Process: 99/2016-T

Date: October 10, 2016

Tax Type: IMT

Source: Original CAAD Decision

Summary

Process 99/2016-T involves a taxpayer challenge to Municipal Property Tax (IMI) assessment acts totaling €8,358.31 for 2014, where properties in Lisbon were subjected to rate increases of 30% and 200%. The central legal issue concerns the lack of formal justification (fundamentação) for these surcharges and alleged violation of procedural rights under Portuguese tax law. The Petitioner argued that the assessment notices failed to explain the reasons for the rate increases, constituting a violation of Articles 268 of the Portuguese Constitution and 77 of the General Tax Code (LGT). The taxpayer claimed they were never properly notified of the decision to apply these surcharges and were denied the right to prior hearing guaranteed under Article 60(1)(a) of the LGT. The Tax and Customs Authority responded with a procedural exception arguing expiration of the right of action, as the arbitration request was filed after the deadline. On substantive grounds, the AT contended that the assessment acts contained all legally required elements under Articles 119-120 of the IMI Code (CIMI), including property identification, taxable patrimonial value, and tax amounts. The Authority argued that the rate increases were properly established by Municipal Assembly deliberation pursuant to Article 112 CIMI, and that brief substantiation suffices under Portuguese law if it enables a reasonable recipient to understand the cognitive path leading to the decision. Regarding prior hearing, the AT claimed the assessment fell within exceptions to notification requirements. The Authority also noted the taxpayer failed to consult the finance service or municipal council for information as permitted under Article 119(2) CIMI. This case highlights fundamental principles of Portuguese tax procedure: the Tax Authority's obligation to provide adequate substantiation for assessment acts, taxpayers' procedural rights including prior hearing, and the mechanisms available through CAAD arbitration for challenging allegedly defective tax assessments. The arbitral tribunal was tasked with determining whether the substantiation provided met legal requirements and whether procedural rights were properly observed.

Full Decision

ARBITRAL DECISION

The arbitrator, Dr. Henrique Nogueira Nunes, appointed by the Deontological Council of the Administrative Arbitration Centre ("CAAD") to form the Arbitral Tribunal, constituted on 6 May 2016, agrees as follows:

1. REPORT

1.1

A…, with tax identification number …, hereinafter designated as "Petitioner," requested the constitution of the Arbitral Tribunal pursuant to Articles 2, paragraph 1, subsection a) and 10 of Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT").

1.2

The request for arbitral pronouncement is aimed at the declaration of illegality of the Municipal Property Tax ("IMI") assessment act, better identified under the collection documents issued with numbers 2014 …, in the amount of € 2,786.11; 2014 …, in the amount of € 2,786.10; and 2014 …, in the amount of € 2,786.10, in the total amount of € 8,358.31, relating to the year 2014.

1.3

To support its request, the Petitioner alleges, in summary, the following defect:

(i) In the assessment notice at issue in these proceedings, the fractions corresponding to the property located in the parish of …, municipality of Lisbon, underwent an increase of 30% and 200% of the applicable tax rate, with the reasons for such increase being unknown as the Petitioner states it was never notified of its motives and grounds.

(ii) It states that it was not notified of the decision to increase the IMI rate by 30% and 200%; and that even the assessment notice fails to remedy this deficiency, lacking also in its own substantiation.

(iii) And that it falls to the Tax Authority ("AT"), as formal substantiation of the assessment act, to invoke the satisfaction of the specific legal prerequisites upon which its right to assess depends, with clear, sufficient and congruent elements, in order to permit the taxpayer to judge the correctness/legality thereof so as to be able to comply with it or to challenge it, through administrative appeal or judicial proceedings, if it considers it to be affected by any defect that affects its legality.

(iv) In the present case, it states that the lack of substantiation is manifest as, based on the elements contained in the assessment notice, it is not possible for it to discern the reasons why the AT decided as it did.

(v) Furthermore, there is the fact that the right to prior hearing, provided for in Article 60, paragraph 1, subsection a) of the General Tax Code (LGT), was not respected.

