Update | Electricity generating facilities Constitutional Court rules method used to assess property tax on wind farms unconstitutional

This decision is particularly significant as this method has been used to determine the taxable asset value (Valor Patrimonial Tributário – “VPT”) of electricity generating facilities for several years. It is also significant because the Portuguese Tax and Customs Authority (“Tax Authority”) recently reiterated its application to these facilities in Circular No. 4/2026, dated 27 July 2026, which we analysed in our Informative Note of 20 August 2026.

The case

The owner of the Portal da Freita Wind Farm, which is registered in the property tax register, challenged the outcome of the second valuation carried out by the Tax Authority in court. This resulted in a VPT (the basis for calculating the IMI) of €285,440. The Tax Authority applied the ‘cost plus land value’ method provided for in Article 46(2) of the Municipal Property Tax Code (“CIMI”). Following amendments introduced by the 2016 State Budget Law, this method has replaced the general valuation formula for urban properties used for residential, commercial, industrial and service purposes, as set out in Article 38(1) of the CIMI, where the latter is deemed ‘inappropriate’ for the property in question. Through Ministerial Order No. 11/2017 of 9 January, the Government defined the types of properties to be valued using this method, including electricity generating facilities, dams and electricity transmission facilities.

However, the Penafiel Administrative and Tax Court upheld the judicial challenge and refused to apply the rule derived from the combined application of Articles 38(3) and (4) and Article 46(2) of the IMI Code, as well as Article 1 of Ministerial Order No. 11/2017 and its annex. According to these provisions, wind farms must be valued using the ‘cost plus land value’ method. The court reached its decision on the grounds that the rule infringed the constitutional principle of tax legality in terms of both the formal and material reserve of law. The Public Prosecutor’s Office lodged the mandatory appeal with the Constitutional Court.

The decision of the Constitutional Court

The central issue was whether this provision, arising from the combination of Articles 38(3) and (4), and 46(2) of the CIMI, with Ministerial Order No. 11/2017, infringes the constitutional principle of tax legality. According to this principle, essential tax elements such as rates and tax bases must be defined by an Assembly of the Republic law or a government decree-law with parliamentary authorisation. 

The Constitutional Court held that this principle had been breached in two respects.

1. Reservation of formal law

First, the reservation of formal law was breached by failing to specify the types of urban properties for which the general valuation formula is ‘inappropriate’ and must be replaced by the ‘cost plus land value’ method. Second, the CIMI entrusts the Tax Administration with defining a rule governing the levying of the tax, a matter which the Portuguese Constitution requires to be regulated by a parliamentary law or an authorised decree-law. The Constitutional Court also states that Ministerial Order No. 11/2017 introduces a significant change to the scope of application of the ‘cost plus land value’ method, violating the principle of tax legality with regard to the formal reservation of law (Article 165(1)(i) of the CRP).

2. Reservation of substantive law (tax typification)

The second breach concerns the reservation of substantive law (tax typification). Neither the law nor Ministerial Order No. 11/2017 provides any detail whatsoever regarding the criteria governing the calculation of the VPT in accordance with the ‘cost plus land value’ method. Unlike the general
formula for determining the VPT of urban properties for residential, commercial, industrial, or service purposes, as set out in Article 38(1) of the CIMI, the constituent elements of the ‘cost plus land value’ method, the criteria by which they are valued, and the parameters by which the VPT is determined, are not laid down by law. This regulatory shortcoming affects the basis of assessment or the objective tax base for the IMI. This violates the principle of tax legality with regard to the reservation of substantive law (Article 103(2) of the CRP).

Consequently, the Constitutional Court dismissed the appeal lodged by the Public Prosecutor’s Office and upheld the ruling of unconstitutionality handed down by the Administrative and Tax Court of Penafiel. It also clarified that the Supreme Administrative Court’s decisions to validate wind farm
valuations do not preclude this conclusion. This is because those decisions only considered whether Ministerial Order No. 11/2017 was in line with the enabling legislation (Article 38(4) of the CIMI) and not whether the enabling legislation itself was in accordance with the Portuguese Constitution.

Connection with Circular 4/2026

In Circular 4/2026, the Tax Authority sets out its updated position on the valuation of electricity generating facilities for IMI purposes. This includes facilities that are already registered in the property tax register. The circular maintained that power generation plants should be valued using the ‘cost plus land value’ method. In our August Informative Note, we warned that this approach could lead to a significant increase in VPT and IMI. We also emphasised that circulars are only binding on the Tax Authority and do not carry the same legal weight as legislation. Consequently, they cannot restrict, extend or amend the applicable legal framework. The application of the ‘cost plus land value method’ to assess electricity generation facilities,
such as photovoltaic and wind power stations, has been the subject of litigation between private parties and the Tax Authority. This prompted the government to establish a working group in 2025 to address this issue. The decision handed down by the Constitutional Court marks a new chapter in this dispute.

Our comments

This decision is particularly important for owners of electricity generating facilities:

• It strengthens the position of operators who have challenged, or are still within the time limit for challenging, the outcome of the valuation carried out by the Tax Authority using the ‘cost plus land value method’.

• It calls into question the validity of valuations of wind farms (and potentially other power generation facilities) carried out using the ‘cost plus land value’ method under the CIMI and Ministerial Order No. 11/2017.

In strictly formal terms, the legal effects of the Constitutional Court’s judgment are limited to the proceedings in which it was handed down. However, as the highest body in the Portuguese judicial system, the Constitutional Court defines the interpretative parameters of the Constitution and plays a guiding role in the proceedings of other courts. Therefore, its conclusions may be replicated in the reasoning of other judicial decisions. Nevertheless, it is important to bear in mind that the practical effects of the Constitutional Court’s judgment are limited to decisions determining the VPT that have already been challenged or may still be challenged. In accordance with tax procedural law, judicial challenges to acts setting the VPT can only be made once all the administrative remedies set out in the valuation procedure have been exhausted, particularly the request for a second valuation addressed to the Tax Authority.