CAAD 456/2018-T: AIMI Objective Incidence Unconstitutionality – Equality and Proportionality Principles

ARBITRAL DECISION

1 - Report

1.1

A..., S.A., hereinafter referred to as the "Claimant," taxpayer no. ..., with registered office at ...., ..., ..., requested the constitution of a single arbitral tribunal, under the combined provisions of article 2, no. 1, paragraph a) and article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT") and articles 1 and 2 of Order no. 112-A/2011, of 22 March, in which the Tax and Customs Authority is the Respondent (hereinafter "Respondent" or "AT").

1.2

The request for arbitral pronouncement, presented on 14 September 2018, has as its object the declaration of illegality of the rejection decision of the administrative complaint no. ...2018..., issued by the Head of the Finance Service of ... (...), on 19 June 2018, and consequent annulment of the assessment of the Additional Property Transfer Tax ("AIMI") with no. 2017..., issued by the "AT" on 30 June 2017, with reference to the year 2017, in the amount of 1,831.08 € (one thousand, eight hundred and thirty-one euros and eight cents).

1.3

The Claimant chose not to appoint an arbitrator.

1.4

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to the AT on 17 September 2018.

1.5

The undersigned was appointed by the President of the Deontological Council of CAAD as arbitrator of the single arbitral tribunal, pursuant to the provisions of article 6 of the RJAT, and notification of acceptance of the appointment was communicated within the applicable timeframe.

1.6

On 31 October 2018, the Parties were notified of this appointment and did not object thereto, under the combined terms of article 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the CAAD Deontological Code.

1.7

Thus, in accordance with the provision of article 11, no. 1, paragraph c) of the RJAT, the single arbitral tribunal was constituted on 20 November 2018.

1.8

The Respondent was notified, by arbitral order of 20 November 2018, pursuant to article 17, no. 1 of the RJAT, to, within a period of 30 days, present its Response, if it so wished, and to request the production of additional evidence.

1.9

It was further notified to, within the same period, submit the administrative file (PA) referred to in article 111 of the CPPT.

1.10

On 21 December 2018, the Respondent presented its Response, defending itself by opposition, arguing for the dismissal of the request for arbitral pronouncement, on the grounds that it was not proven, maintaining the challenged tax assessment in the legal order with the consequent absolution of the Respondent from the claim.

1.11

Should this not be the case, notification of the arbitral decision to the Public Prosecutor's Office was requested, under the provisions of article 280, no. 3 of the Constitution of the Portuguese Republic (CRP) and article 72, no. 3 of the Constitutional Court Act.

1.12

On the same date it submitted to the record its respective PA.

1.13

Considering that the Parties did not request the production of any evidence beyond the documentary evidence submitted to the file, the Arbitral Tribunal, taking into account the principles of autonomy in the conduct of proceedings, expedition, simplification and procedural informality, inherent in articles 16 and 29, no. 2 of the RJAT, by order of 27 December 2018, dispensed with the holding of the meeting provided for in article 18 of the same statute, having further decided that the proceedings would continue with optional written submissions, within 10 days, in successive order for the Respondent.

1.14

By the same order it was determined that the arbitral decision would be rendered by the end of the period referred to in article 21, no. 1 of the RJAT.

1.15

The Parties made no submissions.

Position of the Parties

Of the Claimant -

It supports its request for arbitral pronouncement, in summary, as follows:

That its business purpose consists of the purchase and sale of real estate and resale of properties acquired for that purpose, leasing and management of own or third-party properties, the operation and management of hotel establishments and similar facilities, namely hotels, inns, restaurants, cafés, snack bars, residential tourism and rural tourism enterprises, entertainment establishments, the promotion and operation of recreational, leisure, cultural, entertainment and spectacle activities and the operation of games of chance or fortune, being owner of the urban properties mentioned in the assessment in question, namely urban properties intended for residential purposes, being recorded as "tangible fixed assets" having in view the leasing.

Of the Claimant's real estate, that registered in the matrix under article U..., which forms part of the space denominated "...", is being exploited for weddings, parties and other events, while those registered under article ... are units which, until the end of the year 2017, were leased, and these have had this purpose for several decades, and the two units registered under article ... are intended for exploitation and are not currently leased.

Thus the real property patrimony referred to is intended solely and exclusively for the exploitation of the Claimant within the scope of its economic activity, which, in the year 2017, showed a negative result.

The Claimant was notified of the assessment of AIMI in question, but in order to prevent the institution of a tax enforcement proceeding and the accrual of default interest, it voluntarily paid the tax assessed to it.

However, the assessment in question is illegal because it is supported by a substantively unconstitutional norm that, by applying to real estate that forms part of the assets of a company with a real estate purpose and thus essential for obtaining income within the scope of its economic activity, violates the principles of equality, in its aspect of contributory capacity, and proportionality, treating in different ways taxpayers who are in identical situations, the measure of the difference not being assessed by their actual contributory capacity and being based on an arbitrary legal solution and devoid of any perceptible or rational material foundation.

