Summary
Full Decision
ARBITRAL DECISION
I – REPORT
1. A... S.A., with identification number..., with registered office at..., ..., ...-... ..., filed on 12-07-2018 a request for constitution of the arbitral tribunal, in accordance with articles 2º and 10º of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in conjunction with article 102º of the Code of Tax Procedure and Process (CPPT), in which the Tax and Customs Authority (hereinafter referred to only as the Respondent, or ATA) is requested.
2. The Claimant seeks, with its request, the declaration of illegality of the tax assessment act for the Additional Municipal Property Tax – AIMI – no. 2017-... for the year 2017, with reference to the year 2017, as well as the dismissal of the administrative appeal to which number ...2018... was assigned, with the consequent reimbursement of the tax paid, as well as the recognition of the right to compensatory interest.
3. 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 13-07-2018.
3.1. The Claimant did not proceed with the appointment of an arbitrator, therefore, pursuant to the provisions of paragraph a) of no. 2 of article 6º and paragraph b) of no. 1 of article 11º of the RJAT, the President of the Deontological Council appointed the undersigned as arbitrator of the arbitral tribunal, who communicated acceptance of the appointment within the respective deadline.
3.2. On 03-09-2018 the parties were notified of the appointment of the arbitrator, with no impediment having been raised.
3.3. In accordance with the provision set out in paragraph c) of no. 1 of article 11º of the RJAT, the arbitral tribunal was constituted on 24-09-2018.
3.4. In these terms, the Arbitral Tribunal is regularly constituted to examine and decide the subject matter of the case.
4. To support the request for arbitral ruling, the Claimant alleges, in summary, the following:
The Claimant is a commercial company that carries out its activity in the real estate sector, being part of "Group B...".
It is the owner of the urban properties mentioned in the disputed assessment, particularly the urban properties registered in the respective land register under numbers ... and ..., of the Parish of ... which integrate UNOP 4 (which corresponds to the development nucleus of..., which provides for the construction of a tourist village, an equestrian center and an environmental nucleus intended for monitoring the environmental system and its management).
As results from the written and drawn documents of the Detailed Plan of UNOP 4, the urban properties in question in the present proceedings are intended to be used for tourism purposes.
With the entry into force of the State Budget Law for 2017, the AIMI was created, configured as a complementary tax to the IMI, with the aim of taxing "the accumulation of residential real estate property of very high value".
Regarding the legislative purpose of the AIMI, according to the State Budget Report for 2017, "the allocation of 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 financing base of Social Security, while introducing a tax that falls on holders of larger real estate property portfolios, reinforcing the overall progressivity of the system".
As is evident from no. 2 of article 135º-B of the IMI Code, the AIMI applies to properties with residential use designation, as well as land for construction, regardless of their use – insofar as they are not expressly listed in the negative delimitation rule of scope.
The AIMI replaced the previous method of taxation of "luxury real estate property", the rate of which was provided for in Item 28 of the General Table of the Stamp Tax in the version given by Law no. 55-A/2012 and Law no. 83-C/2013. Although the AIMI was devised to continue taxation of luxury properties and, furthermore, to remedy many of the flaws that had been pointed out regarding Item 28 of the Stamp Tax, its contours present several divergences from the original regime.
Considering that the parallelism between Item 28 and the current configuration of the AIMI is undeniable, the Claimant intends to demonstrate that the AIMI suffers from the same vices as its predecessor – especially because, with respect to properties essential to obtaining income within the scope of economic activity, it lacks the same material support in the tax sphere.
It contends that in such cases, the AIMI violates the principle of equality, embodied in its aspect of contributory capacity, in accordance with what has been advocated by case law and doctrine when discussing Item 28, duly adapted to the characteristics of this new tax.
Moreover, it is clear and indisputable – as has been repeatedly reiterated by Arbitral and Judicial case law – that, with the item in question, the legislator never intended to tax ownership of land for construction.