(vi) For all the foregoing, it seeks the annulment of the tax act at issue in these proceedings with all legal consequences, for omission of an essential formality, embodied in the total absence of substantiation and consequent violation of Articles 268 of the Constitution of the Portuguese Republic (CRP) and 77 of the LGT, and orders should be made for the restitution of the amount unduly paid in consequence thereof, in the amount of € 3,485.45, corresponding to the difference between the value resulting from the application of the normal IMI rate and the value obtained with the increase.

1.4

The Tax and Customs Authority, hereinafter designated as "Respondent" or "AT," responded, in summary, as follows:

(i) It raises a matter of exception, on the grounds of expiration of the right of action, on the grounds that since the deadline for payment of the IMI assessment act (1st installment) dates back to 30 April 2015 and the request for arbitral pronouncement was filed on 23 February 2016, the request made (leading to the annulment of such assessment acts) should be declared inadmissible as untimely, since the expiration of the right of action constitutes a dilatory exception preventing consideration of the merits of the case, pursuant to the provisions of paragraphs 1 and 2 of Article 576 of the Code of Civil Procedure (CPC), by cross-reference to subsection e) of Article 2 of the Tax Procedural Code (CPPT) and subsections a) and e) of paragraph 1 of Article 29 of the RJAT.

(ii) Additionally, and by way of challenge, it argues that with respect to the substantiation of administrative acts, the act is substantiated when, by the motivation advanced, it is capable of revealing to a normal recipient the reasons of fact and law that determine the decision, enabling it to react effectively through legal channels against the respective harmfulness thereof.

(iii) Based on the doctrine that states that a given act, in the present case, the administrative-tax act, is properly substantiated whenever it is possible, through the same, to discover what cognitive path its author used to reach the final decision, citing various doctrine.

(iv) To achieve this objective, it argues, brief substantiation suffices, provided that it be clear, concrete, congruent and contextual, and the substantiation of the administrative-tax act is sufficient if, in the context in which it was adopted, and having regard to the reasons of fact and law expressly set forth therein, they are capable or apt and sufficient to permit that a normal recipient may apprehend the cognitive and evaluative itinerary of the decision.

(v) And that substantiation need not be prolix, it suffices that it be sufficient so as to permit the recipient of the act to reconstitute the cognitive path made by the tax administration in deciding as it decided.

(vi) Being that, it argues, the increase applied to urban properties was established by deliberation of the respective Municipal Assembly, in accordance with the provisions of Article 112 of the IMI Code (CIMI).

(vii) It contends that all elements provided for and required by law are contained in the assessment acts at issue in the present arbitral proceedings, without exception, namely in Articles 119 and 120 of the IMI Code, in particular, the discriminating of the properties, their respective taxable patrimonial value and the tax collected attributable to each municipality of the location of the properties.

(viii) And that the Petitioner did not consult the competent finance service, nor the respective municipal council in order to obtain the desired information, as provided for in paragraph 2 of Article 119 of the CIMI.

(ix) Being unable to now invoke the lack of legal substantiation, it is therefore considered that the burden of substantiation was fulfilled and that the Petitioner's request should be dismissed.

(x) As regards the lack of notification for the exercise of the right to prior hearing, it argues that the assessment here challenged falls within the scope of the exception provided for in Article 60 of the LGT, considering, in this case, that it was exempted from notifying the Petitioner to exercise the right to prior hearing, terms in which it argues that the Petitioner's claims are also inadmissible here.

(xi) For which reason it seeks the total dismissal of the present request for arbitral pronouncement, with the tax acts of assessment challenged remaining in the legal order and the Respondent being absolved of the request accordingly, all with the due legal consequences.

1.5

The Tribunal decided to dispense with the holding of the first meeting of the Arbitral Tribunal, in accordance with the provisions of Article 18 of the RJAT, to which no party raised any objection. An exception was identified which shall be assessed and decided in the present decision. The parties were notified to present arguments, if they so wished, and both decided to do so, reinforcing the positions previously expressed.

