Summary
Full Decision
ARBITRAL DECISION
The arbitrators Cons. Jorge Lopes de Sousa (arbitrator-president), Dr. Álvaro Caneira and Dr. Maria Alexandra Mesquita (arbitrators vogais), appointed by the Deontological Council of the Center for Administrative Arbitration to form the Arbitral Court, constituted on 02-05-2019, agree as follows:
1. Report
A..., S.A., NIPC ..., with registered office at ..., ..., ...-... Maia, hereinafter referred to as "Claimant", submitted, pursuant to Decree-Law No. 10/2011, of 20 January (hereinafter "RJAT"), a request for arbitral decision with a view to annulment of the decision of dismissal of the administrative claim No. ...2018..., presented against the assessment of Additional Municipal Property Tax ("AIMI") 2017... of the year 2017, as regards the amount of €93,085.82.
The PORTUGUESE TAX AND CUSTOMS AUTHORITY is the respondent.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Portuguese Tax and Customs Authority on 19-02-2019.
In accordance with the provisions of subparagraph a) of No. 2 of article 6 and subparagraph b) of No. 1 of article 11 of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrators of the collective arbitral tribunal the signatories, who communicated their acceptance of the assignment within the applicable time frame.
On 09-04-2019 the parties were duly notified of this appointment and did not manifest a desire to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, No. 1, subparagraphs a) and b) of RJAT and articles 6 and 7 of the Deontological Code.
Thus, in accordance with the provisions of subparagraph c) of No. 1 of article 11 of RJAT, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 02-05-2019.
The Portuguese Tax and Customs Authority submitted a reply in which it argued that the request should be dismissed and, if such is not the case, the Public Prosecutor's Office should be notified (as occurs in all arbitral proceedings).
By order of 05-06-2019 it was decided to dispense with the meeting provided for in article 18 of RJAT and arguments.
The arbitral tribunal was regularly constituted, in accordance with the provisions of articles 2, No. 1, subparagraph a), and 10, No. 1, of Decree-Law No. 10/2011, of 20 January, and is competent.
The parties are duly represented, enjoy legal personality and capacity, and have standing (articles 4 and 10, No. 2, of the same statute and article 1 of Order No. 112-A/2011, of 22 March).
The proceedings are not affected by any nullities.
2. Facts
2.1. Proven Facts
The following facts are considered proven:
A) The Claimant is the owner of the following urban properties:
– those identified with matrix numbers No.s..., ..., ..., ..., ..., ... and ...), which are land for residential construction;
– those identified with matrix numbers No.s ... and ..., which are land for commercial construction; and
– that identified with matrix number No...., which is a property intended for residential purposes (document No. 2 attached with the request for arbitral decision, whose content is given as reproduced).
B) The properties in question are registered on the Claimant's balance sheet as "inventory" (document No. 3 attached with the request for arbitral decision, whose content is given as reproduced);
C) The Claimant holds the aforementioned properties for the purpose of selling them;
D) The aforementioned real estate property is intended solely and exclusively for the exploitation by the Claimant in the scope of its economic activity;
E) The Claimant was notified of the assessment of Additional IMI (AIMI) No. 2017..., which appears in document No. 2 relating to the year 2017, whose content is given as reproduced;
F) The total value of the aforementioned properties is €23,271,455.03;
G) The Claimant voluntarily paid the tax assessed to it, in the amount of €93,085.82 (document No. 5 attached with the request for arbitral decision, whose content is given as reproduced);
H) The Claimant submitted an administrative claim against that assessment which was dismissed on the grounds stated in a report, whose content is given as reproduced, in which it is stated, among other things, the following:
Evaluation of the Request
AIMI was introduced into the Portuguese tax legal system by Law No. 42/2016, of 26/12 (State Budget for the year 2017) and is a personal tax, with a cadastral basis, on real estate property.
In accordance with articles 135-A and 135-B of CIMI, on 2017-07-28 the assessment No. 2017... was issued, in the amount of €93,085.82, relating to AIMI for the year 2017.
The contested assessment was based on the taxable value of €23,271,455.93, corresponding to the sum of the tax patrimonial values, as of 1 January 2017, of the urban properties in the name of the claimant (No. 1 of article 135-C), to which the rate of 0.4% was applied in accordance with No. 1 of article 135-F of the aforementioned statute.
