Summary
Full Decision
ARBITRAL DECISION
The arbitrators Advisor Fernanda Maçãs (arbitrator-chair), Dr. Rui Rodrigues and Professor Doctor Paulo Jorge Nogueira da Costa (arbitrator members), appointed by the Deontological Council of the Center for Administrative Arbitration to form the Arbitral Tribunal, constituted on 6 March 2018, agree as follows:
1 - Report
1.1 – A..., S.A., hereinafter referred to as "Claimant", taxpayer no. ..., with registered office at ..., no. ..., in Lisbon, 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 Regime of Arbitration in Tax Matters, hereinafter referred to only as "RJAT") and Articles 1 and 2 of Ordinance 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 decision, presented on 18 November 2018, has as its object the declaration of illegality and consequent annulment of the Additional Municipal Property Tax ("AIMI") assessments with nos. 2017 ... and 2018 ..., relating to the years 2017 and 2018, respectively, effected by the Tax and Customs Authority on 09-08-2018 and 03-10-2018, in the amount of 119,793.84 €, corresponding to 59,896.92 € each.
1.3 - It further requests the condemnation of "AT" to reimburse the amount paid relating to the aforementioned assessments, plus respective default interest, under the terms of Articles 43, no. 1 of the General Tax Law (LGT) and 61 of the Code of Tax Procedure and Process (CPPT), calculated from the date of undue payment of the tax until the date of processing of the respective credit note.
1.4 - The Claimant chose not to appoint an arbitrator.
1.5 - The request for constitution of the arbitral tribunal was accepted by the President of CAAD and notified to AT on 19 November 2018.
1.6 - Under the terms of paragraph a) of no. 2 of Article 6 and paragraph b) of no. 1 of Article 11 of the RJAT, in the wording introduced by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the assignment within the applicable time period.
1.7 - On 10 January 2019, the Parties were notified of that appointment and did not object to it, under the combined terms of Article 11, no. 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Code of Conduct of CAAD.
1.8 - Thus, in accordance with the provisions of Article 11, no. 1, paragraph c) of the RJAT, the collective arbitral tribunal was constituted on 30 January 2019.
1.9 - The Respondent was notified, by arbitral order of 30 January 2019, under the terms of Article 17, no. 1 of the RJAT, to submit a Reply within 30 days, if it so wished, and to request the production of additional evidence.
1.10 - It was further notified to, within the same period, submit the administrative file (PA) referred to in Article 111 of the CPPT.
1.11 On 6 March 2019, the Respondent submitted its Reply, defending itself by objection, arguing for the dismissal of the request for arbitral decision, maintaining the tax assessment acts challenged in the legal order, with the consequent dismissal of the claim.
1.12 - If not so understood, it requests notification of the arbitral decision to the Public Prosecutor's Office, under the terms of Article 280, no. 3 of the Constitution of the Portuguese Republic (CRP) and Article 72, no. 3 of the Constitutional Court Law.
1.13 – It chose not to attach the administrative file (PA).
1.14 - Considering that the Parties did not request the production of any evidence beyond the documentary evidence attached to the case, the Arbitral Tribunal, in light of the principles of autonomy in case management, expedition, simplification and procedural informality, inherent in Articles 16 and 29, no. 2 of the RJAT, by order of 10 March 2019, waived the holding of the meeting provided for in Article 18 of the same act, and further decided that the case would proceed with optional written pleadings, within a period of 15 days, in successive manner for the Respondent.
1.15 - By the same order it was determined that the arbitral decision would be delivered by 30 July 2019.
1.16 – The Claimant pleaded on 25 March 2019, concluding that the assessments challenged were illegal, due to violation of the provisions of Article 135-B of CIMI, and that the same should be annulled, with the consequent reimbursement of amounts unduly paid, plus default interest under the terms of Article 43 of the LGT.
1.17 – The Respondent presented its pleadings on 9 April 2019, arguing for the dismissal of the request for arbitral decision with the consequent dismissal of the action.
Position of the Parties
Of the Claimant -
It supports its request for arbitral decision, synthetically, as follows:
It develops activity in the real estate sector, within which it is building on land for construction registered in the property matrix of the parish of ..., municipality of Lisbon, under article..., a building to be named "...", intended for commerce and services.
That such property constitutes a factor of production, that is, an intermediate good which, combined with other factors of production, produces new utilities – economic goods that satisfy needs – and therefore should be excluded from AIMI, since it will not constitute a fact demonstrating wealth nor a sufficient indicator of the Claimant's taxpaying capacity as owner.
On the other hand, if buildings intended for commerce, industry or services cannot be considered as indicating special taxpaying capacity for AIMI purposes – because expressly excluded from the incidence of the tax taking into account the tax objectives expressed by the legislature – then the land for construction that is intended for the construction of properties for commerce, industry or services cannot be either, on pain of incoherence of the legal system and violation of the constitutional principle of equality set out in Article 13 of the CRP.
Citing José Casalta Nabais, it states "(…) the principle of equality of taxation, based on the principle of taxpaying capacity, tells us that persons are taxed in accordance with their respective taxpaying capacity, which means, on the one hand, that excluded from the scope of incidence of taxes are those persons who lack such capacity and, on the other hand, that facing holders of taxpaying capacity, taxpayers with the same capacity will pay the same tax(es) (horizontal equality) and taxpayers with different capacities will pay different taxes, whether in qualitative or quantitative terms (vertical equality)."
