AIMI on Construction Land Declared Unconstitutional - CAAD Case 129/2019-T

ARBITRAL TAX TRIBUNAL DECISION

Case No. 129/2019-T

Date of Decision: 2019-09-30

Tax: IMI (Municipal Property Tax)

Value of Claim: € 21,923.89

Subject Matter: AIMI - Construction Land. Unconstitutionality.

ARBITRAL DECISION

1. REPORT

1.1

A..., S.A., legal entity no..., with registered office in...,... in the..., (hereinafter referred to as "Claimant") submitted on 25-02-2019 a request for arbitral determination, pursuant to article 2, no. 1, subparagraph a) and article 10, nos. 1 and 2 of the Legal Regime for Tax Arbitration, as provided for in Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as "LRTA") and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March.

1.2

The Claimant seeks a determination from the Arbitral Tribunal to declare the illegality and annulment of the assessment of Additional Municipal Property Tax ("AIMI") no. 2017..., relating to the year 2017, as well as of the order of the Head of the Tax Justice Division of the Finance Authority of... that dismissed the administrative review claim no. ...2018....

1.3

The defendant is the Tax and Customs Authority (hereinafter referred to as "Defendant").

1.4

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 27-02-2019.

1.5

Pursuant to subparagraph a) of no. 2 of article 6 and subparagraph b) of no. 1 of article 11 of the LRTA, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of CAAD designated as arbitrator of the single arbitral tribunal His Excellency Dr. Olívio Mota Amador who, within the applicable period, communicated acceptance of the appointment.

1.6

The parties were notified on 16-04-2019 of the designation of the arbitrator and did not manifest any intention to challenge the designation, in accordance with the combined provisions of article 11, no. 1, subparagraphs a) and b), of the LRTA and articles 6 and 7 of the CAAD Deontological Code.

1.7

In accordance with the provisions of article 11, no. 1, subparagraph c), of the LRTA, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 08-05-2019.

1.8

The Defendant, duly notified through the arbitral order of 08-05-2019, submitted on 07-06-2019 its Answer and, on the same date, attached the Administrative File.

1.9

The Arbitral Tribunal by order of 15-06-2019 determined: (i) to dispense with the holding of the meeting provided for in article 18 of the LRTA, considering that no exception matters were raised nor is there any evidence to be produced; (ii) should the parties wish to submit written arguments, these must be produced within 10 days, in successive order, from notification of this order; (iii) to set 1 September 2019 as the final deadline for issuing the arbitral decision. The final deadline for issuing the arbitral decision was subsequently postponed, through the order of the Arbitral Tribunal of 02-09-2019, to 30 September 2019.

1.10

The Claimant and the Defendant did not submit arguments.

1.11

The position of the Claimant, in accordance with the provisions of the request for constitution of the Arbitral Tribunal, is, in summary, as follows:

1.11.1

The Claimant, as is apparent from its corporate name, is a commercial company limited by shares engaged in real estate activities and is the owner of urban properties, particularly construction land for residential, industrial and services purposes. The aforementioned properties are recorded in the assets of the Challenger as "inventory" and are held by the Claimant with the aim of proceeding with their construction and/or sale. In this sense, the real estate assets referred to are intended solely and exclusively for exploitation by the Claimant in the context of its economic activity.

1.11.2

As is well known, the AIMI came to replace the previous mode of taxation of "luxury real estate assets," the rate of which was provided for in Item 28 of the General Table of Stamp Tax—as amended by Law no. 55-A/2012 and Law no. 83-C/2013. The AIMI was intended to tax high-value real estate assets to the extent that such ownership revealed, in itself, the manifestation of a significant taxpaying capacity. In this context, and having regard to the spirit underlying the Draft Budget Bill of the State for 2017, from which the AIMI emerged, it is to be concluded that the aim was to tax the ownership of real estate assets by virtue of revealing a superior taxpaying capacity of those holding it—implementing the principle of fair distribution and taxpaying capacity.

1.11.3

The properties held by the Claimant and which are being subject to taxation under the AIMI are, given its corporate purpose, essential for obtaining income in the context of its economic activity. Therefore, the Claimant holds the properties in question in the context of its activity and because of it. In fact, ownership of the properties constitutes, in the case of commercial companies of this type, the patrimonial substrate of their economic activity and the realization of a truly essential means for the pursuit of their purpose, and therefore the assumption that ownership of such properties can constitute the manifestation of an (or an increased) taxpaying capacity that, in itself, should be subject to depletion through taxation is entirely unfounded.

