AIMI on Construction Land: Unconstitutionality Challenge in CAAD Case 438/2018-T

ARBITRAL DECISION

I - Report

1. A... S. A., a legal entity bearing number ..., with registered office in Place ..., ...-... ... (hereinafter designated as "Claimant"), filed, on 04-09-2018, a request for arbitral pronouncement, pursuant to Article 2, No. 1, paragraph a) and Article 10, Nos. 1 and 2 of the Legal Framework for Tax Arbitration, as provided 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 "LFTA") and Articles 1 and 2 of Order No. 112-A/2011, of 22 March.

2. The Claimant seeks the pronouncement of the Arbitral Tribunal with a view to declaring the illegality of the assessment act for Additional Municipal Property Tax ("AIMI") No. 2017..., relating to the year 2017, in the amount of €10,894.99 (ten thousand eight hundred and ninety-four euros and ninety-nine cents), and likewise, of the dispatch issued by the Deputy Director of the Tax Authority of ... which dismissed the voluntary reclamation No. ...2018... concerning the aforementioned assessment act.

3. The defendant is the Tax and Customs Authority (hereinafter designated as "Respondent").

4. The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority, on 05-09-2017.

5. Pursuant to paragraph a) of No. 2 of Article 6 and paragraph b) of No. 1 of Article 11 of the LFTA, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Board of the CAAD designated as arbitrator of the singular arbitral tribunal His Excellency Dr. Olívio Mota Amador who, within the applicable deadline, communicated his acceptance of the appointment.

6. The Claimant was notified, on 24-10-2018, of the designation of the arbitrator, and manifested no intention to refuse the designation, in accordance with the joint provisions of Article 11, No. 1, paragraphs a) and b) of the LFTA and Articles 6 and 7 of the Code of Ethics.

7. In accordance with the provisions of paragraph c) of No. 1 of Article 11 of the LFTA, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 14-11-2018.

8. The Respondent, duly notified through arbitral dispatch, of 19-11-2018, filed, on 20-11-2018, its Response.

9. On 20-11-2018, the Respondent attached the Administrative File to the proceedings.

10. The Arbitral Tribunal by dispatch, of 11-01-2019, determined: (i) to waive the holding of the meeting provided for in Article 18 of the LFTA, considering that no exception matter was invoked nor is there any evidence to be produced; (ii) should the parties wish to make written submissions, these shall be produced within 10 days, in successive order, from notification of the present dispatch; (iii) to set 28 February 2019 as the final deadline for issuance of the arbitral decision.

11. The Respondent, on 18-01-2019, requested the attachment to the proceedings of the Arbitral Decision of 15-01-2019, issued in process No. 420/2018-T.

12. The Arbitral Tribunal by dispatch, of 08-02-2018, granted the Claimant a period of five days to make a statement, if it so wished, regarding the document presented by the Respondent. The Claimant made no statement.

13. Neither the Claimant nor the Respondent submitted submissions.

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

14.1. As follows from No. 2 of Article 135-B of the Property Tax Code, it is apparent that AIMI applies to properties with residential use, as well as construction land, regardless of their use – insofar as they are not expressly listed in the rule defining the negative scope of application.

14.2. Considering that the parallelism between Item No. 28 of the General Schedule of Stamp Tax and the current configuration of AIMI is undeniable, the present Claimant intends to demonstrate that AIMI suffers from the same defects as its predecessor. Particularly because, with respect to properties essential for obtaining income within the scope of economic activity, it lacks identical material support on the tax level.

14.3. This Tax Arbitral Tribunal unanimously concluded that construction land cannot be considered, for the purposes of the scope of Stamp Tax, as urban properties with residential use.

14.4. In this context, and considering the spirit that presided over the Draft Law of the State Budget for 2017, from which AIMI arose, it must be concluded that the aim was to tax the ownership of real estate property as revealing a superior tax-paying capacity of those who hold it, thus implementing the principle of fair distribution and tax-paying capacity.

14.5. First and foremost, it should be recalled that the properties held by the present Claimant, and which are being subject to taxation under AIMI, are, given its corporate purpose, essential for obtaining income within the scope of its economic activity – themselves also subject to taxation. Thus, the Claimant holds the properties in question within the scope of its activity and because of it. In fact, ownership of the properties, in the case of commercial companies of this type, consists of the patrimonial substrate of their economic activity, and in the realization of a true means essential to the pursuit of their objective. Accordingly, the assumption that ownership of such properties could constitute a manifestation of a (or an increased) tax-paying capacity that, by itself, should be subject to extraction through taxation, entirely fails.