Therefore, as a matter of coherence of the legal order and making proper use of legislative acts, an interpretation in accordance with the Constitution is required. As to this hermeneutical method, it cites Jorge Miranda and refers to the decisions of the High Administrative Court (STA) of 30-05-2012 (case no. 0949/11) and 01-04-2003 (case no. 01837/02), the latter stating that "It is a general principle of our legal order that, when a norm supports an interpretation in accordance with the Constitution and another contrary to it, the one that is compatible with constitutional provisions should be chosen (cfr., in this sense, by all, the decisions of the Constitutional Court nos. 1406, 5611 and 6358, of 19/4/88, 27/6/95 and 11/7/96, respectively, and of the STA of 11/2/93 (1st Section-Plenary), BMJ 424-454 and of 14/1/98, case no. 3 618 (2nd Section)."
Thus it fully endorses the decision rendered in arbitral case no. 668/2017-T, according to which "Since the tax fact chosen as an index of taxpaying capacity is the ownership of real property of considered high value, it will not be coherent not to apply the tax to buildings intended for services and to apply it to land intended for their construction, whose value is incorporated in the value of the buildings.
Thus, in a perspective mindful of the unity of the legal system (Article 9, no. 1 of the Civil Code), which has decisive interpretative value, imposed by the principle of axiological or evaluative coherence of the legal order, the exclusion provided for in no. 2 of Article 135-B of CIMI relating to urban properties classified as "for services" should be interpreted extensively as expressing a legislative intention to also exclude from taxation land intended for the construction of such properties.
In any case, if a literal interpretation of this norm is adopted, with the meaning that all land for construction is covered by the incidence of AIMI, it would be materially unconstitutional, being incompatible with the principle of equality (Article 13 of the CRP), by considering as a tax fact the ownership of land for construction of properties intended for services and not the ownership of the properties built thereon, as it constitutes an underprivileged treatment of taxpayers in the first situation, without material justification, since the taxpaying capacity indicated by real property in that situation is necessarily less, which must be present, and with an increase, in the second.
In situations of unjustified discriminatory treatment, reflected in the imposition of a duty or charge in violation of the principle of equality, what is illegitimate is, in principle, the act of imposing the duty only on some of the taxpayers, the inequality being resolved by elimination of the duties or charges for those discriminatorily burdened by them."
That this interpretative orientation has been followed in various arbitral decisions, examples of which are those rendered in cases 675/2017-T, 681/2017-T, 688/2017-T and 8/2018-T.
It concludes by arguing for the approval of the request for arbitral decision and consequent reimbursement of amounts unduly collected, plus corresponding default interest.
Of the Respondent -
Defending itself by objection, it invokes the following arguments:
That the additional to IMI, created by Article 219 of Law no. 42/2016, of 28 December which approved the State Budget for 2017, through the addition to the IMI Code of Articles 135-A to 135-K, appears as special taxation of high-value property intended to ensure the financing of Social Security.
As stated in arbitral decision no. 420/2018-T "What the legislature intended with the Additional to IMI was to create another avenue for subsidizing the social security system, which is one of the constitutional duties of the State, provided for in Article 63, no. 2 of the CRP (...)".
On the other hand, the creation of AIMI, as a supplementary tax on real property, which aimed to introduce in taxation "a progressive element of personal basis, taxing more highly the larger assets", is compatible with the objective that the taxation of property should contribute to equality among citizens, stated in no. 3 of Article 104 of the CRP, since progressivity has as its corollary, tendentially, imposing greater taxation on those with greater taxpaying capacity.
Similar to the IMI regime, the passive subjects of AIMI are the owners, usufructuaries or surface rights holders of the respective properties, regardless of their qualities as natural or legal persons, being equated to these "any structures or centers of collective interests without legal personality that appear in the matrices as passive subjects of municipal property tax, as well as undivided inheritance represented by the head of household", cfr. nos. 1 and 2 of Article 135-A.
In that the determination of the quantitative amount to be paid is abstracted from the economic dimension of the entities, namely the qualification as small, medium or large undertaking, as well as, by not reaching the entirety of the net assets of the entities, it can be stated that, as far as AIMI inciding on urban properties of which legal persons and equated structures are owners, usufructuaries or surface rights holders, assumes the nature of a real tax, cfr. no. 2 of Article 135-A of CIMI.
Thus, as the doctrine rightly states, "Thus, with regard to legal persons, AIMI is not in fact intended to tax entities with the highest wealth indices, because all property values of subject properties are taxed, without minimum limit nor any deduction. Also, for that reason, AIMI inciding on legal persons comes closer to a general tax on real property", cfr. JOSÉ MARIA PIRES, The Additional to IMI and the personal taxation of property, Almedina, 2017, p.42).
Thus, subject to the additional IMI are the properties affected to "housing" and "land for construction" as defined in the aforementioned Article 6 of CIMI, regardless of the potential allocation that may be given to these, since they do not form part of the negative delimitation of incidence.
Although having excluded from incidence urban properties classified as "industrial, commercial or service" and "other", the legislature, expressly chose to maintain other properties that also integrate the assets of enterprises, such as those classified as residential or land for construction.
As to the violation of the constitutional principle of equality, alleged by the Claimant, it cites Professor Doctor José Casalta Nabais, when he states "[…] the principle of tax equality always has inherent above all the idea of generality or universality, under which all citizens are bound to the duty to pay taxes, and of uniformity, requiring that such duty be measured by a same criterion - the criterion of taxpaying capacity. This thus implies equal tax for those with equal taxpaying capacity (horizontal equality) and different tax (in qualitative and quantitative terms) for those with different taxpaying capacity in proportion to that difference (vertical equality), (in Tax Law, Almedina; 2012, 7th Edition, p. 155)."