1.11.4

Now, taxation under the AIMI must necessarily make a distinction between, on the one hand, ownership of real estate assets that, in itself alone, constitutes a manifestation of increased economic wealth, and, on the other hand, ownership of real rights over properties intended for the exercise of an economic activity and that, as such, may be recognized as factors of production. In the latter case, the scale and patrimonial value of such properties does not constitute the manifestation of wealth that should be taxed but, rather, merely materializes a set of elements necessary and essential to the development of an economic activity.

1.11.5

In the real estate sector, it is customary to opt for the holding, over several years, of both residential properties for sale or exploitation and construction land intended for building, which occurs for various reasons, including consideration of the construction period, market conditions, obtaining financing, obtaining a building license, among other circumstances—many of them completely beyond the will of companies, such as the definition or alteration of the Municipal Master Plan.

1.11.6

The Claimant considers that taxing the ownership of these properties under the AIMI could even produce an aggravated effect of decapitalization, possibly decisively impairing the economic conditions (and development of the respective activity) of such tax subjects, and, without there being any perceptible and materially justified causal link between the taxpaying capacity manifested by the ownership of those properties and the payment of a tax that, in a vague and generic manner, claims to reinforce the "overall progressivity of the system."

1.11.7

Notwithstanding the markedly real estate character of the Claimant, and despite the properties in question being integrated into its tangible fixed assets for the pursuit of its corporate purpose, the law taxes, as a purported manifestation of taxpaying capacity, the mere holding of factors of production. It should be noted that tangible fixed assets (or tangible fixed assets) "comprises tangible elements, movable or immovable, which the entity uses in its economic activity, which are not intended to be sold or transformed, with a permanence character exceeding one year." Also from the Official Accounting Plan (OAP), approved by Decree-Law no. 410/89, of 21.11, it resulted that the elements of fixed assets are the resources that a company uses to carry out the operations contained in its corporate purpose.

1.11.8

A glaring inequality has thus been created, without any basis whatsoever, at the material level between companies pursuing an economic activity that presupposes the holding of properties, in relation to other companies whose activity does not result from the holding of properties. Moreover, conditions have been created for the establishment of manifest situations of material inequality between the Claimant and companies that, holding real estate, pursue a commercial, industrial or service activity in the same. This results in a negative fiscal discrimination without any basis for justification.

1.11.9

With the tax in question, companies owning properties intended for the exercise of an economic activity are treated unequally, without any material basis of support, in relation to companies that, for the same reason, are owners of properties classified as "commercial, industrial or for services"—which are exempt from AIMI.

1.11.10

Moreover, with the tax act in question, the real estate sector is the only sector of activity effectively taxed for the ownership of production assets as a purported manifestation of increased taxpaying capacity. And furthermore, the value considered for application of the tax is not an actual production cost, determined and recorded in accounting, but rather the VPT determined for tax purposes. Now, properties held by companies pursuing real estate activities are not "luxury real estate assets."

1.11.11

In that respect, the taxation in question constitutes a violation of the principles of taxpaying capacity, equality and proportionality—inasmuch as the fact that the Claimant has in its inventory properties for construction, exploitation or sale, in no way manifests a significant taxpaying capacity worthy of being (differently and autonomously) taxed.

1.11.12

In this way, the assessment now under consideration violates the principle of fiscal equality provided for in article 13 of the CRP and the principle of taxpaying capacity provided for in article 104 of the CRP, to the extent that: (i) It is based on a rule that treats differently taxpayers in identical situations, the measure of the difference not being gauged by their actual taxpaying capacity; (ii) It is based on an arbitrary legal solution devoid of any perceptible or rational material foundation.

1.11.13

In fact, there is evidence of a negative, uncritical, arbitrary and random differentiation between, on the one hand, properties (residential) held by companies that use them in the pursuit of their activity and, on the other hand, properties of equal value held by companies that allocate them to industry, commerce and services.

1.11.14

We find, in conclusion, that we are faced with the violation of two basic principles of the CRP, article 135-B no. 1 of the IMI Code suffering from unconstitutionality due to violation of the principle of equality, in its aspect of taxpaying capacity, as well as due to violation of the principle of proportionality.