Thus it filed the appropriate administrative complaint, which, having been processed at the ... Finance Service of ..., came to be rejected by the order which is also being challenged.

It concludes by arguing for the granting of the request for arbitral pronouncement and thereby for the annulment of the rejection order issued in Administrative Complaint Process no. ...2018... and annulment of the challenged assessment, in the amount of 1,831.08 €, with all consequences provided by law, notably the reimbursement of the amount unduly paid.

Of the Respondent -

Defending itself by opposition, it invokes the following arguments:

That AIMI assumes the nature of a real tax, "insofar as the calculation of the amount payable abstracts from the economic dimension of the entities, namely the qualification as small, medium or large enterprise, and does not affect the totality of the net patrimony of the entities," and therefore cannot be qualified as a tribute of a personal nature.

Thus the legislature excluded from the scope of application urban properties classified as "industrial, commercial or service" and "other" properties, but expressly chose to maintain other properties that also form part of the assets of enterprises, such as those classified as residential or building land, by not including them in the negative delimitation enshrined.

Thus the only criterion relevant to delimiting the scope of the objective scope of AIMI is solely the typology of classification of urban properties, provided for in article 6/1 of the CIMI, to which article 135-B/2 expressly refers.

AIMI applicable to legal entities and equivalent structures has the nature of a real tax on real estate patrimony, constituted by urban properties that meet the types envisaged 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.

Thus the Claimant is subject to AIMI for urban properties of which it is the owner, usufructuary or superficiary and which meet the conditions stated in that provision of the CIMI, regardless of the nature of the economic activity carried out, and this does not constitute a violation of the CRP.

As to the unconstitutionality of article 135-B/2 of the CIMI, and even if this were verified, the Respondent still could not disregard such norm on that basis, being obligated to act in accordance with the principle of legality, in compliance with the provision of article 266/2 of the CRP, article 3/1 of the Code of Administrative Procedure and article 55 of the General Tax Act, contrary to the courts which, under article 204 of the CRP, are prevented from applying unconstitutional norms and are assigned the competence for diffuse and concrete review of constitutional compliance.

But in the Respondent's view, the referred norm is not tainted by the vice of unconstitutionality due to violation of the vices that the Claimant attributes to it.

In effect, the principle of equality is concretized in various dimensions, such as the prohibition of arbitrariness, the prohibition of discrimination and the obligation of differentiation.

On the other hand, contributory capacity, beyond income and the use of goods, is also expressed, under the law, through the ownership of patrimony, as enshrined in article 4/1 of the LGT: "Taxes are based essentially on contributory capacity, revealed, under the law, through income or its use and patrimony."

The choices inherent in the delimitation of the objective scope of AIMI are effected within the margin of freedom of legislative configuration, and it is evident that the criterion adopted intends to be universally objective, inducing greater uniformity and equality in the treatment of the properties subject to taxation, to the detriment of other criteria that would appeal to case-by-case verifications of the actual destination given to the properties.

Therefore, the different valuation and taxation of a property with residential use, as opposed to a property intended for commerce, industry or services, results from the different aptitude of the properties in question, which supports the different treatment given by the legislature that, for economic and social reasons, decided, within its margin of configuration, to exclude from the scope of the tax properties intended for purposes other than residential.

AIMI does not aim at generic taxation of patrimony, being concerned only with a partial tax on certain manifestations of contributory capacity, rather concerning a partial taxation of patrimony, without specifically targeting enterprises or a specific type of enterprise, as it includes all kinds of taxable persons who are holders of the real rights stated over the properties in question, regardless of whether they assume an entrepreneurial character or not, thus encompassing, beyond companies, foundations, associations and natural persons.

That the duty to contribute to public expenditure through taxes is an immanent limit to property rights and freedom of economic initiative, and therefore the collection of taxes, in order to satisfy public needs, is one of the interests clearly protected by the CRP.

That there is no significant influence on the ownership of properties by enterprises engaged in the commercialization of the same, given that AIMI does not have general scope, but its scope of application is restricted to urban properties located in Portugal, regardless of the nature of the owner, usufructuary or superficiary, and therefore it will not be the circumstance that other taxpayers holding identically valuable real estate patrimony are exempt from the tax that will justify a specific constitutional censure of the norm under review.

Like any tax on patrimony, AIMI is dissociated from a possible realization of profit from the sale of real estate, as well as from the existence or not of a negative or positive net situation, being relevant, for the purposes of the tax, only the patrimonial value of residential properties.

Furthermore, AIMI is a deductible expense, negatively affecting the taxable profit of the year, or is deductible from the IRC collection when income generated by properties subject to it, within the scope of rental or accommodation activities, are included in the taxable base (article 135-J, nos. 1 and 2, of the CIMI).

