Summary
Full Decision
ARBITRAL DECISION
They hereby agree in Arbitral Tribunal
I – Report
- A…, S.A., with tax identification number…, with registered office at street…, no.…, …-…, Lisbon, in its capacity as management company and in representation of B… - Closed Real Estate Investment Fund, C… - Closed Real Estate Investment Fund, D… - Special Closed Real Estate Investment Fund, E… - Closed Real Estate Investment Fund, F… - Closed Real Estate Investment Fund, G… - Closed Real Estate Investment Fund, H… - Closed Real Estate Investment Fund, I… - Real Estate Investment Fund for Residential Rental, J… - Closed Real Estate Investment Fund, and K… - Special Closed Real Estate Investment Fund (hereinafter the "Funds"), has filed a request for the constitution of an arbitral tribunal, pursuant to the provisions of articles 2, no. 1, paragraph a), and 10 of Decree-Law no. 10/2011, of 20 January (hereinafter the "RJAT"), to assess the legality of the tax assessment acts concerning the additional charge to the Municipal Property Tax, with reference to the year 2017, in the total amount of € 206,444.94, duly identified therein, further requesting condemnation to refund the amounts paid and payment of compensatory interest.
It argues, in summary, that investment funds have as their purpose the collective investment of capital obtained from investors and their assets may be constituted by real property corresponding to urban properties or autonomous units, and may also develop construction and rehabilitation projects, whereby the activity of such funds focuses exclusively on operations related to real property and the ownership of such property constitutes the substrate of all its activity.
And article 135-B of the Municipal Property Tax Code, added by Law no. 42/2016, of 28 December, in excluding from the objective scope of the additional charge urban properties classified as "commercial, industrial or for services" and "other" intends to ensure the non-taxation of urban properties dedicated to economic activities, so as not to impose excessive tax burden on taxpayers who, by virtue of their economic activities, hold property for the pursuit of their corporate purpose.
Subsidiarily, the Applicant argues that the Tax Authority could not have taxed the land for construction intended for building for commercial, industrial or services purposes, it being incomprehensible that the tax is excluded in relation to properties with such a designation and not already regarding land for construction with that same potential use.
The Applicant further alleges the unconstitutionality of the taxation regime of article 135-B of the IMI Code, for violation of the principle of tax equality and the principle of contributory capacity insofar as it promotes differentiated treatment and unjustified inequality among taxpayers, and, complementarily, points out the unconstitutionality of said provision when interpreted in the sense that the exclusion of the additional covers commercial, industrial or services properties and not already land for construction intended for those same purposes, as it generates a situation of discrimination without factual basis.
Furthermore, the ownership of real property, corresponding to the asset substrate of the fund's own economic activity, cannot be understood as an additional factor of wealth or contributory capacity, whereby the norm of article 135-B of the IMI Code is still unconstitutional, for violation of the principle of tax equality, in that it materializes unjustified discrimination in relation to entities that hold real property as productive factors for the exercise of their activity.
The Tax Authority, in its reply, maintains that the legislator excluded from the objective scope of the additional charge to that tax urban properties classified as commercial, industrial or for services and other, but expressly chose to maintain other properties that form part of companies' assets, namely those classified as residential or land for construction, and, in this manner, did not ensure in all cases that urban properties dedicated to economic activities are not subject to taxation.
Nothing permitting the conclusion, in light of the literal meaning of the law, of an extensive interpretation that would allow to exclude from the objective scope properties that constitute the substrate of the taxpayer's economic activity.
On the other hand, the legislator intended to adopt an objective negative delimitation criterion, by reference to certain types of properties, to the detriment of other criteria that would take into account the actual destination of the properties through a case-by-case examination, thus favouring greater uniformity and tax equality.
Moreover, goods forming part of the ownership of real estate funds, being intended for resale or transformation, constitute the very object of the economic activity, unlike what happens with urban properties classified as commercial, industrial or for services that have an instrumental function in relation to the exercise of the activity they support and are not, in themselves, generators of income.
Furthermore, by virtue of the regime instituted by article 135-B of the IMI Code, land for construction cannot be understood as excluded from taxation, it being irrelevant that such land is intended in the future for the implantation of a building for those cited purposes of commerce, industry or services.
