Summary
Full Decision
ARBITRAL DECISION
I – REPORT
A..., S.A., taxpayer..., with headquarters in ..., ..., ..., filed on 12/11/2018 a request for constitution of an arbitral tribunal and arbitral ruling, in which it requests the assessment of the legality of the rejection of the administrative complaint and, in final terms, of the assessment of Additional Municipal Property Tax (AIMI) No. 2017... and the reimbursement of the amount of tax paid, plus compensatory interest, as it applies a norm that suffers from material unconstitutionality – article 135-B, no. 2 of the Municipal Property Tax Code (CIMI).
The Esteemed President of the Deontological Council of the Administrative Arbitration Centre (CAAD) appointed Francisco Nicolau Domingos as arbitrator on 03/01/2019.
On 23/01/2019 the arbitral tribunal was constituted.
In compliance with the provision of article 17, no. 1 of Decree-Law no. 10/2011 of 20 January (RJAT), the Respondent was notified on 28/01/2019 to, if it so wished, submit a response, request the production of additional evidence and attach the Administrative File (PA) to the proceedings.
On 22/02/2019 the Respondent submitted its response, in which it argues that the assessment in question should be maintained in the legal order, not recognizing the error in the legal presuppositions.
On 08/03/2019 the tribunal decided to dispense with the holding of the meeting to which article 18, no. 1 of RJAT refers, given that its purposes had been exhausted, based on the principle of the arbitral tribunal's autonomy in conducting the proceedings and in determining the rules to be observed with a view to obtaining, within a reasonable timeframe, a ruling on the merits of the claims formulated, see article 16, subparagraph c) of RJAT, and granted a period of eight days for the parties, if they so wished, to submit successive written final pleadings and scheduled 23/07/2019 as the deadline for delivering the arbitral decision.
The parties did not submit written final pleadings.
POSITION OF THE PARTIES
The Claimant submits the request for arbitral ruling because, in its view, article 135-B, no. 2 of the CIMI, which supported the AIMI assessment in question, should be disapplied by the Tribunal, as it violates the constitutional principles of equality, in its aspect of contributory capacity, as well as proportionality. That is, the assessment suffers from error concerning the legal presuppositions, as it applies an unconstitutional norm.
It begins by observing that AIMI objectively applies to properties with residential use, as well as land for construction, regardless of their use, as they are not expressly listed in the negative delimitation norm of the scope of application – article 135-B, no. 2 of the CIMI.
To support the defect of the act, it argues, in summary, that, if it is true that AIMI aims to tax the ownership of real estate property revealing a superior contributory capacity, this does not occur in relation to the property held by the Claimant, as, given its corporate purpose, it is essential for obtaining income within its economic activity. Or, put differently, in its view, AIMI materializes an unjustified negative discrimination of companies that commercialize land for construction, a circumstance that implies material unconstitutionality due to violation of the principle of equality.
Along these lines it further argues that: inequality has been created between companies that have decided to pursue an economic activity that presupposes the ownership of properties, in relation to other companies whose activity does not stem from such ownership. As it also alleges that, in this way, the conditions have been created for material inequality between the objecting party and companies that, owning real estate, pursue therein a commercial, industrial or service provision activity.
In a second line, it argues that the configuration of the taxable event that operates the distinction between various uses and purposes of properties, depending on the corresponding economic activity of its holder – namely by the consideration of those subject to AIMI taxation – is not justified in light of the purpose of the fiscal measure adopted.
It then alleges that, if the teleology of the fiscal measure is discernible – to tax luxury property (revealing special contributory capacity) – on the other hand, there is a negative, uncritical, arbitrary and random differentiation between, on the one hand, companies that use the properties (residential) in pursuing their activity and, on the other hand, companies that allocate the properties to industry, commerce or services, as the fact that the Claimant has, in its inventory, properties for construction, operation or sale in no way reveals a distinct contributory capacity. Or, put differently, there is violation of the principles of contributory capacity, equality and proportionality.
It adds that it finds no foundation or justification to argue that the overall progressivity of the system is strengthened through the taxation of properties held by real estate companies; such taxpayers are fiscally penalized in relation to companies that hold in their fixed assets properties of equal value intended for industry, commerce or services.
