AIMI on Construction Land: Taxation Scope, Exclusions & Constitutionality (CAAD 46/2019-T)

ARBITRAL DECISION

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), António Alberto Franco and Ricardo Marques Candeias, designated by the Deontological Council of the Administrative Arbitration Center to form an Arbitral Court, hereby decide as follows:

I – REPORT

On 21 January 2019, A..., S.A., Tax ID No. ..., with registered office at ..., ..., ...-... ..., filed a request for constitution of an arbitral tribunal, under the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking a declaration of illegality of the tax assessment of the Additional Real Estate Tax (AIMI) No. 2017..., relating to the year 2017, in the amount of €124,137.16, as well as of the decision dismissing the administrative appeal No. ...2018..., which had the aforementioned tax assessment as its subject matter.

To support its request, the Applicant alleges, in summary, the following:

• the illegality of the tax assessment, on the grounds that, in accordance with the principles of legal interpretation, the exclusion provided for in Article 135-B(2) of the Real Estate Tax Code (CIMI) relating to urban properties classified as industrial, commercial and for services should be interpreted extensively to encompass land for construction intended for those purposes;

• subsidiarily, the unconstitutionality of the legal regime of the AIMI, to the extent that it applies to all "construction land", as contrary to the principle of equality, enshrined in Article 13 of the Portuguese Constitution (CRP) and to the principle of fiscal equality and contributory capacity enshrined in Article 13 and Article 104(3) of that fundamental law.

On 22-01-2019, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Applicant did not proceed to appoint an arbitrator, wherefore, under the provisions of Article 6(2)(a) and Article 11(1)(a) of the RJAT, the President of the Deontological Council of CAAD designated the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

On 13-03-2019, the parties were notified of these designations, having manifested no intention to challenge any of them.

In accordance with the provisions of Article 11(1)(c) of the RJAT, the collective Arbitral Tribunal was constituted on 02-04-2019.

On 13-05-2019, the Respondent, duly notified for this purpose, filed its reply defending itself by way of opposition.

Under the provisions of Articles 16(c) and (e) and Article 29(2) of the RJAT, the holding of the meeting referred to in Article 18 of the RJAT was dispensed with.

Having been granted a period for the presentation of written submissions, the same were presented by the Respondent, which informed of Constitutional Court Decision No. 299/2019, as well as other arbitral jurisprudence.

It was indicated that the final decision would be notified by the end of the period provided for in Article 21(1) of the RJAT.

The Arbitral Tribunal is materially competent and is regularly constituted, under the terms of Articles 2(1)(a), 5 and 6(2)(a) of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, under the terms of Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings are not affected by any nullities.

Thus, there is no obstacle to the consideration of the case.

All matters having been considered, it is incumbent to render judgment.

II. DECISION

A. FACTUAL MATTERS

A.1. Facts established as proven

• The Applicant was notified of the assessment of AIMI No. 2017..., relating to the year 2017, in the amount of €124,137.16.

• For purposes of calculating the taxable value of the AIMI, the Tax Authority considered, among others, the following properties:

• The urban properties identified above are classified as "construction land".

• In accordance with the Detailed Plan approved by the Municipal Council of ..., for the area of ..., where such land is situated, only the construction of hotel establishments is permitted.

• On 29-09-2017, the Applicant proceeded to pay the AIMI assessment in full, in the amount of No. 2017....

• The Applicant filed an administrative appeal identified as No. ...2018..., having the aforementioned assessment as its subject matter.

• The administrative appeal was dismissed.

A.2. Facts established as not proven

With relevance to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning for the factual matters proven and not proven

With respect to factual matters, the Tribunal does not have to rule on everything alleged by the parties; rather, it has the duty to select the facts that matter to the decision and distinguish the proven facts from the unproven ones (cf. Article 123(2) of the Tax Code of Civil Procedure (CPPT) and Article 607(3) of the Code of Civil Procedure (CPC), applicable by virtue of Article 29(1), subparagraphs (a) and (e), of the RJAT).

Thus, the relevant facts for judgment of the case are chosen and delimited according to their legal relevance, which is established with regard to the various plausible solutions to the legal question(s) at issue (cf. former Article 511(1) of the CPC, corresponding to the current Article 596, applicable by virtue of Article 29(1), subparagraph (e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of Article 110/7 of the CPPT, and the documentary evidence submitted to the record, the facts listed above were considered proven, with relevance to the decision.