In fact, the claimant being a legal entity that appears on the matrix as owner on 1 January 2017 of a residential urban property and land for construction located in Portuguese territory, the prerequisites of subjective and objective incidence of AIMI are fulfilled (cf. article 135-A of CIMI).
Being certain that no cause for exclusion of subjective or objective incidence as defined by law is verified in the present case (given that we are not faced with a municipal company, nor are we dealing with urban properties classified as "commercial, industrial or for services" and "others") - cf. articles 135-A, No. 4 and 135-B, No. 2, both of CIMI.
In these terms, no irregularity is verified in the assessment either, given that the claimant is a taxpayer of the tax and the tax patrimonial values of all properties registered in its name were assessed in AIMI, at the correct rate, as residential and land for construction.
As for the questions raised in the initial petition associated with the constitutionality of the contested act, it is necessary to emphasize from the outset that the AT is subject to the principle of legality (No. 2 of article 266 of CRP and article 55 of LGT) and it is not incumbent upon it to make any judgment of value regarding the constitutionality or lack thereof of any rule that is bound to the exercise of its functions.
Thus, in accordance with article 281 of CRP, with the courts having responsibility for examining constitutionality, the AT cannot replace them and investigate the constitutionality of the laws that it must apply, unless it has already been declared by the Constitutional Court, with general binding force.
However, we cannot fail to emphasize that the position advocated by the Claimant does not find support in the most recent case law issued on this matter, as we shall proceed to discuss.
The Constitution of the Portuguese Republic (CRP) requires that equal treatment be given to what is necessarily equal and different treatment to what is essentially different. This does not thus prevent differentiation of treatment, but only arbitrary, unreasonable discriminations. This is not verified in the situation in question. Let us see otherwise:
The creation of AIMI had the purpose of subjecting to more intense taxation the generality of holders of real rights of enjoyment over real estate property of high value exceeding €600,000.00. This alone reveals an unequivocal contributory capacity, because it relates to assets that by their characteristics are revealing of substantial economic value, capable of justifying the imposition of an increased contribution to their holders in the name of the principle of social equity and having as its aim to broaden the basis of financing of social security.
On the other hand, no disproportion is apparent here, in that the legal regime of AIMI proves to be suitable for the legitimate purpose to which it is intended, since the legislature defined a specific economically valid constitutional prerequisite to achieve the objective of taxation of realities particularly revealing of wealth. There is thus no violation of the dimensions of necessity or just measure as the claimant seeks to suggest. And this conclusion is not prejudiced by the fact that in AIMI there is discrimination of assets, taxing the highest and exempting the lowest or excluding from taxation properties particularly suited to productive activity, namely "commercial, industrial or for services". In fact, such exclusion proves to be consistent with one of the priority responsibilities of the State in the economic field, more specifically that of promoting increased economic well-being (cf. article 81, paragraph a) of the Constitution of the Portuguese Republic - CRP).
It should be noted that the properties excluded from subjection to AIMI, under No. 2 of article 135-B of CIMI, perform an instrumental function to industrial, commercial or service economic activities, in that they constitute properties that serve to support the functioning of the respective activities, and are not in themselves generators of income. In fact, in delimiting the negative incidence of the tax, the legislature, within its scope of discretion, adopted a criterion that appears to us to be the one that best complies with the constitutional obligations imposed on the State, as well as the criterion that introduces greater equality and uniformity in the treatment of properties subject to taxation, to the detriment of other criteria that would privilege the actual destination given to properties.
At the same time, we are not in the presence of a tax that has as its purpose the generic taxation of assets, but only of a supplementary tax on real estate property, which sought to introduce in taxation "a progressive element of personal basis, taxing higher amounts those more substantial assets" (cf. page 60 of the Budget Report for 2017). This, moreover, does not prove to be contrary to the provisions of article 104, No. 3 of CRP, since in accordance with this rule taxation on assets has the function of contributing to equality among citizens, the legislature being free as to the solution to be adopted. It is undeniable that progressivity has as a corollary, tendentially, to impose higher taxation on those with greater contributory capacity. There is also in the law in question no discriminatory factor with regard to commercial companies that develop their activity in the real estate sector, because, and for what here matters, even though the urban properties of the owned property prove to be an instrumental element of the activity of those companies, we have that the same are suitable to reveal that that legal entity is the holder of an asset that, in itself, evidences a specific abundance and, in those terms, able to bear an additional contribution to the Financial Stabilization Fund of Social Security. The same occurring with other taxpayers (legal entities or individuals) who do not dedicate themselves specifically to real estate development, but who are holders of taxation given the specific purposes sought by the legislature.