As well as Decision no. 563/96, of 16 May, of the Constitutional Court, when it states "[…] The principle does not prevent that, taking into account the legislature's freedom of configuration, (reasonable, rational and objectively based) differentiation of treatment can (must) be established", on pain of, thus not happening, "the legislature incurring in arbitrariness, by preterition of compliance with objectively justified solutions by constitutionally relevant values", in the weighing of cited decision no. 335/94. in, Gomes Canotilho, in - Legal and Jurisprudential Review, year 124, p. 327; Alves Correia, The Urban Plan and the Principle of Equality, Coimbra, 1989, p. 425; decision no. 330/93).»
Land for construction is not merely instrumental to the exercise of economic activity, on the contrary, it integrates the very core of economic activity, with intrinsic economic value and, normally, quotation in the real estate market, i.e., can be sold, exchanged, given as security for obligations and obviously evidences a certain economic capacity.
That the taxation embodied in AIMI translates into a specific imposition on property (cf. art. 4, no. 1 of the LGT) and not on income and that in the field of property taxation, the rule of uniformity is what imposes is horizontal equality, that is, that all those who are holders in the same form of wealth are taxed in the same manner, cfr. SOUSA FRANCO, Public Finance and Financial Law, vol. II, 4th ed., p. 181.
Thus, like any tax on property, AIMI is dissociated from any eventual realization of profit from the sale of real estate, as well as from the existence, or not, of negative or positive net situation, being relevant, for the purposes of the tax, only the property value of the land. As for land for construction, these do not boil down to mere building rights, of future things, and all of them are autonomous goods, which, even, by their natural scarcity, always have intrinsic economic value and, normally, quotation in the real estate market, that is, can be sold, exchanged, given as security for obligations.
And even if the taxed real estate could prove to be instrumental to economic activity, the same are suitable to indicate that that legal person is holder of goods that, in themselves, evidence a specific affluence compared to other real property owners.
It is thus concluded that the ownership of real property of high value, regardless of allocation or not to economic activity, is tendentially revelatory of high taxpaying capacity, obviously higher than that which is to be presumed to exist when lower value property is held or when it does not exist.
It is not seen, in this manner, that the taxation of land for construction, with allocation for "commerce and services", in the manner in which it is provided for in Articles 135-A and 135-B of CIMI, collides with the principles of equality, justice and taxpaying capacity.
In sum, AIMI incides on real property possessing the characteristics indicated in these articles, that is, subjecting any and all entity that is holder of real rights over urban properties in accordance with objective reality and not merely potential reality at the moment of verification of the tax act.
With regard to the payment of default interest provided for in Article 43 of the LGT, the Respondent considers that the challenged act does not suffer from any vice that determines its annulment.
Furthermore, AT, as a body of the Public Administration, does not have competence to decide on the non-application of norms regarding which doubts of legality or constitutionality are raised, which, in turn, determines, the lack of legal support for the request for default interest, cfr. jurisprudence of the STA of which examples are the decisions rendered in Cases nos. 01529/14 and 399/15, respectively of 03-04-2015 and 04-05-2017.
It concludes by arguing for the total dismissal of the request for arbitral decision and absolution of the Respondent, maintaining the tax act challenged in the legal order, since the contested assessment constitutes a correct interpretation and application of law to the facts, or, if not so understood, requests, by appeal to the provisions of Article 280, no. 3 of the CRP and Article 72, no. 3 of the Constitutional Court Law, that notification to the Public Prosecutor's Office be determined of the learned arbitral decision.
2 - Elimination of Defects
2.1 - The Parties have legal personality and judicial capacity, show themselves to be legitimate and are regularly represented (Articles 4 and 10, no. 2 of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March).
2.2 - The case does not suffer from nullities, the claim was timely presented and no exceptions were invoked other than the already mentioned expiration of the right of action.
2.3 - The Arbitral Tribunal is regularly constituted and is materially competent to know and decide the claim, cfr. Article 2, no. 1, paragraph a) of the RJAT.
2.4 - There are no other circumstances that prevent the examination of the merits of the case.
3. Matters of Fact
3.1 Proven Facts
With relevance to the assessment and decision of the questions raised, the following facts are deemed established and proven:
-
The Claimant is a commercial company that develops its activity in the real estate sector, cfr. Article 25 of the request for arbitral decision (ppa) and footnote no. 1;
-
In the context of its activity, the Claimant, on 1 January 2017, was the owner of the land for construction registered in the urban matrix of the parish of ..., municipality of Lisbon, under article..., with the tax property value (VPT) of 14,974,230.00 €, cfr. document no. 3 attached by the Claimant;
-
On that land a building to be named "...", intended for commerce and services, is under construction, cfr. Article 25 of the ppa, not contested by the Respondent;
-
In August 2018, the Claimant was notified of AIMI assessment no. 2017..., of 09-08-2018, issued by the Tax and Customs Authority ("AT") with reference to the year 2017, in the total amount of 59,896.92 €, with payment deadline in the month of September 2018, relating to the aforementioned land for construction and based on the respective VPT, cfr. document no. 1 attached by the Claimant;
-
In October 2018, the Claimant was notified of AIMI assessment no. 2018..., of 03-10-2018, issued by the Tax and Customs Authority ("AT") with reference to the year 2018, in the total amount of 59,896.92 €, with payment deadline in the month of November 2018, relating to the aforementioned land for construction and based on the respective VPT, cfr. document no. 2 attached by the Claimant;
-
On 26-09-2018, the Claimant made payment of the tax assessed relating to the year 2017, cfr. document no. 4 attached by the Claimant;
-
On 26-10-2018, the Claimant made payment of the tax assessed relating to the year 2018, cfr. document no. 5 attached by the Claimant;
-
On 18-11-2018, the Claimant presented the request for arbitral decision that gave rise to the present case.