As to the constitutional issues, the Tax Authority considers that the legislator, in negatively delimiting the objective scope of the tax by reference to real property that by its potential dedication may be recognized as production factors, by contrast to other property that constitutes the taxpayer's assets, is acting within its margin of discretion based on economic and social reasons. And, as it is a tax that affects certain manifestations of wealth, it does not violate the principle of tax equality or contributory capacity, nor specifically targets certain types of companies or economic groups.
The Tax Authority also refers to the incompetence of the arbitral tribunal with regard to requests for annulment of tax assessment acts concerning construction land by considering that, in some cases, the dedication thereof is residential or predominantly residential and have no connection with the specific issue submitted to the tribunal's assessment.
It concludes that the request is unwarranted.
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No witness evidence was requested and, in the course of the proceedings, the meeting referred to in article 18 of RJAT was waived and notification was ordered for submission of supplementary pleadings, which the parties did not utilize.
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The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax Authority in accordance with regulatory provisions.
Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the appointment within the applicable period.
The parties were timely and properly notified of such designation, having manifested no will to refuse it, pursuant to the combined provisions of article 11, no. 1, paragraphs a) and b), of RJAT and articles 6 and 7 of the Deontological Code.
Thus, in conformity with the provisions of paragraph c) of no. 1 of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 5 March 2018.
The arbitral tribunal was regularly constituted and is, as shall be demonstrated hereinafter, substantively competent, in light of the provisions of articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.
The parties have legal personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same law and 1 of Order no. 112-A/2011, of 22 March).
The proceedings do not suffer from nullities and the exception of the tribunal's incompetence has been invoked with regard to the tax assessment acts concerning land for construction dedicated to residential purposes.
It is incumbent upon us to assess and decide.
II - Grounds
Matter of Fact
- The facts relevant to the decision of the case that may be considered as established are as follows.
a) The Applicant is the management company and representative of the real estate investment funds hereinafter identified: B… - Closed Real Estate Investment Fund, C… - Closed Real Estate Investment Fund, D… - Special Closed Real Estate Investment Fund, E… - Closed Real Estate Investment Fund, F… - Closed Real Estate Investment Fund, G… - Closed Real Estate Investment Fund, H… - Closed Real Estate Investment Fund, I… - Real Estate Investment Fund for Residential Rental, J… - Closed Real Estate Investment Fund, and K… - Special Closed Real Estate Investment Fund;
b) The Funds were notified of the tax assessment acts concerning the additional charge to the IMI nos. 2017…, 2017…, 2017…, 2017…, 2017…, 2017…, 2017…, 2017…, 2017… and 2017…, relating to the year 2017, in the total amount of € 206,444.44;
c) And they proceeded to full and timely payment of the tax due contained in the assessment acts;
d) Pursuant to their respective management regulations, the Funds direct their investment policy along the following lines: acquisition of urban real property or their autonomous units intended for commerce, housing, services, industry and logistics; promotion of construction/rehabilitation projects of real property intended for commerce, housing, logistics and services with the objective of their subsequent sale or rental; rental of real property that form part of the Fund, with a view to the best use of rental market conditions; promotion of subdivision programs for construction, intended for subsequent sale, construction or promotion by the Fund; acquisition of real property in co-ownership regime with other alternative investment vehicles or with pension funds, within the scope of development of real property construction projects, and provided there is an agreement on the constitution of horizontal property or the distribution of income generated by the real property; acquisition of other rights over real property, with a view to their economic exploitation.
e) Furthermore, according to the management regulations, the Funds, in pursuit of their investment objectives, may invest in real estate companies whose assets fit within that and respect the defined investment policy and invest in participation units of real estate investment vehicles.
f) The value of real property and other equivalent assets may not represent less than two-thirds of the total assets of the Funds.
g) The Funds are holders of the real properties with the registration articles indicated in the assessment acts;
h) In the aforementioned assessments, the Tax Authority did not exclude, for determination of the taxable matter of the additional charge to the IMI, the properties of the Funds not classified as "commercial, industrial or services" or "other", as so defined in article 6, no. 1, paragraphs b) and d), of the IMI Code, nor land for construction even if potentially dedicated to those purposes.
