Spain 
Italy 
Greece 
IMI Surcharge Risks Violating Constitution
9 September 2017
Lawyers believe that the AIMI may be unconstitutional and will give rise to a wave of litigation
On August 31, a notification letter from the Tax Authority (AT) once again brought the theme of property taxes to the public arena, raising the question of who may be exempted from the Municipal Property Tax surcharge (AIMI) for up to €1.2 million of taxable value resulting from marriage or common law marriage. And the manner in which the AT is managing this additional source of revenue is controversial.
The IMI Code provides that married (legal or common-law) taxpayers may opt for joint taxation with regards to the AIMI, communicating the fact through the Finance Portal between April 1 and May 31. When exercising this option, the couple will only be taxed the AIMI on real estate worth more than €1.2 million. Otherwise, the AIMI charge is incurred beginning at €600,000.
The AT letter notes that “the non-exercise of the option, in the form and period legally established, precludes the right with respect to the respective tax period.”
However, if the taxpayer can prove that “ownership of the assets is not duly registered, namely because it is the property is part of jointly owned assets”, then that taxpayer must request a correction on the Finance Portal or a separation of ownership of the asset.
Former Secretary of State for Tax Affairs Rogério Fernandes Ferreira says that the AT’s letter “solves only part of the problem stemming from AIMI’s joint taxation”, and that “doubts remain about the constitutionality of the rule” implying that taxpayers must declare if they want to be taxed jointly. This rule, the lawyer says, “constitutes a real trapdoor and a mere expedient for higher taxes.”
UNCONSTITUTIONAL?
According to Rogério Fernandes Ferreira, “it is not possible for a legislator, without contradicting the Constitution, to create a standard for collecting information that the tax administration does not need, or already has, to simultaneously attribute to its non-compliance a tax penalty (always) superior to what would exist if the taxpayer complied with this same declarative obligation.”
Several lawyers consulted by Expresso agreed with the interpretation that the AIMI could be challenged. “The fact that this tax will tax different individuals and companies with real estate assets of the same value is liable to violate the constitutional principle of equality, which may also increase taxpayers’ contestation of this new tax,” Francisco de Sousa da Câmara, a partner in the MLGTS’ tax department, said.
The lawyer contends that missing the May 31 deadline to opt for joint AIMI taxation could lead to a fine, but “never to a real tax penalty for taxpayers, with an increase in payable taxes.”
Diogo Ortigão Ramos, a partner at Cuatrecasas and a specialist in tax law, stresses that AT’s computer system “was not designed to cross-reference real estate data of different members of the same household.” The lawyer believes there are grey areas surrounding the legality of AIMI. Those who marry in a tax regime of joint possession of assets will be more likely to obtain joint taxation, but those who marry with a separation of assets, or have a common-law marriage may raise “considerations regarding the constitutional compatibility of the requirement of a formal declaration for the exercise of a right.”
According to Diogo Ortigão Ramos, compelling the taxpayer to deliver a statement “hardly” can be classified as a disproportionate act of the State. “A different matter is the need to repeat that statement every year even when the family situation has not changed and, above all, the impossibility of submitting late declarations upon payment of the corresponding penalty. These last traits are what raise serious doubts regarding its constitutionality,” he concludes.
“We hope that the Government will change its position, allowing couples to submit the joint statement for the current year. Otherwise, we anticipate extensive litigation in the courts, which will cause greater instability and could hurt the government’s revenue collection estimates,” Francisco de Sousa da Câmara stated.
The Portuguese government has budgeted €130 million in revenues from the AIMI this year. The Ministry of Finance told Expresso that the forecast is still in place, although, according to the “Diário de Notícias,” there are 6,000 couples who may avoid the AIMI if they prove that their properties are incorrectly classified.
OPINIONS
“It is not possible for a legislator, without contradicting the Constitution, to create a norm to collect information that the AT does not need”
Rogério Fernandes Ferreira
Former Secretary of State for Tax Affairs
“The fact that AIMI taxes individuals and companies differently may violate the constitutional principle of equality”
Francisco de Sousa da Câmara
Partner at MLGTS
IMI SURCHARGE: THE NUMBERS
0.7%: the fee charged on the equity value of property valued between €600,000 and €1 million
1%: the rate charged on the value of real estate that exceeds €1 million
€130 million is what the Portuguese government expects to collect with AIMI, according to the 2017 State Budget
Original Story: Expresso – Miguel Prado
Photo: Nuno Botelho
Translation: Richard Turner