3.2 Unproven Facts
There are no facts relevant to the decision of the case that should be considered unproven.
3.3 Reasoning
With respect to matters of fact, the Tribunal does not have the duty to rule on all alleged matters, but rather the duty to select those relevant to the decision, taking into account the cause (or causes) of action that bases the claim formulated by the claimant [(cfr. Articles 596, no. 1 and 607, nos. 2 to 4 of the Code of Civil Procedure, applicable ex vi of Article 29, no. 1, paragraphs a) and e) of the RJAT)] and to establish whether it considers it proven or unproven (cfr. Article 123, no. 2 of the CPPT).
According to the principle of free assessment 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 proof brought to the case and in accordance with its life experience and knowledge of persons (cfr. Article 607, no. 5 of the Code of Civil Procedure). Only when the probative force of certain means is pre-established in law (e.g., full probative force of authentic documents, cfr. Article 371 of the Civil Code) does the principle of free assessment of evidence not apply to the assessment of the evidence produced.
Thus, the conviction of the Tribunal was based on the documentary collection attached to the case as well as on the positions assumed by the parties.
The Tax and Customs Authority did not attach the administrative file and does not question any of the facts alleged by the Claimant, so it is considered established that this is land for construction with the purposes indicated therein.
4 - Matters of Law (reasoning)
Object of the Dispute
The question constituting the thema decidendum boils down to whether the land for construction referred to in the case, as a substrate of the Claimant's economic activity or in view of its potential buildability for purposes "commercial, industrial or services", is covered by the norms of objective incidence of AIMI, provided for in Article 135-B of CIMI.
Question to be decided:
-
Of the (il)legality of the challenged assessment; and
-
Of the request for payment of default interest.
On the (il)legality of the challenged assessment -
The Claimant states that the tax act is illegal because it is supported by a norm that is materially unconstitutional which, by inciding on real property that integrates the assets of a company in the real estate business and is therefore essential for obtaining income within the scope of its economic activity, violates the most basic canons of equality, in its aspect of taxpaying capacity and proportionality.
Before entering into the analysis of said unconstitutionalities, it is important to make some considerations on the meaning and scope of the norms invoked.
A. On the illegality of the assessment due to error in interpretation of the applicable norms
The Claimant argues that the property in question is directly affected to the economic activity (real estate business) it develops, and therefore is not covered by the scope of incidence of the additional to IMI created by Law no. 42/2016, of 28 December, through the addition of Articles 135-A and following to the IMI Code, through which the legislature intended to establish a new tax on real estate wealth.
On another level of analysis, the Claimant also considers it illegal to tax land for construction intended for the purposes of commerce, industry or services insofar as these are properties potentially affected to those economic activities, and, as such, covered by the exclusion clause of Article 135-B, no. 2 of the IMI Code.
The additional to IMI was established by Law no. 42/2016, of 28 December (State Budget Law for 2017), which added to the IMI Code Chapter XV comprised by Articles 135-A to 135-K.
Article 135-A defines the subjective incidence of the tax, establishing that "passive subjects of the additional to municipal property tax are natural or legal persons who are owners, usufructuaries or surface rights holders of urban properties situated in Portuguese territory", with "equated to legal persons any structures or centers of collective interests without legal personality that appear in the matrices as passive subjects of municipal property tax".
For its part, Article 135-B defines the scope of objective incidence, establishing as follows:
"Article 135-B
Objective incidence
1 - The additional to municipal property tax incides on the sum of the tax property values of urban properties situated in Portuguese territory of which the passive subject is the holder.
2 - Excluded from the additional to municipal property tax are urban properties classified as "commercial, industrial or for services" and "other" under the terms of paragraphs b) and d) of no. 1 of Article 6 of this Code".
The reference made in no. 2 of Article 135-B to Article 6 of the IMI Code is intended to characterize what is understood as urban properties "commercial, industrial or for services" and "other" for purposes of the exclusion from the scope of incidence of the additional tax.
Thus, municipal property tax (IMI) incides on the tax property value of rural and urban properties situated in Portuguese territory, as results from Article 1 of the IMI Code, and the subsequent articles define, for purposes of the tax, the concepts of property, of rural properties, of urban properties and of mixed properties (Articles 2 to 5).
In turn, Article 6 establishes the species of urban properties, establishing as follows:
"1 - Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Land for construction;
d) Other.
2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal destination each of these purposes.
3 - Land for construction is considered to be land situated inside or outside an urban agglomeration, for which a license or authorization for subdivision or construction operations has been granted, prior communication has been admitted or favorable preliminary information for subdivision or construction operations has been issued, and also those that have been so declared in the acquisition title, excepting land on which the competent entities prohibit any of those operations, namely those located in green zones, protected areas or that, in accordance with municipal territorial planning plans, are affected to spaces, infrastructures or public facilities.