1.12

The position of the Defendant, expressed in its answer, can be summarized as follows:

1.12.1

The legislator excluded from the scope of the AIMI the urban properties classified as "industrial, commercial or for services" and "others" but expressly chose to maintain other properties that also integrate the assets of companies, such as those classified as residential or construction land, by not including them in the negative delimitation enshrined. That is, it did not ensure, nor did it intend to ensure, in all cases that real estate assets dedicated to the exercise of any economic activity would not be affected.

1.12.2

It should also be noted, secondly, that the progressive character of the AIMI only manifests itself within the scope of tax subjects/natural persons and not when the tax subjects are legal persons or equivalent legal structures; consequently, when it is emphasized that this is a tax on "real estate wealth," it is necessary to trace this expression back to its real economic dimension, particularly because the concept of "wealth" or "fortune" proves to be appropriate when it refers to natural persons and not to legal persons.

1.12.3

Regarding Item 28.1 of the General Table of Stamp Tax (GTST), the judgment of the Constitutional Court no. 378/2018 must be brought to bear. Indeed, the following was decided in that judgment of the plenary of that supreme court: (i) Not to declare unconstitutional the rule contained in Item 28.1 of the GTST (wording of the 2014 State Budget), insofar as it imposes annual taxation on the ownership of construction land whose building, authorized or planned, is for residential purposes, whose taxpaying patrimonial value is equal to or exceeding € 1,000,000.00; (ii) Grant merit to the appeal filed by the Tax and Customs Authority; (iii) Revoke Judgment 250/2017. In parallel, several summary decisions were issued by that Court. Given the decisions of the Constitutional Court, all the arguments put forward by the Claimant, seeking to attribute, based on the jurisprudence of the Constitutional Court, some unconformity of the AIMI with fundamental law, has no foundation whatsoever.

1.12.4

Nothing in the wording of the law authorizes the conclusion that the intention of the legislator in creating the AIMI was to exclude from taxation the urban properties that are dedicated to the exercise of an economic activity. The only criterion relevant for delimiting the scope of objective incidence is solely the typology of classification of urban properties, provided for in article 6/1 of the IMI Code, to which article 135-B/2 expressly refers. The AIMI incidence on legal persons and equivalent structures has the nature of a real tax on real estate assets, constituted by urban properties that meet the types provided for in article 135-B/2, regardless of the classes of assets in which they are recorded—inventories, tangible fixed assets or non-current assets held for sale. Therefore, the Claimant is subject to the AIMI for urban properties of which it is the owner, usufructuary or superficiary and which meet the conditions set out in that provision of the IMI Code.

1.12.5

The Defendant did not proceed with any unconstitutional interpretation of the rule, as it is not the Defendant who decides to include, in taxation under the AIMI, the urban properties dedicated to economic activities, but that is what results from article 135-B/2 of the IMI Code. Now, having the contested assessment been made in accordance with the law as provided, it is not foreseen where the violation of law that is imputed to the Defendant can reside.

1.12.6

What truly occurs is that the Claimant seeks an ab-rogating interpretation of the rule, introducing into it a sense that was not enshrined by the legislator in the wording of the law, thereby broadening the scope of the exclusion from taxation to encompass the totality of the properties held by it.

1.12.7

In sum, nothing in the wording of the law suggests that the exclusion from taxation provided for can extend to the remaining properties not included therein, when they are dedicated to a certain economic activity of the tax subject, and therefore the position advocated by the Claimant lacks sense.

1.12.8

Therefore, contrary to what the Claimant seeks to make believed, the ratio legis of the exclusion from taxation provided for in article 135-B/2 of the IMI Code cannot have the reach sought by it—that is, also to encompass the urban properties classified as residential and construction land, not mentioned therein, when they constitute goods that are the subject of the economic activity of the tax subjects.

1.12.9

On the contrary, they integrate the economic activity, are the subject of commerce or industry, as they are intended for resale or, in the case of construction land, also for transformation, should buildings be erected thereon for subsequent sale. In short, they are autonomous assets that always have intrinsic economic value and, normally, quotations in the real estate market (i.e., they can be sold, exchanged, pledged as security for obligations).

1.12.10

Differently, the properties excluded from the scope of AIMI, pursuant to article 135-B/2 of the IMI Code, perform an instrumental function to economic activities industrial, commercial or services-related activities, in that they constitute buildings that serve as support for the functioning of such activities, and are not themselves generators of income.

