct parish of … under articles … and … and requested, subsidiarily, the carrying out of a second evaluation of these same properties, under the terms of Article 76.º of the CIMI;

  25. By official letters of 17 January 2014, the expert appointed by the Claimant was notified to appear on 07 February 2014, at 14:15, at the Finance Service of ..., in order to proceed to the second evaluation of the urban properties recorded in the register under articles … and …;

  26. The Claimant was notified, on 21 March 2014, of the conclusion of the inspection acts relating to the tax year 2009, from which no tax acts or tax-related matters that are unfavourable to it resulted;

  27. On 26 April 2014, the AT issued an additional IMI assessment relating to the urban properties recorded in the property register under articles … and …, relating to the year 2010;

  28. On 04 July 2014, the Claimant requested the issuance of a certificate of complete content with the full substantiation of the IMI assessment act issued by the AT on 26 April 2014, under Article 37.º of the CPPT;

  29. The Claimant requested the issuance of a complete certificate of the evaluation process of the urban properties recorded in the register under articles … and … of the extinct parish of …;

  30. By official letters dated 15 July 2014, the Claimant was notified of the new taxable property values assigned to the building plots recorded in the urban property register under articles … and …, determined under the terms of nos. 4 and 5 of Article 76.º of the CIMI;

  31. On 29 July 2014, a complete certificate of the evaluation process relating to the properties recorded under registration articles … and …, of the extinct parish of …, was issued;

  32. On 28 August 2014, the Claimant paid the amount corresponding to the disputed assessment;

  33. The urban properties recorded in the register under articles … and … of the extinct parish of …., corresponding to the building plots on which the additional IMI assessment now in question was imposed, originated from the rustic properties recorded under articles … and …, both of section … of the extinct parish of …;

  34. By virtue of the administrative reorganization of territory, operated by Law no. 11-A/2013, of 28 January, the parish of …. was merged with the parish of …, giving rise to the Union of Parishes of …, with articles …, … and … of the former parish of … now corresponding to the current articles …, … and … of the Union of Parishes of …..

b. Unproven Facts:

With interest for these proceedings, there is no factual matter left unproven.

c. Substantiation of the Factual Matter:

The conviction regarding the facts established as proven was based on the documentary evidence submitted by the Claimant, indicated relative to each point, whose authenticity and correspondence to reality was not questioned by the Respondent.

IV. PRELIMINARY EXAMINATION

The Arbitral Tribunal is regularly constituted and is materially competent.

The parties have judicial personality and capacity, are legally entitled, and are regularly represented.

The proceedings do not suffer from defects affecting their validity, there being no exceptions or preliminary issues that prevent the examination of the merits and of which it is necessary to officially ascertain.

V. ON THE LAW

The factual matter now being established, it is necessary, by reference to it, to determine the applicable law.

The Claimant begins by alleging that the additional IMI assessment act of which it was notified suffers from a defect of lack of substantiation, as from the same it is not possible to ascertain: i) the reason why the AT proceeded to the retroactive registration in the property register, in 2013, of two realities that, at least from 2010, could not be deemed to exist; ii) the reason why the AT imposed IMI on the taxable property value determined in the first evaluation, disregarding the request for a second evaluation submitted; and iii) the choice of the taxation period relating to the year 2010.

In summary, the Claimant alleges that, faced with the obscurity of the assessment in question, its right of defence is curtailed, and the request for arbitral pronouncement is constructed on the basis of mere suppositions and assumptions.

It thus concludes, petitioning the declaration of illegality of the disputed assessment act and, through this, its annulment, under the provisions of Articles 268.º, no. 3 of the CRP and 77.º, no. 1 of the LGT.

Let us examine this.

The law imposes a duty of substantiation, as a right enshrined and constitutionally guaranteed to citizens (Article 268º no. 3 of the Constitution of the Portuguese Republic) and as an act defining the position of the Tax Authority before private parties, so that the passive taxpayer can infer the reasoning followed by the AT to decide as it decided and not otherwise.