14.6. This is to say that taxation under AIMI must necessarily make a distinction between, on the one hand, ownership of real estate property which, by itself alone, constitutes a manifestation of increased economic well-being. And, on the other hand, ownership 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 the latter case, the size and patrimonial value of such properties does not constitute, nor can constitute, a 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.

14.7. There is thus created, without any factual foundation, a glaring inequality on the material level between companies that have decided to pursue 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, the conditions are legally created for the constitution of manifest situations of material inequality between the Claimant and companies that, holding real estate, pursue commercial, industrial or service provision activities therein.

14.8. Now, the configuration of the tax fact that makes a distinction between various uses and intended purposes of properties, depending on the corresponding economic activity of its owner – namely, by considering those that are subject to taxation under AIMI – is in no way justified in light of the purpose of the fiscal measure adopted, and, above all, does not properly safeguard companies that, for the development of their economic activity, need to hold properties – which decisively contributes to their negative discrimination on the tax level, without any factual justification.

14.9. Indeed, given the purpose expressly stated in that taxation, no reason is apparent to negatively discriminate against properties held by companies whose corporate purpose is the conduct of real estate operations. With the tax in question, companies owning properties intended for the exercise of an economic activity are treated unequally, without any factual material support, in relation to companies that, for the same reason, own properties classified as "commercial, industrial or for services" – which are exempt from AIMI.

14.10. And, furthermore, the value considered for application of the tax is not an actual cost of production, calculated and recorded in accounting, but rather the VPT determined for tax purposes.

14.11. Now, properties held by companies pursuing real estate activities are not "luxury real estate property." To that extent, the taxation in question constitutes a violation of the principles of tax-paying capacity, equality and proportionality – insofar as the fact that the Claimant has construction land, for exploitation or sale, in its inventory, in no way demonstrates a relevant tax-paying capacity worthy of being (differently and autonomously) taxed. This is even more evident when it is found that other companies holding properties with identical or superior VPT, equally affected to their economic activity, are not subject to similar taxation.

14.12. When, in the making of norms, deviations occur from the original imperative that presides over taxation, they shall be unconstitutional, due to violation of the principle of tax-paying capacity, as taxpayers will not be taxed in accordance with their economic capacity, nor because of the facts in relation to which the incidence of the tax is justified. This is what occurs in the case at hand – insofar as there is no minimally perceptible and rational factual foundation to advocate for negative discrimination, at the tax level, of companies of a real estate nature.

14.13. The assessment now under consideration violates the principle of tax equality provided for in Article 13 of the CRP and the principle of tax-paying capacity provided for in Article 104 of the CRP, insofar as: (i) it is based on a norm that treats very differently taxpayers that are in identical situations, the measure of the difference not being assessed by their actual tax-paying capacity; (ii) it is based on an arbitrary legal solution devoid of any minimally perceptible or rational factual foundation.

14.14. By applying to the ownership of properties intended for the exercise of an economic activity, without sufficient foundation, Article 135-B No. 2 of the Property Tax Code must be disapplied due to material unconstitutionality, insofar as it violates the principle of tax equality enshrined in Articles 13 and 104, No. 3 of the CRP.

14.15. The decision and assessment contested herein should be declared illegal, because they do not take into account the different tax-paying capacity of the owners of the properties on which it applies, striking indiscriminately taxpayers with and without the tax-paying capacity that was intended to be encompassed.

14.16. There is found to exist a negative, acritical, 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 held by companies that assign them to industry, commerce and services. And it is certain that no reason or justification, minimally plausible and rational, is apparent to defend that "the overall progressivity of the system" is strengthened through the taxation of properties held by companies of a real estate nature. Additionally, such tax subjects are fiscally penalized in relation to companies that hold in their fixed assets properties of equal value intended for industry, commerce or services.

14.17. It is found that the legal norm in question is manifestly unbalanced, non-conforming and inadequate to the pursuit of its legal purpose; it is materially unconstitutional due to violation of the principle of proportionality.

14.18. We find, in conclusion, that we are faced with a violation of two fundamental principles of the Portuguese Constitution, with Article 135-B, No. 1, of the Property Tax Code suffering from unconstitutionality due to violation of the principle of equality, in its aspect of tax-paying capacity, as well as due to violation of the principle of proportionality.