The Tribunal formed its conviction regarding proven factuality based on the documents attached to the petition.
The Tax Authority did not attach an administrative file as there was no prior administrative procedure and questioned, in its reply, whether the construction land held by E… - Closed Real Estate Investment Fund, G… - Closed Real Estate Investment Fund, H… - Closed Real Estate Investment Fund, I… - Real Estate Investment Fund for Residential Rental and J… - Closed Real Estate Investment Fund are dedicated to commercial, industrial or services purposes, and, as to K… - Special Closed Real Estate Investment Fund, whether the construction land it holds is dedicated predominantly to those purposes.
Matter of Exception
Competence of the Arbitral Tribunal
- With regard to tax assessment acts concerning construction land, the Tax Authority maintains that only with respect to some of such acts does the issue of their potential dedication to commerce, industry or services arise, as in other cases the tax assessment acts concern land intended exclusively or predominantly for housing.
In the present arbitral request, the issue being discussed is whether the potential use of land for commercial, industrial or services purposes determines its exclusion from the objective scope of the additional charge to the IMI, the Respondent concludes that the tribunal is incompetent to hear the request insofar as it concerns tax assessment acts that do not present that connection.
The argument has no foundation whatsoever.
Pursuant to the provisions of article 2, no. 1, paragraph a), of RJAT, the competence of arbitral tribunals comprises, inter alia, the declaration of illegality of tax assessment acts.
In the present case, tax assessment acts concerning the additional charge to the IMI are being challenged and fall within the type of claim that, in light of the said legal provision, is covered by arbitral jurisdiction. The circumstance that the grounds of the request apply only to some of the tax assessment acts in question, and not to others, can only have as a consequence that the cause of action will be inconclusive in that regard.
A judgment of partial lack of merit of the request does, in any case, form part of the powers of cognition of the tribunal, within the scope of its jurisdictional competence, whereby the invoked exception is not verified.
Substantive Issues
- The Applicant argues that the real estate investment funds of which it is the manager focus exclusively on operations related to real property of which those funds are the owners, constituting the ownership of such real property the very object of its economic activity, whereby they are not covered by the objective scope of the additional charge to the IMI created by Law no. 42/2016, of 28 December, through the addition of articles 135-A et seq. to the IMI Code, by which the legislator intended to institute a new tax on real property wealth.
On another plane of analysis, the Applicant also considers unlawful the taxation of land for construction intended for the purposes of commerce, industry or services insofar as it concerns properties potentially dedicated to those economic activities, and, as such, covered by the exclusion clause of article 135-B, no. 2, of the IMI Code.
The issue of the unconstitutionality of that legal provision also arises, for violation of the principle of tax equality and the principle of contributory capacity, when interpreted in the dual sense that the objective scope of the additional charge to the tax encompasses the ownership of real property when these correspond to the substrate of the very economic activity developed by real estate investment funds, and that the exclusion from the objective scope covers urban properties classified as commercial, industrial or for services and not already land for construction intended for those same purposes.
These are the issues to be decided.
As has been stated, the additional charge to the IMI was instituted by Law no. 42/2016, of 28 December (State Budget Law for 2017), which added to the IMI Code chapter XV comprised of articles 135-A to 135-K.
In article 135-A the subjective scope of the tax is defined, establishing that "passive subjects of the additional charge to the municipal property tax are natural persons or legal entities who are owners, usufructuaries or surface rights holders of urban properties situated in Portuguese territory", and "equated to legal entities are any structures or centers of collective interests without legal personality that appear in the assessment lists as passive subjects of the municipal property tax".
In turn, article 135-B defines the objective scope, stipulating the following:
"Article 135-B
Objective Scope
1 - The additional charge to the municipal property tax shall apply to the sum of the tax property values of the urban properties situated in Portuguese territory of which the passive subject is the owner.
2 - Excluded from the additional charge to the municipal property tax are urban properties classified as "commercial, industrial or for services" and "other" pursuant to 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 objective scope of the additional charge to the tax.