The duty of substantiation thus allows a reasonable recipient to perceive the cognitive and evaluative path followed by the author of the act to render the decision, so that the recipient can know the reasons why the author of the act decided as it did and not differently, in order to be able to trigger administrative or contentious mechanisms of challenge.

It is precisely for this reason that Article 77.º no. 2 of the General Tax Law requires that the decision of the procedure contain "the applicable legal provisions, the characterization and quantification of the tax facts and the operations to determine the taxable matter and the tax", as only in this way can the passive taxpayer of the tax perceive the raison d'être of the tax act and consider reactions to it.

Now, analysing the additional assessment notified to the Claimant, it is verified that it contains:

a) the applicable legal provisions;

b) the characterization of the tax facts;

c) the quantification of the tax facts; and

d) the operations to determine the taxable matter and the tax.

Indeed, from the assessment in question it results that the AT assessed IMI on the urban properties recorded in the property register under articles … and …, located in the extinct parish of .., for the year 2010, having as basis the taxable property value of, respectively, € 9,022,930.00 and € 789,660.00, applying to this value a rate of 0.4%, which resulted in the collection of, respectively, € 36,091.72 and € 3,158.64, under the provisions of Article 112.º of the CIMI.

Although the assessment in question contains all the elements required by Article 77º no. 2 of the LGT, it is important to ascertain whether these elements would be sufficient to affirm that the duties of substantiation of the act are, in this case, properly fulfilled.

For, and as the Claimant rightly stresses, the duty of substantiation is a relative concept that varies according to the legal type of the administrative act and the circumstance in which it was performed.

In this sense, it has been argued that "the requirements for substantiation of the tax act are not rigid, varying according to the type of act and the concrete circumstances in which it was rendered".

Although the Claimant alleges that it was unable to ascertain from the additional assessment notified the basis for such assessment, the truth is that, given the presentation of the merits of the case and the substantiation of the request for arbitral pronouncement made by the Claimant, it results that it perceived exactly the path traced by the AT for the assessment of IMI, and thus must necessarily be considered to have overcome the formal defect invoked.

As is accepted without dispute in jurisprudence, "the formal defect of lack of substantiation does not occur if the challenging party itself expressly reveals having perfectly understood the logical and legal process that led to the taxation decision, acknowledging having perceived the prerequisites concretely taken into account by the author of the act and the reasons why the taxed values were reached, denouncing the cognitive and evaluative path followed (…)".

Whether these prerequisites and reasons correspond or not to reality is a question that concerns the merits and no longer the form and which, therefore, arises in another dimension from which it is not necessary, at this point, to rule on.

In these terms, it is understood that, in this case, the substantiation of the disputed tax act is sufficiently perceptible to a reasonable recipient, placed in the position of the concrete recipient, and the allegation of the Claimant should be dismissed on this point.

This matter being known, it is now necessary to assess whether the additional IMI assessment impugned suffers or not from illegality due to error regarding the prerequisites of fact and law or due to procedural defect.

The examination of the procedural defect should logically precede the examination of error regarding the prerequisites of fact and law, given the fact that the possible merit of the alleged procedural defect would result in the impossibility of assessing the tax in question, under the terms and for the purposes of Article 118.º of the CIMI.

Comparing the proven facts, it is verified that the Claimant was notified of the evaluation carried out on the urban properties recorded in the property register under articles … and … of the extinct parish of …, on 18 November 2013, and requested the carrying out of a second evaluation, under the terms and for the purposes of Article 76.º of the CIMI, on 17 December 2013 – cf. proven facts 22 and 24.

It further results from the proven facts that the disputed assessment was made on 26 April 2014, and that the Claimant was notified of the new taxable property values assigned to the properties at issue here, determined as a result of the second evaluation carried out under the terms of nos. 4 and 5 of Article 76.º of the CIMI, on 15 July 2014 – cf. proven facts 27 and 30.

