Portugal’s municipal property tax rests on a deceptively simple premise: tax is levied on the taxable property value (valor patrimonial tributário) attributed to each property.
For most real estate, that value derives from a detailed statutory formula. For a residual category of ‘special’ properties, including power generation centres, the Tax and Customs Authority has long relied on a far less defined alternative: the cost method, under which the value of the land is added to the construction cost.
In a case in which VdA represented the taxpayer, the Portuguese Constitutional Court unanimously held that the rules underpinning the valuation of wind farms by this method are unconstitutional. The ruling (Judgment No. 777/2026 of September 24 2026 (case No. 44/2026, 3rd Section)) is unprecedented and, although formally confined to the case at hand, its reasoning casts doubt on the legal basis of a valuation method applied to a wide range of high-value assets.
From a first-instance tax challenge to the Constitutional Court
The dispute began before a first-instance Tax Court, where the taxpayer challenged a second valuation fixing the taxable property value of a wind farm. On December 31 2025, the court ruled in favour of the taxpayer and refused to apply the relevant rules, finding them incompatible with the principle of tax legality.
The Public Prosecutor appealed, arguing that the ministerial ordinance at issue merely provided a ‘technical densification’ of the law. The Constitutional Court disagreed. It declared unconstitutional the combination of provisions of the Municipal Property Tax Code and a 2017 ministerial ordinance under which wind farms must be valued by the cost method.
Two dimensions of tax legality
The Portuguese Constitution requires taxes to be created and shaped by Parliament. The Constitutional Court found that this principle of tax legality had been breached in both of its dimensions:
Who decides – the choice of valuation method directly determines the taxable property value and therefore what is effectively taxed. Since the Municipal Property Tax Code does not specify when the general formula is ‘inadequate’, it is the Ministry of Finance that, by a simple ordinance, innovatively decides which properties fall under the cost method, a choice the Constitution reserves to Parliament.
What the law must say – it is not enough for Parliament to act; the law itself must contain the essential elements of the tax.
The Municipal Property Tax Code merely names the cost method. Unlike the general formula, whose factors are set out in detail, neither the code nor the ordinance defines how the cost method is to be applied. In the court’s words, “the law names the applicable method, but does not contain the normative criteria that shape its application”.
The Constitutional Court also dismissed the counterarguments. It rejected an analogy with an earlier ruling that accepted fuel tax rates set by ordinance within limits fixed by law, because in this case the law sets no limits at all. The delimitation of what is taxed – towers and foundations, but not blades and rotors – was deemed irrelevant, as it concerns the object of valuation rather than the method. Supreme Administrative Court case law favourable to the Tax and Customs Authority was likewise set aside, since it addressed compliance with ordinary law, not the constitutionality of the rule itself.
Beyond wind farms
Formally, the decision binds only the parties to the case. Yet the finding that the law fails to define the cost method targets the Municipal Property Tax Code itself, not merely its application to wind farms. That logic extends naturally to other assets valued under the cost method, including:
Solar parks, dams, and other power generation centres; and
Other properties listed in the ordinance, such as stadiums, fuel stations, telecommunication towers, and golf courses.
For owners of these assets, the consequences may extend beyond municipal property tax to the additional municipal property tax, where applicable, and to property transfer tax, both of which build on the taxable property value.
A contested landscape ahead
The Tax and Customs Authority is unlikely to change course of its own accord.
A couple of months before, in July 2026, it issued a circular insisting on the application of the cost method to wind and solar power generation centres. Taxpayers should therefore expect valuations to continue on the existing basis, and the burden of reaction to remain with them.
Timing is critical. Depending on the stage reached, a second valuation, an administrative complaint, or a judicial challenge may be available, and future valuations may also be contested. Where deadlines have lapsed, however, valuations and the corresponding assessments may become final. A legislative response – most likely an attempt to give the cost method a proper statutory footing – should also be closely monitored.
The ruling thus opens a window, but not an indefinite one. Owners of energy and other special assets should now map their valuations, identify the deadlines still running, and decide on the appropriate means of reaction before the wind changes again.