4 - Falling within the provision of paragraph d) of no. 1 are land situated within an urban agglomeration that are not land for construction 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 other purposes than those referred to in no. 2 and also those of the exception of no. 3".
Given the foregoing and as to the first question, it should be said, from the outset, that the literal reading of Articles 135-A/1 and 135-B/1 and 2 of CIMI is clear and does not lend itself to any interpretative doubt. Since the language of the law, or grammatical element, is the first element to be invoked in legal hermeneutics, and it being presumable that the legislature knew how to express its thought in adequate terms (no. 3 of Article 9 of the Civil Code), it will not be necessary to invoke other elements from among those available in the panoply of hermeneutical methods.
Indeed, it is clear that the legislature, in defining the negative delimitation of the incidence of the tax by reference to urban properties classified as "commercial, industrial or for services" and "other" under paragraphs b) and d) of no. 1 of Article 6 of the IMI Code, is precisely intending to refer to that typology of properties in accordance with the characterization the Code itself attributes to them.
As set forth in the Arbitral Award, rendered in case no. 664/2017-T, whose jurisprudence we now follow, as we agree with it, "The exclusion from the tax covers, accordingly, properties classified as commercial, industrial or for services, understanding as such the buildings or constructions licensed for such purposes or that have as their normal destination each of these purposes.
It encompasses, furthermore, the residual species referred to in paragraph d) of no. 1 of that Article 6, including therein land situated inside or outside an urban agglomeration that are not land for construction nor rural properties and also buildings and constructions that do not fit within any of the prior classifications.
"The scope of objective incidence, by effect of the reference to that Article 6, was thus 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 effected or, in the absence of a license, to the normal destination of those properties for the purposes of commercial, industrial and services activity or other."
It is true that the legislature's concern to "avoid the impact of this tax on economic activity" was announced in the Bill for the State Budget for 2017 and was made concrete through the exclusion from the scope of incidence of "urban properties classified as the species "industrial", as well as urban properties licensed for tourism activity, the latter provided that its destination is duly declared and proven" and the deduction from the taxable value of the amount of "€600,000.00, when the passive subject is a legal person with agricultural, industrial or commercial activity, for properties directly affected to its operation".
However, it was not on the basis of the activity to which the properties are affected that the exclusion of incidence came to be defined, because in the wording that came to be approved, it was defined, as we have seen, the non-incidence solely on the basis of the types of properties indicated in Article 6 of CIMI, without any allusion to allocation or not to the operation of legal persons.
Thus, as set forth in Arbitral Award no. 675/2017-T, "if, in the final wording of the Budget, the legislature's intention to preclude incidence on properties directly affected to the operation of legal persons had been maintained, certainly the reference to this allocation that appeared in the proposal and that clearly expressed that legislative option would have been maintained.
"(…), having that allusion to allocation of properties been deleted, there is no legal support to conclude that residential properties and land for construction affected to the operation of legal persons are not relevant for the incidence of AIMI.
"In the absence of other elements that lead to the choice of the less immediate sense of the text, the interpreter should opt in principle for that sense which best and most immediately corresponds to the natural meaning of the verbal expressions used, and namely to their technical-legal meaning, in the assumption (not always accurate) that the legislature knew how to express its thought correctly. ( [1] )
"In the case at hand, in face of the departure from the drafted wording in which allocation of 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 Award, relating to case no. 664/2017-T, previously referred to: "Having the law defined the scope of incidence of the tax through technical legal concepts used elsewhere in the system, it is certainly with that sense that the scope of application of the legal provision must be defined. The norms, at times, bear more than one meaning and then the positive function of the text translates into giving stronger support or more strongly suggesting one of the possible meanings. But if the legislature resorted to special technical-legal language, to express its thought with greater precision, it is incumbent on the interpreter to avail itself of the technical-legal meaning of the expressions used, dispensing with circumstantial elements that could only lead to an interpretative result not intended by the legislature (cfr., in this sense, Baptista Machado, Introduction of Law and to the Legitimating Discourse, Coimbra, 1993, p. 182).
"As must be concluded, the pretended extension of the legislative formula used to properties affected 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."
The Claimant is thus not right when it alleges that it would have been the legislature's intention to intend to exclude from the scope of incidence of the tax properties affected to economic activities, under the pretense that the pursued objective would be not to overtax passive subjects that possess property by effect of their corporate purpose.
Indeed, such an interpretation has no support in the letter of the law nor does it derive from the rational and systematic element. It is clear from reading and interpreting the norms in question that the legislature's option was not in the sense advocated by the Claimant. Such an option would presuppose that the legislature, instead of having delimited the scope of incidence through characterized types, had opted for a case-by-case evaluation based on the allocation of the property, in practical terms, to an economic activity or to the operation of a legal person. Which is demonstrably not what happened.
In sum, it is reiterated, the relevant criterion elected by the legislature, within its broad margin of configuration, was the classification of properties with regard to Article 6 of CIMI and not their allocation to the Claimant's economic activity, either as an element of tangible fixed assets or of current assets, as merchandise (properties intended for sale) or raw material (land intended for construction).
"It is further noted that such allocation does not appear in the law nor in Bill no. 37/XIII/2nd, of 13-10-2016, in the wording introduced by the Amendment Proposal of 18-11-2016, contained in the explanatory statement of the political parties, namely the Socialist Party, notwithstanding that in the initial wording of the said Bill as well as of Report OE2017, of October 2016 (Strategy for Promoting Economic Growth and Budgetary Consolidation - IV.2.3. Guidance of Fiscal Policy) and also of point 1.4.2.1 – "Tax Measures for 2017" of the Commission on Budget, Finance and Administrative Modernization, of 31-10-2016, allocation to productive activity be provided for".