Article 118.º no. 1 of the CIMI provides:

"While the period of 30 days counted from the notification of the first evaluation has not elapsed or the result of the second evaluation, when requested, has not become final, the assessment of the tax remains suspended, except if a judicial claim is presented, which has no suspensory effect". (emphasis added).

In the case at hand, a second evaluation having been timely requested by the now Claimant, the AT could not assess the tax in question until the completion of this second evaluation, as only after the performance of this second evaluation would the taxable property value of the properties on which the assessment was imposed be consolidated in the legal order.

This means that the IMI assessment in question should have remained suspended until the effective consolidation of the result of the requested second evaluation.

In this regard, Official Circular 40,056, of 04/11/2002, from the Assessment Services Department, clarifies that "the fact that a second evaluation is requested because there is disagreement with the value assigned in the first, immediately prevents that value or any other value from being consolidated in the legal order. It is as if nothing existed up to that point. From that moment on, it can only become final the value determined in the second evaluation".

Concluding as follows:

"1. The evaluation is intended to determine the value of assets for tax purposes.

  1. The fact that a second evaluation is requested prevents the result of the first from being consolidated.

  2. The value on which taxation is to be imposed only exists with the end of the evaluation process, which includes both the 1st and 2nd evaluation."

Note that, as stated in the aforementioned Official Circular, the value on which taxation under IMI is to be imposed only exists with the end of the evaluation process, including here both the result of the first and the second evaluation.

Therefore, the AT could not have assessed IMI on the aforementioned urban properties without the respective evaluation process having been completed.

In light of the foregoing, as the AT assessed IMI without the prior consolidation of the taxable property value of the properties in question, which would only occur with the performance of the second evaluation, it is concluded that the IMI assessment act impugned is illegal, for violation of the provisions of Article 118º of the CIMI.

The examination of the alleged error regarding the prerequisites of fact and law of the disputed assessment is thus prejudiced.

VI. OPERATIVE PART

In light of the foregoing, it is decided:

a) to uphold the request for declaration of illegality of the Municipal Property Tax assessment act in the total amount of € 39,250.36, with its consequent annulment;

b) to uphold the request for condemnation of the AT to pay the reimbursement of the tax paid by the Claimant, as well as default interest.

The value of the case is set at € 39,250.36, under the terms of paragraph a) of no. 1 of Article 97º-A of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of no. 1 of Article 29.º of the RJAT and of no. 2 of Article 3.º of the Regulation of Costs in Tax Arbitration Proceedings.

The value of the arbitration fee is set at € 1,836.00, under the terms of Table I of the Regulation of Costs of Tax Arbitration Proceedings, as well as under the provisions of no. 2 of Article 12.º and no. 4 of Article 22.º, both of the RJAT, and of no. 3 of Article 4.º of the cited Regulation, to be paid by the Respondent as the defeated party.

Register and notify.

Lisbon, 5 June 2015.

The Arbitrator,

Alberto Amorim Pereira

Text prepared by computer, under the terms of no. 5 of Article 131.º of the CPC, applicable by reference of paragraph e) of no. 1 of Decree-Law no. 10/2011, of 20/01, its drafting being governed by traditional orthography.