In fact, the municipal property tax (IMI) applies to the tax property value of rustic 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, rustic properties, urban properties and mixed properties (articles 2 to 5). Article 6, in turn, establishes the species of urban properties, providing 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 purpose or, in the absence of a license, which have as their normal destination each of these purposes.
3 - Construction land is understood as land situated inside or outside an urban agglomeration for which a license or authorization has been granted, prior notification has been admitted or favorable prior information has been issued for a subdivision or construction operation, and also those which have been so declared in the title of acquisition, except for land on which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal land use plans, are dedicated to spaces, public infrastructure or equipment.
4 - Falling within the provision of paragraph d) of no. 1 are land situated inside an urban agglomeration that are neither construction land nor are covered by the provision of no. 2 of article 3, and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination other purposes than those referred to in no. 2 and also those in the exception of no. 3."
It is entirely clear that the legislator, in defining the negative delimitation of the scope of the tax by reference to urban properties classified as "commercial, industrial or for services" and "other" pursuant to paragraphs b) and d) of no. 1 of article 6 of the IMI Code, is precisely referring back to that type of property in accordance with the characterization the Code itself attributes to it.
The exclusion from the tax encompasses, consequently, properties classified as commercial, industrial or for services, understood as such as buildings or constructions licensed for those purposes or which have as their normal destination each of these purposes. Said exclusion covers, moreover, 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 neither construction land nor rustic properties and also buildings and constructions that do not fall within any of the previous classifications.
The objective scope, as a result of the reference to that article 6, thus became defined not only by reference to a certain species of urban properties, but also by reference to the administrative procedure through which the classification was made or, in the absence of a license, the normal destination of such properties for commercial, industrial and services purposes or other.
In all this context, the understanding according to which it was intended to exclude from the objective scope of the tax properties dedicated to economic activities, under the pretext that it was legislative intent not to impose excessive tax burden on taxpayers who own real property by virtue of their corporate purpose, has no support in the letter of the law nor in the rational and systematic elements of interpretation.
Such a reading would presuppose that the legislator, instead of having delimited the objective scope through characterized types, would have opted for a case-by-case assessment based on dedication of the property, in practical, effective terms, to an economic activity or the functioning of a legal entity.
Having the law defined the objective scope of the tax as it did, resorting to legal technical concepts used elsewhere in the system it is surely with that meaning that the applicative scope of the legal provision must be defined. Norms sometimes 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 legislator resorted to a special legal technical language, to express its thought with greater precision, it is incumbent upon the interpreter to avail itself of the legal technical meaning of the expressions used, dispensing itself from using circumstantial elements that could only lead to an interpretive result not intended by the legislator (cf., in this sense, Baptista Machado, Introduction to Law and the Legitimating Discourse, Coimbra, 1993, p. 182).
As must be concluded, the intended extension of the legislative formula used to properties dedicated to the economic activity of the company, independently of the specific characterization as commercial, industrial or services properties, has no place whatsoever in light of the general criteria of legal hermeneutics.
- Basing itself on the same line of considerations, the Applicant further understands that construction land whose potential use coincides with the purposes "commercial, industrial or services" should be excluded from the objective scope of the additional charge to the IMI as it was the legislator's intention to subtract from taxation properties dedicated to economic activities.
The answer cannot be different from that reached regarding the preceding question.
In fact, article 135-B of the IMI Code merely limited itself to excluding from the additional charge to the tax urban properties classified as "commercial, industrial or for services" and "other", referring back to the characterization that is made in article 6 of that Code as to those species of urban properties.
As we saw, that provision distinguishes, in its no. 1, between "residential" properties, "commercial, industrial or for services", "construction land" and "other" and defines in the subsequent paragraphs the normative criteria upon which the classification of an urban property in any of those species depends. Construction land is, as results from no. 3 of that article 6, land that has been covered by a subdivision operation or construction license and is not intended for other urbanization purposes, and does not overlap with properties classified as "commercial, industrial or for services", which are those found to be licensed for those purposes or, in the absence of a license, have as their normal destination each of those purposes.
Having the legislator defined an exclusion clause by express and precise reference to certain species of urban properties, which are immediately identifiable in the context of the law, it is not possible to carry out an extensive interpretation so as to include therein other typologies that the legislator plainly did not intend to consider. It is not even possible to reach that interpretive result based on mere considerations of a pragmatic order or teleological identity.
