Summary
Full Decision
ARBITRAL DECISION
I – REPORT
1 – A..., SA, with the NIPC ... headquartered in ..., ..., ..., filed on 07/12/2018 a request for constitution of the Arbitral Tribunal, pursuant to the provisions of paragraph a) of no. 1 of article 2, of no. 1 of article 3 and of paragraph a) of no. 1 of article 10, all of the RJAT, with the ATA being requested, with a view to declaring the illegality of the tax act of dismissal of the administrative appeal no. ...2018..., filed against the assessment of AIMI no. 2017 ... of the year 2017, in the amount of €3,344.44 and which was processed by the ... tax office of the municipality of Matosinhos, for not conforming with said assessment, given its conviction of its illegality as it is supported by a norm that it considers materially unconstitutional.
2 – The request for constitution of the Arbitral Tribunal was made without exercising the option of designating an arbitrator, having been accepted by His Excellency the President of the CAAD and automatically notified to the ATA on 07/12/2018.
3 – Pursuant to and for the purposes of the provisions of no. 2 of article 6 of the RJAT, by decision of His Excellency the President of the Deontological Council, duly communicated to the parties within the legally applicable deadlines, the sole arbitrator Arlindo José Francisco was designated, who communicated to the Deontological Council and to the CAAD his acceptance of the appointment within the regularly stipulated deadline.
4 – The Tribunal was constituted on 18/02/2019 in accordance with the provisions contained in paragraph c) 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.
5 – With its request, the claimant seeks, as already stated, the declaration of illegality of the tax act of dismissal of the administrative appeal no. ...2018..., filed against the assessment of AIMI no. 2017... of the year 2017.
6 – It bases its point of view, in summary, on the fact that it considers the tax act of AIMI assessment in question to be violative of the principles of equality, proportionality and contributory capacity, embodied in the CRP.
7 – Considering the illegality of the tax act in question, it requests the annulment of the decision dismissing the administrative appeal and the respective AIMI assessment.
8 – In its response the ATA, also in summary, submits that there is no violation of the principles of equality, proportionality and contributory capacity, as set out by the claimant, as the majority of CAAD case law has been deciding.
9 – Considering therefore that the impugned acts should be maintained in the legal order, absolution of the respondent from the claim is accordingly granted.
II – PROCEDURAL SOUNDNESS
The tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2 of the RJAT.
The parties have legal personality and capacity, are legitimate and are regularly represented in accordance with articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.
With the ATA's response attached to the file on 18/03/2019, the Tribunal issued the following order: "Witness testimony is not requested and there are no exceptions to be considered, thus we consider the holding of the meeting provided for in article 18 of the RJAT to be unnecessary.
Thus, pursuant to the principles of autonomy of the Arbitral Tribunal in the conduct of the proceedings, celerity, simplification and procedural informality (articles 19, no. 2, and 29, no. 2, of the RJAT) the holding of the aforementioned meeting is dispensed with and it is determined that the proceedings continue with optional written submissions for a period of 10 days, commencing with the notification of this order the deadline for submissions by the Claimant and with notification of the presentation of the Claimant's submissions the deadline for submissions by the Respondent.
The date of 30-05-2019 is set for the issuance of the arbitral decision. By that date, the Claimant must provide proof to the CAAD of payment of the subsequent court fee".
The parties made no submissions.
All having been considered and the proceedings being free of any defects, it is now necessary to decide.
III – GROUNDS
1 – The issues to be resolved with interest for the file are as follows:
To assess and decide whether the tax acts of dismissal of the administrative appeal and the respective AIMI assessment impugned here are violative of the principles of equality, proportionality and contributory capacity, embodied in the CRP and, by such violation, should be annulled, as the claimant requests, or whether, on the contrary, they respect legality and therefore should be maintained in the legal order, as the respondent requests.