Frequently Asked Questions

Automatically Created

What is IMI (Imposto Municipal sobre Imóveis) and how does it apply to urban properties and building land in Portugal?
IMI (Imposto Municipal sobre Imóveis) is Portugal's Municipal Property Tax, an annual tax levied on urban and rustic properties. Under the CIMI (Municipal Property Tax Code), urban properties include buildings and building plots (terrenos para construção). Building plots are land parcels designated for construction in urban planning instruments. IMI applies differently depending on property classification: completed urban buildings are taxed based on their patrimonial tax value after evaluation, while building plots are taxed as urban land awaiting development. When construction occurs on rustic property, Article 8(1), 9(1), and 10(1) of CIMI establish that the resulting urban buildings become the taxable properties, and the underlying rustic property registration is eliminated from the tax register. The tax is due annually based on the property's status on December 31 of the previous year.
Can the Portuguese Tax Authority (AT) retroactively assess IMI on building land that has already been developed into urban buildings?
No, Portuguese law does not permit retroactive IMI assessment on building land that has already been developed into completed urban buildings. Under Articles 8, 9, and 10 of the CIMI, when construction is completed on rustic or undeveloped land, the resulting urban buildings replace the previous property classification for tax purposes. The property register must reflect the actual physical reality. As demonstrated in this case, once construction was completed and use licenses were obtained for the urban buildings in 2010, the Tax Authority could not simultaneously assess IMI on both the completed buildings AND fictitious building plots for the same tax year. Such retroactive registration of building plots in 2013 with effects for 2010—when completed buildings already existed—constitutes an impermissible legal fiction that violates the fundamental principle that IMI is a periodic annual tax based on existing property conditions. This would result in inadmissible double taxation on the same physical reality.
What constitutes a lack of reasoning (falta de fundamentação) in an IMI tax assessment under Portuguese law?
Lack of reasoning (falta de fundamentação) in an IMI assessment under Portuguese law violates Article 268(3) of the Constitution and Article 77(1) of the General Tax Law (LGT), which require administrative acts to be substantiated. An assessment lacks proper substantiation when it fails to explain the factual and legal basis for the tax determination, preventing the taxpayer from understanding why they are being taxed. In this case, the claimant argued the assessment notification did not clarify how the Tax Authority could assess IMI in 2010 on building plots that could not exist on December 31 of that year, given that completed urban buildings had already been constructed, licensed, and separately assessed for IMI. The lack of explanation regarding the retroactive property registration, the basis for using first evaluation values despite a second evaluation, and the apparent double taxation on the same physical reality constituted insufficient substantiation that prevented meaningful challenge of the assessment's legal basis.
What procedural defects can lead to the annulment of an additional IMI tax assessment in Portugal?
Several procedural defects can lead to annulment of an additional IMI assessment in Portugal: (1) Failure to conduct requested second evaluations under Articles 76(1) and 76(2) of CIMI before issuing the assessment—taxpayers have the right to request a second evaluation following notification of property evaluation, and the assessment cannot proceed using first evaluation values if this procedure is not properly completed; (2) Lack of substantiation in violation of Article 77(1) of the General Tax Law, when the assessment fails to explain its factual and legal basis; (3) Improper notification procedures that deprive taxpayers of procedural rights; (4) Failure to provide requested certificates under Article 37 of the Tax Procedure Code; (5) Assessment based on retroactive property registrations that do not reflect actual property conditions on the relevant tax reference date; and (6) Violation of evaluation procedures established in CIMI. These procedural defects constitute formal illegalities (vícios de forma) that render the assessment illegal regardless of whether the substantive tax calculation might be correct.
Are taxpayers entitled to a refund with compensatory interest when an IMI assessment is declared illegal by CAAD?
Yes, under Portuguese tax law, when an IMI assessment is declared illegal and annulled by CAAD (Centro de Arbitragem Administrativa) or other competent authorities, taxpayers are entitled to reimbursement of taxes paid plus compensatory interest (juros indemnizatórios). Article 43 of the General Tax Law establishes the right to compensatory interest when taxpayers have paid taxes in excess of what is legally due, calculated from the date of undue payment until reimbursement. The interest compensates taxpayers for the financial loss of having funds improperly retained by the Tax Authority. In arbitration proceedings under the RJAT (Legal Regime of Arbitration in Tax Matters), claimants routinely request not only annulment of illegal assessments but also condemnation of the Tax Authority to reimburse paid amounts plus default interest. The interest rate and calculation method are established by law, ensuring taxpayers are made whole for the period during which the State held funds to which it was not entitled due to the illegal assessment.