Inciding AIMI on the sum of the tax property values of urban properties situated in Portuguese territory of which the passive subject is the holder and dividing these, in light of the provisions of Article 6/1 of CIMI, into residential; commercial, industrial or for services; land for construction; and other, and that, under Article 135-B/2 of CIMI, only properties classified as "commercial, industrial or for services" and "other" under paragraphs b) and d) of no. 1 of Article 6 of CIMI are excluded from AIMI. Whence results unequivocally the conclusion that the remaining properties, that is, residential and land for construction are subject to AIMI.
Thus, the fact that the Claimant holds the properties referred to in the case within the scope of its economic activities does not prevent the incidence of AIMI.
Nor is the Claimant right when it states "Indeed, it has been understood that, if buildings intended for commerce, industry or services cannot be considered as indicating special taxpaying capacity for AIMI purposes – because expressly excluded from the incidence of the tax taking into account the tax objectives expressed by the legislature – then land for construction intended for the construction of properties affected to commerce, industry or services cannot be either, on pain of incoherence of the legal system and violation of the constitutional principle of equality set out in Article 13 of the CRP.
In fact, it is not understood how a taxpayer owner of a building intended for services will reveal less taxpaying capacity than a taxpayer owner of land for construction whose allowed construction is (also) intended for services, as is the case in question". (Articles 21 to 23 of the ppa).
It happens that the Claimant starts, from the outset, as has already been demonstrated, from the erroneous presupposition as to the meaning and scope of Article 135-B, no. 2, of AIMI, according to which, as it was the legislature's intention to remove from taxation properties affected to economic activities, should be equally excluded from the scope of incidence of the additional to IMI land for construction whose potential use coincides with the purposes "commercial, industrial or services".
Since the letter of the law is the starting point and limit of interpretation, the interpreter cannot arrive at a result that does not have in the letter of the law the minimum of verbal correspondence, albeit imperfectly expressed (cfr. no. 2 of Article 9 of the Civil Code).
This thesis, besides starting from an erroneous presupposition (in the pretended intention of the legislature to relieve land affected to economic activity), has no support in the letter of the provision. In fact, Article 135-B, no. 2 of the IMI Code merely excluded from the additional properties classified as "commercial, industrial or for services" and "other", referring for the characterization effected in Article 6 of that Code as to those species of urban properties.
As we have seen, that provision distinguishes, in its no. 1, between properties "residential", "commercial, industrial or for services", "land for construction" and "other" and defines in subsequent numbers the normative criteria on which the classification of an urban property in any of those species depends. Land for construction is, as results from no. 3 of that Article 6, land that has been covered by subdivision or construction licensing operations and is not intended for other purposes of an urbanistic nature, and is not confused with properties classified as "commercial, industrial or for services", which are those that are licensed for such purposes or, in the absence of a license, have as their normal destination each of those purposes.
As set forth in the Arbitral Award, rendered in case no. 664/2017-T, "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 effect an extensive interpretation so as to include other typologies that the legislature manifestly did not wish to consider. Nor can such an interpretative result be reached even on the basis of mere considerations of a pragmatic or teleological identity nature.
"Even if it could be justified, in a perspective of fiscal policy, to confer on land for construction intended for buildings for commercial, industrial or service purposes the same status that came to be attributed to properties classified as "commercial, industrial or for services", the fact is that that was not the legislative option, which merely excluded from the scope of incidence of the tax those types of properties and not those others that potentially could be used for those same purposes."
Finally, this interpretation does not constitute any discriminatory treatment and violation of the principle of equality inasmuch as we are talking about different realities from the outset because land for construction is not assimilable to already built urban properties, as will be analyzed further below.
The Claimant is thus not right, and its claim should be dismissed.
B. On the constitutional issues
The constitutional issues raised by the Claimant have already been addressed negatively by various arbitral decisions, whose jurisprudence we now reproduce, for ease of exposition.
As to the principle of equality and taxpaying capacity, as set forth 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 essential objectives constitutionally defined of the fiscal system, along with the satisfaction of the financial needs of the State and other public entities, is that of fair distribution of income and wealth, as may 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 it be progressive. This requirement is expressly enshrined in the context of taxation of personal income: under no. 1 of Article 104, tax on personal income aims at "the reduction of inequalities and will be single and progressive, taking into account the needs and income of the household unit".
Fiscal progressivity requires that the relation between tax paid and the level of income be more than proportional, which can only be achieved by applying to taxpayers with higher income a higher tax rate. In other words, there is progressivity when the value of the tax increases in a proportion superior to the increase in taxable income.
Consequently, the Constitution requires a progressivity with the intrinsic virtue of contributing to a reduction of inequality of income (on all these aspects, the decision of the Constitutional Court no. 187/13, nos. 97, 98 and 99).
Progressivity of the fiscal system also constitutes a requirement of the principle of substantive equality.
As Casalta Nabais states, the principle of tax equality has inherent above all "the idea of generality or universality, under which all citizens are bound to the duty to pay taxes, and of uniformity, requiring that such duty be measured by a same criterion - the criterion of taxpaying capacity. This thus implies equal tax for those with equal taxpaying capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different taxpaying capacity in proportion to that difference (vertical equality)" (Tax Law, 5th edition, Coimbra, 2009, pp. 151-152).