Allegations made by the parties and presented as facts, consisting of statements that are strictly conclusive, incapable of proof, and whose truthfulness must be assessed in relation to the specific factual matters consolidated above, were neither given as proven nor as not proven.

B. ON THE LAW

The principal issue that presents itself for resolution in this arbitral proceeding concerns the determination of the scope of the "Additional Real Estate Tax" ("AIMI"), which the State Budget Law for 2017 (Law No. 42/2016, of 28 December) introduced, and which entered into force on 1 January of that same year.

The regulation of the AIMI was included in a specific section added to the Real Estate Tax Code, comprising Articles 135-A to 135-K.

For present purposes, Articles 135-A(1) and (3) of the Real Estate Tax Code establish that the passive subjects of the AIMI are "natural or legal persons who are owners, usufructuaries or superficiaries of urban properties situated in Portuguese territory" on 1 January of the year to which the Additional relates.

Article 2 of the same article provides that: "any structures or centers of collective interests without legal personality that appear in the registers as passive subjects of the real estate tax, as well as undivided inheritances represented by the head of household, are treated as equivalent to legal persons".

The AIMI is charged, according to Article 135-B(1) of the Real Estate Tax Code, "on the sum of the taxable patrimonial values of urban properties situated in Portuguese territory of which the passive subject is the owner" – with this sum being subject to a deduction of €600,000.00 whenever the passive subject is a natural person or an undivided inheritance (cf. Article 135-C(2) of the same Code).

There were excluded from the objective incidence of this Additional "urban properties classified as 'commercial, industrial or for services' and 'other' in accordance with subparagraphs (b) and (d) of Article 6(1) of this Code", as provided for in Article 135-B(2) of the same provision.

The applicable rate is 0.4% for legal persons and 0.7% for natural persons and undivided inheritances, whenever the taxable value does not exceed €1,000,000.00, under Article 135-F(1) of the Real Estate Tax Code, and where the taxable value exceeds €1,000,000.00, a rate of 1% applies when the passive subject is a natural person (cf. Article 135-F(2) of the same provision).

Under the combined terms of Article 135-G(1) and Article 135-H, both of the Real Estate Tax Code, the additional tax in question is assessed annually in the month of June, based on the taxable patrimonial values of properties subject to tax and in relation to passive subjects listed in the registers on 1 January of each year, the same being payable by the end of September.

As noted above, the Applicant raises the following issues:

• the illegality of the tax assessment, on the grounds that, in accordance with the principles of legal interpretation, the exclusion provided for in Article 135-B(2) of the CIMI relating to urban properties classified as industrial, commercial and for services should be interpreted extensively to encompass construction land intended for those purposes;

• subsidiarily, the unconstitutionality of the legal regime of the AIMI, to the extent that it applies to all "construction land", as contrary to the principle of equality, enshrined in Article 13 of the CRP and to the principle of fiscal equality and contributory capacity enshrined in Article 13 and Article 104(3) of that fundamental law.

The issues raised in the present arbitral proceedings have already been the subject of several arbitral decisions, in some respects of different tenor, and reference may be made, in this connection and among others, to the arbitral awards rendered in proceedings 668/2017-T, 675/2017-T, 686/2017-T, 692/2017-T, 681/2017-T, 688/2017-T, 664/2017-T, 677/2017-T, 603/2017-T, 694/2017-T, 687/2017-T, 683/2017-T, 676/2017-T, 666/2017-T, 682/2017-T, 696/2017-T, and 6/2018-T and more recently 438/2018-T, 342/2018-T, 291/2018-T, 521/2018 and 631/2018-T[1].

Let us proceed, then.

a.

The Applicant considers that in instituting the AIMI the legislature aimed at the "creation of a tax on high-value real estate property intended for residential purposes, as a manifestation of increased wealth."

The Applicant further states that in the creation of the AIMI there was maintained "the concern of the majority of parliamentary groups to ensure that economic activity would not be affected by it."

For the Applicant, "the wording of Article 135-B(2) of the CIMI does not do justice to its spirit by including within the objective incidence of the AIMI construction land, when dedicated to an industrial, commercial or services activity", considering that "if at first there was provision for an increase in the fiscal burden with regard to passive subjects holding industrial, commercial, services and other properties, ultimately there was a clear reversal of that fiscal policy option, by expressly excluding from the objective incidence of the AIMI those properties, so that the economic agents holding them and their respective economic activity would not be affected".