Even if it were justified, from a fiscal policy perspective, to confer upon construction land intended for buildings for commercial, industrial or services purposes the same status that was attributed to properties classified as "commercial, industrial or for services", the fact is that this was not the legislative choice, which limited itself to excluding from the objective scope of the tax these types of properties and not those others that could potentially be used for those same purposes.
The request is thus also unwarranted in this regard.
Constitutional Issues
- The Applicant raises the unconstitutionality of the taxation regime of the additional charge to the IMI in a dual respect.
It considers, on the one hand, that the additional charge to the tax promotes differentiated treatment and unjustified inequality among taxpayers, in violation of the principle of tax equality, insofar as the ownership of real property embodies the asset substrate of the very economic activity, constituting an essential means of pursuit of its corporate purpose, such that the ownership of such real property cannot be understood as an index of increased contributory capacity or a manifestation of wealth.
It further holds that the norm of article 135-B of the IMI Code is unconstitutional, for violation of the principle of tax equality and contributory capacity, when interpreted in the sense that the exclusion of the additional covers commercial, industrial or services properties and not already construction land intended for those same purposes, as it generates a situation of discrimination without factual basis.
To respond to these issues, one must begin by effecting, albeit in brief terms, a characterization of the constitutional principles of progressivity, tax equality and contributory capacity.
As the Constitutional Court has emphasized, one of the constitutionally defined essential objectives of the tax system, alongside the satisfaction of the financial needs of the State and other public entities, is that of just distribution of income and wealth, as can be inferred from article 103, no. 1, of the Constitution.
It is this binding of the tax system to the idea of social justice and the diminution of inequality in the social distribution of income and wealth that requires that it be progressive. This requirement is expressly enshrined within the taxation of personal income: in accordance with no. 1 of article 104, the tax on personal income aims to "diminish inequalities and shall be unique and progressive, taking into account the needs and income of the family unit".
Fiscal progressivity requires that the relationship 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 amount of tax increases in proportion greater than the increase in taxable matter.
Consequently, the Constitution demands a progressivity with the intrinsic capacity to contribute to a diminution of income inequality (on all these aspects, see the Constitutional Court judgment no. 187/13, nos. 97, 98 and 99).
The progressivity of the tax system also constitutes a requirement of the principle of material equality.
As Casalta Nabais points out, the principle of tax equality has inherent therein above all "the idea of generality or universality, whereby all citizens are bound by the duty to pay taxes, and of uniformity, requiring that such duty be assessed by the same criterion - the criterion of contributory capacity. This thus implies equal tax for those with equal contributory capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different contributory capacity in proportion to such difference (vertical equality)" (Tax Law, 5th edition, Coimbra, 2009, pages 151-152).
Configuring itself the general principle of equality as material equality, the principle of contributory capacity – according to the same author - as the tertium comparationis of equality in the 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 "tax constitution" and, in particular, those already derived from the structuring principles of the tax system contained in articles 103 and 104 of the Constitution (op. cit., p. 152).
As a prerequisite and criterion of taxation, the principle of contributory capacity – within the same line of understanding - "distances the fiscal legislator from arbitrariness, obliging it in the selection and articulation of tax facts to adhere to revelations of contributory capacity, that is, to erect as object and taxable matter of each tax a certain economic presupposition that be a manifestation of that capacity and be 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 lens of contributory capacity, as can be seen particularly in judgment no. 142/2004, where it is recorded that "[t]he principle of contributory 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 – contributory capacity filling the unitary criterion of taxation".
The recognition of the principle of contributory capacity as a criterion destined to assess the constitutional inadmissibility of a certain or certain solutions adopted by the fiscal legislator has also led to the idea, expressed for example in Constitutional Court judgment no. 348/97, that taxation in accordance with the principle of contributory capacity shall imply "the existence and maintenance of an effective connection between the tax obligation and the economic presupposition selected as the object of the tax, requiring, therefore, a minimum of logical consistency of the various concrete hypotheses of tax provided in law with the corresponding object of the same".