Likewise, no reason is foreseen for companies that develop activity in the real estate sector and are holders of high-value real estate assets to be beneficiaries of special treatment relative to the generality of citizens and companies in other branches of activity that find themselves in the same situation. Moreover, in the case of companies linked to real estate, beyond the prerogative of deducting AIMI in IRC, under article 135-J of CIMI (depending on whether or not the properties are affected by a rental or hospitality activity), they can also pass on in prices any impact that AIMI may have. In these terms, the situation here in dispute does not violate the principle of equality in its aspect of contributory capacity, nor the principle of proportionality.
Beyond that and in view of the parallelism drawn by the claimant between Item 28.1 of the General Table of Stamp Tax and AIMI in an attempt to demonstrate the unconstitutionality of this tax, it is necessary to emphasize that the Constitutional Court understood recently in plenary not to judge unconstitutional the rule contained in Item 28.1 of the General Table of Stamp Tax, in the part in which it imposes annual taxation on the ownership of land for construction whose building, authorized or foreseen, is for residential purposes, whose tax patrimonial value is equal to or greater than €1,000,000.00 (see Decision of 2018/07/04, rendered in case No. 378/2018). It is certain that in this decision, which we fully endorse, arguments identical to those set out in the initial petition are rebutted; wherefore the same is given here as wholly reproduced.
Conclusion
I) On 18-02-2019, the Claimant submitted the request for arbitral decision that gave rise to the present proceedings.
2.2. Unproven Facts and Justification for Fixing the Facts
The proven facts are based on the documents attached by the Claimant.
As to the destination of the properties, the assertions of the Claimant are not contested.
There is no controversy regarding the facts.
3. Legal Issues
3.1. Positions of the Parties
The Claimant sets out its interpretation of the application of AIMI and concludes that "AIMI applies to properties with residential allocation, as well as to land for construction, regardless of their allocation – in that they are not expressly included in the rule of negative delimitation of incidence" (article 21 of the request for arbitral decision).
The Claimant takes the position that article 135-B, No. 1 of CIMI suffers from unconstitutionality due to violation of the principle of equality, in its aspect of contributory capacity, as well as violation of the principle of proportionality.
The Claimant alleges, in summary, the following:
– this regime suffers from illegality due to violation of the constitutional principles of equality, proportionality and contributory capacity, when it comes to properties held by companies essential to obtaining income within their economic activity;
– in these situations, the premise completely fails that ownership of such properties may constitute a manifestation of a (or increased) contributory capacity that, by itself, should be subject to removal by means of taxation;
– taxation in AIMI must necessarily distinguish between, on the one hand, the holding of real estate property that, by itself alone, constitutes a manifestation of increased economic abundance and holding of real rights over properties intended for the exercise of an economic activity and which, as such, may be recognized as factors of production;
– in this latter case, the size and patrimonial value of such properties does not constitute, nor can constitute, the manifestation of wealth that should be taxed, but rather materializes only a set of elements necessary and essential to the development of an economic activity;
– in the real estate sector, it is customary to choose to maintain, for several years, both residential properties for sale or operation, and land for construction intended for building, which occurs for various reasons;
– taxing in AIMI the ownership of these properties can even produce an aggravated effect of decapitalization, perhaps decisively deteriorating the economic conditions (and development of the respective activity) of the aforementioned taxpayers of the tax;
– without there existing any perceptible and materially justified nexus of causality between the contributory capacity manifested by the ownership of these properties, and the payment of a tax that, vaguely and generically, claims to strengthen "overall progressivity of the system";
– "the imposition of taxation has no relation whatsoever with the actual income from the activity developed by the companies and burdens them even if they have negative results";
– the law taxes, as a purported manifestation of contributory capacity, the mere holding of factors of production;
– thus is created, without any factual foundation, a glaring inequality in the material sphere between companies pursuing an economic activity that presupposes the holding of real estate, in relation to other companies whose activity does not flow from the holding of real estate;
– more than that, conditions are created for the constitution of manifest situations of material inequality between the Claimant and companies that, holding real estate, pursue therein a commercial, industrial or service provision activity;
– the AIMI regime does not adequately protect companies that, for the development of their economic activity, must hold real estate – which decisively contributes to their negative discrimination in the tax sphere, without any factual justification;