1.12.11

That is, the circumstance that a given asset functions as a "factor of production of wealth" is not sufficient to contradict the finding that the corresponding holder holds a property accessible only to one holding particular taxpaying capacity and, therefore, fit to support an additional contribution for the desired budgetary consolidation.

1.12.12

It must always be said, with due respect, that being the interpretation of the Claimant clearly ab-rogating of the law, disguised with legislative impulse, were it to be accepted, would violate the constitutional principle of separation and interdependence of powers, enshrined in articles 2 and 111 of the CRP, constituting itself as a reference and limit to the powers of cognition of the courts in the exercise of their function within the Rule of Law State (articles 202 and 203 of the CRP) and likewise the principle of legality formulated in article 103/2 and article 165/1-i), all of the CRP, which is stated here for all legal purposes.

1.12.13

It is reiterated, therefore, that there is no room here for any possibility of judgment of unconstitutionality of the AIMI based on the violation of the principle of equality, proceeding from premises that are based on a comparison between incomparable situations (i.e., on one side what is factual, on the other mere assessments of prognosis, abstract virtualities and speculations about situations not constituted and that may never come to be constituted). Factual is, solely and only, what the legislator in its freedom of configuration (in accordance with the CRP) instituted in creating the rule, that is, the existence of a close link between the rules of objective and subjective incidence applicable to the legal situation specifically provided for AIMI and the rules contained in the IMI Code.

1.12.14

The legislator, within its margin of freedom of configuration of the factual-legal realities that constitute the basis of the incidence of AIMI, demonstrates the concern to encompass only urban properties classified as buildings for residential purposes held for sale, in the same state as they are acquired or after transformation, dedicated to leasing or subject to another form of exploitation and also construction land held for sale or for buildings to be erected thereon, and these realities may integrate, with greater or lesser weight, the assets of natural persons or legal persons and other equivalent structures. Consequently, the discriminatory treatment to which emphasis is given finds justification in the differences existing between the real estate realities in comparison, and therefore does not constitute a breach of the principle of equality in the dual aspect of uniformity and generality.

1.13

The Arbitral Tribunal is materially competent and is regularly constituted, pursuant to articles 2, nos. 1, subparagraph a), 5 and 6, no. 1, of the LRTA.

The parties have legal personality and capacity, show themselves to be legitimate and are regularly represented, in accordance with the provisions of articles 4 and 10, no. 2, of the LRTA and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any defects.

There are no other circumstances that prevent consideration of the merits of the case.

In these terms, the Arbitral Tribunal is regularly constituted to hear and decide the subject matter of the proceedings.

2. FACTS

2.1 Facts Found Proved

With relevance for the examination and decision of the issues raised, the following facts are given as established and proved:

A) The Claimant is a commercial company limited by shares engaged in real estate activities;

B) The Claimant, on 01-01-2017, was registered as owner of the following properties:

(See Document no. 2 attached to the request for arbitral determination and pages 46 of the Administrative File).

C) The properties identified in the previous subparagraph are urban properties that constitute construction land for residential, industrial and services purposes and are recorded in the assets of the Claimant as "inventory" (See Document no. 3 attached to the request for arbitral determination, the content of which is fully reproduced for all legal purposes);

D) The real estate assets identified in the previous subparagraphs are intended solely and exclusively for exploitation by the Claimant in the context of its economic activity (See no. 5 of the request for arbitral determination).

E) The Claimant was notified by the Finance Service of... of the assessment of AIMI, relating to the year 2017, under no. 2017-..., made on 30-06-2017, in the amount of € 21,923.89 (see Document no. 2 attached to the request for arbitral determination).

F) The Claimant, on 29-09-2017, proceeded to voluntarily pay the tax that was assessed against it in the amount of € 21,923.89 (see Document no. 4 attached to the request for arbitral determination).

G) The Claimant filed on 30-01-2018 an administrative review against the assessment identified in subparagraph E), which received no. ...2018... (see pages 4 to 39 of the Administrative File).

H) By letter no.... of 23-10-2018, from the Finance Authority of..., the Claimant was notified to exercise, if so desired, the right to participate in the decision in the modality of prior hearing provided for in article 60 of the General Tax Code (see page 48 of the Administrative File).

I) The administrative review identified in subparagraph G) was dismissed by order of 19-11-2018 from the Head of the Tax Justice Division of the Finance Authority of..., pursuant to subdelegation of powers, and notified to the Claimant by letter no.... of 23-11-2018 from the Finance Authority of... (see page 56 of the Administrative File).