It concludes by arguing for the total dismissal of the request for arbitral pronouncement and absolution of the Respondent, maintaining the challenged tax assessment in the legal order, since the disputed assessment embodies a correct interpretation and application of the law to the facts.

2 - Clarification

2.1

The Parties have legal personality and capacity, are shown to be legitimate and are regularly represented (articles 4 and 10, no. 2, of the RJAT and article 1 of Order no. 112-A/2011, of 22 March).

2.2

The proceedings are not affected by any nullities, the claim was timely presented and no exceptions were invoked other than the aforementioned barring of the right to action.

2.3

The Arbitral Tribunal is regularly constituted and is materially competent to hear and decide the claim, cf. article 2, no. 1, paragraph a) of the RJAT.

2.4

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

3 - Matter of Fact

3.1 Facts Proven

With relevance for the appraisal and decision of the questions raised, the following facts are accepted as established and proven:

• The Claimant is a commercial company that carries on its activity in the real estate sector;

• Its purpose is the purchase and sale of real estate and resale of properties acquired for that purpose, leasing and management of own or third-party properties, the operation and management of hotel establishments and similar facilities, namely hotels, inns, restaurants, cafés, snack bars, residential and rural tourism enterprises, entertainment establishments, the promotion and operation of recreational, leisure, cultural, entertainment and spectacle activities and the operation of games of chance or fortune – cf. permanent certificate attached with the ppa and which constitutes document no. 2;

• In the scope of its activity, the Claimant, on 1 January 2017, was the owner of the following urban properties classified as residential, cf. notification of the assessment attached with the ppa and which constitutes document no. 5 as well as information at page 29 of the PA:

• All the real property patrimony previously referred to was, on 1 January 2017, intended solely and exclusively for the exploitation of the Claimant in the scope of its economic activity, cf. documents nos. 3 and 4 attached with the ppa.

• In the year 2017, the Claimant presented a loss for tax purposes, in the amount of 3,781,314.97 €, cf. document no. 6 attached with the ppa.

• In August 2017, the Claimant was notified of the assessment of AIMI no. 2017..., of 30 June 2017, issued by the Tax and Customs Authority ("AT") with reference to the year 2017, in the total amount of 1,831.08 €, with payment deadline in the month of September 2017, encompassing the properties previously referred to, considering the taxable patrimonial value of 457,770.00 €, cf. document no. 5 attached with the ppa.

• On 29 September 2017, the Claimant made payment of the assessed tax, cf. document no. 7 attached with the ppa.

• On 30 January 2018, the Claimant filed an administrative complaint to the assessment referred to, whose file with no. ...2018... was processed by the Finance Service of ..., cf. document no. 1 attached with the ppa and administrative file presented by the AT on 21 December 2018.

• The administrative complaint was rejected by order of 19 June 2018, issued by the Head of the Finance Service of ... and notified to the Claimant through official letter no. ... of the same date, registered on 20 June 2018 (RF...PT), cf. document no. 1 attached with the ppa.

• The decision rejecting the administrative complaint refers to the reasoning of the draft decision contained in document no. 1, in which, among other things, it states:

"(...) The Additional Property Transfer Tax (AIMI) was introduced into the Portuguese legal-tax order by Law no. 42/2016, of 28 December (State Budget for 2017) and is a personal tax, of cadastral basis, that applies to real estate patrimony.

Article 135-A, no. 1 of the Code of the Property Transfer Tax (CIMI) provides that the taxable persons are "... natural or legal persons who are owners, usufructuaries or superficiaries of urban properties situated in Portuguese territory," article 135-A, no. 3, of the same article states that "the status of taxable person is determined in accordance with the criteria established in article 8 of this code, with the necessary adaptations, having as reference the date of 1 January of the year to which the additional property transfer tax relates."

AIMI applies to the sum of the taxable patrimonial values of residential urban properties and building land, situated in Portuguese territory, of which the taxable person is the holder on the date of 1 January of the year to which the additional applies, such taxable value being determined on the basis of the matrix registrations in force on the referred date (article 135-B and no. 1 of article 135-C, both of the CIMI Code).

The assessment of AIMI is made annually by the Tax and Customs Authority (AT), on the basis of the taxable values of the properties and in relation to the taxable persons who appear in the matrices on 1 January of the year to which it applies (no. 1, article 135-G).

For its part, article 6 of the CIMI provides that urban properties are divided into residential, commercial, industrial or service, building land and other.

Therefore, the AT proceeds with the respective assessment on the basis of the data registered in the property matrices and with effect on the date of the tax event – 1 January of the year to which the tax applies using the taxable patrimonial values, (tax matter) and the subjects noted therein as holders of the real rights of enjoyment of the properties (subjective scope).