– no reason is apparent for negatively discriminating against real estate held by companies whose corporate purpose is the realization of real estate operations;
– with the tax act in question, the real estate sector is the only sector of activity effectively taxed by the ownership of production assets as a purported manifestation of increased contributory capacity;
– the value considered for application of the tax is not an actual production cost, ascertained and recorded in accounting, but rather the TPV determined for tax purposes;
– the real estate held by companies pursuing real estate activities is not "luxury real estate property";
– the taxation in question constitutes a violation of the principles of contributory capacity, equality and proportionality in that the fact that the Claimant has in its inventory real estate for construction, operation or sale in no way manifests a relevant contributory capacity worthy of being (differently and autonomously) taxed;
– because it applies to the ownership of properties intended for the exercise of an economic activity, without sufficient justification, article 135-B, No. 2, of CIMI should be disapplied due to material unconstitutionality, in that it violates the principle of tax equality enshrined in articles 13 and 104, No. 3 of CRP;
– the legal rule in question is unbalanced and unsuitable for achieving the legal purpose, the same is materially unconstitutional due to violation of the principle of proportionality;
The Portuguese Tax and Customs Authority defends, on the constitutionality issues raised by the Claimant, the following, in summary:
– land for construction is not merely instrumental to the exercise of economic activity, on the contrary, it integrates the very nucleus of economic activity, with intrinsic economic value and, normally, value on the real estate market, i.e., they can be sold, exchanged, given as collateral on obligations and obviously evidences a certain economic capacity;
– the legislative solution of subjecting to taxation all taxpayers in view of the holding of the legal situations relevant to the urban properties identified in the objective incidence is comprehensible, with independence of the legal or economic structure that such taxpayers may possess;
– in the field of patrimonial taxation, the rule of uniformity is what imposes horizontal equality, that is, that all who are holders of the same form of wealth be taxed in the same manner;
– even though the taxed properties may prove to be instrumental to the economic activity, we have that the same are suitable to indicate that that legal entity is the holder of assets that, in themselves, evidence a specific abundance relative to other real estate owners;
– it does not appear that the incidence of AIMI on the properties held by companies that exercise their activity in the real estate sector, namely land for construction acquired with the intent to promote therein buildings intended for sale, is discriminatory or that these companies should merit more advantageous treatment than that given to the generality of urban property owners;
– the contributory capacity of business legal entities, relevant to assessing the application of the principle of tax equality, is not evidenced only by income, namely by the results of the activity to which the properties are intended;
– patrimony provides its holder with a special contributory capacity, advantages that by their nature escape personal income tax;
– taxes on patrimony can be justified by allowing the transfer of resources for the benefit of the working class, instituting a "qualitative progressivity" complementary to the progressivity in quantity of personal income taxes;
– if it is true that the AIMI regime creates situations of discrimination in the taxation of companies with the same contributory capacity evidenced by patrimony, the financial needs and sustainability of Social Security may override the principle of equality;
– this new taxation is not incompatible with the principle of proportionality.
The Claimant raises only questions of constitutionality, which are essentially those that were examined in arbitral decisions, namely in the decision of 23-07-2018, rendered in case No. 696/017-T and in the decision of 15-01-2019, rendered in case No. 420/2018-T, cited by the Portuguese Tax and Customs Authority.
Being similar the argumentation of the Claimant, the reasoning of those decisions shall be followed.
3.2. Appreciation of the Questions Raised by the Claimant
Law No. 42/2016, of 28 December (State Budget for 2017) added to CIMI Chapter XV, with articles 135-A to 135-K, which contains the regime of the Additional Municipal Property Tax (AIMI).
In the Report of that Budget it is stated:
The revenue increase measures, in addition to the updating of IECs and ISV by 3%, focus on the introduction of two new tax measures: a progressive additional on IMI and an expansion of the IABA base to soft drinks. The two measures together represent only about 0.5% of total tax revenue. In both cases the revenue is earmarked.
The earmarking of the progressive taxation of real estate property to the Financial Stabilization Fund of Social Security corresponds to the objective of the government program to broaden the basis of financing of Social Security, while introducing a tax that falls on the holders of larger real estate portfolios, strengthening the overall progressivity of the system.