14.19. It is the conviction of the Claimant that, in light of the prevailing constitutional fiscal principles, No. 2 of Article 135-B of the Property Tax Code must be deemed materially unconstitutional, insofar as it does not exclude from AIMI construction land that appears in the inventories of companies with a real estate purpose, due to violation of the principles of equality and tax-paying capacity, contained in Articles 13 and 104, Nos. 2 and 3, all of the CRP – determining the annulment of the decision and assessment contested.

1. The position of the Respondent, expressed in its response, may be summarized as follows:

15.1. It is found that AIMI applies to properties classified as residential and as construction land – regardless of their potential use (given that the law refers, without more, to Article 6 of the Property Tax Code) – insofar as they are not expressly listed in the rule defining the negative scope of application.

15.2. Considering the foregoing, it may be affirmed that, as far as AIMI applicable to urban properties of which legal entities and equivalent structures are owners, usufructuaries or superficie holders is concerned (Article 135-A/2 of the Property Tax Code), the tax assumes the nature of a real tax, insofar as the determination of the amount to be paid abstracts from the economic dimension of the entities, namely the qualification as a small, medium or large company, and also does not reach the totality of the net assets of the entities.

15.3. In this way, AIMI cannot be qualified as a tax of a personal nature, as, as a matter of conceptual rigor, it must be said that we are not faced with a personal tax, in line with the construction of doctrine. In this way, with regard to legal entities and equivalent structures, AIMI has the nature of real taxation, thus reflecting the idea that the elements making up the real estate property held by these entities perform, as a rule, an economic function, not representing, therefore, mere wealth accumulation. It is also important to note that AIMI, following the path of Property Tax, as real estate taxes, are included in the category of partial or analytical taxes on property.

15.4. The legislator excluded from the scope of application urban properties classified as "industrial, commercial or for services" and "other" but expressly chose to maintain other properties that also make up the assets of companies, such as those classified as residential or construction land, by not including them in the negative delimitation enshrined.

15.5. In light of the decisions of the Constitutional Court, it is clear that all of the Claimant's arguments in seeking to attribute any non-conformity of the assessment now at issue with fundamental law, have no foundation whatsoever.

15.6. Nothing in the letter of the law authorizes the conclusion that the legislator's intention regarding AIMI was to exclude from taxation urban properties that are affected to the exercise of an economic activity. For the sole relevant criterion for delimiting the scope of objective application is only the typology of classification of urban properties, provided for in Article 6/1 of the Property Tax Code, to which Article 135-B/2 expressly refers.

15.7. AIMI applicable to legal entities and equivalent structures bears the nature of a real tax on real estate property, constituted by urban properties that meet the types targeted by Article 135-B/2, regardless of the asset classes in which they are recorded – inventories, tangible fixed assets or non-current assets held for sale. Therefore, the Claimant is subject to AIMI for urban properties of which it is the owner, usufructuary or superficie holder and which meet the conditions set forth in that provision of the Property Tax Code.

15.8. Furthermore, the ratio legis of the norm also does not permit a contrary conclusion, as its spirit does not have the breadth sought by the Claimant. Noting the teleology of AIMI, it is interpreted that this aims, primarily, to reach a portion of the property of the tax subjects, applying to real estate assets making up a property, legally recognizable as capital of a given entity (singular or collective), regardless of whether it is affected to any productive or income-generating process – it is believed this is the purpose of Article 135-B/1 of the Property Tax Code.

15.9. Therefore, as seen, the universe of urban properties subject to AIMI is determined by recourse to the other two typologies contained in Article 6/1: residential urban properties and construction land. In this delimitation of real application, it is clear that the criterion adopted is intended to be universally objective, inducing greater uniformity and equality in the treatment of properties targeted for taxation, at the expense of other criteria that would call for case-by-case verifications of the actual destination given to properties. It is thus unequivocal that we are dealing with a rule of objective application of a general and abstract character, applicable indiscriminately to all cases in which the respective factual and legal prerequisites are met. Thus, 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 Property Tax Code cannot have the scope sought by it – that is, to also encompass urban properties classified as residential and construction land, not mentioned therein, when they constituted assets subject to the economic activity of the tax subjects.