Finally, given the purpose pursued by the norm – supplementary tax to the IMI, intended to tax high-value residential real estate property, aimed at strengthening the progressivity of the system, the norm appears to violate the principle of proportionality.
The Respondent presents a defense with the following grounds:
i) Error concerning the legal presuppositions
The assimilation that the Claimant makes between AIMI and item 28 of the General Stamp Tax Table (TGIS) has no normative support, as, although there are some similarities regarding certain aspects of the scope delimitation, the impositions reveal structural differences, insofar as the Additional was created in differentiated economic-political circumstances and aims at its own extrafiscal purposes. Concretizing with the example that the normative provisions delimiting the scope of AIMI make no explicit or implicit allusion to "luxury real estate property," a normative formulation found at the core of item 28 of the TGIS.
It adds that the relevant criterion for delimiting the scope of objective incidence is solely the typology of classification of urban properties provided for in article 6, no. 1 of the CIMI, to which article 135-B, no. 2 of the CIMI expressly and specifically refers.
As for the alleged violation of the constitutional principles of equality and contributory capacity, it begins by arguing that, in the first place, administrative bodies and agents do not have competence to decide on the non-application of norms regarding which doubts about constitutionality have been raised, by force of the principle of legality – article 266, no. 2 of the Constitution of the Portuguese Republic (CRP) and 55 of the General Tax Law (LGT).
With regard to the alleged discrimination between taxpayers, it argues that, in the first place, the choices inherent to the delimitation of the objective scope of AIMI are made within the margin of freedom of legislative configuration and the universe of urban properties subject to AIMI is determined by recourse to the other two typologies contained in no. 1 of article 6 of the CIMI: residential urban properties and land for construction.
It argues that in delimiting the actual scope it is apparent that the criterion adopted is intended to be universally objective, inducing greater uniformity and equality in the treatment of properties targeted for taxation, at the expense of other criteria that would appeal to case-by-case verifications regarding the actual purpose given to the properties.
It also adds that it is not possible to configure the unconstitutionality of a tax norm on the basis that it has significant influence on the economic decisions of taxpayers – by nature, this is a typical effect of fiscal rules.
There is no significant influence on the ownership of properties by companies that dedicate themselves to their commercialization, as AIMI does not have general scope, but has its field of application restricted to urban properties located in Portugal, regardless of the nature of the owner, usufructuary or superficiary.
It will not be the circumstance that other taxpayers, holders of equally valuable real estate property, remain exempt from the tax that will justify a specific constitutional censure of the norm under review.
As for land for construction, the allegation that the properties are for commercialization, and not manifestations of contributory capacity, constitutes a fallacy, as properties, including land for construction, are goods in an economic sense, as their usefulness and scarcity allows assigning them a market price.
Moreover, AIMI ignores the potential use of land for construction and applies indistinctly regardless of the quality of the taxpayer, provided that they are holders of real rights over urban properties covered by article 135-B of the CIMI.
He argues, in this context, that no discriminatory treatment occurs, as the legislator, by selecting only urban properties classified as "land for construction" and "buildings or constructions for residential purposes," resulted in land for construction and properties held for operation or commercialization with residential function being taxed and excluding from taxation properties held for operation or commercialization with commercial function, although both are held by taxpayers for operation/commercialization and not enjoyment, precisely because the legislator took into account that these are properties with differentiated characteristics and markets.
Therefore, the alleged fiscal penalization introduced by article 135-B of the CIMI of entities dedicated to the operation or commercialization of land for construction or urban properties for residential purposes is virtual, as the target markets in which these agents operate are different from those in which real estate companies that commercialize properties for industrial, commercial or service purposes operate.
In sum, the alleged discriminatory treatment that is emphasized finds justification in the differences existing between the business or real estate realities in comparison, so it does not constitute a breach of the principle of equality in its dual aspect of uniformity and generality.