2.2 Facts Found Not Proved

There are no other facts with relevance for examination of the merits of the case that were not proved.

2.3 Basis for the Matters of Fact Proved and Not Proved

With regard to matters of fact, having regard to the provisions of article 123, no. 2, of the Code of Tax Procedure and Process and article 607, no. 3, of the Code of Civil Procedure (CCP), applicable by virtue of article 29, no. 1, subparagraphs a) and e), of the LRTA, the Tribunal does not have to rule on everything that was alleged by the parties; it is incumbent upon it to select the facts that matter for the decision and discriminate between matters proved and not proved.

Thus, in accordance with the provisions of article 596 of the Code of Civil Procedure (CCP), applicable by virtue of article 29, no. 1, subparagraph e), of the LRTA, the facts relevant to the judgment of the case were selected and defined according to their legal relevance, which was established having regard to the legal issues raised.

As for matters of fact found proved, the conviction of the Arbitral Tribunal was based on the free assessment of the documentary evidence attached to the proceedings, whose authenticity was not challenged.

Taking into account the positions assumed by the parties, in light of article 110, no. 7, of the Code of Tax Procedure and Process, and the documentary evidence attached to the proceedings, the facts listed above were considered proved as having relevance for the decision.

3. MATTERS OF LAW

3.1

The issue to be decided in the present arbitral proceedings consists of determining whether the taxation of construction land that figures in the inventories of companies with real estate purposes, through the Additional Municipal Property Tax ("AIMI"), should be considered materially unconstitutional, by violation of the principle of equality, provided for in article 13 of the Constitution of the Portuguese Republic ("CRP"), in its aspect of taxpaying capacity, as established in article 104, nos. 2 and 3, of the CRP, as well as of the principle of proportionality.

Consideration is necessary.

3.2

Law no. 42/2016, of 28 December, State Budget Law for 2017, introduced the AIMI, which came into force on the date of that law, namely 1 January 2017.

The regulation of the AIMI was added to the IMI Code through chapter XV, which has the heading "Additional Municipal Property Tax," comprising articles 135-A to 135-K.

Nos. 1 and 3 of article 135-A of the IMI Code establish that the tax subjects of the AIMI are "the natural or legal persons who are owners, usufructuaries or superficiaries of urban properties situated in Portuguese territory" on 1 January of the year to which the said Additional refers.

No. 2 of the same article provides that: "the following are equivalent to legal persons: any structures or centers of collective interests without legal personality that appear in the matrices as tax subjects of the municipal property tax, as well as the undivided succession represented by the head of household."

The AIMI is levied, in accordance with no. 1 of article 135-B of the IMI Code, "on the sum of the taxpaying patrimonial values of the urban properties situated in Portuguese territory of which the tax subject is the owner"—and from this sum must be deducted the amount of € 600,000 whenever the tax subject is a natural person or an undivided succession.

Excluded from the objective scope of the AIMI were "the urban properties classified as 'commercial, industrial or for services' and 'others' pursuant to subparagraphs b) and d) of no. 1 of article 6 of this Code," as provided for in no. 2 of article 135-B of the IMI Code.

The applicable rate is 0.4% for legal persons and 0.7% for natural persons and undivided successions, whenever the taxable value does not exceed € 1,000,000.00, pursuant to no. 1 of article 135-F of the IMI Code; and in cases where the taxable value exceeds € 1,000,000.00, a rate of 1% is applicable when the tax subject is a natural person.

Pursuant to no. 1 of article 135-G and article 135-H of the IMI Code, the AIMI is assessed annually, in the month of June, based on the taxpaying patrimonial values of the properties subject to tax and in relation to the tax subjects listed in the matrices on 1 January of each year, and must be paid by the end of the month of September.

In accordance with the provisions of no. 2 of article 1 of the IMI Code, the purpose of creating this new taxation is the financing of Social Security, secured through the allocation of AIMI revenues to the Financial Stabilization Fund of Social Security.

3.3

The Claimant alleges that the construction land identified in the proceedings is essential for obtaining income in the context of its economic activity and should be considered excluded from taxation (see nos. 45 to 51 of the request for arbitral determination).