15.10. And, even if the properties here at issue that were taxed may prove to be instrumental to their activities, we find that the same are suitable to indicate that those legal entities are titleholders of assets that, in themselves, evidence a specific level of well-being compared to other real estate owners. As noted, given the objective formulation enshrined in Article 135-B/2 of the Property Tax Code, the legislator unquestionably rejected the case-by-case option advocated by the Claimant, in which it is sought to invoke elements of economic consistency of highly variable and contingent nature, which depend largely on the manner of management, situational circumstances of context, the type of use made of the properties, the situation in each year of the patrimonial assets held. No illegality is therefore detected in the subjection to AIMI of the urban properties held by the Claimant.

15.11. It is not the responsibility of the Respondent to proceed with corrective interpretations of rules of tax application, nor, as explained below, to issue judgments of constitutionality regarding applicable norms, as it is not authorized to do so, unlike what occurs with courts (Article 204 of the Constitution ["CRP"]).

15.12. In this delimitation of real application, it is clear that the criterion adopted is intended to be universally objective, inducing greater uniformity and equality in the treatment of properties targeted for taxation, at the expense of other criteria that would call for case-by-case verifications of the actual destination given to properties. Indeed, the different valuation and taxation of a property with residential use, compared to a property intended for commerce, industry or services, results from the different aptness of the properties in question, which supports the different treatment given by the legislator which, for economic and social reasons, decided, within its regulatory discretion, to exclude from the scope of the tax properties intended for purposes other than residential. It is thus unequivocal that we are dealing with a rule of objective application of a general and abstract character, applicable indiscriminately to all cases in which the respective factual and legal prerequisites are met. And, as noted, the tax under scrutiny does not aim at generic taxation of property.

15.13. Thus, AIMI respects a partial taxation of property, not specifically targeting companies or a specific type of company, as it comprises every kind of tax subject that is a titleholder of the stated real rights over the properties in question, regardless of whether they assume a business character or not, thus encompassing, beyond companies, foundations, associations, and natural persons.

15.14. But rather there is apparent a potential negative discrimination, arising from the fact that such companies – since they commercialize properties classified as residential and/or construction land – end up with an additional burden, when compared to the generality of other legal entities. As for construction land, these do not reduce to mere building rights, of future things, and all of them are autonomous assets which, even by their natural scarcity, always have intrinsic economic value and, normally, quotation in the real estate market (i.e., they can be sold, exchanged, given as guarantee of obligations).

15.15. Even though the taxed properties may prove to be instrumental to the economic activity, we find that the same are suitable to indicate that that legal entity is a titleholder of assets that, in themselves, evidence a specific level of well-being compared to other real estate owners. That is, the circumstance that a given asset is worth, as a "factor of wealth production," is not sufficient to counter the finding that the corresponding titleholder holds a property only accessible to one with particular tax-paying capacity and, thus, capable of bearing an additional contribution to the desired consolidation of the budget. In the context of AIMI, it makes no sense to invoke jurisprudence relating to Item 28.1 of the General Stamp Tax Schedule, because AIMI disregards the potential use of construction land and because it applies indistinctly from the quality of the tax subject, provided that they are a titleholder of real rights over urban properties covered by Article 135-B of the Property Tax Code.

15.16. Indeed, at the time of taxation under AIMI of construction land, only the actual reality of the land itself, as it is legally characterized, may be considered, and taking into account the VPT contained in the matrix. And not a future construction, with the consequent type of urban property that may subsequently arise, including autonomous fractions or stories capable of independent use that may exist.

15.17. It is thus reiterated that there is no case here for any judgment of unconstitutionality of AIMI based on 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 judgments of prognosis, virtual abstractions and speculations about situations not constituted and that may never come to be constituted).

15.18. Furthermore, like any tax on property, AIMI is dissociated from any eventual realization of profit from the sale of real estate assets, as well as from the existence, or not, of negative or positive net income, being relevant, for the purposes of the tax, only the patrimonial value of construction land and residential properties. But it will always be said that the fact that the properties are investment assets, affected to real estate operations normally developed by the owners, not affecting the revealed tax-paying capacity (as the Claimant erroneously alleges), will determine that taxation under AIMI be susceptible to some attenuation within the business context, either because it constitutes a cost of the activity, or by the possibility of pass-through (in prices) which, to a greater or lesser degree, always exists even in taxes on company income.