Configuring itself the general principle of equality as substantive equality, the principle of taxpaying capacity – according to the same author - as the tertium comparationis of equality in the domain of taxes, does not require 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 result from the structuring principles of the fiscal system contained in Articles 103 and 104 of the Constitution (op. cit., p. 152).
As presupposition and criterion of taxation, the principle of taxpaying capacity – in the same line of understanding - "distances the fiscal legislature from arbitrariness, requiring it that in the selection and articulation of tax facts, it adheres to manifestations of taxpaying capacity, that is, erects into object and taxable matter of each tax a certain economic presupposition that is manifestation of that capacity and is present in the various legal hypotheses of the respective tax" (op. cit., p. 154).
Also the Constitutional Court, more recently, has analyzed the principle of tax equality under the prism of taxpaying capacity, as can be ascertained namely in decision no. 142/2004, where it is recorded that "[t]he principle of taxpaying capacity expresses and concretizes the principle of tax or fiscal equality in its aspect of uniformity – the duty of all to pay taxes according to the same criterion – with taxpaying capacity filling the unitary criterion of taxation".
The recognition of the principle of taxpaying capacity as a criterion intended to assess the constitutional inadmissibility of certain solution(s) adopted by the fiscal legislature, has also led to the idea, expressed for example in the Constitutional Court decision no. 348/97, that taxation in accordance with the principle of taxpaying capacity will imply "the existence and maintenance of an effective connection between the tax obligation and the economic presupposition selected for the object of the tax, requiring, therefore, 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 been moving away from merely negative control of tax equality, coming to adopt the principle of taxpaying capacity as a criterion suitable for the distribution of taxes; but it does not cease to accept the prohibition of arbitrariness as an adjuvant element in the verification of the constitutional validity of normative solutions in the fiscal field, particularly when these are dictated by considerations of legislative policy, related to rationalization of the system.
In sum, the principle of tax equality can be concretized through diverse aspects: a first 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 taxpayers who are in equal situations and differently those who are in different situations, in the measure of the difference, to be assessed by taxpaying capacity; a final one, is in the prohibition of arbitrariness, in preventing the introduction of discriminations among taxpayers that are devoid of rational foundation (cfr. Constitutional Court decisions nos. 306/2010 and 695/2014)".
Applying the foregoing to the case under analysis, it is highlighted, in the first place, as can be read in the Report on the Budget for 2017 (p. 60), that the creation of the additional to IMI, as a supplementary tax on real property, aimed to introduce in taxation "a progressive element of personal basis, taxing more highly the larger assets", and, in that sense, is compatible with the principle of progressivity of the tax to which no. 3 of Article 104 of the Constitution refers, which has as its corollary the tendential imposition of greater taxation on those with greater taxpaying capacity.
According to the doctrine, it has also been understood that the taxation of property, alongside the taxation of income, constitutes a projection of taxpaying capacity, functioning as a prolongation of the personal tax on income and as the reinforcement of qualitative discrimination (Sérgio Vasques, "Taxpaying capacity, income and property", Fiscality – Review of Law and Fiscal Management, no. 23, Coimbra, 2005, pp. 33 and 36).
Now, in this context, it is not seen how the taxation of the Claimant's real property offends the principle of tax equality and taxpaying capacity solely because the ownership of real property constitutes the very object of its economic activity.
Indeed, the properties it holds will be affected to activities freely accessible to the generality of owners of real property and any other entities, albeit of an entrepreneurial nature, that dedicate themselves to real estate promotion.
As can be read in Arbitral Award, rendered in case no. 664/2017-T, "The ownership of real property, 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 an increased taxpaying capacity, which goes beyond the tax inciding on taxable profit by reason of the economic activity developed. What is at issue, therefore, is not the taxation of real income obtained by those entities through the activity developed, but the additional taxpaying capacity that results from the ownership of the property and that by itself can facilitate the raising of credit or the strengthening of its negotiating 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 set forth in the Arbitral Decision rendered in case no. 675/2017-T, "the ownership of real property of high value evidences, as in relation to any owner of property intended for housing, a special economic capacity to be able to contribute additionally to the Financial Stabilization Fund of Social Security, to which the AIMI revenue is assigned, and which "corresponds to the objective of the government's program to broaden the financing basis of Social Security" (Report on the Budget for 2017, page 57).
Therefore, the imposition on the generality of holders of residential or land for construction of residential properties does not appear materially unconstitutional, in light of the principles of equality and taxpaying capacity."
Moreover, in line with what was understood in Arbitral Award, of 17 March 2016, rendered in case no. 507/2015-T, "a distinction must be established between the ownership of real property intended for housing which constitutes, in itself, a tendency-secure indication of economic affluence, higher than that of the generality of citizens, and the ownership of rights over real property intended for the exercise of commercial, industrial, services provision or related activities that can be recognized as factors of production and whose dimension and property value constitutes, not so much a manifestation of wealth, but a pattern of adequacy to the operation of the company.
It thus appears that there exists constitutionally acceptable foundation for the restriction of the incidence of the additional to the tax to residential properties by comparison with property classified as commercial, industrial or for services provision, and the invoked unconstitutionality based on violation of the principles of equality and taxpaying capacity is thus removed."
In sum, it is possible to discern a material foundation sufficient to distinguish between those different tax facts for purposes of the taxation of property and there is also no disproportionate taxation.