(...)
Progressive Taxation of Real Estate Property
The additional municipal property tax introduces a progressive element of personal basis into the taxation of real estate property, taxing higher amounts those more substantial assets, with a marginal rate of 0.3% applied to assets exceeding €600,000 per taxpayer.
To avoid the impact of this tax on economic activity, rural, mixed, industrial properties and those affected by tourist activity are excluded from incidence; it is also possible for companies to have exemption of properties affected by their productive activity up to €600,000. The possibility of deducting the amount of tax paid in the collection relating to property income constitutes an additional incentive to rental and productive use of patrimony.
This tax replaces the previous 1% stamp tax on property value above 1 million euros. With a much lower rate (0.3%) it is also more just in taking into account the overall value of real estate property and not, in isolation, the value of each property.
Article 135-A defines the subjective incidence of this tax, establishing that "taxpayers of the additional municipal property tax are individuals or legal entities who are owners, usufructuaries or superficiaries of urban properties located in Portuguese territory", being "equivalent to legal entities any structures or centers of collective interests without legal personality that appear on the matrices as taxpayers of the municipal property tax".
Article 135-B defines the objective incidence of this additional tax, establishing the following:
Article 135-B
Objective Incidence
1 - The additional municipal property tax applies to the sum of the tax patrimonial values of urban properties located in Portuguese territory of which the taxpayer is the holder.
2 - Excluded from the additional municipal property tax are urban properties classified as "commercial, industrial or for services" and "others" in accordance with subparagraphs b) and d) of No. 1 of article 6 of this Code.
In the wording that appeared in the Budget proposal this No. 2 had the following wording:
2 - Excluded from the additional municipal property tax are urban properties classified as "industrial", as well as urban properties licensed for tourist activity, these latter provided that their destination is properly declared and proven.
Article 6 of CIMI establishes the following:
1 - Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Land for construction;
d) Others.
2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, lacking license, having as normal destination each of these purposes.
3 - Land for construction is considered land located within or outside an urban agglomeration, for which a license or authorization has been granted, prior notice admitted or favorable prior information issued for subdivision or construction operation, and also those declared as such in the title of acquisition, excepting land where the competent entities prohibit any of those operations, namely those located in green areas, protected areas or that, in accordance with municipal land use plans, are affected to public spaces, infrastructure or facilities.
4 - Included in the provision of subparagraph d) of No. 1 are lands located within an urban agglomeration that are neither land for construction nor covered by the provisions of No. 2 of article 3, and also buildings and constructions licensed or, lacking license, having as normal destination other purposes than those referred to in No. 2 and also those in the exception of No. 3.
The wording of article 135-B of CIMI that came to be approved does not exclude the incidence of AIMI on properties affected by housing and land for construction used by legal entities in the scope of their economic activity.
The legislative concern to "avoid the impact of this tax on economic activity" was announced in the Bill of the State Budget for 2017 and was carried out, to some extent, through the exclusion from the scope of incidence of "urban properties classified as 'industrial', as well as urban properties licensed for tourist activity, these latter provided that their destination is properly declared and proven" and the deduction from the taxable value of the amount of "€600,000.00, when the taxpayer is a legal entity with agricultural, industrial or commercial activity, for properties directly affected by its functioning".
However, the exclusion of incidence was not defined based on the activity to which the properties are affected, because in the wording that came to be approved the non-incidence was defined only based on the types of properties indicated in article 6 of CIMI, with no allusion whatsoever to the allocation to the functioning of legal entities.
The allocation of a property, which presupposes a use, and the purpose to which it is intended, the "normal destination", underlying the classifications of properties, to which No. 2 of article 6 of CIMI refers, are distinct concepts.
If the final wording of the Budget had maintained the legislative intention to exclude incidence on properties directly affected by the functioning of legal entities, the reference to this allocation that appeared in the proposal, which clearly expressed this legislative option, would certainly have been maintained.
Thus, since that allusion to the allocation of properties has been suppressed, there is no legal support for concluding that residential properties and land for construction affected by the activity of legal entities are not relevant to the incidence of AIMI.
For this reason, it is to be concluded that the allocation of properties to the economic activities of legal entities does not exclude taxation in AIMI (outside of cases where these are properties that previously had been exempt or not subject to IMI taxation, which are not counted for purposes of AIMI, under No. 3 of article 135-B of CIMI).