Article 135-B, no. 2 of the CIMI, establishes the objective scope of AIMI, providing that "... Urban properties classified as «commercial, industrial or service» and «other» pursuant to paragraphs b) and d), no. 1, of article 6, of this Code ... are excluded from the additional property transfer tax."

In accordance with consultation of the AT's computer system, the values of the assessment here complained of are based on the ownership of several urban properties, situated in the area of the Finance Services of ..., of ... and of ... and are classified as urban properties intended for "residential" purposes, therefore the determination of the taxable value of AIMI of the referred assessment was made in accordance with the norms of objective scope of AIMI, that is, observing the classification of properties provided for in article 6 of the CIMI.

Thus, pursuant to article 135-F of the CIMI, the respective assessment was made (VPT x rate 0.4%), having as basis the total taxable value of €457,770.00 with application of the rate of 0.4% resulting in a collection of €1,831.08.

Regarding the alleged unconstitutionality underlying AIMI taxation, it appears that it is not appropriate to examine the same in the context of an administrative complaint, given the grounds provided for complaint and opposition, as per article 70, no. 1, combined with article 99, both of the CPPT.

In view of the foregoing, unless better advised, it is concluded that the assessment was made in accordance with the law, and the complainant's claim should be denied, and therefore rejection of the complaint is proposed."

• On 14 September 2018, the Claimant presented the request for arbitral pronouncement that gave rise to the present proceedings.

3.2 Facts Not Proven

There are no relevant facts for the decision of the case that should be considered as not proven.

3.3 Motivation

Regarding matters of fact, the Tribunal has no duty to rule on all the matters alleged, but rather has the duty to select those of interest for the decision, taking into account the cause (or causes) of action that grounds the claim filed by the plaintiff [(cf. articles 596, no. 1 and 607, nos. 2 to 4 of the CPC, applicable by virtue of article 29, no. 1, paragraphs a) and e) of the RJAT)] and to record whether it considers them proven or not proven (cf. article 123, no. 2 of the CPPT).

In accordance with the principle of free appreciation of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the means of evidence brought to the proceedings and in accordance with its life experience and knowledge of persons (cf. article 607, no. 5 of the CPC). Only when the probative force of certain means is pre-established by law (e.g. full probative force of authentic documents, cf. article 371 of the Civil Code) does the principle of free appreciation of evidence not apply.

Thus, the Tribunal's conviction was based on the documentary evidence attached to the record as well as on the positions taken by the parties.

The AT does not question any of the facts alleged by the Claimant.

4 - Matter of Law (reasoning)

Object of the Dispute

The issue that constitutes the thema decidendum boils down to whether the properties referred to in the record, as the substrate of the Claimant's economic activity, are covered by the norms of objective scope of AIMI provided for in article 135-B of the CIMI.

Question to Decide

• Regarding the (il)legality of the challenged assessment.

The Claimant states that the tax act is illegal because it is supported by a substantively unconstitutional norm that, by applying to real estate that forms part of the assets of a company with a real estate purpose and thus essential for obtaining income within the scope of its economic activity, violates the most basic canons of equality, in its aspect of contributory capacity, and proportionality.

Before entering into the analysis of the referred unconstitutionalities, it is important to make some considerations about the meaning and scope of the invoked norms.

A. Framework

The Claimant is an incorporated company that carries on its activity in the real estate sector, consisting of its corporate purpose in the purchase and sale of real estate and resale of properties acquired for that purpose, leasing and management of own or third-party properties, the operation and management of hotel establishments and similar facilities, namely hotels, inns, restaurants, cafés, snack bars, residential and rural tourism enterprises, entertainment establishments, the promotion and operation of recreational, leisure, cultural, entertainment and spectacle activities and the operation of games of chance or fortune.

Thus all the real property patrimony was, on 1 January 2017, intended solely and exclusively for the exploitation of the Claimant in the scope of its economic activity, through sale or leasing, constituting a true essential means for the pursuit of its economic activity.

The Claimant thus understands that AIMI is not applicable to it, since with this tax the legislature intended "to tax the ownership of real estate patrimony as revealing superior contributory capacity of the one who holds it, thus concretizing the principle of just distribution and contributory capacity," and therefore, being the properties essential for obtaining income within the scope of its economic activity, they should be considered excluded from taxation.

However, the Claimant proceeds on the basis of erroneous assumptions as to the meaning and scope of the applicable provisions, as demonstrated below:

In effect, the Additional Property Transfer Tax was instituted by Law no. 42/2016, of 28 December (State Budget Act for 2017), which added to the CIMI Code chapter XV comprised by articles 135-A to 135-K.

Article 135-A defines the subjective scope of the tax, establishing that "taxable persons of the additional property transfer tax are natural or legal persons who are owners, usufructuaries or superficiaries of urban properties situated in Portuguese territory," with "any structures or centers of collective interests without legal personality that appear in the matrices as taxable persons of the property transfer tax being equated to legal persons."