A deadline was set for the delivery of the arbitral decision until the end of the 30-day period counting from notification of the Respondent's arguments.

1.6

The Tribunal was regularly constituted and is competent ratione materiae, in accordance with Article 2 of the RJAT.

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

No procedural nullities were identified.

2. QUESTIONS TO BE DECIDED

In the arbitral petition, the Petitioner formulates the following questions:

  1. Should the IMI assessment act at issue in these proceedings be annulled, as illegal, due to lack of legal substantiation?

  2. Did the Respondent violate the right to participate in the final decision of the Petitioner, by not respecting the right to prior hearing, provided for in Article 60, paragraph 1, subsection a) of the LGT?

In its Response, in addition to defending itself by way of challenge, the Respondent raises a preliminary matter, in the nature of an exception, based on expiration of the right of action.

3. MATTER OF FACT

With relevance to the assessment and decision on the merits, the following facts are taken as proven:

A) The Petitioner is the owner of an urban property located on Rua …, No. …, in the parish of …, municipality of Lisbon, registered in the property matrix under article … of said parish.

B) The Petitioner was notified of the Municipal Property Tax assessment relating to the year 2014, embodied in the collection documents issued with numbers 2014…, 2014 …, and 2014 …, in the total amount of € 8,358.31.

C) In the referred collection documents, the fractions corresponding to the property located in the parish of …, municipality of Lisbon, underwent an increase of 30% and 200% of the applicable tax rate.

D) Such increase occurred with respect to fractions (B, E, G, H, I) to which a 30% increase was applied and, as to the remaining ones (A, C, D, F, J), a 200% increase was applied.

E) All tax collection notices at issue in these proceedings were paid (fact assumed by the Petitioner in its Arbitral Petition and not contested by the Respondent).

F) On 23-02-2016, the Petitioner filed a request for constitution of the Arbitral Tribunal with the CAAD – cf. electronic request in the CAAD system.

4. FACTS NOT PROVEN

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

5. SUBSTANTIATION OF THE DECISION ON THE MATTER OF FACT

As to the essential facts, the settled matter is conformed in an identical manner by both parties and the Tribunal's conviction was formed on the basis of the documentary (official) elements attached to the proceedings and discriminated above, whose authenticity and veracity were not questioned by any of the parties.

6. LAW

In accordance with the questions set forth in point 2 of the present Decision, and having regard to the matter of fact established in point 3, it is now necessary to determine the applicable law.

First and foremost, it is necessary to assess the matter of the dilatory exception raised by the AT in its response, concerning the expiration of the right of action.

The AT contends that since the deadline for payment of the 1st installment of the IMI assessment act dates back to 30/04/2015 and the Petitioner only filed the request for arbitral pronouncement on 23 February 2016, then, in the present case, the expiration of the right of action shall occur insofar as the request for constitution of the Arbitral Tribunal must be filed within 90 days from the deadline for voluntary payment of the tax, in accordance with the provisions of Article 10, paragraph 1, subsection a) of the RJAT, in conjunction with the provisions of Article 102, paragraph 1, subsection a) of the CPPT.

Or, at most, concerning the assessment acts carried out in the months of April and July 2015.

Let us see.

There is, as shall be seen below, only one Municipal Property Tax assessment. The tax arising from this assessment is what may be paid in three installments.

If a taxpayer intends to dispute the legality of the tax, the act being challenged is the assessment act that gave rise to it, and the period for taking action is counted from the date of the first, second or third installment, as we shall see.

As is known, assessment constitutes the operation through which the tax rate is applied to the taxable matter, thus determining the amount owed by each taxpayer.

In accordance with the provisions of Article 113 of the IMI Code, the tax is assessed annually, in relation to each municipality, by the central services of the Tax Authority, in relation to taxable persons listed in the property matrices on 31 December of the year to which the tax relates, being carried out in the months of February and March of the following year.