The holding of high-value real estate property, regardless of whether it is affected or not by economic activity, is tendentially revealing of high contributory capacity, superior to what is presumed to exist when lower-value patrimony is held or when it does not exist, so, in principle, limiting taxation to the first situations has justification.
However, the reasons that may underlie the distinction, for purposes of AIMI taxation, between the patrimonial values of properties classified as residential or land for construction (regardless of their actual allocation to these purposes) and those of urban properties that have other classifications, do not result explicitly from the Report of the Budget for 2017 or from its parliamentary discussion, in light of article 6 of CIMI.
Regarding properties that are classified as "others" in light of article 6, Nos. 2, subparagraph d), and 4, of CIMI, a reason for distinction may be seen in the fact that these are essentially properties that do not have as their purpose activities generating income, namely lands located in urban agglomerations that do not meet the requirements necessary for their classification as land for construction nor are being used for agricultural or forestry purposes and buildings intended for public spaces or infrastructure or facilities. ( )
As regards the exclusion of taxation with respect to properties intended for commerce, industry or services, an explanation may be discerned in the purpose invoked for the creation of this new taxation, which is the financing of Social Security, assured through the earmarking of AIMI revenue to the Financial Stabilization Fund of Social Security, provided for in No. 2 of article 1 of CIMI, in the wording of Law No. 42/2016, of 28 December.
The intention with AIMI is not to burden the taxation of luxury real estate, as was primarily aimed at with item 28.1 of TGIS, because high-value real estate property can be constituted by a plurality of properties of reduced value, but rather to create another way to subsidize the social security system, which is one of the constitutional responsibilities of the State, provided for in article 63, No. 2, of CRP.
The sustainability and stability of Social Security, always in doubt, is a permanent concern that has justified numerous initiatives, well evidenced in the Major Options of the Plan for 2017 (Law No. 41/2016, of 28 December) and for 2018 (Law No. 113/2017, of 29 December) ( ) among which is included the diversification of sources of financing, which constitutes a principle long adopted in the Basic Laws of Social Security (article 78 of Law No. 17/2000, of 8 August, article 107 of Law No. 32/2002, of 20 December and article 88 of Law No. 4/2007, of 16 January).
The essence of the principle of diversification of sources of financing of Social Security consists in the expansion of bases for obtaining financial resources, having in view, in particular, the reduction of non-wage costs of labor (article 79 of Law No. 17/2000, article 108 of Law No. 32/2002, and article 88 of Law No. 4/2007, of 16 January), which may explain why the new AIMI taxation is not applied to legal entities holding properties intended for commercial, industrial and service activities, because the holding of properties of these types by legal entities is normally associated with the exercise of these activities, with the corresponding payment of contributions to Social Security as employers [article 92, subparagraph b), of Law No. 4/2007, and articles 3, subparagraph a), and 14, subparagraph a), of Decree-Law No. 367/2007, of 2 November].
From this perspective, in which the legislature, lacking financing for Social Security, privileges the role of tax collector over the concern with the balance of business taxation, some foundation may be discerned for distinguishing between the holding of real estate property by persons who, presumably, will develop activities connected with the financing of Social Security (who will already contribute to that financing) and the holding of properties not intended for those activities, whose holders, tendentially, will not be associated in the same way with that financing, at least not with the same intensity.
Article 13 of the Constitution of the Portuguese Republic proclaims the principle of equality of citizens before the law. As has been uniformly understood by the Constitutional Court, the principle of equality, as a limit on legislative discretion, does not require equal treatment of all situations, but rather implies that those in equal situations be treated equally and those in unequal situations be treated unequally, so as not to create arbitrary and unreasonable discriminations, because lacking in sufficient material foundation. The principle of equality does not prohibit that distinctions be established, but rather arbitrary distinctions, devoid of objective and rational justification. ( )
For what has been said, the creation of a special taxation of high-value property intended to ensure the financing of Social Security limited to real estate property that will not already tendentially be connected with that financing is not completely without objective and rational explanation.
On the other hand, the creation of AIMI, as a supplementary tax on real estate property, which aimed to introduce in taxation "a progressive element of personal basis, taxing higher amounts those more substantial assets" (Report of the Budget for 2017, page 60), is compatible with the objective that taxation of property should contribute to equality among citizens, affirmed in No. 3 of article 104 of CRP, because progressivity has as a corollary, tendentially, to impose higher taxation on those with greater contributory capacity.