The Constitutional Court has thus been distancing itself from a merely negative control of tax equality, moving to adopt the principle of contributory capacity as the appropriate criterion for the distribution of taxes; but it does not cease to accept the prohibition of arbitrariness as an adjuvant element in verifying the constitutional validity of normative fiscal solutions, particularly when these be dictated by considerations of legislative policy related to the rationalization of the system.
In sum, the principle of tax equality may be concretized through diverse aspects: one 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 in equal situations and differently those in different situations, in the measure of the difference, assessed by contributory capacity; a last, is in the prohibition of arbitrariness, in preventing the introduction of discriminations among taxpayers that be devoid of rational foundation (cf. Constitutional Court judgments no. 306/2010 and no. 695/2014).
- Reverting to the situation of the case, it should be noted - as emerges from the Report on the Budget for 2017 (p. 60) - that the creation of the additional charge to the IMI, as a complementary tax on real property assets, aimed to introduce in taxation "a progressive element on a personal basis, taxing in a higher manner the more significant 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 a corollary the tendential imposition of greater taxation on those who have greater contributory capacity.
It has similarly been understood that taxation of assets, alongside taxation of income, constitutes a projection of contributory capacity, functioning as an extension of personal income tax and as the reinforcement of qualitative discrimination (Sérgio Vasques, "Contributory Capacity, Income and Assets", Fiscality – Journal of Tax Law and Management, no. 23, Coimbra, 2005, pages 33 and 36).
And it is not seen, in this context, that taxation of the assets of real estate investment funds offends the principle of tax equality and contributory capacity solely because the ownership of real property constitutes the very object of the economic activity.
Pursuant to nos. 1 and 2 of article 210 of the General Regime of Collective Investment Bodies, approved by Law no. 16/2015, of 24 February, real estate investment funds may develop activities related to the acquisition of real property for rental or intended for other forms of onerous exploitation, acquisition of real property for resale, acquisition of other rights over real property with a view to their economic exploitation and realization of improvement, expansion and requalification works on real property, as well as the development of construction and rehabilitation projects of real property.
These are, however, activities freely accessible to the generality of real property owners and any other entities, even of an entrepreneurial nature, that dedicate themselves to real estate promotion.
The ownership of real property assets, for purposes of sale and transformation, with a view to obtaining economic results, does not cease to constitute a patrimonial asset that is revealing of an increased contributory capacity, which goes beyond the tax that applies to taxable profit due to the economic activity developed. What is at issue, consequently, is not taxation of the actual income earned by such entities through the activity developed, but the complementary contributory capacity that derives from the ownership of assets and which by itself can facilitate the obtaining of credit or the reinforcement of its bargaining position in the conclusion of contracts (idem, p. 36).
And the specific circumstance that the funds center their activity on the performance of operations on real property and are subject to investment limits as to the composition of their assets does not distinguish them from any other passive subject which, individually or at an enterprise level, dedicates itself to the acquisition and commercialization of real property.
The ownership of real property by real estate investment funds, in this context, does not constitute a productive factor of the economic activity, but the very object of that activity, which does not preclude these goods from having an autonomous patrimonial value in the real estate market.
Moreover, in line with what was understood in the arbitral judgment of 17 March 2016, rendered in proceedings no. 507/2015-T, a distinction must be made between the ownership of real property assets intended for housing which constitutes, in itself, a tendentially reliable index of economic affluence, superior to that of the generality of citizens, and the ownership of rights over real property intended for the exercise of commercial, industrial activities, provision of services or similar which may be recognized as production factors and whose dimension and patrimonial value constitutes, not so much a manifestation of wealth, but a standard of adequacy to the functioning of the enterprise.
There thus appears to be constitutionally acceptable grounds for the restriction of the scope of the additional charge to the tax to residential properties by contrast with real property classified as commercial, industrial or for provision of services, with the invoked unconstitutionality being ruled out based on violation of the principles of equality and contributory capacity.
- The Applicant further highlights the unconstitutionality resulting from the discrimination operated by the norm of article 135-B of the IMI Code, with regard to construction land, by disregard of the potential dedication of such land to the purposes of commerce, industry or services, taking as the point of reference properties classified as commercial, industrial or for services that are excluded from taxation by virtue of what is provided in that provision.
