Process: 93/2018-T

Date: July 18, 2018

Tax Type: IMI

Source: Original CAAD Decision

Summary

This CAAD arbitration ruling (Process 93/2018-T) addresses the application of the IMI safeguard clause under Article 15-N of Decree-Law 287/2003 to properties subject to long-term commercial leases. The claimant, A..., challenged an IMI assessment of €85,720.89 for 2013, arguing that the Tax Authority failed to apply the special protection regime for leased urban properties. The properties in question were subject to a lease agreement dating from 1953, predating the 1995 regulatory framework. The Tribunal found that the safeguard clause limits IMI calculations for properties under old lease agreements by capping the taxable value increase, preventing excessive tax burdens on owners receiving controlled rents. The Tax Authority failed to respond or submit the administrative file, which did not prevent the Tribunal from proceeding. Based on documentary evidence, including the lease agreement and rental income declarations submitted for 2012 and 2013, the Tribunal verified that the properties qualified for protection under Article 15-N. The proven facts demonstrated that applying the safeguard regime would result in significantly lower IMI values than those assessed. The arbitrators concluded that the contested assessment was illegal for failing to apply the mandatory protective regime, ordering its annulment with all legal consequences. This decision reinforces taxpayers' rights to challenge IMI assessments through CAAD arbitration and establishes that properties under pre-1995 commercial leases benefit from special valuation rules that limit tax exposure, particularly important when general property revaluations occur.

Full Decision

The arbitrators Dr. Jorge Lopes de Sousa (arbitrator-president), Dr. Ana Teixeira de Sousa and Dr. Isaque Marcos Lameiras Ramos (arbitrators-members), designated by the Ethics Council of the Center for Administrative Arbitration to form the Arbitral Tribunal, constituted on 24-05-2018, agree as follows:

1. Report (consult full version in PDF)

A..., holder of tax identification number ... (hereinafter "A..." or "Claimant"), filed a request for constitution of a collective arbitral tribunal, pursuant to Decree-Law No. 10/2011 of 20 January (hereinafter RJAT), in which the TAX AND CUSTOMS AUTHORITY is the Respondent.

A... seeks that the illegality of assessment No. 2013... issued by the Tax Authority, relating to IMI [Real Estate Tax] for 2013, in the amount of €85,720.89 with payment deadline of 31 January 2018, be declared and annulled, with all legal consequences arising therefrom.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the Tax and Customs Authority on 14-03-2018.

Pursuant to the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of RJAT, the Ethics Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable timeframe.

On 04-05-2018, the parties were duly notified of this designation and did not manifest any intention to refuse the designation of the arbitrators, in accordance with the combined provisions of Article 11, paragraph 1, subparagraphs a) and b) of RJAT and Articles 6 and 7 of the Ethics Code.

In accordance with the provisions of subparagraph c) of paragraph 1 of Article 11 of RJAT, the collective arbitral tribunal was constituted on 24-05-2018.

The Tax and Customs Authority was notified pursuant to Article 17 of RJAT, but did not respond nor submitted the administrative file.

By order of 29-06-2018, the holding of the meeting provided for in Article 18 was waived and it was decided to render a decision based on the documentary evidence presented, without any further proceedings.

The Tribunal is competent and was regularly constituted.

The parties have legal personality and capacity, are legitimate and are duly represented (Articles 4 and 10, paragraph 2, of RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings contain no nullities.

2. Factual Matters

2.1. Proven Facts

The following facts are considered proven, as being relevant to the decision:

- On 1 October 1953, A... (formerly named B...) entered into a lease agreement with C... (formerly named D..., S.A.), which remains in force;

- The object of this contract includes, in 2013, urban properties with the following registration numbers:

- Regarding the 2012 tax year, A... submitted on 24-10-2012 the rental income declaration for 2012 (document No. 6 attached with the request for arbitral pronouncement, the contents of which are reproduced), and on 29 of the same month, delivered to the Finance Service of Lisbon ... the supporting documentation of the declaration (document No. 7 attached with the request for arbitral pronouncement, the contents of which are reproduced), specifically:

i) Certified copy of the lease agreement; and

ii) Copies of rent receipts from December 2010 to the month prior to the date of submission of the rental income declaration (document No. 8 attached with the request for arbitral pronouncement, the contents of which are reproduced);