The Applicant further points out that "not intending to prejudice economic activity with the creation of the AIMI, it is not plausible that the legislature intended to isolate and fiscally penalize an asset which, paradoxically, generates no income – and therefore produces no wealth – and which may be a fundamental instrument for the exercise of activities free from tax, such as those that exploit buildings already dedicated to commerce, services, agriculture and industry." The Applicant continues, "there is no rational justification for arguing that a property dedicated to a commercial, industrial, or services purpose is not subject to the AIMI so that the economic activity of its owners is not prejudiced, and at the same time, to argue that construction land for those properties should be taxed and that such does not affect the economic activity of the owners."

Thus, the Applicant concludes, "in accordance with the principles of legal interpretation, the exclusion provided for in Article 135-B(2) of the CIMI relating to urban properties classified as industrial, commercial and for services should be interpreted extensively as expressing a legislative intention to also exclude from taxation construction land for those properties", wherefore it requests "the annulment of the AIMI assessment, in the disputed part, in the amount of €123,107.48, for breach of law."

Regarding this request, the Applicant seeks, in short, the broadening of the objective exclusions from AIMI liability, enshrined in Article 135-B(2) of the CIMI, so as to include therein, also, urban properties classified as "construction land", provided that the construction therein provided for is referable to one of the types referred to in the said paragraph (2), that is, to urban properties intended for "commercial, industrial or services" purposes or "other" purposes.

With respect to this issue now presented by the Applicant, the arbitral jurisprudence has been divided.

Thus, for example, the decision rendered in proceedings 686/2017-T concluded that "construction land" without residential dedication, that is, with "commercial, industrial or services" or "other" purposes, should be excluded from AIMI taxation.

This decision, on the basis of the unity of the legal system, advocates the possibility of extensive interpretation of the exclusion provided for in Article 135-B(2) of the CIMI, in the case of those proceedings, with respect to urban properties classified as "for services", "as expressing a legislative intention to also exclude from taxation land intended for the construction of those properties".

For the said Arbitral Tribunal, "Given that the taxable event chosen as an index of contributory capacity is the ownership of real estate property of value considered high….", it would be a lack of coherence not to apply the AIMI to buildings intended for commerce, industry or services and to apply it to the land that is intended for their construction, all the more so since the value of the land is incorporated in the value of the buildings.

The same Tribunal further noted that, if it did not so decide, it would conclude to the material unconstitutionality of the norm that provides for such taxation.

In contrast, in decisions rendered in proceedings Nos. 676/2017-T and 664/2017-T (the first concerning Real Estate Investment Funds and the second concerning a credit institution), the claims of the applicants therein were decided unfavorably, to the effect of removing the taxation of "construction land", even if the planned construction is for "commercial, industrial or services" purposes.

With respect to the taxation of construction land with non-residential purposes, both of the said decisions converge, and the following may be read in the first:

"Having the legislature defined an exclusion clause by express and precise reference to certain species of urban properties, which are immediately identifiable in the context of the law, it is not possible to carry out extensive interpretation so as to include therein other typologies that the legislature manifestly did not wish to consider. It is not even possible to reach such an interpretive result on the basis of merely pragmatic considerations or teleological identity."

Not disputing that from the standpoint of fiscal policy the solution could have been different, and with respect to other opinions, it is deemed that the exclusion of taxation of all or part of "construction land" was not the solution adopted, since Article 135-B(2) of the CIMI only provides for the exclusion of taxation with respect to AIMI of urban properties classified as "commercial, industrial or for services" and "other", precisely in accordance with subparagraphs (b) and (d), of Article 6(1), which inevitably leads to the taxation of properties provided for in the two remaining subparagraphs of that same Article 6 of the CIMI, that is, urban properties classified as "residential" (subparagraph (a)) or as "construction land" (subparagraph (c)).

Encompassed by the taxation in question, under the terms of the letter of the law, are all urban properties classified as "residential" and all urban properties classified as "construction land", and not just some of them, and were the legislature, in its norm of exclusion from taxation, to intend to exclude part of the properties referred to in subparagraphs (a) and (c), of Article 6(1) of the CIMI, it would have had every opportunity to do so.

Similarly, the legislature could have altered the species of urban properties provided for in Article 6 of the CIMI, for example, by subdividing construction land according to the purposes to which they were intended, which did not occur.

With respect to the possibility of extensive interpretation of the exclusion enshrined in the said Article 135-B(2) of the CIMI, in order to encompass construction land not intended for residential use – a solution adopted in decisions that upheld claims similar to that of the Applicant now under consideration – it is deemed, always with respect to other understandings, that it should not be accepted.