For its part, Article 120 of the IMI Code, as amended by Article 215 of Law No. 66-B/2012, of 31 December (State Budget for 2013), reads as follows:

"Article 120 - Payment deadline

1 - The tax must be paid:

a) In one installment, in the month of April, when its amount is equal to or less than € 250;

b) In two installments, in the months of April and November, when its amount is greater than € 250 and equal to or less than € 500;

c) In three installments, in the months of April, July and November, when its amount is greater than € 500.

2 – (…).

3 – (…).

4 - In the cases provided for in paragraphs 1 and 3, non-payment of an installment or an annuity, within the established deadline, implies the immediate maturity of the remaining ones.

5 - If the delay in assessment is imputable to the taxpayer, the latter is notified to proceed with the payment of the tax relating to all years in arrears."

From the above-stated provisions it follows that there is only one assessment and that its payment must be made in three installments, in the months of April, July and November, when its amount is greater than € 500.

In other words, an installment does not equate to a new tax assessment. An installment is part of a tax assessment that is divided in time for purposes of its payment.

In fact, the moment of assessment and the moment of payment are clearly individualized in the law, as noted above.

The division of an assessment into installments is nothing more than a mere technique of tax collection.

From the perspective of this Tribunal, the possibility of payment in installments is a technique for collection of a given assessment act that is unique and only this could constitute an actionable act susceptible to challenge. Any installment, autonomously considered, is not an assessment act, nor is it part thereof, it is, as stated, merely a collection technique, which does not preclude that an assessment act may be partially annulled.

In the specific case at hand, the IMI assessment act is the single act of determining the total amount of tax to be paid, the possibility of that amount being paid in installments does not mean that as many assessments occur as there are installments.

With reference to the law in effect at the date of the tax event at issue in these proceedings, that single assessment act could be challenged, whether after notification for payment of the 1st, 2nd or 3rd installment, it sufficing, for that purpose, that the request be directed at the single assessment act.

Well then, in the present case, that is what the Petitioner did, as it filed a request for constitution of the Arbitral Tribunal on 23/02/2016, still before the expiration of the 90-day period from the deadline for payment of the 3rd installment of tax (November 2015) and, in that act, it aimed at the arbitral challenge of the tax assessment act of IMI relating to the year 2014, as, moreover, it points out, from the outset, the heading of the request for arbitral pronouncement filed.

Therefore, the dilatory exception raised by the Respondent is inadmissible.

Entering now into the matter of challenge, and following the order of the defects imputed by the Petitioner to the tax act at issue in these proceedings, it is necessary to assess whether the IMI assessment act at issue in these proceedings should be annulled, as petitioned, due to lack of legal substantiation.

The essential question that must be assessed and decided is whether the increases contained in the IMI assessment at issue in these proceedings comply with the duty of substantiation provided for in Article 77 of the LGT, or whether, as the Petitioner invokes, they do not, with such lack constituting a ground for challenge of the tax act in accordance with the provisions of subsection c) of Article 99 of the CPPT, and, consequently, a ground for the request for arbitral pronouncement, by cross-reference to subsection c) of paragraph 2 of Article 10 of Decree-Law No. 10/2011, of 20 January.

In other words, to determine whether it would not be required, in accordance with the general rules established with respect to the substantiation of tax acts, in particular the provisions of paragraph 2 of Article 77 of the LGT, that the AT make known to the taxpayer the legal basis permitting it to sustain the application of the increases contained in the IMI assessment at issue in these proceedings.

It is worth noting that this type of question, relating to the observance of the duty of substantiation of the tax act has already been subject to analysis in various court decisions.

See, for example, the Decision of the Supreme Administrative Court (STA), dated 19/09/2012, handed down in case No. 659/12, which decided in the following sense: "Tax acts are subject to substantiation (art. 268, paragraph 3, art. 77 of the LGT and art. 125 of the Administrative Procedure Code). The substantiation of the act of determining the taxable patrimonial value (VPT), whether resulting from evaluation or from updating, must be communicated to the IMI taxpayer subject to assessment based on that taxable matter. If it has not been, and also the IMI assessment does not make known the manner in which the VPT was determined, such assessment cannot be deemed to be sufficiently substantiated, particularly as paragraph 2 of art. 77 of the LGT requires that the substantiation of tax acts be comprised, among other things, by the operations for determining the taxable matter."