For its part, article 135-B defines the scope of objective scope, establishing the following:

Article 135-B

Objective Scope

1 - The additional property transfer tax applies to the sum of the taxable patrimonial values of urban properties situated in Portuguese territory of which the taxable person is the holder.

2 - Urban properties classified as «commercial, industrial or service» and «other» pursuant to paragraphs b) and d) of no. 1 of article 6 of this Code are excluded from the additional property transfer tax.

The reference made in no. 2 of article 135-B to article 6 of the CIMI Code is intended to characterize what is meant by urban properties «commercial, industrial or service» and «other» for purposes of exclusion from the scope of application of the additional tax.

Thus, the Property Transfer Tax (IMI) applies to the taxable patrimonial value of rural and urban properties situated in Portuguese territory, as results from article 1 of the CIMI Code, and the subsequent articles define, for purposes of the tax, the concepts of property, rural properties, urban properties and mixed properties (articles 2 to 5).

For its part, article 6 establishes the species of urban properties, establishing the following:

"1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or service;

c) Building land;

d) Other.

2 - Residential, commercial, industrial or service are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes.

3 - Building land is considered to be land situated within or outside an urban agglomeration, for which a license or authorization for a subdivision or construction operation has been granted, prior notification has been admitted or favorable preliminary information has been issued, and also that which has been declared as such in the acquisition deed, with the exception of land in which the competent entities prohibit any such operations, namely those located in green areas, protected areas or which, in accordance with municipal territorial planning plans, are devoted to public spaces, infrastructure or facilities.

4 - The provision of paragraph d) of no. 1 includes land situated within an urban agglomeration that are not building land nor are covered by the provision of no. 2 of article 3 and also buildings and constructions licensed or, in the absence of a license, that have as their normal destination purposes other than those referred to in no. 2 and also those in the exception of no. 3.

Given the foregoing, it must be said from the outset that the literal wording of articles 135-A, no. 1 and 135-B, nos. 1 and 2, of the CIMI is clear and does not lend itself to any interpretive doubt. Since the letter of the law, or grammatical element, is the first element to be invoked in legal hermeneutics, and it must be presumed that the legislature knew how to express its thought in adequate terms (no. 3 of article 9 of the Civil Code), there would be no need to invoke other elements from among those available in the hermeneutic arsenal.

In effect, it is clear that the legislature, in defining the negative delimitation of the scope of application of the tax by reference to urban properties classified as «commercial, industrial or service» and «other» pursuant to paragraphs b) and d) of no. 1 of article 6» of the CIMI Code, is precisely intending to refer to that typology of properties in accordance with the characterization that the Code itself attributes to them.

As stated in the Arbitral Decision, rendered in case 676/2017-T, of which the undersigned was part of the arbitral panel, in the sequel to the Arbitral Decision rendered in case no. 664/2017-T, whose jurisprudence we hereinafter follow, in agreement with it, "The exclusion of the tax encompasses, therefore, properties classified as commercial, industrial or service, being understood as such buildings or constructions licensed for such purposes or that have as their normal destination each of these purposes. It also encompasses the residual species referred to in paragraph d) of no. 1 of that article 6, included therein being land situated within or outside an urban agglomeration that are not building land nor rural properties and also buildings and constructions that do not fall within any of the previous classifications.

The scope of objective scope, by effect of the reference to that article 6, has thus been 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 commercial, industrial and service purposes or other."

It is undeniable that the legislative concern to "avoid the impact of this tax on economic activity" was announced in the Draft Bill of the State Budget for 2017 and was achieved through the exclusion from the scope of application of «urban properties classified as the species "industrial," as well as urban properties licensed for tourist activity, these latter provided that their destination is properly declared and proven» and the deduction from the taxable value of the amount of «€600,000.00, when the taxable person is a legal entity with agricultural, industrial or commercial activity, for properties directly allocated to its operation."

However, it was not on the basis of the activity to which the properties are allocated that the exclusion of application came to be defined, since in the wording that came to be approved, the non-application was defined, as we have seen, on the basis only of the types of properties indicated in article 6 of the CIMI, without any reference to the allocation or not to the operation of legal entities.

Thus, as stated in Arbitral Award no. 675/2017-T, "if it had been maintained, in the final wording of the Budget, the legislative intent to exclude the application to properties directly allocated to the operation of legal entities, the reference to this allocation that appeared in the proposal and that clearly expressed this legislative option would certainly have been maintained.

(...), having suppressed that reference to the allocation of properties, there is no legal basis to conclude that residential properties and building land allocated to the operation of legal entities are not relevant for the scope of AIMI.

"In the absence of other elements that induce the selection of the less immediate meaning of the text, the interpreter must 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 their technical-legal meaning, in the assumption (not always exact) that the legislature knew how to express its thought correctly[1].