On the other hand, it argues that properties that make up the assets of companies dedicated to their operation/commercialization have economic value, contribute to the asset value of those entities and therefore constitute manifestations of contributory capacity. It notes that if it is possible to disagree with the fiscal policy choices adopted in the legal design of the scope of AIMI, this does not enable considering that the assessment made by the AT is marred by unconstitutionality, by force of articles 13 and 104 of the CRP.
Finally, it argues that there is also no violation of the principle of proportionality. In fact, it is unquestionable that it does not constitute an absolutely unreasonable solution that, in the context of budgetary consolidation circumstances and aiming at supplementary taxation for the same, the legislator defines a specific constitutionally valid economic presupposition to achieve the goal of taxing realities particularly revealing wealth.
The fact that the legislator selects an element of the property (objective scope), and it is necessarily consequential that taxpayers (singular or collective – subjective scope) holders of such property are burdened, constitutes a legitimate choice, which determined that the ownership of property also reveals contributory capacity, and the criterion adopted is intended to be universally objective, inducing greater uniformity and equality in the treatment of properties targeted for taxation.
In sum, it argues that the Claimant's legal construction is based on the comparison of unparalleled situations, so no unconstitutionality is perceived.
Therefore, these are the issues that the tribunal must address:
Whether the act of express rejection of the administrative complaint, which in final terms concerns the AIMI assessment No. 2017... suffers from the defect of error concerning the legal presuppositions;
Whether the Claimant should be reimbursed for the tax paid;
Whether the Tax and Customs Authority (AT) should be sentenced to payment of compensatory interest.
CASE MANAGEMENT
The proceedings do not suffer from nullities, the arbitral tribunal is regularly constituted and is materially competent to hear and decide the claims, and consequently, the conditions are met for the final decision to be rendered.
II – REASONING
MATTERS OF FACT
- Facts deemed proven
1.1. The Claimant is the owner of the urban property, classified as "land for construction," registered in the urban property matrix of the parish of the city of ..., under article ... (document attached by the Respondent in the response, under no. 1).
1.2. The Claimant carries out its corporate activity in the real estate sector (document attached by the Claimant in the request for arbitral ruling, under no. 1).
1.3. The property, on 1 January 2017, had a tax asset value of 1,586,110.00 euros (document attached by the Claimant in the request for arbitral ruling, under no. 3).
1.4. The Claimant was notified of the AIMI assessment No. 2017..., in the amount of 6,344.44 euros, relating to the year 2017 and which has as its sole taxable matter the tax asset value of said property (document attached by the Claimant in the request for arbitral ruling, under no. 3).
1.5. The Claimant voluntarily paid 6,344.44 euros on 29/09/2017 (document attached by the Claimant in the request for arbitral ruling, under no. 4).
1.6. On 29/01/2018, the Claimant filed an administrative complaint against the AIMI assessment No. 2017... (document attached by the Claimant in the request for arbitral ruling, under no. 1).
1.7. The administrative complaint was expressly rejected by order of the Chief of the Tax Service of ..., notified to the Claimant by letter dated 09/08/2018 (document attached by the Claimant in the request for arbitral ruling, under no. 1).
1.8. The request for arbitral ruling was presented on 12/11/2018 (CAAD computer system).
- Facts deemed not proven
There are no other facts of relevance to the arbitral decision that have not been deemed proven.
- Reasoning for the matters of fact deemed proven
The facts relevant for judgment of the case were chosen and delimited according to their legal relevance, in light of the plausible solutions of the legal issues, in accordance with the combined application of articles 123, no. 2 of the Code of Tax Procedure and Process (CPPT), 596, no. 1 and 607, no. 3 of the Code of Civil Procedure (CPC), applicable by force of the provision in article 29, no. 1, subparagraphs a) and e) of the RJAT.
With regard to the facts proven, the tribunal's conviction was based on the positions taken by the parties, which were consensual, and on the critical analysis of the documentary evidence attached to the proceedings, whose authenticity was not questioned.
MATTERS OF LAW
The Claimant's claim consists in the disapplication of article 135-B, no. 2 of the CIMI as, in its view, it suffers from material unconstitutionality, insofar as it applies to properties held by companies pursuing a real estate activity.