Or the Decision of the Court of Appeal of the Administrative Court (TCAS), dated 28/02/2012, handed down in case No. 4893/11, which decided in the following sense: "It falls to the AT, as formal substantiation of the assessment act, to invoke the satisfaction of the specific legal prerequisites upon which its right to assess depends, with clear, sufficient and congruent elements, in order to permit the taxpayer to judge the correctness/legality thereof so as to be able to comply with it or to challenge it, through administrative appeal or judicial proceedings, if it considers it to be affected by any defect that affects its legality. Even the so-called acts carried out in mass are subject to a minimum level of substantiation in order to achieve that objective, which constitutes a guarantee of the taxpayer, even of constitutional order."

Now, in the specific case, it seems to us that the Petitioner is entirely correct. Indeed, nowhere in the IMI assessment notice at issue in these proceedings can any type of justification, however minimal, be found, capable of informing the taxpayer of the reason why such an increase is being applied to it.

It is not the taxpayer who must contact or request the Tax Administration to be informed of the ground on which a given tax act was increased, but rather it is to this Administration that such a burden, such legal duty, falls, in compliance with the duty of substantiation of tax acts, a constitutional imperative, it is recalled.

The increase in question does not arise as self-evident, without needing any justification, and taxpayers have the right to express and accessible substantiation of acts affecting their rights or legally protected interests (Article 268, paragraph 3 of the Constitution of the Portuguese Republic).

We therefore understand, the assessment challenged as lacking in adequate substantiation – that which would permit its recipient to apprehend the motives by which the AT acted or failed to act lawfully, giving it the possibility of complying with such action or of challenging it with knowledge of the facts – which, as such, cannot be maintained, as it violates the provisions of paragraph 2 of Article 77 of the LGT by omitting reference to any type of substantiation with respect to the increases contained in the IMI assessment at issue in these proceedings.

Based on the foregoing, it is concluded that there is an insufficiency of elements that would permit understanding how the increases in question were applied in the IMI assessment at issue in the present arbitral proceedings, and therefore the assessment in question is illegal due to lack of legal substantiation.

As to the second question, that of determining whether there was an omission of the right to participate in the final decision by the Petitioner, by allegedly not respecting the right to prior hearing, provided for in Article 60, paragraph 1, subsection a) of the LGT, this Arbitral Tribunal considers that the upholding of the request as to the invalidity in the assessment in question confers safe and effective protection of the Petitioner's interest, thereby precluding consideration of this question.

7. DECISION

In light of the foregoing, this Singular Arbitral Tribunal agrees to:

  • Find the request for arbitral pronouncement well-founded and declare the annulment of the IMI assessment act, in the exact terms petitioned, better identified under the collection documents issued with numbers 2014 …; 2014 …; and 2014 …, and, in consequence, order the restitution to the Petitioner of the sum of € 3,485.45, corresponding to the difference between the value resulting from the application of the normal IMI rate and the value obtained with the increase.

The case value is set at Euro 3,485.45, in accordance with the provisions of Articles 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), 97-A, paragraph 1, subsection a) of the CPPT and 306 of the CPC.

The amount of costs is set at Euro 612.00, under Article 22, paragraph 4 of the RJAT and Table I attached to the RCPAT, at the charge of the Respondent, in accordance with the provisions of Articles 12, paragraph 2 of the RJAT and 4, paragraph 4 of the RCPAT.

Let notification be made.

Lisbon, 10 October 2016.

The Arbitrator,

Dr. Henrique Nogueira Nunes

Text prepared on computer, in accordance with Article 131, paragraph 5 of the Code of Civil Procedure, applicable by cross-reference to Article 29, paragraph 1, subsection e) of the RJAT.

The present arbitral decision follows the orthography prior to the 1990 Orthographic Agreement.