Furthermore, the tax assessment in question also materializes a violation of the most basic canons of equality, proportionality and contributory capacity. Regarding this principle, the Constitution itself in matters of taxation of property, establishes a central orientation in no. 3 of its article 104º, when it states that "The taxation of property [as is the AIMI] must contribute to equality among citizens".
The properties held by the Claimant, and which are being subject to taxation in AIMI, are essential to obtaining income within its economic activity – they themselves also subject to taxation, and thus the premise fails entirely that ownership of such properties could constitute a manifestation of a (or an increased) contributory capacity that, by itself, should be subject to fiscal burden.
With the tax in question, businesses that own properties intended for the exercise of an economic activity are treated unequally, without any material foundation of support, compared to businesses which, for the same reason, are owners of properties classified as "commercial, industrial or service" properties – which are exempt from AIMI.
There is no material foundation that is minimally perceptible, rational and reasonable to advocate a negative fiscal discrimination of businesses that own properties used in the pursuit of their activity.
Based on the intended purpose of the standard, particularly when it points to the configuration of a tax complementary to the IMI with the aim of taxing "the accumulation of residential real estate property of very high value", through "a tax that falls on holders of larger real estate property portfolios, reinforcing the overall progressivity of the system", the violation of the principle of proportionality appears evident.
Article 135º-B no. 1 of the IMI Code should be disapplied by the Tribunal, given its material unconstitutionality based on the aforementioned grounds, insofar as it applies to properties with residential use designation, held by companies that pursue a real estate activity, resulting in the annulment of the appealed decision and assessment.
In any case, contrary to what is presumed in the disputed tax assessment, the properties in question are not intended for residential use – and it is certain that their use is legally conditioned.
It makes absolutely no sense or sufficient material justification to tax in AIMI a property that, being integrated into a Detailed Plan, is expressly not going to be used for residential purposes.
5. The Tax and Customs Authority presented a response, invoking in summary, the following:
The Claimant contests the use designation that is recorded in the land register of the respective properties, namely residential use, although, unless we are mistaken, without ever clarifying (and proving) what is allegedly the use of the properties in question as of the date of the tax fact. Without prejudice to considering that this Tribunal does not have competence to settle these questions, by way of utmost caution and duty of representation, it is contested from the outset that the properties registered in the urban land register under articles ... and ..., of the parish of..., municipality of Grândola, as of the date of the tax fact, that is, on 01-01-2017, have any use other than residential. The judicial challenge provided for in article 134º of the CPPT is not capable of being replaced by the arbitral challenge provided for in the RJAT, given that, while in the former the act to be examined is the dismissal of an act of tax administration that does not entail examination of the legality of an assessment, in accordance with the provisions of article 2º of the RJAT, the Administrative Arbitration Center is competent to examine, restrictively, the legality of assessment acts and/or acts establishing taxable matters that do not result in the payment of tax.
The normative interpretation experienced by the Claimant collides with the competencies attributed to the CAAD in accordance with the provisions of article 2º, no. 1 of the RJAT and article 2º of the cited Regulation, is unconstitutional due to violation of article 212º, no. 3 of the Constitution and also by violation of the constitutional principle of free access to courts, in the aspect of the right to double degree of jurisdiction.
The constitutional principle of equality, to which administrative authorities are bound, must be applied without any specificities. A principle that is materialized and has various dimensions, such as: (i) prohibition of arbitrariness, (ii) prohibition of discrimination and (iii) obligation of differentiation.
It is not possible to examine the merit of the legislative measure and its scope, the examination being limited to its conformity with the constitutional text and the principles established therein.
On the other hand, it is important to note that contributory capacity, in addition to income and the use of goods, also expresses itself, according to the law, through the ownership of property.
Noting the teleology of the tax, it is interpreted, given what has been stated, that it aims, first and foremost, to reach a portion of the property of the respective taxpayers, applying to real estate assets constituting a property, legally recognizable as capital of a given entity (individual or collective), regardless of whether it is dedicated to any productive process or income-generating activity.