The contributory capacity of business legal entities, relevant to assessing the application of the principle of tax equality, is not evidenced only by income, namely by the results of the activity to which the properties are intended. In fact, "patrimony provides its holder with special contributory capacity, advantages that by their nature escape personal income tax: thus, the holding of property facilitates credit raising, strengthens the bargaining position of its holder in the conclusion of various contracts, makes it easier to multiply wealth by allowing it to take risks where in principle it would not. In this light, property tax is seen as something more than an extension of personal income tax - this is not about overloading income already subject to it but about reaching manifestations of contributory capacity that in fact escape it" (...) Taxes on property can be justified by allowing the transfer of resources for the benefit of the working class, instituting a "qualitative progressivity" complementary to the progressivity in quantity of personal income taxes". ( )
On the other hand, if it is true that the different destinations of properties do not necessarily imply distinction in the level of contributory capacity, the exclusion from taxation of properties especially suited to productive activity, namely "commercial, industrial or for services", will find another justification (besides what has already been mentioned as the presumed greater contribution of these activities to Social Security through contributions), as it is, in final analysis, a favoring of these activities, which harmonizes with (and therefore will have constitutionally acceptable foundation in) the obligation of the State to promote increased economic well-being, which presupposes the proper functioning of wealth-creating activities and constitutes one of its priority responsibilities in the economic sphere [article 81, subparagraph a), of CRP]. Being this a responsibility constitutionally considered as priority, the first listed in this provision, it will certainly not be incompatible with CRP to give it preferential protection when confronted with the constitutional duties of the State concerning housing indicated in article 65 of CRP, which, obviously, are also protected through the proper functioning of wealth-creating activities.
Thus, if it is true that the AIMI regime creates situations of discrimination in the taxation of companies with the same contributory capacity evidenced by property, on the assumption that there is a need for money and new ways must be found to collect it (as stated in the Report of the Budget for 2017), there will be some justification for taxation being imposed on some companies and not on others with the same or greater contributory capacity inherent in property, especially in light of the constitutional case law cited by the Portuguese Tax and Customs Authority, which reveals that it is constitutionally tolerable that the interests of the State as tax collector (in this case, the sustainability of Social Security, claimed by the principles of trust and security) take precedence over strict respect for the principle of equality.
On the other hand, the legislative objective being not the taxation of luxury housing but rather obtaining another means of financing Social Security, in keeping with the political choice of diversification, through "a tax that falls on the holders of larger real estate portfolios, strengthening the overall progressivity of the system" (page 57 of the Report of the State Budget for 2017), it is in light of these objectives that it must be ascertained whether there is a violation of the principle of proportionality.
From this perspective, it appears that this new taxation is not incompatible with the principle of proportionality, because it is suitable for the purpose in view (it produces the increase in revenue sought), is necessary (in light of the legislative choice to increase Social Security revenue through diversification of sources) and does not exceed a reasonable measure, particularly as regards legal entities, because the rates of the new tax are not high (and are lower for legal entities than for individuals, under article 135-F), the tax paid is deductible from taxable income for IRC purposes (article 135-J), considerable amounts are deducted from the taxable value (article 135-C) and it is not demonstrated, nor is there reason to believe, that the amounts collected exceed what is necessary for the purpose of strengthening the sustainability and stability of Social Security.
For that reason, it appears that it is not demonstrated that the principle of proportionality is violated.
For the foregoing, AIMI taxation is not incompatible with the principles of equality, proportionality and contributory capacity, invoked by the Claimant, based on articles 13, 18 and 104, No. 3, of CRP.
4. Decision
In these terms, the arbitrators of this Arbitral Court agree to:
a) Dismiss the request for arbitral decision;
b) Absolve the Portuguese Tax and Customs Authority of the claim.
5. Value of the Case
In accordance with the provisions of article 305, No. 2, of CPC and article 97-A, No. 1, subparagraph a), of CPPT and No. 2, paragraph 3 of the Regulation of €93,085.82.
6. Costs
Under the terms of article 22, No. 4, of RJAT, the amount of costs is set at €2,754.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.
Lisbon, 11-06-2019
The Arbitrators
(Jorge Lopes de Sousa)
(Álvaro Caneira)
(Maria Alexandra Mesquita)
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