Thus, and in the first place, it is believed that there is not the identity of situations in light of the juridically relevant criteria, necessary to effect the said extension of the exclusion clause from objective liability, that is, it does not appear that construction land is in a situation identical to that of constructed properties, from the standpoint of the teleology of that exclusion clause.

From a teleological standpoint, such exclusion clause will have underlying it, in the first instance[2], the purpose of not burdening with AIMI properties affected, or susceptible of immediate dedication, to productive processes, construction land not possessing such characteristics, given that while a constructed property will be, or will be susceptible to being immediately, dedicated to productive processes, construction land is not in such a situation.

As, moreover, the Constitutional Court itself has already recognized, there are fundamental and relevant differences between a constructed property and construction land.

In the words of that high Court[3]:

"For tax purposes, properties (…) are clearly distinguished from construction land, under Article 6 of the Real Estate Tax Code (CIMI), the former of those categories being constituted by buildings or constructions already existing (…), whilst the latter consists exclusively of land for which a right to construct buildings intended for that or other purposes has been consolidated by an administrative act of prior control of an urban development operation.

Thus, whereas buildings (…) correspond to a real buildability, definitively incorporated in the legal sphere of their owner, construction land corresponds to a merely potential buildability, legally consolidated in the legal sphere of the property owner, but not yet materialized.

That is, the taxation of properties (…) incurs on existing reality, on tangible things, unlike the taxation of construction land, which incurs on construction rights, on future things, as indeed is evidenced by Article 45 of the CIMI, by establishing that the taxable patrimonial value of the latter is determined exclusively by the volume and quality of the building to be constructed on the land, and not by its current characteristics.

It will be said, correctly, that both correspond to real estate property (…). And that, by their real estate value, both are apt to translate a certain form of wealth. But the comparisons end there, because, precisely, the different nature of these goods does not allow equating the contributory capacity of their respective owners, current or future, based only on their dedication and their taxable patrimonial value (VPT)."

Indeed, already constructed properties possess a material reality corresponding to the typology that befits them. That is, to a property constructed and licensed for, or having as its normal purpose, commerce, industry or services, will correspond a material reality suited to such purposes and, for what matters here, objectively distinct from a property constructed and licensed, or with normal purpose, for residential use.

Construction land, on the other hand, is distinguished from remaining land, on a purely legal plane, that is, according to the action of a public entity (granting of license or authorization, admission of prior notification or issuance of favorable prior information of subdivision or construction operation - cf. Article 6/3 and 37/3 of the CIMI) or of owners (declaration of purpose in the acquisition deed; cf. 2nd paragraph of Article 6/3 of the CIMI), to which the Law attributes certain legal effects.

Thus, in accordance with the aforementioned material differentiation, the change of dedication of construction land, from the standpoint of the notes relevant to the problem at issue, may be simple, requiring, for example, a mere declaration in the acquisition deed, the presentation and admission of a prior notification, or the presentation and approval of a request for prior information.

Whereas the change of purpose of a constructed building, from residential to commerce/industry/services, or vice versa, will imply, from the standpoint of normalcy, the carrying out of more or less extensive works (and necessary licensing).

There is further the fact that a constructed property has incorporated a significant value corresponding to the construction, which, even in cases where it is not concretely dedicated to the intended use, will constitute a natural incentive to its economic exploitation, in that, always from the standpoint of normalcy, a built property will not only generate no income, but will lose value (due to its deterioration) from non-use.

Construction land, on the other hand, not only does not incorporate, in itself, any natural incentive for its construction and subsequent dedication to a productive activity, but also, from the standpoint of normalcy, the opposite may occur, that is, in accordance with certain market conditions that create expectations of merely speculative gains, there may be incentives for their owners to maintain their status as non-built land.

The Applicant states with respect to the subjection of the construction land in question to the AIMI that "it will perhaps be more penalizing for economic activity to fiscally burden construction land, which, as such, does not yet generate income for its owners, but which are essential platforms for future projects and job creation, contributing to the erosion of capital at the crucial moment of conception or start-up of investment."

Now, in light of the teleology uncovered in the interpreted norm, set out above, it is certain that such impact may even be positive, in that the taxation of construction land may constitute an incentive to its construction, thereby accelerating the effective use of immovable property in productive activities.

All that has been set out, it is believed, will justify a distinction in treatment, in line with the regime legally enshrined, and in contraline with the extension of the clause of non-objective liability through extensive interpretation.