15.19. Thus, in light of the foregoing, no error on the part of the Respondent's services being imputable – an error which, by itself, would have determined payment of a tax debt in an amount higher than legally owed – since it was not within its discretion to decide differently from the way it decided – it can only be concluded that indemnification interest is not owed, in accordance with Article 43 of the General Tax Law.

II - Case Management

1. The parties have legal standing and legal capacity, are shown to be legitimate and are regularly represented (Articles 4 and 10, No. 2, of the LFTA and Article 1 of Order No. 112-A/2011, of 22 March).

2. The tribunal is competent and is regularly constituted.

3. No objections have been raised that require examination.

4. There are no nullities or any other circumstances that prevent examination of the merits of the case.

5. In these terms, the Arbitral Tribunal is regularly constituted to examine and decide the object of the proceedings.

III - Merits

III.1. Matter of Fact

1. Proven Facts

21.1. With relevance for the examination and decision of the questions raised, the following facts are established as proven:

A) The Claimant is a company whose corporate purpose is the conduct of urbanizations and construction of buildings, planning and urban management, the conducting of studies and real estate consultancy, the buying and selling of land and buildings, and the resale of properties acquired for that purpose.

B) The Claimant, on 01-01-2017, was the owner of urban properties – parcels of construction land – recorded in the property matrix under articles ...-... (Patrimonial Tax Value: €2,716,180.00) and ...-... (Patrimonial Tax Value: €7,567.48), located in the parish and municipality of ... .

C) The Claimant was notified by the Tax Service of ... of the assessment of AIMI, relating to the year 2017, under No. 2017-..., made on 30-06-2017, regarding the properties identified in the previous subparagraph, in the amount of €10,894.99.

D) The Claimant, on 29-09-2017, proceeded to pay the tax act referred to, in the total amount of €10,894.99.

E) The Claimant filed, on 01-02-2018, a voluntary reclamation against the assessment identified in subparagraph C), which received No. ...2018... .

F) The voluntary reclamation, identified in the previous subparagraph, was dismissed by dispatch, of 04-06-2018, from the Deputy Director of the Tax Authority of ..., pursuant to delegation of powers, and notified to the Claimant through letter No. ..., of 04-06-2018, from the Tax Authority of ... .

21.2. There are no other facts with relevance for examination of the merits of the case that have not been proven.

21.3. Grounds of the Matter of Fact

Regarding the matter of fact, in light of the provisions of Article 123, No. 2, of the Administrative Procedure Code and Article 607, No. 3, of the Code of Civil Procedure (CCP), applicable pursuant to Article 29, No. 1, paragraphs a) and e), of the LFTA, the Tribunal is not required to pronounce on everything that was alleged by the parties, it being incumbent upon it to select the facts that matter for the decision and to distinguish proven from unproven matters.

Thus, in accordance with the provisions of Article 596 of the Code of Civil Procedure (CCP), applicable pursuant to Article 29, No. 1, paragraph e), of the LFTA, the facts relevant for adjudication of the case were chosen and determined based on their legal relevance, which was established taking into account the legal questions raised.

Taking into account the positions assumed by the parties, in light of Article 110, No. 7, of the Administrative Procedure Code, the documentary evidence and the Administrative File attached to the proceedings, the facts listed above were considered proven, with relevance for the decision.

III.2. Matter of Law

1. The main question to be decided in the present proceedings consists of determining whether No. 2 of Article 135-B of the Property Tax Code, insofar as it does not exclude from Additional Municipal Property Tax construction land that appears in the inventories of companies with a real estate purpose, should be considered materially unconstitutional, due to violation of the principles of equality and tax-paying capacity, contained in Articles 13 and 104, Nos. 2 and 3 of the Constitution of the Portuguese Republic.

2. It is important to begin by noting that Law No. 42/2016, of 28 December, the State Budget Law for 2017, introduced the Additional Municipal Property Tax ("AIMI"), which came into force on the date of the said law, that is, on 1 January 2017.

The regulation of AIMI was added to the Property Tax Code through Chapter XV, titled "Additional Municipal Property Tax," comprising Articles 135-A to 135-K.

Nos. 1 and 3 of Article 135-A of the Property Tax Code establish that the tax subjects of AIMI are "natural persons or legal entities that are owners, usufructuaries or superficie holders of urban properties located in Portuguese territory" on 1 January of the year to which the said Additional applies.