2 – Facts
The relevant and proven factual matters based on the elements attached to the file are as follows:
a) The claimant is a joint-stock company, headquartered in national territory that is engaged in real estate activity, owning eight residential units identified by the letters AU, AV, AY, CV, DB, HC, L and S contained in the assessment note attached to the file and which is hereby fully reproduced for all legal purposes.
b) The aforementioned properties were at the time recorded in the Claimant's inventory, destined for sale or lease, according to its economic activity.
c) The claimant, notified in good time for payment of the AIMI respecting the aforementioned properties and another, proceeded to pay it timely in the amount of 17,218.45, with the value of the AIMI corresponding to the properties in question being €3,344.44, which value it seeks to have annulled.
d) Against the assessment of the amount of 3,344.44 it timely filed the administrative appeal no. ...2018..., which was processed in the ... tax office of Matosinhos and which was dismissed by order of 13/08/2018 of the respective head of the tax office.
These are the facts considered proven as relevant for the decision of the case and result from the elements attached to the file by the parties and not contested by either of them.
There are no facts relevant to the decision that have not been determined to be unproven.
3 – Law
By Law 42/2016 of 28 December, State Budget Law for 2017, the AIMI was created, regulated by articles 135-A to 135-K of the CIMI, chapter XV of this legal provision.
The subjective scope is contained in article 135-A, of interest to us in the present case, its nos. 1, 2 and 3, which are transcribed as follows:
1 – The passive subjects of the additional tax on municipal real estate are natural or legal persons who are owners, usufructuaries or superficiaries of urban properties situated in Portuguese territory.
2 – For the purposes of no. 1, any structures or centers of collective interests without legal personality that appear in the matrices as passive subjects of the municipal real estate tax are equated to legal persons, as well as the undivided estate represented by the head of household.
3 – The quality of passive subject is determined in accordance with the criteria established in article 8 of this Code, with the necessary adaptations, taking as reference the date of 1 January of the year to which the additional tax on municipal real estate relates.
Article 135-B deals with the objective scope and which we also transcribe, in the wording applicable at the time:
"Article 135-B (*)
Objective scope
1 – The additional tax on municipal real estate applies to the sum of the taxable equity values of urban properties situated in Portuguese territory of which the passive subject is the owner.
2 – Excluded from the additional tax on municipal real estate are urban properties classified as 'commercial, industrial or for services' and 'other' in accordance with paragraphs b) and d) of no. 1 of article 6 of this Code".
Note should be made of the exclusion of urban properties to which paragraphs b) and d) of no. 1 allude (which is transcribed) of article 6 of the CIMI:
"Article 6
Species of urban properties
1 – Urban properties are divided into:
a) residential;
b) commercial, industrial or for services;
c) land for construction;
d) other."
This being the legal framework, we summarize that the understanding of illegality pointed out by the claimant as regards both the assessment act and the act dismissing the administrative appeal, both performed by the ATA, is essentially based, as already seen, on considering that the tax act of AIMI assessment in question is violative of the principles of equality, proportionality and contributory capacity, embodied in the CRP.
With a view to supporting its point of view the claimant begins by making an assessment of the AIMI regime, added to the CIMI Code, as per articles 135-A et seq., considering that it violates the principles already mentioned, in situations where properties held by companies whose activity is real estate are concerned, as is its case. The AIMI is intended to replace the taxation of the extinct item 28 of the TGIS on "luxury real estate", without however separating the real estate assets that, by themselves constitute a manifestation of great contributory capacity, from that asset that is destined exclusively for the economic activity of the company, thus creating a profound inequality between companies that develop their activity through real estate acquired for that purpose and of which they have need, given that it is their raw material and others that hold it to conduct a commercial, industrial or service provision activity therein.
It cites arbitral decisions that go in the direction it propounds and case law of the TC that reinforces its point of view that the taxation in question is not only arbitrary but materializes an unjustified negative discrimination against companies which, like the claimant, are dedicated to real estate activity, thus constituting a violation of the principle of equality.