However, the legislator opted in no. 2 of that provision for a negative delimitation of scope, excluding from the AIMI properties which, by virtue of their potential use, can be economically recognized as factors of production, by way of capital, that is, as intermediate goods which, combined with other factors of production, produce new utilities – economic goods that satisfy needs.
For this purpose, it resorted to a criterion that invokes the structure of typologies of urban property provided for in article 6º of the IMI Code and which operates through the subtraction from the AIMI of urban properties which, as a result of the licensing of use declared by municipalities or, in the absence thereof, their normal purpose, are classified as the typologies of paragraphs b) and d) of no. 1 of that provision. Therefore, the universe of urban properties subject to the AIMI is determined by recourse to the remaining two typologies contained in no. 1 of article 6º, i.e., residential urban properties and land for construction.
The tax under examination does not aim at generic taxation of property. What is at issue is only a partial tax on certain manifestations of contributory capacity.
Given that what is in question is the establishment of a partial taxation of the total property of taxpayers, it is considered that it is not normatively appropriate to make a comparison between the global property value of other taxpayers.
The AIMI respects a partial taxation of property without specifically targeting companies, as it comprises all kinds of taxpayers who are holders of the real rights stated regarding the properties in question, regardless of whether they assume a business character or not, thus covering, in addition to companies, foundations, associations, and individual persons. Being thus impossible to invoke, in view of the scope of application of the norm under examination, principles of strictly business vocation, since the taxation is directed at property and not at who holds it.
Contrary to what the Claimant intends, it is understood that it is not possible to configure the unconstitutionality of a tax rule based simply on the fact that it has a significant influence on the economic decisions of taxpayers – by nature, this is a typical effect of tax rules.
The Claimant contends that the properties in question are the fruit of its activity, but such land does not fit into mere building rights, things in the future, and like other urban properties with residential use designation, they are autonomous goods that always have intrinsic economic value and, normally, quotation in the real estate market, i.e., they can be sold, exchanged, pledged as security for obligations. Differently, the properties excluded from the subjection to AIMI, in accordance with no. 2 of article 135º-B of the IMI Code, perform an instrumental function to economic activities of an industrial, commercial or service nature, insofar as they constitute buildings that serve as support to the functioning of said activities, and are not by themselves generators of income.
As for the fact that the properties allegedly do not have residential use designation, it is recalled that from the assessment forms of the two properties in question in the proceedings it results that their registration in the land register dates from 1935, both having been assessed in accordance with the rules of the IMI Code on 19-07-2012 (general assessment). Accordingly, on 01-01-2017, the date of the tax fact for AIMI purposes, the use was, as declared from the beginning by the now Claimant, residential.
With respect to the alleged future potential use of the properties, on the date of AIMI taxation of the properties in question, only the actual reality of the constructed property itself, as it is legally characterized, can be taken into account, and taking into account the type contained in the land register and not a future building or use, with the consequent change of type of urban property that may subsequently arise, for such are truly mere virtual abstractions of situations not constituted either legally or factually.
The respondent concludes by defending the legality of the assessment act contested by the Claimant, which should therefore be maintained.
6. By order of 08-01-2019, the meeting provided for in article 18º of the RJAT was dispensed with, as well as, with the consent of the parties, the presentation of arguments.
II – THRESHOLD EXAMINATION
8.1. The tribunal is competent and regularly constituted.
8.2. The parties have legal personality and capacity, show themselves to be properly interested and are regularly represented (articles 4º and 10º, no. 2, of the RJAT and article 1º of Regulation no. 112-A/2011, of 22 March), the joinder of claimants requested being admitted, as it concerns the examination of the same circumstances of fact and the interpretation and application of the same principles or rules of law (article 3º, no. 1 of the RJAT).
8.3. The process does not suffer from nullities.
8.4. The joinder of claims is legal, given the same article 3º, no. 1.
8.4. No exceptions were raised that prevent examination of the merits of the case, with the exception of possible lack of tribunal competence to which brief reference will be made below.