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

AIMI applies, in accordance with No. 1 of Article 135-B of the Property Tax Code, "to the sum of the patrimonial tax values of urban properties located in Portuguese territory of which the tax subject is the owner" – with the understanding that, from this sum, there 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 AIMI are "urban properties classified as 'commercial, industrial or for services' and 'other' in accordance with paragraphs b) and d) of No. 1 of Article 6 of this Code," as provided for in No. 2 of Article 135-B of the Property Tax Code.

The applicable rate is 0.4% for legal entities and 0.7% for natural persons and undivided successions, provided that the taxable value does not exceed €1,000,000, in accordance with No. 1 of Article 135-F of the Property Tax Code, with the understanding that, in cases where the taxable value exceeds €1,000,000, 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 Property Tax Code, AIMI is assessed annually, in the month of June, based on the patrimonial tax values of the properties subject to tax and in relation to the tax subjects that appear in the matrices on 1 January of each year, and must be paid by the end of the month of September.

1. The Claimant begins by invoking the arbitral jurisprudence that has become established around Item No. 28 of the General Schedule of Stamp Tax, because it considers the parallelism between the said Item and the configuration of AIMI undeniable. Thus, the Claimant intends to demonstrate that AIMI suffers from the same defects as that Item, particularly because, with respect to properties essential for obtaining income within the scope of economic activity, it lacks identical material support on the tax level (see 14.2 and 14.3 above).

In this regard, it is important to underscore that Item No. 28 of the General Schedule of Stamp Tax does not have the same normative content as the provision relating to AIMI now under examination. As stated in the Arbitral Decision, of 26-06-2018, issued in process No. 664/2017-T, the inclusion within the scope of Item No. 28 of the General Schedule of Stamp Tax "(…) of construction land alongside an already constructed residential property does not reflect the different tax-paying capacity of the respective owners, that being the determining reason for the judgment of unconstitutionality. In the present case, by contrast, to effect the exclusion from Additional Property Tax, it is intended to establish equivalence between construction land and urban properties commercial, industrial or for services, from the inverse perspective that construction land potentially usable for such purposes does not differ from already constructed properties that are classified as commercial, industrial or for services."

Furthermore, AIMI does not burden the taxation of luxury properties, as Item No. 28 of the General Schedule of Stamp Tax intended, but aims to create a form of financing the social security system.

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

Pursuant to Article 2 of Law No. 28/82, of 15 November, "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, in light of what has been 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 Schedule of Stamp Tax to construction land, under the conditions referred to, do not suffer from the unconstitutionality defects that had been attributed to them.

In this way and in light of the foregoing, it is judged that the Claimant's allegations are unfounded on this point.

1. The Claimant then alleges that, in its case, the construction land is essential for obtaining income within the scope of its economic activity and should be considered excluded from taxation (see Nos. 14.5 to 14.12 above).

The legislator, in the negative delimitation of the scope of AIMI, refers to the typology of properties, in accordance with the characterization that the Property Tax Code attributes to it. In this regard, we agree with the Arbitral Decision, of 04-05-2018, issued in process No. 675/2017-T, in stating: "Had the intention in the final version of the Budget been maintained to exclude application to properties directly affected to the functioning of legal entities, the reference to this use that appeared in the proposal and that clearly expressed this legislative option would certainly have been maintained. Thus, with the suppression of this reference to the use of the properties, there is no legal support for concluding that residential properties and construction land used to the functioning of legal entities are not relevant to the scope of AIMI." And it adds "(…) in light of the departure from the proposed wording in which significance was given to the use of properties, there is no reason to conclude that the legislator did not know how to express its thinking in appropriate terms, as must be presumed, by virtue of the provision of Article 9, No. 3, of the Civil Code."

Indeed, we understand that the position according to which the legislator intended to exclude construction land from the scope of AIMI so as not to overburden the tax subjects who own this type of property by virtue of their corporate purpose, does not have support in the letter of the law.

The relevant criterion for the legislator, within its regulatory discretion, was the classification of properties in light of Article 6 of the Property Tax Code and not their use in the economic activity of the taxpayers.