- The Tax and Customs Administration issued Circular Notice No. 40.106, of 10 August 2012, in which it set, among other matters, 31-10-2012 as the deadline for submitting the Rental Income Declaration, pursuant to paragraph 1 of Article 2 of Ordinance No. 240/2012, of 10 August;

- Regarding the 2013 tax year, A... submitted on 28-01-2014 the rental income declaration (document No. 9 attached with the request for arbitral pronouncement, the contents of which are reproduced), and on 29-01-2014, delivered to the Finance Service of Lisbon ... the copies of rent receipts for the 4th quarter of 2013 (document No. 10 attached with the request for arbitral pronouncement, the contents of which are reproduced);

- A... was notified on 27-12-2016 of the first valuation of the properties with registration numbers ex... (document No. 15 attached with the request for arbitral pronouncement, the contents of which are reproduced) and ex... (document No. 16 attached with the request for arbitral pronouncement, the contents of which are reproduced);

- With this valuation, the Tax Authority assigned to the property with registration number ex... a taxable value of €118,660.00 and to the property with registration number ex... a taxable value of €11,866,000.00;

- In the context of the valuation process of the registration numbers in question, A... received on 21-06-2017 an email from the appraiser of the Tax Authority, which is contained in document No. 17 attached with the request for arbitral pronouncement, the contents of which are reproduced, in which it states, among other matters, the following: "Given the possibility of the values payable relating to IMI prescribing, at the end of 2016 I opted to appraise the aforementioned articles with the values then recorded in the property registers";

- On 04-01-2017, A... requested the 2nd valuation of the properties with registration numbers ex... and ex... (document No. 18 attached with the request for arbitral pronouncement, the contents of which are reproduced);

- In October 2017, A... was notified of new valuations of the properties with registration numbers ex... and ex... (documents Nos. 19 and 20 attached with the request for arbitral pronouncement, the contents of which are reproduced);

- Not agreeing with the manner in which the taxable value of the aforementioned properties was determined, A... presented a new request for second valuation (document No. 21 attached with the request for arbitral pronouncement, the contents of which are reproduced);

- On 14-12-2017, the Tax and Customs Administration issued IMI assessment No. 2013..., relating to the year 2013, in which it determined the amount to be paid of €85,720.89, with payment deadline of January 2018;

- In this assessment, the Tax and Customs Administration applied the IMI rate to the taxable values contained in the property registers of which A... is the owner, as of 31 December 2013;

- With application of the regime provided for in paragraph 1 of Article 15-N of Decree-Law No. 287/2003, the IMI values should be as follows:

- The present request for arbitral pronouncement was submitted on 12-03-2018.

2.2. Unproven Facts and Grounds of Factual Matters

There are no facts relevant to the decision of the case that have not been proven.

The proven facts are based on the documentary evidence presented by the Claimant which is not subject to dispute.

3. Legal Matters

The Claimant was notified of the contested IMI assessment for the year 2013, relating to real properties of which it is the owner.

The Claimant attributes illegality to the contested assessment for not having applied the special protection regime relating to urban properties that are let, provided for in paragraph 1 of Article 15-N of Decree-Law No. 287/2003, added by Law No. 60-A/2011, of 30 November, which establishes the following, in the wording given by Law No. 64/2012, of 21 December:

Article 15-N

Rented Urban Properties

1 - In the case of an urban property or part of an urban property covered by the general valuation that is let by a lease agreement for residential purposes concluded before the entry into force of the Urban Rental Regime, approved by Decree-Law No. 321-B/90, of 15 October, or by a lease agreement for non-residential purposes concluded before the entry into force of Decree-Law No. 257/95, of 30 September, the taxable value, exclusively for IMI purposes, shall not exceed the value resulting from the capitalization of the annual rent by applying the factor 15.

2 - The owners, usufructuaries or superficiary holders of rented urban properties, in accordance with the preceding paragraph, must submit, by 31 August 2012, a declaration containing the last monthly rent received and the tax identification of the tenant, in accordance with the model approved by ordinance of the Minister of Finance.

3 - The declaration referred to in the preceding paragraph must be accompanied by an authenticated photocopy of the written contract or, failing that, by means of suitable proof in accordance with the terms to be defined by ordinance of the Minister of Finance.