On this plane of analysis, it must be borne in mind that we are dealing with diverse tax facts. In one case, the law subjects to taxation urbanizable land that constitutes an economic asset by virtue of its aptitude for construction. In another case, the law excludes from the tax built-up assets that perform an instrumental function relative to the productive activity.
There is no necessary connection between these two realities. Construction land has its own patrimonial value that constitutes, in itself, an indicator of contributory capacity that is susceptible to being the object of an autonomous tax on assets, independently of its eventual and future use through the implantation of a building for commercial, industrial or services purposes. Already constructed assets that be classified as commercial, industrial or services real property already have an instrumental function relative to a certain productive activity that the legislator, within its margin of discretion, may intend to safeguard within the framework of its responsibilities for the promotion of economic and social development, which have constitutional grounding (article 81 of the Fundamental Law).
It is thus possible to discern a substantial factual basis for distinguishing between these different tax facts for purposes of taxation of assets.
- The Applicant further makes reference, with respect to the constitutional issues, to Constitutional Court judgment no. 250/2017, which judged unconstitutional the norm of item 28.1 of the General Stamp Tax Table, as amended by Law no. 83-C/2013, of 31 December, insofar as it imposes annual taxation on the ownership of construction land whose building, authorized or planned, be for housing, whose tax property value be equal to or greater than € 1,000,000.00.
Deviating from previous constitutional jurisprudence on that matter (cf. judgments nos. 590/215, 83/2016, 247/2016 and 568/2016), the judgment emphasized that it is not possible to compare residential buildings that correspond to real buildability definitely incorporated in the legal sphere of the owner and construction land that corresponds to merely potential buildability, not yet materialized, to conclude that it is not possible to include in the same normative provision of tax buildings of high patrimonial value and construction land that are worth essentially for their future urban development.
It must first be said that the provision analyzed therein does not have the same normative content as the provision now under assessment and that the jurisprudential understanding that came to be established cannot be transposed directly to the situation of the present case.
The principle of tax equality was mobilized in that judgment as it was understood that the inclusion in the objective scope of the norm of construction land alongside an already built residential property does not reflect the different contributory capacity of the respective owners, this being the determining reason for the judgment of unconstitutionality. In the present case, to the contrary, for purposes of the exclusion of the additional charge to the IMI, it is intended to establish the equation between construction land and urban commercial, industrial or services properties in the inverse perspective that construction land potentially usable for those purposes does not differ from already built properties that are classified as commercial, industrial or for services.
But, as was intimated, there does not exist, in such circumstance, any reason to consider verified the violation of the principle of tax equality, as – as, moreover, is recognized in judgment no. 250/2017 – construction land and built-up assets correspond to distinct realities, and the exclusion of the additional charge to the IMI in relation to real property classified as commercial, industrial or for services appears justified by its instrumental function relative to a certain productive activity, which is not applicable to land that could only attain that potential in the future.
The cited Constitutional Court judgment no. 250/2017 thus brings no new argument that could ground, in the situation of the case, a judgment of unconstitutionality.
Matters Regarding Which Knowledge is Prejudiced
- In light of the legal solution of the case, the request for refund of amounts paid by way of additional charge to the IMI and condemnation to payment of compensatory interest is prejudiced, as well as the issue raised by the Tax Authority regarding the tax assessment acts concerning construction land dedicated to residential purposes (article 608, no. 2, of CPC).
III – Decision
For these reasons we decide to judge totally unwarranted the request for arbitral judgment.
Value of the Case
The Applicant indicated as the value of the case the amount of € 206,444.44, which was not contested by the Respondent and corresponds to the value of the assessment it sought to oppose, whereby the value of the case is fixed at that amount.
Costs
Pursuant to the provisions of articles 12, no. 2, and 24, no. 4, of RJAT, and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings and Table I attached to that Regulation, the amount of costs is fixed at € 4,284.00, which shall be borne by the Applicant.
Notify.
Lisbon, 26 June 2018
The President of the Arbitral Tribunal
Carlos Fernandes Cadilha
The Arbitrator Member
Nuno Pombo
The Arbitrator Member
Henrique Nunes
Frequently Asked Questions
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