Nevertheless, it should further be added that a comprehensive understanding of the AIMI in the context of the Real Estate Tax regime will point, precisely, to the real purpose of the legislature to subject to the former all construction land, and not merely that intended for residential use.

As follows.

In the design of the AIMI, and in the wake of what was the evolution of taxation under item 28.1 of the Stamp Tax Code, the legislature made it very clear (by force, namely, of the nomenclature and systematic nature of the taxation created, as well as the express reference to the relevant norms of the Real Estate Tax Code) its intention that the categories relevant to the taxation in question be delineated in accordance with the criteria specific to the CIMI.

And, under the terms of this Code, land – which is the category that now concerns us – may fall within the categories of:

• rustic; or
• urban;
  • "for construction" of buildings intended for residential, commercial, services or industrial purposes;
  • intended for "other" purposes.

The legislature, in the regime of the AIMI created, excluded from liability thereunder land qualified as "rustic", by way of the exclusive subjection of urban properties in Article 135-A(1), and land qualified as "urban" intended for "other" purposes, by way of the exclusion clause of paragraph (2) of that same article, and the non-exclusion of "construction" land for buildings with certain purposes (namely commerce, services or industry) cannot fail to be considered sufficiently grounded in considerations of a material nature, as already seen.

Finally, of relevance in this matter will be the understanding that the Supreme Administrative Court (STA) has had with respect to the determination of the TPV of construction land, considering irrelevant for those purposes the dedication of the projected construction.

Thus, in the STA Decision of 20-04-2016, rendered in proceeding 0824/15[4], it was considered that:

"It follows from this norm that the formula transcribed above only applies to urban properties there discriminated, that is, those which, already built, are for residential, commercial, industrial and services purposes.

However, the legislature did not include therein construction land which it also classifies as urban properties in Article 6 of the CIMI.

For the determination of the taxable patrimonial value thereof, there is the norm of Article 45 already referred to, where only the area of implantation of the building to be constructed and the adjacent land and the characteristics of Article 42(3) are relevant.

The remaining coefficients are not included therein as they can only relate to buildings, as such.

The dedication coefficient can only be relevant in the face of proven use of the built property and likewise the comfort and quality coefficient.

Such multiplier coefficients of the taxable patrimonial value only relate to the built portion but have no real basis of support in the potential that the construction land offers."

And, further on, in the same decision:

"But taking into account reality, the legislature enshrined for the determination of the taxable patrimonial value of this species of properties a specific rule – that contained in Article 45, where it is reiterated that account is taken of the value of the area of implantation of the building to be constructed and the value of the land adjacent to implantation as well as the accessibility, proximity, services and location characteristics described in Article 42(3). Taking into account the approved construction project and the provision in Article 45(2) of the CIMI.

Which means that in the determination of its taxable patrimonial value of construction land, the mathematical formula enshrined in Article 38 of the CIMI does not apply.

And thus the dedication coefficients and quality and comfort coefficients related to the building to be constructed also cannot and should not be taken into account in that assessment.

Indeed, the dedication coefficient relates to the type of use of the already built property and the same applies to the quality and comfort coefficient.

In construction land, the approved buildings are merely potential and it is the value of that constructive capacity, generating increase in patrimonial value or wealth for its owner, that is sought to be taxed. And not factors not yet materialized."

The said understanding was sanctioned by decision of the Plenary of the Contentious Tax Division of the STA of 21-09-2016, rendered in proceeding 01083/13[5], in whose summary it is synthesized that:

"III - In the determination of the taxable patrimonial value of construction land, the provisions of Article 45 of the Real Estate Tax Code must be observed, there being no place for consideration of the comfort and quality coefficient (cq).

IV - Article 45 of the CIMI is the specific norm that regulates the determination of the taxable patrimonial value of construction land.

V - The comfort and quality coefficient, a multiplying factor of the taxable patrimonial value contained in the mathematical expression of Article 38 of the CIMI with which the taxable patrimonial value of urban properties for residential, commercial, industrial and services purposes is determined, cannot be applied analogically as it is susceptible of altering the tax base by interfering with the incidence of the tax."

Thus, it is concluded that in determining the VPT within the CIMI, the purpose of the projected construction in "construction land" is not relevant, construction land not being distinguished, from the standpoint of patrimonial taxation and, consequently, of the evidencing of contributory capacity, from construction land for residential buildings, from construction land for buildings of commerce, industry or services.