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

The Arbitral Decision, issued in process No. 676/2017-T, states, pertinently, that: "The exclusion from the tax thus encompasses properties classified as commercial, industrial or for services, understood as buildings or constructions licensed for such purposes or that have as normal destination each of these purposes. It also covers the residual species referred to in paragraph d) of No. 1 of that Article 6, including therein land situated within or outside an urban agglomeration that are neither construction land nor rural properties, and also buildings and constructions that do not fit into any of the aforementioned classifications. The scope of objective application, as a result of the reference to that Article 6, was thus defined not only by reference to a certain species of urban property, but also by reference to the administrative procedure through which the classification was effected or, in the absence of a license, to the normal intended purpose of such properties for commercial, industrial and service purposes or others."

Potential fiscal policy reasons could justify granting construction land intended for buildings for commercial, industrial or service purposes the same status as was attributed to properties classified as "commercial, industrial or for services," but that was not the legislative option.

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 preclude the application of AIMI.

Thus, the Claimant's position on this point is not well-founded.

1. The constitutional questions raised in the present proceedings (see 14.13 to 14.19 above) have already been analyzed by various arbitral decisions in a sense contrary to that defended by the Claimant, notably by the arbitral decision issued in process No. 690/2017-T, which the arbitrator of the present proceedings subscribed to in the capacity of member of the Collective Arbitral Tribunal.

2. The Claimant asserts the unconstitutionality resulting from the discrimination contained in the provision of Article 135-B, No. 2, of the Property Tax Code, regarding construction land in relation to properties classified as commercial, industrial or for services, which are excluded from taxation by virtue of that provision. But it is important to note that we are dealing 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 aptness for construction. Construction land has its own patrimonial value that constitutes an indicator of tax-paying capacity independent of its eventual and future use within the scope of construction.

In the other situation, the law excludes from the tax property that has already been built with an instrumental function in relation to productive activity. Property that has already been constructed and classified as commercial, industrial or service real property already has an instrumental function in relation to a certain productive activity that the legislator sought to safeguard, within its regulatory discretion.

Thus, it is possible to discern a sufficient material foundation that permits the legislator to distinguish, for purposes of taxation of property, between these different tax facts. In short, there is sufficient material foundation for establishing the differentiation of treatment, in line with the regime legally enshrined.

As was stated in the Arbitral Decision, of 04-05-2018, issued in process No. 675/2017-T: "ownership of real estate property of high value evidences, as in relation to any owner of property intended for residential use, a special economic capacity to be able to contribute additionally to the Financial Stabilization Fund of Social Security, to which the revenue from AIMI is assigned, and which 'corresponds to the government program's objective of expanding the financing base of Social Security' (Report on the Budget for 2017, page 57). For this reason, the imposition on the generality of holders of residential properties or construction land for residential properties does not appear materially unconstitutional, in light of the principles of equality and tax-paying capacity."

The alleged unconstitutionality defects are thus unfounded.

1. Regarding the alleged violation of the principle of proportionality (see 14.17 above), it should be noted that AIMI proves to be appropriate and necessary to the objective of increasing Social Security revenue and does not exceed a reasonable measure, particularly as regards legal entities, because the rates are not high, the tax paid is deductible from the taxable base of Corporate Income Tax, pursuant to Article 135-J of the Property Tax Code. Furthermore, significant amounts are deducted from the taxable value, in accordance with Article 135-C of the Property Tax Code.

Finally, it was not demonstrated that the amounts collected through AIMI collection exceed what is necessary for the purpose of strengthening the sustainability and stability of Social Security.

In short, the Claimant failed to demonstrate that there is a violation of the principle of proportionality.

IV - Decision

For these reasons, this Arbitral Tribunal judges the request for arbitral pronouncement unfounded and, in consequence, acquits the Respondent of the claim, with the consequent legal effects.

V - Value of the Process

In light of the provisions of Articles 32 of the Administrative Procedure Code, 306, No. 2, of the Code of Civil Procedure and 97-A of the Administrative Procedure Code, applicable by virtue of the provision of Article 29, No. 1, paragraphs a) and b), of the LFTA, and Article 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the process is fixed at €10,894.99 (ten thousand eight hundred and ninety-four euros and ninety-nine cents).

VI - Costs

The amount of costs is fixed at €918.00 (nine hundred and eighteen euros) to be borne by the Claimant, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, in compliance with the provisions of Articles 12, No. 2, and 22, No. 4, both of the LFTA, as well as the provision of Article 4, No. 4, of the Regulation of Costs in Tax Arbitration Proceedings.

Notify.

Lisbon, Center for Administrative Arbitration, 1 March 2019

The Arbitrator

Olívio Mota Amador