4 - The declaration must also be accompanied by a copy of the rent receipts or counterfoils of those receipts relating to the months from December 2010 to the month prior to the date of submission of the declaration, or by monthly rent collection statements, in cases in which these are received by entities representing the owners, usufructuaries or superficiary holders of properties let in accordance with paragraph 1.

5 - The taxable value exclusively for IMI purposes, fixed in accordance with the provisions of the preceding paragraphs, is subject to notification to the respective owner and is subject to complaint or challenge in accordance with general rules.

6 - In the case of properties or parts of properties covered by paragraph 1 whose rents are updated in accordance with paragraph 10 of Article 33 of Law No. 6/2006, of 27 February, amended by Law No. 31/2012, of 14 August, or on the basis of corrected annual gross income (RABC), in accordance with the provisions of subparagraph c) of paragraph 2 of Article 35 or paragraph 7 of Article 36 of the same law, the provisions of paragraph 1 shall apply, with the necessary adaptations, with reference to the value of the annual updated rent.

7 - The owners, usufructuaries or superficiary holders of urban properties let by a lease agreement for residential purposes concluded before the entry into force of the Urban Rental Regime, approved by Decree-Law No. 321-B/90, of 15 October, or by a lease agreement for non-residential purposes concluded before the entry into force of Decree-Law No. 257/95, of 30 September, who benefit from the regime provided for in this article must submit, annually, in the period between 1 November and 15 December, a declaration containing the value of the monthly rent due relating to the month of December and the tax identification of the tenant, in accordance with the model approved by ordinance of the member of the Government responsible for the area of finance.

8 - (Revoked by Law 64/12, of 21-12)

9 - The declaration referred to in the preceding paragraph must be accompanied by a copy of the receipt or counterfoil of the receipt of rent relating to the month of December or the monthly rent collection statement, in cases in which the rent is received by an entity representing the landlord.

10 - The taxable value, exclusively for IMI purposes, fixed in accordance with this article, shall not apply, and for all purposes the taxable value determined in the general valuation shall prevail, in the following situations:

a) Failure to submit the declaration or the elements provided for in paragraphs 2, 3 and 4 within the deadlines established in the preceding paragraphs;

b) Non-declaration of rents, up to 31 October 2011, relating to the lease agreements provided for in paragraph 1 for the purposes of personal income tax and corporate income tax relating to tax periods comprised between 2001 and 2010;

c) Discrepancy between the rent declared and that contained in those declarations;

d) Non-declaration of rents relating to the lease agreements provided for in paragraph 1 for the purposes of personal income tax and corporate income tax relating to tax periods commencing on or after 1 January 2011;

e) Onerous transfer or donation of the property or part of the urban property; or

f) Termination of the lease agreement referred to in paragraph 1.

g) Update of rent in accordance with the terms provided for in Articles 30 to 37 or 50 to 54 of Law No. 6/2006, of 27 February, amended by Law No. 31/2012, of 14 August, except in the situations referred to in paragraph 6;

h) Failure to submit the declaration or the elements provided for in paragraphs 7 and 9.

11 - The falsification, adulteration and alteration of the elements referred to in paragraphs 3, 4 and 9 or the omissions or inaccuracies of the declarations provided for in paragraphs 2 or 7, when they should not be punished by the crime of tax fraud, constitute an infraction punishable in accordance with Articles 118 or 119 of the General Regime of Tax Infractions, approved by Law No. 15/2001, of 5 June.

It is not contested that all requirements for application of this regime were met, which is confirmed by the documents attached by the Claimant.

As results from paragraph 1 of this article, in the situations herein provided "the taxable value, exclusively for IMI purposes, shall not exceed the value resulting from the capitalization of the annual rent by applying the factor 15".

In the contested assessment, taxable values that were recorded in the property registers before the introduction of this regime by Law No. 60-A/2011, of 30 November, were considered for calculating the IMI, which are higher than those resulting from the capitalization of the annual rent by applying the factor 15.

Finding no valid grounds, nor any being alleged, for not applying this special regime, it must be concluded that the assessment is illegal, by reason of violation of law, which justifies its annulment, in accordance with Article 163, paragraph 1, of the Administrative Procedure Code, subsidiarily applicable by virtue of the provisions of Article 2, subparagraph c), of the General Tax Law.