The legislator in the negative delimitation of the scope of the AIMI refers to the typology of properties, in accordance with the characterization that the IMI Code attributes to them. In this regard, we agree with the Arbitral Decision of 04-05-2018, issued in case no. 675/2017-T, in stating: "If the intention to exclude the scope from properties directly dedicated to the functioning of legal persons had been maintained in the final wording of the Budget, the reference to this dedication that appeared in the proposal and that clearly expressed this legislative option would certainly have been maintained. Thus, having suppressed this reference to the dedication of the properties, there is no legal basis to conclude that residential properties and construction land dedicated to the functioning of legal persons do not matter for the scope of the AIMI." And it adds: "(…) given the departure from the proposed wording in which relevance was given to the dedication of the properties, there is no reason to conclude that the legislator did not know how to express its thinking in adequate terms, as must be presumed by virtue of the provisions of article 9, no. 3, of the Civil Code."

In fact, we consider that the position according to which the legislator intended to exclude construction land from the scope of the AIMI so as not to excessively burden the tax subjects that possess this type of properties, by effect of their corporate purpose, does not have support in the wording of the law.

The criterion relevant to the legislator, within its margin of configuration, was the classification of properties in light of article 6 of the IMI Code and not the dedication of the same to the economic activity of the taxpayers.

Having the legislator defined a clause of exclusion by express reference to certain species of urban properties, which are defined in law, it is not possible to effect an extensive interpretation to encompass other typologies that the legislator did not contemplate.

The Arbitral Decision, issued in case no. 676/2017-T, states, in a pertinent manner, the following: "The exclusion from the tax comprises, accordingly, the properties classified as commercial, industrial or for services, understood as such the buildings or constructions licensed for these purposes or that have as their normal destination each of these purposes. It also covers the residual species referred to in subparagraph d) of no. 1 of that article 6, therein including lands situated within or outside an urban agglomeration that are not construction land or rural properties and also the buildings and constructions that do not fit into any of the above classifications. The scope of objective incidence, by effect of the referral to that article 6, was thus defined not only by reference to a certain species of urban properties, but also by reference to the administrative procedure through which the classification was made or, in the absence of a license, to the normal destination of those properties for the purposes of commercial, industrial and services activities or others."

Possible reasons of fiscal policy could justify conferring upon construction land intended for building for commercial, industrial or services purposes the same status that came to be attributed to properties classified as "commercial, industrial or for services," but that was not the legislative option chosen.

Consequently, the fact that the Claimant is the owner of the construction land identified in the proceedings, as the substrate of its economic activity, does not prevent the incidence of the AIMI.

3.4

The Claimant invokes the parallel between Item no. 28 of the General Table of Stamp Tax and the configuration of the AIMI (see no. 80 of the request for arbitral determination).

In this regard, it is important to emphasize that Item no. 28 of the General Table of Stamp Tax does not have the same normative content as the rule relating to the AIMI now under consideration. As stated in the Arbitral Decision of 26-06-2018, issued in case no. 664/2017-T, the inclusion in the scope of incidence of Item no. 28 of the General Table of Stamp Tax "(…) of construction land alongside an already-built residential property does not reflect the different taxpaying capacity of their respective owners, being that the determining reason for the judgment of unconstitutionality. In the present case, by contrast, for the purpose of the exclusion from the Additional Municipal Property Tax, the aim is to establish the equation between construction land and urban properties, commercial, industrial or for services in the inverse perspective that construction land potentially usable for such purposes do not distinguish themselves from already-built properties that are classified as commercial, industrial or for services."

Moreover, the AIMI does not burden the taxation of luxury properties, as Item no. 28 of the General Table of Stamp Tax intended, but seeks to create a form of financing the social security system (see no. 3.2 above).

Furthermore, in this regard, the Plenary of the Constitutional Court, through judgment no. 378/2018, of 04-07-2018, found not to be unconstitutional Item 28.1 of the General Table of Stamp Tax, approved by Law no. 55-A/2012, of 29 October, and amended by Law no. 83-C/2013, of 31 December, insofar as it imposes annual taxation on the ownership of construction land whose building, authorized or planned, is for residential purposes and whose taxpaying patrimonial value is equal to or exceeding € 1,000,000.00.

Pursuant to article 2 of Law no. 28/82, of 15 November, "the decisions of the Constitutional Court are binding on all public and private entities and prevail over those of the remaining courts and any other authorities."

Thus, based on what was decided by the Constitutional Court, it must be concluded that the assessments by the Tax and Customs Authority that applied Item no. 28 of the General Table of Stamp Tax to construction land, in the conditions referred to, do not suffer from the defects of unconstitutionality that had been imputed to them.