On the contrary, and as a function of the application of the dedication coefficient enshrined in Article 41 of the CIMI, in constructed buildings, the dedication of the buildings is reflected in the patrimonial value, and consequently in the contributory capacity, considered for purposes of taxation.

In the context of AIMI, given what has already been set out regarding the nature of this taxation (as an additional to the Real Estate Tax), there will be no justifications for diverging from such criterion, that is, for considering that the ownership of "construction land" with projected buildings of distinct purposes signals different contributory capacities.

In light of all that has been set out, considering that it is not to proceed with the broadening, through extensive interpretation, of the objective exclusions from AIMI liability, enshrined in Article 135-B(2) of the CIMI, so as to include therein, also, urban properties classified as "construction land", provided that the construction therein provided for is referable to one of the types referred to in the said paragraph (2), that is, to urban properties intended for "commercial, industrial or services" purposes or "other" purposes, this part of the arbitral request should be dismissed.

b.

Subsidiarily, the Applicant understands that the AIMI taxation regime is contrary to the principle of equality, enshrined in Article 13, and to the principle of fiscal equality and contributory capacity enshrined in Article 104(3), both of the CRP, in that, in its view, the legal regime of the AIMI, in concrete terms its Articles 135-A and 135-B, both of the Real Estate Tax Code, and the taxation resulting therefrom, promote differential treatment and unjustified inequality among taxpayers.

Thus, the Applicant considers "Article 135-B of the CIMI shows itself to be flagrantly unconstitutional [i]n the first place because, being animated by purposes of non-burdening of economic activity, it precisely strikes at those construction land that would most need protection" and that "it is not lawful, outside of an axiological criterion extraneous to the technique and mechanics of the tax itself, such as contributory capacity and taxation of the manifestation of wealth, to exclude (in AIMI) the "more" (the built building dedicated to commerce or services) and tax the "less" (the construction land for buildings dedicated to commerce or services)."

On this point, as already seen, there is a substantial difference between construction land and already constructed buildings, the latter being susceptible of being, or of being immediately, dedicated to the activities to which they are intended, unlike the former, the arguable violation of the principle of equality not occurring.

The Applicant further alleges in this respect, invoking the decision of the Arbitral Tribunal in CAAD Proceeding 507/2015-T, that "[i]t is unequivocal that companies engaged in the commercialization of construction land are left with a significant additional burden in relation to the generality of companies, on the basis of a hypothetical index of contributory capacity that does not necessarily correspond to reality, as the imposition of taxation has no relation to the actual income from the activity developed by companies and burdens them even if they have negative results, the burden being accentuated, cumulatively annual, precisely in situations where, by failure of the land commercialization activity, the land is held for several years and, therefore, less justification would exist for the imposition of an additional taxation, peculiar to this type of company."

On this point, as also already seen, the contributory capacity sought is the same as that of the Real Estate Tax, to which the AIMI is added, and the legislature opted to enshrine lighter taxation rates for legal persons, in relation to natural persons.

As for the fiscal burdening of the real estate sector, in relation to other sectors, note that, in the first place, within the economic sector in question, companies are treated equally, and that it is contained within the scope of the legislature's freedom of action, and is, moreover, a common and accepted practice, the interference in economic activities, fiscally incentivizing some, and fiscally burdening others.

As stated in Arbitral Decision No. 668/2017-T, "it has been uniformly understood by the Constitutional Court that the principle of equality as a limit on legislative discretion does not require equal treatment of all situations, but rather implies that those in equal situations be treated equally and those in unequal situations be treated unequally, so as not to create arbitrary and unreasonable discriminations, because lacking in sufficient material foundation."

There is further the fact that, in the case, contrary to what the Applicant points out, we are not faced with a burdening, but with a non-exemption.

For, properly viewed, the normative structure created for the AIMI consists of a rule of general coverage of the latter, imposed on immovable property subject to Real Estate Tax, followed by an exception of liability with respect to certain types of properties.

Thus, it is not the Applicant – or the immovable properties held by it on which tax was assessed – that find themselves, by being taxed, before an exceptional situation of burdening, but rather the non-burdening sought – through subjective or objective exclusion – which, if recognized, would take on an exceptional character.

Furthermore, the Applicant's argumentation on constitutionality ultimately reflects some argumentation contained in Constitutional Court jurisprudence regarding the then-amended taxation under item 28.1 of the Stamp Tax Code, namely that which was condensed in Constitutional Court Decision No. 250/2017, of 24 May 2017, rendered in proceeding No. 156/20, also invoked by the Applicant.