III – MATTERS OF FACT AND LAW
III.1. Matters of Fact
Given the positions assumed by the parties and the documentary evidence attached to the proceedings – bearing in mind that the Tribunal does not have a duty to pronounce on all matters alleged, but rather the duty to select those that matter for the decision, taking into account the cause of action that supports the claim filed (cf. articles 596º, no. 1 and 607º, nos. 2 to 4, of the Civil Code, in the version of Law 41/2013, of 26/6) and to state whether it considers it proven or not proven (cf. article 123º, no. 2, of the CPPT) – the following facts are considered, with relevance for examination and decision of the questions raised:
- The Claimant is a company that carries out its activity in the real estate sector;
- The Claimant is the owner of the urban properties registered in the land register of the parish of..., under articles ... and ...;
- Such properties are registered in the land register with use designation "residential";
- The Claimant was notified by the AT of the AIMI assessment, regarding the above-identified properties, for the year 2017, with number 2017-...;
- The Claimant filed an administrative appeal of that assessment which was filed under number ...2018...;
- In said administrative appeal, a dismissal order was issued that was notified to the Claimant, in the person of its representative, on 13-04-2018;
- The assessed taxes were paid by the Claimant.
Reasoning for the matters of fact:
The matters of fact given as proven are based on the critical examination of the documentary evidence presented and not contested, which is reproduced here, as well as the administrative proceedings attached to the case.
9.3. It was not proven that the properties are used for services.
III.2. Matters of Law
As results from the arbitral request, the Claimant manifests its disagreement with the assessment act appealed, understanding, in short, that, given that the properties subject to the arbitral request are used for tourism and not residential use, they would be excluded from the scope of AIMI, established by article 135º-B of the IMI Code.
On the other hand, it contends that what is in question is a tax on real estate fortune, and that properties used for an economic activity, and which are held for its pursuit, would not be subject to it, as is the case here.
In any case, it argues that such taxation suffers from unconstitutionality, due to violation of the principles of equality, proportionality and contributory capacity.
Let us examine this:
USE DESIGNATION OF THE PROPERTIES
According to the urban land register entry of the parish of..., municipality of Grândola, the properties registered there under articles ... and ... (previously under articles ... and ...), had, at the date to which the contested assessment refers, the use designation of "residential".
Use designation that is defined by article 6º of the IMI Code which establishes the following:
1 - Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Land for construction;
d) Other.
2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such purpose or, in the absence of a license, that have as their normal purpose each of these uses.
3 - Land for construction is considered to be land situated within or outside an urban area, for which a license or authorization has been granted, admission of prior notification admitted or favorable prior information issued for a subdivision or construction operation, and also those that have been declared as such in the acquisition title, with the exception of land in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal territorial planning plans, are intended for public spaces, infrastructure or equipment.
4 - Included in the provision of paragraph d) of no. 1 are lands situated within an urban area that are neither land for construction nor covered by the provision of no. 2 of article 3º and also buildings and constructions licensed or, in the absence of a license, that have as their normal purpose uses other than those referred to in no. 2 and also those of the exception in no. 3.
It was on the basis of this use designation that the AIMI assessment was carried out.
And, let it be said from the outset, only these elements would be capable of determining and supporting the assessment of the tax.
According to the provision of no. 1 of article 12º of the IMI Code, "land registers are records in which appear, in particular, the characterization of properties, their location and tax value, the identity of owners and, if applicable, usufructuaries and superficiaries".
The tax value, determined in accordance with the provisions of articles 38º and following of the same code, is fixed on the basis of, from the outset, the characterization and qualification of the property. That is, the assessment of the tax is calculated starting from the tax value that was fixed based on the characterization that the property has in the land register. In this case, "property with residential use designation".
If the Claimant understands that this is no longer the appropriate characterization for the properties of which it is the owner, it should promote its change, in accordance with the provisions of article 13º of the IMI Code, which provides that updating of the land register is carried out on the basis of a declaration submitted by the taxpayer, within a period of 60 days counted from the occurrence of any of the events provided for in the various paragraphs, including b):
- "Where an event occurs that is capable of determining a change in the classification of a property".