3.5

The issues of unconstitutionality raised in the present proceedings (see nos. 109 and onwards of the request for arbitral determination) have already been analyzed by several arbitral decisions in a manner contrary to that advocated by the Claimant, namely by the arbitral decision issued in case no. 690/2017-T, which the arbitrator of the present proceedings subscribed to in his capacity as member of the Collective Arbitral Tribunal.

As was stated in the Arbitral Decision of 04-05-2018, issued in case no. 675/2017-T: "the ownership of a high-value real estate asset evinces, as in relation to any owner of a property intended for residential use, a special economic capacity to contribute additionally to the Financial Stabilization Fund of Social Security, to which the revenue from the AIMI is allocated, and which 'corresponds to the objective of the government program to broaden the basis for financing Social Security' (Report on the 2017 Budget, page 57). Therefore, the imposition on the generality of holders of residential properties or construction land for residential buildings does not appear to be materially unconstitutional, in light of the principles of equality and taxpaying capacity."

In fact, it is possible to discern a sufficient material foundation that permits the legislator to establish, in the provision of article 135-B, no. 2, of the IMI Code, for the purpose of taxation of assets, the differentiation of treatment between construction land and properties classified as commercial, industrial or for services, which are excluded from taxation by virtue of the provisions of that rule. However, it is important to emphasize that we are faced with diverse tax facts that configure different situations.

In one situation, the law subjects to taxation urbanizable land that constitutes an economic asset due to its aptitude for building. Construction land has its own patrimonial value that constitutes an indicator of taxpaying capacity independently of its eventual and future use in the context of building.

In the other situation, the law excludes from the tax the built-up assets with an instrumental function in relation to productive activity. Already-built assets that are classified as commercial, industrial or services properties have an instrumental function in relation to a certain productive activity that the legislator intended to protect, within its margin of free configuration.

Thus, the defects of unconstitutionality alleged by the Claimant appear to be without merit.

3.6

With regard to the alleged violation of the principle of proportionality (see nos. 124 and onwards of the request for arbitral determination), it must be emphasized that the AIMI proves to be appropriate and necessary for the objective of increasing revenues to Social Security and does not exceed a reasonable measure, particularly as regards legal persons, because the rates are not high and the paid tax is deductible from the taxable matter of Corporate Income Tax, pursuant to article 135-J of the IMI Code. Furthermore, significant amounts are deducted from the taxable value, in accordance with article 135-C of the IMI Code.

In this regard, the Arbitral Decision of 1-06-2019, issued in case no. 109/2019-T, states:

"(…) it was not demonstrated that the amounts collected through AIMI taxation exceed what is necessary for the purpose of strengthening the sustainability and stability of Social Security.

From this perspective, it appears that this new taxation is not incompatible with the principle of proportionality, as it is appropriate to the intended purpose (it enables the increase in revenues that is sought to be obtained), it is necessary (given the legislative option to increase revenues to Social Security through diversification of sources) and a reasonable measure is not exceeded, particularly as regards legal persons, as the rates of the new tax are not high (and are lower for legal persons than for natural persons, pursuant to article 135-F), the paid tax is deductible from taxable income for Corporate Income Tax purposes (article 135-J), significant amounts are deducted from the taxable value (article 135-C) and it is not demonstrated, nor is there reason to believe, that the collected amounts exceed what is necessary for the purpose of strengthening the sustainability and stability of Social Security."

In sum, it is judged that the argument put forward by the Claimant fails on this point.

4. DECISION

For these reasons, this Arbitral Tribunal judges the request for arbitral determination to be without merit and, consequently, absolves the Defendant of the claim, with the attendant legal consequences.

5. VALUE OF PROCEEDINGS

The value of the proceedings is set at € 21,923.89 (twenty-one thousand, nine hundred and twenty-three euros and eighty-nine cents), pursuant to article 97-A, no. 1, subparagraph a), of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of no. 1 of article 29 of the LRTA and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

6. COSTS

The amount of the arbitration fee is set at € 1,224.00 (one thousand, two hundred and twenty-four euros), pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Claimant, since the claim was entirely without merit, in accordance with the provisions of articles 12, no. 2, and 22, no. 4, both of the LRTA, and article 4, no. 4, of the aforesaid Regulation.

Notify accordingly.

Lisbon, Administrative Arbitration Center, 30 September 2019.

The Arbitrator

Olívio Mota Amador