The assessment in question also, by taxing factors of production, results in the real estate sector being the only sector of activity effectively taxed by ownership of means of production as a purported manifestation of increased contributory capacity, without the same being demonstrated, since its exploitation or sale in no way externalize a relevant contributory capacity worthy of being different and autonomously taxed, which is all the more evident when it is found that other companies holding real estate of identical or superior taxable equity value, equally affected to their economic activity, are not subject to similar taxation.
On the other hand, companies in the real estate sector are fiscally penalized relative to others that hold real estate in their fixed assets, of equal value, destined for industry, commerce or services, with a manifest imbalance, non-conformity and inadequacy to the pursuit of the legal purpose in view, with the consequent violation of the principle of proportionality. Concluding that it is its conviction that no. 2 of article 135-B of the CIMI should be deemed materially unconstitutional, to the extent that it does not exclude from the AIMI the land for construction that appear in the inventories of real estate purpose companies, by violation of the constitutional principles referred to, with the consequent annulment of the decision and assessment impugned.
For its part, the respondent considers that there is no merit nor any basis to the claimant's claim, to the extent that the properties in question are not expressly included in the norm delimiting the negative scope of incidence and at the same time it permits the deduction of AIMI from the collection of CIT, this deduction being limited to the fraction corresponding to income generated by properties and subject to CIT, within the scope of leasing or hospitality activities, and can, alternatively, the burden of AIMI payment be considered as a fiscally accepted expense for the purposes of determining taxable profit.
The legislator, in removing from the scope of incidence urban properties classified as industrial, commercial or service and other, expressly opted to maintain properties that also integrate the assets of companies, such as those classified as residential or land for construction, by not including them in the negative delimitation enshrined and, in this manner, did not guarantee, nor did it intend to guarantee, in all cases that real estate assets affected by the exercise of any economic activity would not be impacted.
It emphasizes that the various decisions of arbitral tribunals go in the direction of the constitutionality of the norm of no. 2 of article 135-B of the CIMI and that the legislator's intention was not to exclude from taxation real estate affected to an economic activity, but only to exclude real estate according to the typology of classification of urban properties, provided for in article 6, no. 1 of the CIMI, to which said norm refers.
It concludes by requesting the rejection of the claim with the consequent maintenance in the legal order of the impugned tax acts and absolution of the respondent.
Having briefly considered the position of the parties and considering that the Tribunal understands that the AIMI is an additional tax on the municipal real estate tax that was created, as already seen, by Law 42/2016 of 28 December, State Budget Law for 2017 and that the revenue was allocated to the Financial Stabilization Fund of Social Security, thus satisfying an objective of the government's program to broaden the financing base of Social Security, while introducing a tax that falls on holders of greater real estate assets, strengthening the global progressivity of the system, by taxing higher assets more heavily and that article 135-B of the CIMI does not remove the scope of AIMI from real estate affected to housing and land for construction used by legal persons in the scope of their economic activity, it will be from this perspective that we will evaluate the concrete question.
And still in line with decisions already issued by us and others in which we were co-arbitrators and also the majority case law of the CAAD, namely the decision issued in Case 420/2018, which we agree with and which, with due respect, is transcribed in the part that assesses the possible violation of the constitutional principles of equality, proportionality and contributory capacity, invoked by the claimant.
Transcription:
"The wording of article 135-B of the CIMI that came to be approved does not remove the scope of AIMI from real estate affected to housing and land for construction used by legal persons in the scope of their economic activity.
The legislative concern to 'avoid the impact of this tax on economic activity' was announced in the Bill for the State Budget for 2017 and was being materialized, to some extent, through the exclusion from the scope of incidence of 'urban properties classified as the type "industrial", as well as urban properties licensed for tourist activity, the latter provided that its destination is duly declared and proven' and the deduction from the taxable amount of €600,000.00, when the passive subject is a legal person with agricultural, industrial or commercial activity, for real estate directly affected to its functioning'. However, the exclusion of incidence was not defined on the basis of the activity to which the properties are affected, since in the wording that came to be approved the non-incidence was defined only on the basis of the types of properties indicated in article 6 of the CIMI, without any reference to the allocation to the functioning of legal persons.