Or, otherwise, if it disagrees with the assessment carried out, by disagreeing, in particular, with the classification given to the property, it should use the contentious means – administrative and judicial – at its disposal, provided for in articles 130º of the IMI Code and 134º, no. 3 of the CPPT.
In the case at hand, what is at issue is the examination of the AIMI assessment act, pure and simple. And it is indisputable that from the point of view of the classification of properties there is nothing to point out, and, in truth, no request for change of use designation of the same is formulated by the Claimant either (in any case, it should be said that the inclusion of the properties in question in that Detailed Plan would also not be apparent from documents 4 and 5 attached by the Claimant – the description of the project and the Regulation of the Detailed Plan).
In the arbitral request an AIMI assessment act is contested, framed in the type of claim which, in accordance with the RJAT and Regulation no. 112-A/2011, of 12 March, falls within arbitral jurisdiction and whose examination is not excluded by that Regulation. The taxpayer has the right to impute to the assessment act the illegalities it considers, even if it turns out to have no grounds, and the Arbitral Tribunal is manifestly competent to examine whether they affect the assessment or not.
Given this, and bearing in mind what was previously stated, there is nothing to examine in that regard, with the question of the inadequacy of the procedural means or lack of tribunal competence not even arising.
TAXATION IN AIMI OF PROPERTIES USED FOR COMMERCIAL ACTIVITIES
Law 42/2016, of 28 December added to the IMI Code, among others, article 135º-A which establishes: "the passive subjects of the additional municipal property tax are individual persons or legal entities that are owners, usufructuaries or superficiaries of urban properties situated in Portuguese territory".
In turn, the following article – 135º-B – provides:
"1. The additional municipal property tax applies to the sum of the tax values of urban properties situated in Portuguese territory of which the passive subject is the holder.
2 – Urban properties classified as 'commercial, industrial or for services' and 'other' in accordance with paragraphs b) and d) of no. 1 of article 6º of this Code are excluded from the additional municipal property tax".
As the Claimant alleges, this regime excludes from the scope of AIMI «urban properties classified as "commercial, industrial or for services" and "other" in accordance with paragraphs b) and d) of no. 1 of article 6º (…)» of the Municipal Property Tax Code (IMI Code), so that only urban properties intended for residential purposes and land for construction are included, as defined in that article 6º.
In the case at hand, as has already been seen, what is in question are urban properties intended for residential use, so it is indisputable that they are included in the objective scope of the tax, since, at least according to the plain language of the law, we are not within the scope of its exclusion.
However, from the aforementioned negative delimitation of scope, the Claimant extracts the conclusion that it was intended to create a tax on real estate fortune, in which urban properties used for economic activities would not be subject to taxation in AIMI. It maintains that the AIMI, as a complementary tax to the IMI, aims at taxing the accumulation of residential property of very high value (drawing a parallel with the previous taxation in stamp tax, through item 28).
Well. As Baptista Machado says – Introduction to Law and Legitimating Discourse –: "in the absence of other elements that induce the selection of the less immediate meaning of the text, the interpreter should in principle opt for that meaning which best and most immediately corresponds to the natural meaning of the verbal expressions used, and in particular to its technical-legal meaning, on the assumption (not always accurate) that the legislator knew how to express correctly its intention" (p. 182).
Now, the literal wording of articles 135º-A, no. 1 and 135º-B, nos. 1 and 2 of the IMI Code is clear and does not seem to lend itself to interpretive doubts. As is said in Arbitral Decision no. 664/2017-T, of 26-06-2018:
- "The exclusion from the tax accordingly covers properties classified as commercial, industrial or for services, understood as such buildings or constructions licensed for such purposes or that have as their normal purpose each of these uses. It includes, moreover, the residual type referred to in paragraph d) of no. 1 of that article 6º, including therein lands situated within or outside an urban area that are not land for construction nor rural properties and also buildings and constructions that do not fit into any of the previous classifications.