The principle of tax equality was mobilized in Arbitral Award, rendered in case no. 664/2017-T, "in that it was understood that the inclusion in the scope of incidence of the norm of a land for construction alongside an already built residential property does not reflect the different taxpaying capacity of the respective owners, being that the determining reason of the judgment of unconstitutionality. In the case at hand, on the contrary, for purposes of the exclusion from the Additional to IMI, one seeks to establish the equation between land for construction and urban properties commercial, industrial or for services in the inverse perspective that land for construction potentially usable for those purposes does not distinguish itself from already built properties that are classified as commercial, industrial or for services."
Terms in which, given the foregoing, the claim formulated by the Claimant fails, and the challenged assessment is to be maintained in the legal order.
In the same sense, beyond the arbitral decisions supra referred to, others were rendered in the following cases functioning under the aegis of CAAD, which we follow in full: 654/2017, of 03-09-2018; 667/2017, of 05-09-2018; 678/2017, of 06-09-2018; 682/2017, of 20-07-2018; 683/2017, of 12-07-2018; 684/2017, of 06-09-2018; 685/2017, of 06-09-2018; 690/2017, of 06-09-2018; 692/2017, of 11-05-2018; 693/2017, of 03-09-2018; 696/2017, of 23-07-2018; 6/2018, of 26-07-2018; 291/2018, of 28-02-2019; 306/2018, of 28-12-2018; 310/2018, of 10-12-2018; 324/2018, of 22-01-2019; 356/2018, of 11-01-2019; 401/2018, of 22-01-2019; 420/2018, of 15-01-2019; and 456/2018, of 28-02-2019.
C. Prejudiced Claims
Given the legal solution of the case, the claim for reimbursement of amounts paid as Additional to IMI and for condemnation to payment of default interest is prejudiced (Article 608, no. 2 of the Code of Civil Procedure).
5 - Decision
Terms in which this Arbitral Tribunal agrees to:
a) Judge as dismissed the request for arbitral decision regarding the declaration of illegality and annulment of the assessments of the Additional Municipal Property Tax with nos. 2017... and 2018..., relating to the years 2017 and 2018, respectively, effected by the Tax and Customs Authority on 09-08-2018 and 03-10-2018, in the amount of 59,896.92 € each; and
b) Condemn the Claimant to payment of the costs of the case.
Value of the Case
In accordance with the provisions of Articles 306, no. 2 of the Code of Civil Procedure, 97-A, no. 1, paragraph a) of the Code of Tax Procedure and Process and 3, no. 2 of the Regulations of Costs in Tax Arbitration Proceedings (RCPAT), the value of the case is fixed at 119,793.84 € (one hundred nineteen thousand, seven hundred ninety-three euros and eighty-four cents).
Costs
Under Article 22, no. 4 of the RJAT, the amount of costs is fixed at 3,060.00 €, under the terms of Table I, attached to the RCPAT, at the charge of the Claimant.
Notify.
Lisbon, 17 April 2019
The Arbitrators,
(Fernanda Maçãs)
(Rui Rodrigues)
(Paulo Jorge Nogueira da Costa)
dissenting as per attached declaration
Text prepared by computer, under the terms of Article 131, no. 5 of the Code of Civil Procedure, applicable by reference from Article 29, no. 1, paragraph e) of the RJAT.
Declaration of Vote
I voted dissenting in the present Award, for the arguments contained, designedly, in the Award rendered in arbitral case no. 686/2017-T, which we endorse, and in which the following is sustained:
"Since the tax fact chosen as an index of taxpaying capacity is the ownership of real property of considered high value, it will not be coherent not to apply the tax to buildings intended for commerce, industry or services and to apply it to land intended for their construction, whose value is incorporated in the value of the buildings.
Thus, in a perspective mindful of the unity of the legal system (Article 9, no. 1 of the Civil Code), which has decisive interpretative value, imposed by the principle of axiological or evaluative coherence of the legal order (2)[BAPTISTA MACHADO, Introduction of Law and to the Legitimating Discourse, p. 191], the exclusion provided for in no. 2 of Article 135-B of CIMI relating to urban properties classified as "for services" should be interpreted extensively as expressing a legislative intention to also exclude from taxation land intended for the construction of such properties.
In any case, if a literal interpretation of this norm is adopted, with the meaning that all land for construction is covered by the incidence of AIMI, it would be materially unconstitutional, being incompatible with the principle of equality (Article 13 of the CRP), by considering as a tax fact the ownership of land for construction of properties intended for commerce, industry and services and not the ownership of the properties built thereon, as it constitutes an underprivileged treatment of taxpayers in the first situation, without material justification, since the taxpaying capacity indicated by real property in that situation is necessarily less, which must be present, and with an increase, in the second".
Thus, an interpretation that takes into account the unity of the legal system and that is in accordance with the Constitution (with the principle of equality) leads to an extensive interpretation of the exclusion provided for in no. 2 of Article 135-B of CIMI relating to urban properties classified as "commercial, industrial or for services", also excluding from taxation land intended for the construction of such properties.
Terms in which, notwithstanding the greatest respect for the reasoning contained in the present Award, we understand that the AIMI assessment acts which are the object of the request for arbitral decision are illegal, and that therefore this should have been judged as approved regarding the declaration of illegality and annulment of the referred assessments.
Paulo Nogueira da Costa (Arbitrator Member - Dissenting)
[1] BAPTISTA MACHADO, João, Introduction of Law and to the Legitimating Discourse, 12th reprint, Almedina, p. 182.
Frequently Asked Questions
Automatically Created