Distinct concepts are the allocation of a property, which presupposes a use, and the purpose for which it is intended, the 'normal destination', underlying the classifications of properties, to which no. 2 of article 6 of the CIMI refers. If the final wording of the Budget had maintained the legislative intention of removing the scope from real estate directly affected to the functioning of legal persons, it would certainly have maintained the reference to this allocation that was contained in the proposal and which clearly expressed this legislative option. Thus, this reference to the allocation of properties having been suppressed, there is no legal support for concluding that residential properties and land for construction affected to the activity of legal persons are not relevant to the scope of AIMI. Therefore, it must be concluded that the allocation of properties to the economic activities of legal persons does not remove taxation in AIMI (outside the cases where these are properties that previously were exempt or not subject to taxation in IMI, which are not counted for purposes of AIMI, in accordance with no. 3 of article 135-B of the CIMI). The holding of real estate assets of high value, regardless of whether the holder is a natural or legal person, whether or not engaged in real estate activity, tends to evidence high economic capacity that enables it to contribute additionally to the Financial Stabilization Fund of Social Security, to which AIMI revenue is allocated and which corresponds to the objective of the government's program.
However, the reasons underlying the distinction, for AIMI taxation purposes, between the taxable equity values of properties classified as residential or land for construction (regardless of their actual allocation to these purposes) and those of urban properties that have other classifications, in the light of article 6 of the CIMI, do not result explicitly from the Budget Report for 2017 nor from its parliamentary discussion. With respect to properties that are classified as 'other' in the light of article 6, nos. 2, paragraph d), and 4, of the CIMI, a reason for distinction may be seen in the fact that these are essentially properties not intended for revenue-generating activities, namely land situated in urban agglomerations that do not meet the requirements necessary for their classification as land for construction nor are being used for agricultural or forestry purposes and buildings intended for public spaces, infrastructure or equipment. As regards the removal of taxation relative to properties intended for commerce, industry or services, an explanation may be discerned in the purpose cited for the creation of this new taxation, which is the financing of Social Security, ensured through the allocation of AIMI revenue to the Financial Stabilization Fund of Social Security, provided for in no. 2 of article 1 of the CIMI, in the wording of Law no. 42/2016, of 28 December. It is not intended with the AIMI to burden the taxation of luxury real estate, as was primarily sought with item 28.1 of the TGIS, since high-value real estate assets may be constituted by a plurality of low-value properties, but rather to create yet another means of subsidizing the social security system, which is one of the constitutional incumbencies of the State, provided for in article 63, no. 2, of the CRP. The sustainability and stability of Social Security, always in doubt, is a permanent concern that has justified numerous initiatives, well evidenced in the Major Options of the Plan for 2017 (Law no. 41/2016, of 28 December) and for 2018 (Law no. 113/2017, of 29 December) among which is included the diversification of financing sources, which constitutes a principle long since adopted in the Framework Laws on Social Security (article 78 of Law no. 17/2000, of 8 August, article 107 of Law no. 32/2002, of 20 December and article 88 of Law no. 4/2007, of 16 January).