Article 135-B, no. 2 of the CIMI provides that: "Excluded from the additional municipal property tax are urban properties classified as 'commercial, industrial or for services' and 'other' pursuant to subparagraphs b) and d) of no. 1 of article 6 of this Code."
First, let us examine the structural lines of AIMI. AIMI objectively applies to the sum of tax asset values of urban properties located in Portuguese territory of which the taxpayer is the holder, although, if this is a natural person or an undivided estate, there is a right to a deduction of 600,000 euros – article 135-C, no. 2, subparagraphs a) and b) of the CIMI.
The legislator excludes from the objective scope of AIMI, urban properties classified as "commercial, industrial or for services" and "other," articles 6, no. 1, subparagraphs b) and d) and 135-B, no. 2, both of the CIMI.
AIMI applies subjectively to natural persons or legal entities that are owners, usufructuaries or superficiaries of urban properties located in Portuguese territory, on 1 January of the year to which the tax relates, article 135-A of the CIMI.
As for the applicable tax rates, article 135-F of the CIMI provides:
"1 - To the taxable value determined in accordance with article 135-C and after application of the deductions provided therein, when they exist, the rate of 0.4% applies to legal entities and of 0.7% to natural persons and undivided estates.
2 - To the taxable value, determined in accordance with no. 1 of article 135-C, exceeding 1,000,000 (euro) and equal to or not exceeding 2,000,000 (euro), or double these amounts when the option provided for in no. 1 of article 135-D is exercised, a marginal rate of 1% applies when the taxpayer is a natural person.
3 - To the taxable value, determined in accordance with no. 1 of article 135-C, exceeding 2,000,000 (euro), or double this amount when the option provided for in no. 1 of article 135-D is exercised, a marginal rate of 1.5% applies when the taxpayer is a natural person.
4 - The value of properties held by legal entities allocated to personal use of the holders of the respective capital, members of corporate bodies or any bodies of administration, management, direction or oversight or their respective spouses, ascendants and descendants, is subject to the rate of 0.7%, being subject to the marginal rate of 1% for the portion of value exceeding 1,000,000 (euro) and equal to or not exceeding 2,000,000 (euro), and to the marginal rate of 1.5% for the portion exceeding 2,000,000 (euro).
5 - For properties that are owned by entities subject to a more favorable tax regime, as referred to in no. 1 of article 63-D of the General Tax Law, the rate is 7.5%.
6 - The provision in the previous number does not apply to properties that are owned by natural persons.
7 - Properties referred to in no. 4 must be identified in the annex to the periodic income tax return provided for in the Corporate Income Tax Code."
It is now necessary to analyze the merits of the Claimant's claim: refusal to apply the norm by the tribunal, based on its unconstitutionality, for violation of the principle of equality, contributory capacity and proportionality.
The claim is grounded, essentially, in the fact that article 135-B, no. 2 of the CIMI, at the level of selection of the taxable event itself, interferes in the taxpayer's patrimonial sphere, when its normative scope integrates taxpayers who, by corporate purpose, dedicate themselves to real estate activities. That is, the ownership of residential urban properties and land for construction does not, in isolation, reveal economic abundance, revealing contributory capacity.
It is noted at the outset that the Claimant's claim is destined to fail, as the Constitutional Court has already recognized in Decision No. 299/2019 of 21 May[1], reported by Counselor Fernando Vaz Ventura.
First, insofar as the Claimant mobilizes jurisprudence established under the repealed item 28 of the TGIS, it is important to state that, for the tribunal, such provision does not have the same normative content in comparison to the AIMI regime.
As also, the teleology underlying the fiscal measures is not identical, as AIMI does not burden the taxation of luxury properties, but intends to create a form of financing the social security system.
Regarding the comparison of normative solutions, it is important to state that, in delimiting the scope of AIMI, what is provided in article 9, no. 1, subparagraphs d) and e) of the CIMI applies, that is, the tax is due only in the fourth year and third years following, respectively, that in which land for construction has become part of the inventory of a company whose purpose is the construction of buildings for sale or when it becomes part of the inventory of a company whose purpose is their sale[2]. In sum, the property during that period of time is considered merchandise for tax purposes.