[1] Moreover, at no point in the arbitral proceedings was the AT capable of justifying such increase, appearing to be unaware of the reason for its existence.

Frequently Asked Questions

Automatically Created

What is the IMI rate surcharge (majoração) and when can Portuguese tax authorities apply it?
IMI rate surcharges (majorações) are percentage increases applied to the standard Municipal Property Tax rate for specific properties. Under Article 112 of the IMI Code (CIMI), these surcharges are established by deliberation of the Municipal Assembly and can vary significantly—in this case ranging from 30% to 200%. Portuguese municipalities have authority to increase IMI rates for certain property categories, such as vacant properties, degraded buildings, or properties owned by certain entities. The surcharge must be properly authorized by municipal deliberation and communicated to taxpayers with adequate justification explaining the legal basis and factual circumstances warranting the increased rate.
What are the legal requirements for tax assessment justification (fundamentação) under Portuguese law?
Portuguese tax law imposes strict substantiation requirements on tax assessment acts under Article 77 of the General Tax Code (LGT) and Article 268 of the Portuguese Constitution. The Tax Authority must invoke the specific legal prerequisites upon which assessment rights depend, providing clear, sufficient, and congruent elements. The substantiation must enable a reasonable taxpayer to understand the cognitive and evaluative path followed by the tax administration, including the reasons of fact and law determining the decision. While substantiation need not be lengthy or prolix, it must be concrete and contextual enough to permit taxpayers to judge the correctness and legality of the assessment, enabling them to either comply or effectively challenge it through administrative appeal or judicial proceedings.
Can an IMI tax assessment be annulled due to lack of formal justification by the Portuguese Tax Authority?
Yes, an IMI tax assessment can be annulled for lack of formal justification under Portuguese law. Insufficient substantiation constitutes an omission of an essential formality that renders the administrative act illegal and subject to annulment. Article 77 of the LGT requires tax acts to be substantiated, and Article 268 of the Portuguese Constitution establishes that all administrative acts affecting taxpayers' rights must state the grounds on which they are based. When assessment notices fail to explain the reasons for rate increases or surcharges, preventing taxpayers from understanding why the Tax Authority decided as it did, courts and arbitral tribunals may declare such acts illegal and order their annulment, along with restitution of amounts unduly paid.
Is the right to prior hearing (audição prévia) mandatory before applying an IMI rate surcharge?
The right to prior hearing (audição prévia) under Article 60 of the General Tax Code is generally mandatory before tax acts adversely affecting taxpayer rights, but Portuguese law provides specific exceptions. Article 60(1)(a) LGT establishes the principle requiring taxpayer notification to exercise prior hearing rights. However, certain types of tax assessments may fall within statutory exceptions where the Tax Authority is exempted from providing prior hearing opportunities. In IMI surcharge cases, the key question is whether the rate increase constitutes a new decision requiring prior hearing or falls within exceptions for standardized assessment procedures. The Tax Authority often argues that assessments based on Municipal Assembly deliberations applying generally applicable criteria fall within exceptions, while taxpayers contend that significant rate increases affecting individual rights require prior notification and opportunity to be heard.
How can taxpayers challenge an IMI surcharge decision through CAAD tax arbitration in Portugal?
Taxpayers can challenge IMI surcharge decisions through CAAD (Centro de Arbitragem Administrativa) by filing a request for constitution of an Arbitral Tribunal under Articles 2(1)(a) and 10 of Decree-Law 10/2011 (RJAT - Legal Regime of Tax Arbitration). The request must identify the contested assessment acts, state the grounds for illegality (such as lack of substantiation or procedural violations), and specify the relief sought (typically annulment and restitution). Critical timing requirements apply—taxpayers must file within the legal deadlines to avoid expiration of action rights. The arbitration process offers advantages including faster resolution than traditional courts, specialized tax law arbitrators, and lower costs. Taxpayers should gather documentation including assessment notices, payment receipts, and any correspondence with tax or municipal authorities. The CAAD tribunal will examine both procedural compliance and substantive legality of the surcharge application.