The essence of the principle of diversification of Social Security financing sources consists in the expansion of bases for obtaining financial resources, with a view, in particular, to reducing non-wage labor costs (article 79 of Law no. 17/2000, article 108 of Law no. 32/2002, and article 88 of Law no. 4/2007, of 16 January), which may explain why the new AIMI taxation is not applied to legal persons holding properties intended for commercial, industrial and service activities, since the holding of properties of those types by legal persons is normally associated with the exercise of these activities, with corresponding payment of contributions to Social Security, as employer entities (article 92, paragraph b), of Law no. 4/2007, and articles 3, paragraph a), and 14, paragraph a), of Decree-Law no. 367/2007, of 2 November]. From this perspective, in which the legislator, lacking financing for Social Security, privileges the role of tax collector over the concern with the balance of business taxation, some basis may be discerned for distinguishing between the holding of real estate assets by persons who, presumably, will develop activities connected with the financing of Social Security (who will already contribute to such financing) and the holding of properties not intended for those activities, whose holders, tendentially, will not be associated in the same manner with such financing, at least with the same intensity. Article 13 of the Constitution of the Portuguese Republic proclaims the principle of equality of citizens before the law. As has been uniformly understood by the Constitutional Court, the principle of equality, as a limit to 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 they lack sufficient material foundation. The principle of equality does not prohibit the establishment of distinctions, but rather arbitrary distinctions, devoid of objective and rational justification.
For what has been mentioned, the creation of a special taxation of high-value assets intended to ensure the financing of Social Security limited to real estate assets that will not already tendentially be connected with such financing will not be completely devoid of objective and rational explanation. On the other hand, the creation of the AIMI, as a complementary tax on real estate assets, which aimed to introduce into taxation 'a progressive element of personal basis, taxing higher-value assets more heavily' (Budget Report for 2017, page 60), is compatible with the objective that the taxation of assets should contribute to equality between citizens, affirmed in no. 3 of article 104 of the CRP, since progressivity has as its corollary, tendentially, to impose higher taxation on those with greater contributory capacity. The contributory capacity of business legal persons, relevant to assessing the application of the principle of tax equality, is not evidenced only by income, in particular by the results of the activity to which the properties are intended. In truth, 'assets provide their holder with special contributory capacity, advantages that by their nature escape income tax: thus, the ownership of assets facilitates the raising of credit, strengthens the negotiating position of its holder in the conclusion of various contracts, makes it easier to multiply wealth allowing it to take risks where in principle it would not do so. From this perspective, the tax on assets is seen as something more than an extension of income tax - it is not a matter of overloading here income already subject to it but of reaching manifestations of contributory capacity that in truth escape it'(...) Taxes on assets would be justified by allowing resources to be transferred for the benefit of the working class, instituting a 'qualitative progressivity' complementary to the progressivity in quantity of personal income taxes'. On the other hand, if it is true that the different destinations of properties do not necessarily imply distinction in the level of contributory capacity, the exclusion from taxation of properties especially intended for productive activity, in particular 'commercial, industrial or for services', will find another justification (in addition to the already mentioned presumed greater contribution of these activities to Social Security via contributions), since it amounts, ultimately, to favoring these activities, which is in harmony (and therefore will have constitutionally acceptable foundation) with the obligation of the State to promote the increase of economic well-being, which presupposes the proper functioning of wealth-creating activities and constitutes one of its priority incumbencies in the economic sphere [article 81, paragraph a), of the CRP]. Being this an incumbency constitutionally considered as priority, the first listed in this norm, certainly it will not be incompatible with the CRP to give it preferential protection when confronted with the constitutional duties of the State regarding housing indicated in article 65 of the CRP, which, obviously, are also protected through the proper functioning of wealth-creating activities. Thus, if it is true that the AIMI regime creates situations of discrimination in the taxation of companies with the same contributory capacity evidenced by assets, on the assumption that there is a need for money and new ways to collect it must be found (as stated in the Budget Report for 2017), there will be some justification for taxation being imposed on some companies and not others with the same or greater contributory capacity inherent to assets, especially in light of the majority constitutional case law cited by the Tax and Customs Authority which reveals that it is constitutionally tolerable that the interests of the State as tax collector (in this case, the sustainability of Social Security, demanded by the principles of trust and security) are superimposed on strict respect for the principle of equality. On the other hand, the legislative objective not being the taxation of luxury housing but rather to obtain yet another means of financing Social Security, in line with the political option of diversification, through 'a tax that falls on holders of greater real estate assets, strengthening the overall progressivity of the system' (page 57 of the Budget Report for 2017), it is in function of these objectives that it must be assessed whether there is a violation of the principle of proportionality. From this perspective, it appears that this new taxation is not incompatible with the principle of proportionality, since it is suitable for the purpose in view (it propitates the increase of revenues intended to be obtained), it is necessary (in light of the legislative option to increase Social Security revenues with diversification of sources) and an unreasonable measure is not exceeded, in particular as regards legal persons, since the rates of the new tax are not high (and are lower for legal persons than for natural persons, in accordance with article 135-F), the tax paid is deductible from the taxable base of CIT (article 135-J), considerable amounts are deducted from the taxable amount (article 135-C) and it is not demonstrated, nor is there reason to believe, that the amounts collected exceed what is necessary for the purpose of strengthening the sustainability and stability of Social Security".