In the case at hand, in light of the departure from the wording proposed in which allocation of the properties was given relevance, there is no reason to conclude that the legislature did not know how to express its thought in adequate terms, as must be presumed, by force of the provision of article 9, no. 3, of the Civil Code."

In the same sense, can be read in the Arbitral Decision, relating to case no. 676/2017-T, in the sequel to the jurisprudence established in the Arbitral Decision rendered in case no. 664/2017-T, referred to above, that: "Having the law defined the scope of application of the tax through technical legal concepts used elsewhere in the system, it is surely with that meaning that the applicative scope of the legal provision must be defined. Norms, at times, bear more than one meaning and then the positive function of the text is translated into giving stronger support or suggesting more strongly one of the possible meanings. But if the legislature resorted to a special technical-legal language, to express its thought with greater precision, it falls to the interpreter to make use of the technical-legal meaning of the expressions used, dispensing itself of circumstantial elements that could only lead to a result not intended by the legislature (cf., in this sense, Baptista Machado, Introduction to Law and to the Legitimizing Discourse, Coimbra, 1993, p. 182).

As must be concluded, the intended extension of the legislative formula used to properties allocated to the company's economic activity, regardless of the specific characterization as commercial, industrial or service properties, has no place in light of the general criteria of legal hermeneutics."

Thus, the Claimant is not correct in alleging that it would have been the legislature's intention to intend to exclude from the scope of application of the tax properties that constitute the substrate of the economic activity of real estate companies, on the pretext that the objective pursued would be not to overburden with taxation the taxable persons who own properties as a result of their corporate purpose, so as not to affect the economic activity carried out by them.

In effect, such interpretation has no support in the letter of the law nor does it follow from the rational and systematic element. It is clear from the reading and interpretation of the norms in question that the legislature's option was not in the direction advocated by the Claimant. Such an option would have presupposed that the legislature, instead of having delimited the scope of application through characterized types, had opted for a case-by-case evaluation depending on the allocation of the property, in practical terms, to an economic activity or to the operation of a legal entity. Which is demonstrated not to have occurred.

Thus the relevant criterion elected by the legislature, within its broad margin of configuration, was the classification of properties in light of article 6 of the CIMI and not the allocation thereof to the Claimant's economic activity as an element of tangible fixed assets. It is further noted that such allocation does not appear in the law nor in Draft Bill no. 37/XIII/2.A, of 13 October 2016, in the wording introduced by the Amendment Proposal of 18 November 2016, contained in the statement of reasons of the political parties, namely the Socialist Party, notwithstanding that in the initial wording of the referred Draft Bill as well as the Report Budget 2017, of October 2016 (Strategy for Promotion of Economic Growth and Budgetary Consolidation - IV.2.3. Fiscal Policy Guidelines) and also point 1.4.2.1 – "Tax Measures for 2017" of the Budget, Finance and Administrative Modernization Committee, of 31 October 2016, be provided for allocation to productive activity.

Thus, the fact that the Claimant holds the properties referred to in the record as the substrate of its economic activity does not exclude the application of AIMI.

B. As to the Issues of Unconstitutionality

The issues of unconstitutionality raised by the Claimant have already been addressed in the negative by various arbitral decisions, whose jurisprudence we hereinafter reproduce, for ease of exposition.

As to the principle of equality and contributory capacity, as stated in the Arbitral Decision rendered in case no. 676/2017-T, reproducing Arbitral Decision no. 664/2017-T: "the Constitutional Court has emphasized that one of the constitutionally defined essential objectives of the fiscal system, alongside the satisfaction of the financial needs of the State and other public entities, is that of just distribution of income and wealth, as can be inferred from article 103, no. 1, of the Constitution.

It is this binding of the fiscal system to the idea of social justice and the reduction of inequality in the social distribution of income and wealth that requires that the same be progressive. This requirement is expressly enshrined in the context of personal income taxation: in accordance with no. 1 of article 104, personal income tax aims at "the reduction of inequalities and shall be sole and progressive, taking into account the needs and income of the household."

Fiscal progressivity requires that the relationship between the tax paid and the level of income be more than proportional, which can only be achieved by applying to taxpayers with higher incomes a higher tax rate. In other words, there is progressivity when the value of the tax increases in a proportion greater than the increase in the taxable base.

Consequently, the Constitution requires a progressivity with the intrinsic virtue of contributing to a reduction of income inequality (on all these aspects, the award of the Constitutional Court no. 187/13, nos. 97, 98 and 99).

The progressivity of the fiscal system is also a requirement of the principle of material equality.

As stated by Casalta Nabais, the principle of fiscal equality has inherent especially "the idea of generality or universality, under which all citizens are required to comply with the duty to pay taxes, and uniformity, requiring that such duty be assessed by the same criterion - the criterion of contributory capacity. This thus implies equal tax for those who have equal contributory capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those who have different contributory capacity in the proportion of this difference (vertical equality)" (Tax Law, 5th edition, Coimbra, 2009, pp. 151-152).