It states there, among other things, the following, with correspondence to the issues now raised by the Applicant:

• "the norm whose validity is disputed confused manifestations of wealth with factors of production of that same wealth.";

• "if behind the tax imposed on the owner of a residential dwelling with taxable patrimonial value exceeding one million euros there may be a taxpayer with sufficient economic strength to bear the respective tax burden, behind the tax imposed on the owner of construction land there will normally be an entrepreneur, typically in the form of a commercial company dedicated to real estate promotion, concerning whose economic strength we know nothing. In truth, we cannot presume that such a taxpayer has economic strength proportional to the value of the land, which is merely instrumental in relation to its economic activity. We are unaware what profit margin it will draw from its exercise, if it is in a position legally and economically to develop it, or if it may not even have a negative net situation.";

• "the different reality of the taxation of construction land, which has a greater impact on the economic activity developed by its owner than on the value of the good in itself. With the added drawback that the respective tax burden, if it does not ultimately make that activity unviable, will ultimately be borne by the final consumer of the real estate products resulting therefrom, concerning whose contributory capacity we cannot presume without knowing the respective building typology and value."

And, further on:

"Because item 28.1, moreover, disregards the legal nature of taxpayers, not distinguishing individual subjects from legal persons, nor the specific purpose pursued by the latter, it will indiscriminately incur, for example, on a luxury dwelling in a tourism development in the Algarve and on construction land for a collective residential building under cooperative scheme in the metropolitan suburbs of Lisbon or Porto."

Thus, from the said decision of the Constitutional Court, it seems possible to draw the understanding, sustained by the Applicant, that the non-consideration of the purpose of the ownership of the immovable property and/or the quality of the subject that owns it, may generate the unconstitutionality of the tax.

Such understanding is not, however, subscribed to, in line with the dissenting opinion rendered in the said decision, by the Illustrious Counselor Manuel da Costa Andrade.

Indeed, the considerations pointed out will be, from the outset, and without more, directly transposable to the Real Estate Tax, to the Real Estate Transfer Tax, to the Motor Vehicle Tax, to the Specific Consumption Taxes, to the Stamp Tax and even, in some way, to the Value Added Tax. Also therein, the taxable events often abstract, in exactly the same way, if not even more pronouncedly, from the personal situation of their respective passive subjects.

Thus, also in those taxes, one does not distinguish, as a rule, manifestations of wealth (contributory capacity) from factors of production of that same wealth (that is: a taxable event subject to Real Estate Tax, Real Estate Transfer Tax, Motor Vehicle Tax, Specific Consumption Taxes, Stamp Tax, will abstract, as a rule, from the circumstance that it occurred in the context of "consumption" [lato sensu] or "production of wealth"), the differentiation occurring, as in the case of the AIMI, by way of consideration as a cost of the tax borne, in the context of income tax (cf. Article 23(2)(f) of the Corporate Income Tax Code).

As for the understanding advocated by the Applicant, grounded in Constitutional Court Decision No. 250/2017, of 24 May 2017, rendered in proceeding No. 156/2016, it should be noted that item 28.1 of the General Stamp Tax Schedule, as it was conceived, in addition to application to construction land by Law No. 83-C/2013, was held unconstitutional, essentially for lack of personalization of the tax, a situation that with the creation of the AIMI was resolved, and it should further be considered the different legal structure (in the Stamp Tax it did not refer to Article 6 of the CIMI, and spoke of "residential dedication"), as well as the different structure and ratio of the Stamp Tax and the "additional to the Real Estate Tax", all of which will point to the sense that the question of unconstitutionality is now surpassed.

Moreover, the Constitutional Court itself, in Constitutional Court Decision No. 378/2018, came to understand that, after all, there is no unconstitutionality of Item 28 of the General Stamp Tax Schedule, considering that, "the tax provided for in Item 28.1, as is proper for taxes on property, delimits its scope of incidence by reference exclusively to the ownership of certain patrimonial values «regardless of the function performed by such assets (productive capital, investment of funds, or durable consumption». Furthermore, being a tax on property, nor does it individualize or distinguish its respective passive subjects by recourse to any criterion other than precisely the ownership of those patrimonial values."

Thus, and the Constitutional Court itself evidences this, one thing is the taxation of income, another that of property, with the latter, by nature, attending essentially to the patrimonial value of the goods held, and not to the personal situation of its owner, being, even in view of reasons of workability, reduced factors of personalization.