Adhering to the cited case law, the Tribunal does not find that in the decision dismissing the administrative appeal and the AIMI taxation, both at issue in the present proceedings, it can be considered that the constitutional principles of equality, proportionality and contributory capacity have been violated in the manner set out by the claimant. In truth, the holding of real estate assets of high value, whether the holder is a natural or legal person, whether or not engaged in real estate activity, evidences a special economic capacity that enables it to contribute additionally to the Financial Stabilization Fund of Social Security, to which AIMI revenue is allocated and which corresponds to the objective of the government's program.
And, as is evident from article 135-B, the taxation of real estate affected to housing and land for construction used by legal persons within the scope of their economic activity was not removed from scope, the exclusion of incidence having been based solely on the species of properties to which article 6 of the CIMI refers, precisely those mentioned in paragraphs b) and d) of its no. 1 and no others.
To consider, as the Claimant requests, the non-incidence of AIMI on the taxable equity value of properties belonging to real estate companies would, that itself, constitute an unjustified preferential tax treatment relative to the generality of other real estate owners with identical characteristics and would configure a violation of the constitutional principle of equality.
We also do not consider that it violates the principle of proportionality, since it proves suitable for obtaining revenue for social security, diversifying sources, without exceeding what is reasonable, particularly as regards legal persons, which benefit from rates lower than those applied to natural persons, with the tax paid being deductible from the collection of CIT, in accordance with article 135-J.
The Tribunal further understands that AIMI taxation cannot be compared with the taxation provided for in the revoked item 28 of the TGIS, to the extent that the legislator created a designation and a systematic approach to taxation with express reference to the criteria specific to the CIMI, and criteria or decisions made within the scope of that revoked norm cannot be transported to the AIMI.
From this perspective, both the dismissal of the administrative appeal and the AIMI assessment placed at issue here do not violate the constitutional principles invoked, and therefore should remain in the legal order, the claim being thus rejected.
IV – DECISION
In view of the foregoing, the tribunal decides as follows:
a) To declare the request for arbitral pronouncement against the dismissal of the administrative appeal no. ...2018..., filed against the assessment of AIMI no. 2017 ... of the year 2017, in the amount of €3,344.44 and which was processed by the ... tax office of the municipality of Matosinhos, to be without merit.
b) To fix the value of the case at €3,344.44 in accordance with the provisions contained in article 299, no. 1, of the CPC, article 97-A of the CPPT, and article 3, no. 2, of the RCPAT.
c) Costs to be borne by the claimant, pursuant to no. 4 of article 22 of the RJAT, fixing the respective amount at €612.00 in accordance with the provisions of Table I referred to in article 4 of the RCPAT.
Notify.
Lisbon, 30 May 2019
Text prepared by computer, in accordance with article 131, no. 5 of the CPC, applicable by reference to article 29, no. 1, paragraph e) of the RJAT, with blank lines and reviewed by the tribunal.
The sole arbitrator,
Arlindo Francisco
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