Configuring the general principle of equality as material equality, the principle of contributory capacity – according to the same author - as the tertium comparationis of equality in the field of taxes, does not need a specific and direct constitutional provision. Its constitutional foundation is the principle of equality articulated with the other principles and provisions of the respective "fiscal constitution" and, in particular, those that already flow from the structuring principles of the fiscal system contained in articles 103 and 104 of the Constitution (op. cit., p. 152).

As a presupposition and criterion of taxation, the principle of contributory capacity – within the same line of understanding - "removes the fiscal legislator from arbitrariness, obligating it to observe, in the selection and articulation of tax facts, revelations of contributory capacity, that is, to elevate to the object and taxable base of each tax a certain economic presupposition that is a manifestation of that capacity and is present in the various legal hypotheses of the respective tax" (op. cit., p. 154).

The Constitutional Court also, more recently, has analyzed the principle of fiscal equality in light of contributory capacity, as can be seen in particular in award no. 142/2004, which states that "[t]he principle of contributory capacity expresses and concretizes the principle of fiscal or tax equality in its aspect of uniformity – the duty of all to pay taxes according to the same criterion – with contributory capacity filling the unitary criterion of taxation."

The recognition of the principle of contributory capacity as a criterion intended to assess the constitutional inadmissibility of certain or several solutions adopted by the fiscal legislator has also led to the idea, expressed for example in the award of the Constitutional Court no. 348/97, that taxation in accordance with the principle of contributory capacity will imply "the existence and maintenance of an effective connection between the tax obligation and the economic presupposition selected as the object of the tax, requiring, for this reason, a minimum of logical coherence of the various concrete hypotheses of tax provided for in the law with the corresponding object thereof."

The Constitutional Court has thus come to move away from a merely negative control of tax equality, coming to adopt the principle of contributory capacity as an appropriate criterion for the apportionment of taxes; but it does not cease to accept the prohibition of arbitrariness as an adjuvant element in verifying the constitutional validity of normative solutions in the fiscal field, particularly when these are dictated by considerations of legislative policy related to the rationalization of the system.

In sum, the principle of tax equality can be concretized through various aspects: a first one is in the generality of the tax law, in its application to all without exception; a second, in the uniformity of the tax law, in treating equally the taxpayers who are in equal situations and differently those who are in different situations, to the extent of the difference, assessed by contributory capacity; a last, is in the prohibition of arbitrariness, in preventing the introduction of discriminations between taxpayers that are devoid of rational foundation (cf. awards of the Constitutional Court nos. 306/2010 and 695/2014)."

Applying the foregoing to the case under analysis, it is emphasized, in the first place, as can be read in the Report on the Budget for 2017 (p. 60), that the creation of the additional IMI, as a complementary tax on real estate patrimony, aimed to introduce into taxation "a progressive element of personal basis, taxing more heavily the larger patrimonies," and, in that sense, it is in keeping with the principle of tax progressivity referred to in no. 3 of article 104 of the Constitution, which has as a corollary the imposition of a tendency for greater taxation on those with greater contributory capacity.

Doctrine has also understood that the taxation of patrimony, alongside the taxation of income, constitutes a projection of contributory capacity, functioning as an extension of the personal income tax and as a reinforcement of qualitative discrimination (Sérgio Vasques, "Contributory Capacity, Income and Patrimony," Fiscality – Journal of Tax Law and Management, no. 23, Coimbra, 2005, pp. 33 and 36).

Thus, it is not apparent that the taxation of the Claimant's real estate patrimony offends the principle of tax equality and contributory capacity merely because the ownership of real estate constitutes the very object of its economic activity.

In effect, the real estate held by it will be allocated to activities freely accessible to the generality of owners of real estate and any other entities, even if of an entrepreneurial nature, engaged in real estate promotion.

As can be read in the Arbitral Award, rendered in case no. 664/2017-T, "The ownership of real estate patrimony, for purposes of sale and transformation, with a view to obtaining economic results, does not cease to constitute a patrimonial asset that is revelatory of increased contributory capacity, going beyond the tax that applies to the taxable profit by reason of the economic activity carried out. What is at issue, therefore, is not the taxation of the actual income earned by those entities through the activity carried out, but the complementary contributory capacity that flows from the ownership of the patrimony and which in itself can facilitate the raising of credit or the strengthening of their bargaining position in the conclusion of contracts (...)"; in the same sense, can also be seen in the Arbitral Decision rendered in case no. 676/2017-T.