This line of argument has been reinforced in the most recent jurisprudence of the Constitutional Court, which in its Decision No. 22/2019, of 9 January 2019, further decided "Not to judge unconstitutional the norm contained in item 28.1 of the General Stamp Tax Schedule, attached to the Stamp Tax Code, in the wording given by Law No. 83-C/2013, of 31 December, to the extent that it applies to situations where construction land belongs to companies engaged in the commercialization of construction land for resale."

Reference is further made in Constitutional Court Decision No. 378/2018, concerning Item 28.1 of the General Stamp Tax Schedule, that "the norm in question is based on the consideration of concrete legal-patrimonial situations, delimited according to the taxable patrimonial value of the immovable property and its normal social dedication, integrating in its subjective scope of application an indeterminate set of taxpayers in accordance with a uniform criterion (…). In relation to none of them is their concrete economic-financial situation (income or profits), their nature (individual or collective), organizational structure (business or non-business), concrete legal form assumed (commercial company or other), and much less, the various sectors of activity in which merchants covered may possibly operate and the specific risks inherent in each of those branches of activity, valued."

Thus, it is concluded in the sense defended in Constitutional Court Decision No. 378/2018 that "the mere statistical probability of being hit by the norm in question by commercial companies dedicated to real estate promotion, associated with the promotion of economic variables of uncertain verification, such as the impact of the tax on that particular branch of commercial activity whose value, moreover, will not fail to be considered as a cost of activity – does not constitute a sufficiently solid reason to support a judgment of unconstitutionality of the norm in question, in the specific hypothesis under consideration, considering, moreover, the negative character of constitutional review dictated by the principle of equality."

There is further the fact that, in the recent Constitutional Court Decision No. 299/2019, concerning the AIMI, it is concluded that "(…) within the scope of AIMI incidence, even if guided by a personal optic cannot fail to recognize that construction land is quite distinct from already constructed urban properties and affected to a specific purpose by way of a licensing or normal use. In truth, and adding, as seen, the reason for the non-taxation of urban properties, commercial, industrial, for services or other in the purpose of promoting the proper functioning of economic activities (…), construction land can only contribute to that objective in potential, in a hypothetical and conditional future, because even if a right to build has been formed, nothing prevents the change of intention of its owner regarding the purpose to be given to the property. The said Decision concludes that "Construction land constitutes an economic asset with patrimonial value, in itself revealing the contributory capacity of its owner, and is, therefore, constitutionally legitimated its inclusion in the patrimonial assets globally subject to AIMI, regardless of what may be effectively implanted therein."

Thus, and given the foregoing, it is deemed that consequences should not be drawn from the jurisprudence of the Constitutional Court invoked by the Applicant, in the context of the constitutionality of the norms of the AIMI, applied in the case, namely with respect to the alleged violation of the constitutional norms pointed out by the Applicant, and instead the most recent jurisprudence of that High Court should be applied, the request being therefore dismissed also in this part.

Given the decision, the ancillary request for compensatory interest, formulated by the Applicant, is also rendered moot, which is naturally dependent on the success of some of the remaining requests, which does not occur.

C. DECISION

For all the foregoing reasons, this Arbitral Tribunal decides to render the arbitral request wholly unmeritorious and, in consequence:

• Dismisses the Respondent's claim;

• Maintains in the legal order the tax acts that are the subject of this action; and

• Condemns the Applicant in the costs of the proceeding, in the amount set out below.

D. Value of Proceeding

The value of the proceeding is fixed at €123,107.48, under the terms of Article 97-A(1)(a) of the Tax Code of Civil Procedure, applicable by force of subparagraphs (a) and (b) of Article 29(1) of the RJAT and Article 3(3) of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €3,060.00, under the terms of Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Applicant, since the request was entirely unmeritorious, under the terms of Articles 12(2) and 22(4), both of the RJAT, and Article 4(5) of the said Regulation.

Notify.

Lisbon, 8 July 2019

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Vogal

(António Alberto Franco)

The Arbitrator Vogal

(Ricardo Marques Candeias)

[1] All available at https://caad.org.pt/tributario/decisoes/.

[2] With the exception of some marginal situations concerning properties affected to public services, or non-business activities, encompassed by the category "other".

[3] Cf. Decision rendered in proceeding 250/2017, already cited.

[4] Available at www.dgsi.pt.

[5] Idem.

[6] With the exception, from 2018, of municipal companies; cf. Article 135-A(4) of the CIMI.