The scope of objective application, as a result of the reference to that article 6º, was thus defined not only by reference to a certain type of urban property, but also by reference to the administrative procedure through which the classification was carried out or, in the absence of a license, to the normal use of such properties for commercial, industrial and services or other purposes.
It is true that the legislative concern to 'prevent the impact of this tax on economic activity' was announced in the Draft Law of the State Budget for 2017 and was made concrete through the exclusion from the scope of 'urban properties classified as "industrial" as well as urban properties licensed for tourism activity, the latter provided that their purpose is duly declared and proven' and the deduction from the taxable value of the amount of '€ 600,000.00, when the passive subject is a legal entity with agricultural, industrial or commercial activity, for properties directly dedicated to its functioning'.
And it is certain that the exclusion from the scope of AIMI was not made with a view to the possible activity to which the properties are used, but only was based on the types of properties indicated in article 6º of the IMI Code, without any reference to the use or the functioning of companies.
In fact, as is said in Arbitral Decision no. 675/2017-T, of .....:
- "If the final draft of the Budget had maintained the legislative intention to prevent application to properties directly dedicated to the functioning of legal entities, the reference to this use that appeared in the proposal and that clearly expressed that legislative option would certainly have been maintained.
Having been deleted that reference to the use of the properties, there is no legal basis to conclude that residential properties and land for construction dedicated to the functioning of legal entities do not fall within the scope of AIMI".
The Claimant is therefore wrong when it alleges that it would have been the legislator's intention to intend to exclude from the scope of the tax properties used for economic activities, on the pretext that the objective pursued would be not to increase the tax burden on passive subjects who own properties as a result of their corporate purpose.
Given what is stated in the State Budget Report for 2017, we can conclude that what was intended with the AIMI was not to increase taxation on luxury properties, as was primarily intended with item 28.1 of the General Stamp Tax Table, since substantial real estate property can be constituted by a plurality of properties of reduced value. The intention would have been instead to create another means of subsidizing the social security system, which is one of the constitutional responsibilities of the State.
The fact that the Claimant holds the properties in the context of its economic activity does not therefore prevent the application of the AIMI.
UNCONSTITUTIONALITY OF THE AIMI
The Claimant further seeks to have the relevant standards disapplied by invoking the unconstitutionality of the AIMI taxation regime, due to violation of the principles of equality, proportionality and contributory capacity.
Let it be said before, moreover, that, inasmuch as it falls to the Courts to examine (un)constitutionality, the tax administration, which is under the hierarchical dependence of the executive, cannot substitute itself for the courts, and examine the constitutionality of the laws it must apply.
The Claimant invokes that article 135º-A of the IMI Code would be in violation of the principle of equality, in the aspect of contributory capacity, by making indiscriminate taxation of all properties, contending that those used for economic activities are necessarily excluded from such taxation.
Which is rejected by the Respondent, arguing that the judgment of unconstitutionality of the AIMI based on violation of the principle of equality proceeds from premises that are based on a comparison between incomparable situations.
As is said in Arbitral Decision no. 664/2017-T, "the Constitutional Court has underlined that one of the constitutionally defined essential objectives of the tax system, alongside the satisfaction of the State's financial needs and those of other public entities, is that of just distribution of income and wealth, as is apparent from article 103º, no. 1, of the Constitution".
We consider as established in this regard that the freedom enjoyed by the legislator requires that the principle of contributory capacity have some flexibility and may yield, to a certain extent, to other purposes of the State.
Hence, when a situation that is apparently or tendentially equal is treated in an apparently different manner, one can only speak of fiscal inequality if there are compelling reasons that led the legislator to make the options it did. That is, what is constitutionally forbidden to the legislator is pure arbitrariness, which will not occur when it aims at the pursuit of objectives to which it assigns greater value – as is the paradigmatic case of tax benefits, in which the legislator prefers to forego tax revenue to achieve other objectives.