4. Decision

Accordingly, this Arbitral Tribunal agrees to:

– uphold the request for arbitral pronouncement;

– annul the IMI assessment No. 2013... issued by the Tax Authority, relating to IMI for 2013, in the amount of €85,720.89;

5. Value of the Proceedings

In accordance with the provisions of Articles 306, paragraph 2, of the Code of Civil Procedure and 97-A, paragraph 1, subparagraph a), of the Code of Tax Procedure and 3, paragraph 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at €85,720.89.

6. Costs

Pursuant to Article 22, paragraph 4, of RJAT, the amount of costs is fixed at €2,754.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 18-07-2018

The Arbitrators

(Jorge Lopes de Sousa)

(Ana Teixeira de Sousa)

(Isaque Marcos Lameiras Ramos)

Frequently Asked Questions

Automatically Created

What is the IMI safeguard clause under Article 15-N of Decree-Law 287/2003 and how does it apply to property tax assessments?
The IMI safeguard clause under Article 15-N of Decree-Law 287/2003 is a special protection regime for urban properties leased under agreements concluded before specific regulatory reforms (pre-1990 for residential, pre-1995 for commercial). It limits the taxable value used for IMI calculations to prevent excessive tax burdens on property owners receiving controlled rents under old lease agreements. The clause caps taxable value increases, ensuring that IMI assessments reflect the economic reality of properties generating limited rental income under legacy contracts. Tax authorities must apply this regime automatically when properties meet the qualifying criteria.
Can a taxpayer challenge an IMI liquidation through CAAD arbitration proceedings?
Yes, taxpayers can challenge IMI liquidations through CAAD (Centro de Arbitragem Administrativa) arbitration proceedings under Decree-Law 10/2011. The process involves filing a request for arbitral tribunal constitution, which is accepted by the CAAD President and notified to the Tax Authority. The arbitral tribunal is constituted with designated arbitrators, and proceedings continue even if the Tax Authority fails to respond or submit the administrative file. The tribunal decides based on available documentary evidence, and its decisions have binding legal effect, including the power to annul illegal IMI assessments with all consequential legal effects, providing an efficient alternative to traditional court litigation.
How does the safeguard clause affect IMI calculations for leased commercial properties in Portugal?
For leased commercial properties in Portugal under pre-1995 lease agreements, the safeguard clause significantly reduces IMI calculations by limiting the taxable value to a formula that considers the controlled rent amounts rather than full market valuations. This prevents situations where owners face disproportionate property taxes exceeding rental income from properties subject to old lease agreements with rent control mechanisms. The clause applies automatically when properties undergo general revaluation, protecting owners from sudden tax increases. In this case, applying Article 15-N would have resulted in substantially lower IMI values than the €85,720.89 assessment based on unrestricted property register values.
What happens when the Tax Authority (AT) fails to respond or submit the administrative file in CAAD arbitration?
When the Tax Authority fails to respond or submit the administrative file in CAAD arbitration, proceedings continue without prejudice to the claimant. The arbitral tribunal maintains its competence and proceeds to decide based on documentary evidence presented by the claimant and facts that can be independently verified. The tribunal may waive hearings and render decisions on the merits. The Tax Authority's non-participation does not create procedural nullities or prevent judgment. However, the tribunal must still verify its own competence, party legitimacy, and establish proven facts based on available evidence before ruling on the substantive legal issues and determining whether the contested tax assessment is illegal.
What are the legal consequences of annulling an IMI liquidation under the CAAD arbitration framework?
Annulling an IMI liquidation under the CAAD arbitration framework produces comprehensive legal consequences: (1) the contested tax assessment becomes void and unenforceable; (2) any amounts paid must be refunded to the taxpayer with applicable interest; (3) enforcement proceedings based on the annulled assessment must cease; (4) the Tax Authority must issue a corrected assessment applying the proper legal regime, if applicable; (5) the arbitral decision is binding on both parties and enforceable like a court judgment; (6) the decision sets precedent for similar cases; and (7) taxpayers may recover costs and demonstrate compliance with correct tax obligations, protecting them from future similar errors by the administration.