Also as stated in the Arbitral Decision, rendered in case no. 675/2017-T, "the ownership of a high-value real estate patrimony demonstrates, as in relation to any owner of a property intended for residential purposes, a special economic capacity to contribute additionally to the Financial Stabilization Fund of Social Security, to which the revenue from AIMI is assigned, and which "corresponds to the objective of the government program to broaden 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 real estate properties or building land for residential properties does not appear materially unconstitutional, in light of the principles of equality and contributory capacity."

Beyond that, in line with what was understood in the Arbitral Award, of 17 March 2016, rendered in case no. 507/2015-T, "a distinction must be established between the ownership of real estate patrimony intended for residential purposes which constitutes, in itself, a tendentially secure sign of economic abundance, superior to that of the generality of citizens, and the ownership of rights over real estate intended for the exercise of commercial, industrial, service-providing activities or similar which may be recognized as factors of production and whose dimension and patrimonial value constitutes, not so much a manifestation of wealth, but a standard of adequacy for the operation of the enterprise.

There thus appears to be a constitutionally acceptable basis for the restriction of the scope of application of the additional tax to residential properties in comparison with properties classified as commercial, industrial or service-providing, the invoked unconstitutionality being ruled out on the basis of violation of the principles of equality and contributory capacity."

In sum, it is possible to discern a material basis sufficiently clear to distinguish between these different tax facts for the purpose of taxation of patrimony, there being likewise no disproportionate taxation.

The Claimant further makes reference, concerning the constitutionality issues, to the jurisprudence of the Constitutional Court concerning the provision of Item 28.1 of the General Table of the Stamp Duty, in the wording of Law no. 83-C/2013, of 31 December, insofar as it imposes annual taxation on the ownership of building land whose construction, authorized or envisaged, is for residential purposes, whose patrimonial value is equal to or greater than €1,000,000.00.

Here too we shall follow what is stated in the Arbitral Award, rendered in case no. 664/2017-T, as follows: "It must first be said that the provision analyzed there does not have the same normative content as the provision now under examination and that the legal understanding that came to be established cannot be directly transposed to the situation of the case at hand.

The principle of tax equality was invoked in that decision because it was understood that the inclusion in the scope of application of the norm of building land alongside an already built residential property does not reflect the different contributory capacity of the respective owners, this being the determining reason for the judgment of unconstitutionality. In the case at hand, by contrast, for the purpose of the exclusion of the Additional IMI, it is intended to establish the equation between building land and commercial, industrial or service properties from the inverse perspective that building land potentially usable for such purposes are not distinguished from already constructed properties that are classified as commercial, industrial or service."

In the same sense, beyond the arbitral decisions above referred to, other decisions were rendered in the following cases operating under the aegis of CAAD, which we follow in full: 654/2017, of 3 September 2018; 667/2017, of 5 September 2018; 668/2017, of 24 April 2018; 669/2017, of 19 September 2018; 677/2017, of 26 June 2018; 678/2017, of 6 September 2018; 679/2017, of 24 June 2018; 681/2017, of 23 May 2018; 682/2017, of 20 July 2018; 683/2017, of 12 July 2018; 684/2017, of 6 September 2018; 685/2017, of 6 September 2018; 686/2017, of 7 May 2018; 690/2017, of 6 September 2018; 691/2017, of 6 August 2018; 692/2017, of 11 May 2018; 693/2017, of 3 September 2018; 694/2017, of 30 June 2018; 696/2017, of 23 July 2018; 6/2018, of 26 July 2018; 306/2018, of 28 December 2018; 310/2018, of 10 December 2018; 356/2018, of 11 January 2019 and 420/2018, of 15 January 2019.

In these terms, in light of the foregoing, the claim filed by the Claimant is without merit, and the challenged assessment must be maintained in the legal order.

5 - Decision

In light of the foregoing, it is decided:

a) To rule without merit the request for arbitral pronouncement regarding the declaration of illegality and annulment of the assessment of the Additional Property Transfer Tax with no. 2017..., issued by the Tax and Customs Authority with reference to the year 2017, in the total amount of 1,831.08 €, with the consequent absolution of the Tax and Customs Authority of this claim; and

b) To condemn the Claimant to pay the arbitral costs of the proceedings.

Value of the Proceedings

In accordance with the provisions of articles 306, no. 2, of the CPC, 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2 of the Regulations on Costs in Tax Arbitration Proceedings (RCPAT), the value of the proceedings is set at 1,831.08 €.

Costs

Pursuant to article 22, no. 4 of the RJAT, the amount of costs is set at 306.00 €, in accordance with Table I, attached to the RCPAT, to be borne by the Claimant.

Notify.

Lisbon, 28 February 2019.

The Arbitrator,

(Rui Ferreira Rodrigues)

Text produced by computer, in accordance with the provision of article 131, no. 5, of the CPC, applicable by reference to article 29, no. 1, paragraph e) of the RJAT.

[1] BAPTISTA MACHADO, Introduction to Law and to the Legitimizing Discourse, page 182.