First, as to the tax burden on the real estate sector, in relation to others in the economic sector in question, companies are treated equally, and it is within the legislature's freedom of action to fiscally encourage certain activities while burdening others.
Similarly, as the Constitutional Court notes[3], it is not apparent how the pursuit of the corporate purpose of a company integrating real estate promotion and operation activities would have the capacity to exclude, with respect to all subjects whose activity in that branch implies the holding of rights over properties, the taxation of the property of which they are holders.
In fact, the taxation of property to which the CRP also attributes a redistributive function cannot, in this way, be understood as merely an alternative to income taxation. That is, in property taxation, the tax asset value of the goods held shall be considered and not the personal situation of the holder, and, in fact, by force of practicality, personalization factors should be reduced.
In this regard, the Constitutional Court observes that[4]: "Notwithstanding the structural differences of the tax in question here, referred to above, this understanding remains valid and is transposable to the assessment of the issue raised in the present appeal. In accordance with the scope, structure and nature of the norm under review, the economic presupposition considered by the legislator in AIMI is that the economic force persists revealed by the holding of rights over a set of assets constituted by urban property/properties with residential use and/or land for construction, manifesting, in the categories of goods targeted by the legislator – residential properties and land for construction – the contributory capacity of the taxpayer, regardless of the purpose – particularly, the corporate purpose – that the subject dedicates itself to, that is, even if the elected activity is the economic operation of urban properties.
Contrary to what the appellant argues, there is no support for considering that the rationality underlying the definition of the new partial tax on property is incompatible with what it designates as the burden on the real estate sector and, in this case, with the normative discipline of real estate investment funds.
And, as already stated in Decision No. 378/2018, no requirement of positive discrimination of companies, particularly companies in the real estate branch, before other taxpayers subject to such taxes follows from the constitutional program of tax equalization through property taxes."
In the argumentative score of the Claimant appears: "...the configuration of the taxable event that operates the distinction between various uses and purposes of properties, according to the corresponding economic activity of its holder – namely by the consideration of those subject to AIMI taxation – is not minimally justified in light of the purpose of the fiscal measure adopted."
However, the rationale for delimiting the scope of AIMI does not stem from the economic activity exercised by the taxpayer, but, as in the IMI, from the social use of the urban property.
The Claimant also argues that it is objectionable, in light of the CRP, the fact that article 135-B, no. 2 of the CIMI – norm of tax exclusion, does not encompass all urban properties, whatever their typology, as they could be referenced to any economic activity.
If it is true that the norm that negatively delimits the scope excludes therefrom – urban properties (tax asset value) classified by tax law as "commercial, industrial or for services" and "other" – introducing unequal treatment between taxpayers, on the other hand, it must be said that the relationship of equality inherent to the norm of incidence has a different content from the relationship of equality established in the norm of non-incidence, e.g. in this latter, the criterion outlined by the legislator must be considered. As also, the criterion of equality in norms of negative delimitation of incidence is that of application to realities that appear equal.
In the words of the Constitutional Court: "These differences have an impact on the constitutional parameter against which the normative justification must be assessed. The norm of incidence, because it embodies an onerous burden to the property of taxpayers, is bound to apportion the tax burden in function of the capacity that each has to pay the tax – the principle of tax capacity; already the norm of tax exclusion, because it creates situations of fiscal advantage, in addition to the need to ensure respect for the principle of proportionality, in function of the ends that it proposes to achieve, must ensure that the criterion of fiscal relief applies to realities that appear equal in light of that criterion – principle of equality. Thus, in the first typology, the relationship of equality is established through a comparison assessment of taxpayers in light of the criterion of contributory capacity; in the norm of non-incidence, the relationship of equality is established through the comparison of persons or situations in light of the distinctive criterion or tertium comparationis that the legislator made use of for extrafiscal reasons. In this latter case, considering the effects of discharging or mitigation that tax exclusion provokes in the property of taxpayers, there is not properly a problem of taxation without correspondence in the contributory capacity of the taxpayer; thus, by not selecting the facts on which the tax applies, the problem does not reside in compliance with the principle of contributory capacity, as a presupposition of taxation" and "In the final drafting, the criteria based on the economic activity of the taxpayer were replaced by the reference to the species of urban properties established in article 6 of the IMI, thus bringing into the sphere of AIMI the same criteria and justifications on which the basis of the objective scope of the IMI rests, while the solution of exemption up to 600,000.00€ was excluded, eliminating the progressive element of personal basis of taxation of legal entities and equivalent entities.