It is, in fact, within that spirit that the legislator, insofar as the case is concerned, merely intends to tax properties classified as residential, refraining from applying AIMI to the others. That is, it took a measure of distinction of what is unequal, making an option whose justification appears clear: not to increase the tax burden on productive sectors, aiming at the much-touted needs for investment and economic growth.
We will say, on the other hand, that properties intended for residential use constitute goods of enjoyment, and it can be said of them that their accumulation or high value will reveal a greater index of wealth and, as such, of greater contributory capacity.
Therefore, even if the revealed contributory capacity may be equal, no violation of the principle of equality is apparent, given the reasonableness of the distinction and the objectives pursued.
The Claimant argues, however, that the fact that the properties in question form an integral part of its commercial activity because that is its corporate purpose, means that there is no basis for it, and, on the contrary, would be in violation of the principle of equality, to apply AIMI to such properties, by comparison with other entities, non-property-related, that are owners of properties.
As is likewise stated in that Arbitral Decision: "The ownership of real estate property, for purposes of sale and transformation, with a view to obtaining economic results, does not cease to constitute a patrimonial asset that is revealing of an increased contributory capacity, which goes beyond the tax that applies to taxable income by reason of the economic activity developed. What is at issue, therefore, is not the taxation of real income earned by these entities through the activity developed, but the complementary contributory capacity that results from the ownership of property and which by itself can facilitate the acquisition of credit or strengthen its negotiating position in the conclusion of various contracts".
Additionally, the contributory capacity of business legal entities, relevant for 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 dedicated. In truth, "property provides its holder with a special contributory capacity, advantages that by their nature escape personal income taxation: thus, the ownership of property facilitates the acquisition of credit, strengthens its holder's negotiating position in the conclusion of various contracts, makes it easier to multiply wealth by allowing them to take risks where in principle they would not. In this perspective, property taxation is seen as something more than a prolongation of personal income taxation – it is not a matter here of burdening income that is already subject to it but of reaching manifestations of contributory capacity that in reality escape it" (Sérgio Vasques, Contributory Capacity, Income and Property, in Taxation, no. 23, page 36).
On the other hand, and as also mentioned above, "since the legislative objective is not the taxation of luxury housing but rather obtaining yet another means of financing Social Security, in line with the policy choice of diversification, through 'a tax that falls on holders of larger real estate property portfolios, reinforcing the overall progressivity of the system'" (page 57 of the State Budget Report for 2017), it is in function of these objectives that one must assess whether there occurs a violation of the principle of proportionality" (Arbitral Decision no. 420/2018-T, of 15-01-2019).
"From this perspective, it appears that this new taxation is not incompatible with the principle of proportionality, because it is adequate to the end in view (it provides the increase in revenue that is intended to be obtained), it is necessary (in view of the legislative option to increase Social Security revenues through diversification of sources) and a reasonable measure is not exceeded, particularly as regards legal entities, because the rates of the new tax are not high (and are lower for legal entities than for individual persons, in accordance with article 135º-F), the tax paid is deductible from the taxable matter of Corporate Income Tax (article 135º-J), considerable amounts are deducted from the taxable value (article 135º-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" (idem).
In the same vein, we conclude that there does not appear to be any unconstitutionality, the contested assessment act not deserving any censure.
IV. DECISION
In these terms, this Arbitral Tribunal decides:
- To find the arbitral claim filed totally unsubstantiated, absolving the Respondent of all requests.
- To condemn the Claimants in the costs of the proceedings.
V. VALUE OF THE CASE
The value of the case is fixed at €1,029.68, in accordance with article 97º-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of paragraphs a) and b) of no. 1 of article 29º of the Legal Regime for Tax Arbitration and no. 2 of article 3º of the Regulation of Costs in Tax Arbitration Proceedings.
VI. COSTS
The amount of the arbitration fee is fixed at €306.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, in accordance with articles 12º, no. 2, and 22º, no. 4, both of the Legal Regime for Tax Arbitration, and article 4º, no. 4, of the aforementioned Regulation.
Lisbon, 23 March 2019
The Arbitrator
(António Alberto Franco)
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