In this configuration, the objective scope of the tax was significantly reduced, by excluding application to all properties with commercial and service use (even those held by companies whose corporate purpose is the purchase and sale of real estate), in addition to the species 'other,' and that is the choice of the legislator to mitigate the impact of the tax on the business fabric and preserve its competitiveness, particularly in international markets (to this effect, JOSÉ PIRES, The Additional to the IMI..., p. 50)."
On the other hand, the financing of Social Security justifies the criterion of exclusion from the scope of application regarding urban properties intended for commerce, industry or services, typologies necessary for the functioning of the business fabric, in the just measure that, as described by the Constitutional Court: "in light of one of the purposes to which the new taxation is intended, such as the financing of Social Security, assured through the allocation of AIMI revenues to the Financial Stabilization Fund of Social Security, provided for in no. 2 of article 1 of the CIMI, as amended by Law No. 42/2016. Having the principle of diversification of sources of financing of Social Security, in accordance with its Organic Law, the purpose of 'reduction of non-wage labor costs' (article 88 of Law No. 4/2007 of 16 January), the exclusion of the scope of application regarding urban properties intended for commercial, industrial and service activities is further justified by the consideration that, being these the typologies most frequently connected with the functioning of the business fabric; otherwise, companies, already called upon to support the financing of Social Security in the capacity of employers, would tendentially see increased (and not reduced, as prescribed by the Organic Law) the non-wage labor costs with the expansion of the bases for obtaining financial resources of the system brought about by the fiscal measure.
In this perspective, there is reasonable and sufficient foundation for that, before real estate property not intended for such activities, whose holders will not be associated with the same intensity with the financing of Social Security as employers, the legislator has privileged the collection of revenues allocated to the same system.
And, just as was concluded regarding the purpose of promotion of economic structures, also in this light the new taxation satisfies the requirements of the principle of proportionality. It proves adequate to the purpose pursued – it proposes the increase of revenues – is necessary – the diversification and increase of sources of financing of Social Security is a condition of its sustainability – and does not prove excessive, either in function of the applicable rates, namely for legal entities (article 135-J of the CIMI), or because the tax paid is deductible from the taxable base in Corporate Income Tax (article 135-J of the CIMI)."
Thus, there is no defect of violation of law, by error concerning the legal presuppositions, imputed to the assessment – application of a materially unconstitutional norm, namely article 135-B, no. 2 of the CIMI. The issues of reimbursement of the AIMI amount paid and condemnation of the AT in payment of compensatory interest are prejudicially known.
III – DECISION
Accordingly, and with the reasoning described above, it is decided that the request for arbitral ruling is totally dismissed and, consequently, the Respondent is acquitted of the claims, with the due legal consequences.
VALUE OF THE PROCEEDINGS
The value of the proceedings is fixed at 6,344.44 euros, in accordance with article 97-A of the CPPT, applicable by force of the provision in article 29, no. 1, subparagraph a) of the RJAT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).
COSTS
Costs to be borne entirely by the Claimant, in the amount of 612 euros, see article 22, no. 4 of the RJAT and Table I attached to the RCPAT.
Notify.
Lisbon, 22 July 2019
The arbitrator,
(Francisco Nicolau Domingos)
[1] Decision whose reasoning we shall follow closely.
[2] Vote declaration of Counselor Gonçalo de Almeida Ribeiro, contained in Decision No. 299/2019 of the Constitutional Court, of 21 May, reported by Counselor Fernando Vaz Ventura.
[3] Decision No. 307/2019 of the Constitutional Court, of 29 May 2019, reported by Counselor Joana Fernandes Costa.
[4] Decision No. 307/2019 of the Constitutional Court, of 29 May 2019, reported by Counselor Joana Fernandes Costa.
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