Summary
Full Decision
ARBITRAL DECISION
The arbitrators Cons. Jorge Lopes de Sousa (arbitrator-chair), Dr. Paulo Ferreira Alves and Dr. Mariana Vargas (arbitrators members), designated by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 05-03-2018, agree as follows:
1. Report
A..., S.A., with Tax Identification Number..., with registered office at..., ..., no.../..., ..., ...-..., Porto (hereinafter "Claimant"), acting as manager and representative of the CLOSED REAL ESTATE INVESTMENT FUND B..., holder of tax identification number ... (hereinafter referred to as "Fund") under article 2, paragraph 1, subparagraph a) and articles 10 and following of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters or "LRAT"), presented a request for arbitral pronouncement seeking the declaration of illegality of the assessment act for the Additional Municipal Property Tax ("AMPT") with number 2017..., issued by the Tax and Customs Authority ("TCA") with reference to the year 2017, in the total amount of € 78,945.12.
The Claimant further requests reimbursement of the amount paid with compensatory interest.
The Respondent is the TAX AND CUSTOMS AUTHORITY.
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 22-12-2017.
Pursuant to article 6, paragraph 2, subparagraph a) and article 11, paragraph 1, subparagraph b) of the LRAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Ethics Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the assignment within the applicable period.
On 12-02-2018 the parties were duly notified of this designation and did not manifest their will to refuse the appointment of the arbitrators, in accordance with the combined provisions of article 11, paragraph 1, subparagraphs a) and b) of the LRAT and articles 6 and 7 of the Code of Ethics.
Thus, in accordance with the provision of article 11, paragraph 1, subparagraph c) of the LRAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 05-03-2018.
On 16-04-2018, the Tax and Customs Authority submitted a response in which it argued that the claim should be judged unfounded and that the final decision should be notified to the Public Prosecutor's Office.
By order of 16-04-2018, a hearing was dispensed with and it was decided that the case proceed with written submissions.
As the Claimant declared that it did not intend to submit arguments, it was decided that the case proceed to final decision, with dispensing of arguments.
The arbitral tribunal was regularly constituted, in accordance with articles 2, paragraph 1, subparagraph a), and 10, paragraph 1, of Decree-Law no. 10/2011, of 20 January.
The parties are duly represented, possess legal personality and capacity and have standing (articles 4 and 10, paragraph 2, of the same law and article 1 of Ministerial Order no. 112-A/2011, of 22 March).
The case is free from nullities.
First and foremost, it is important to clarify the question of jurisdiction raised by the Tax and Customs Authority and the scope of the powers of cognition of this Arbitral Tribunal.
2. Question of Jurisdiction of the Arbitral Tribunal
The Tax and Customs Authority in articles 90 to 92 alludes to the lack of jurisdiction of the Arbitral Tribunal to rule on the question of the legality of taxation applied to land for construction whose potential use is commerce, industry or services, by virtue of only one property being in that situation.
The Arbitral Tribunal has jurisdiction to assess the legality of assessment acts as results from article 2, paragraph 1, subparagraph a), of the LRAT.
In the present case, an assessment act is being challenged and the Taxable Person has the right to impute to it any illegalities it sees fit, even if it turns out they lack merit, and the Arbitral Tribunal is competent to assess whether they affect or do not affect the assessment.
The fact that only one of the land parcels for construction is in the conditions referred to by the Claimant may be relevant to the scope of success of its claim, in the event that some part should be judged well-founded, but has nothing to do with the question of the Arbitral Tribunal's jurisdiction, since the Claimant may impute any illegalities it sees fit to the entirety of the assessment.
On the other hand, the fact that one of the land parcels is in the circumstances referred to by the Claimant is sufficient to conclude that all questions of unconstitutionality that have such circumstances as their premises are questions of concrete unconstitutionality and not abstract unconstitutionality, since their resolution has potential repercussions on the assessment challenged.
In these terms, there is no lack of jurisdiction of the Arbitral Tribunal to assess any question raised.
3. Powers of Cognition of the Arbitral Tribunal
The Tax and Customs Authority invokes the principle of separation and interdependence of powers as an obstacle to the powers of cognition of this Arbitral Tribunal.
There is, certainly, some misunderstanding, for in a Rule of Law State, it is to the Courts and not to any other bodies, particularly those with legislative and executive competences, that the administration of justice falls, "ensuring the defense of the rights and legally protected interests of citizens, repressing violations of democratic legality and settling conflicts between public and private interests" (articles 202, paragraphs 1 and 2, of the CRP), for which they must interpret and apply the laws to settle disputes between citizens and the Administration.
And it is also to the Courts that the CRP attributes the power to control the constitutionality of laws issued by bodies with legislative power (article 204 of the CRP).
This decision is issued by a Court and therefore has a jurisdictional character, and in the exercise of its jurisdictional power it is incumbent upon it to apply the law according to its interpretation, not being bound solely by the law as it interprets it, and not being obliged to adopt the interpretation adopted by the Tax and Customs Authority or the one that would hypothetically be adopted by bodies with legislative power if they were attributed competence to apply the law to disputes pending before the Courts.
Moreover, in the exercise of its interpretative activity, the Arbitral Tribunal is not limited by the letter of the law and must adopt all criteria for interpretation provided for in the law, particularly those indicated in article 9 of the Civil Code and article 11 of the General Tax Law: "interpretation must not be confined to the letter of the law, but must reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was enacted and the specific conditions of the time in which it is applied," being only unable to disregard "the legislative intent that does not have in the letter of the law a minimum of verbal correspondence," which may even be "imperfectly expressed."
It is the exercise of this jurisdictional power that is concretized in this arbitral decision, in light of the legal criteria for interpretation.
4. Facts
4.1. Proven Facts
In the year 2017, the Fund was the owner of the following real estate:
– land for construction with property register article ..., located in the parish ... in Lisbon, with a taxable asset value of € 9,224,524.90 and with "location coefficient type: Housing";
– land for construction with property register article ..., located in the parish ... in Lisbon, with a taxable asset value of € 8,728,951.24 and with "location coefficient type: Services";
– unit AB of real estate in horizontal property regime with property register article ... located in the parish ... in Lisbon, with a taxable asset value of € 865,218.15;
– unit Z of real estate in horizontal property regime with property register article ... located in the parish ... in Lisbon, with a taxable asset value of € 869,670.23;
– unit U of real estate in horizontal property regime with property register article ... located in the Union of parishes of ... and ..., with a taxable asset value of € 117,459.84 (documents attached to the Response, the contents of which are reproduced);
The Fund was notified of the AMPT assessment no. 2017..., issued by the Tax and Customs Authority ("TCA") with reference to the year 2017, in the total amount of € 78,945.12, with payment deadline in the month of September 2017 (document no. 1 attached to the request for arbitral pronouncement, the contents of which are reproduced);
On 15-09-2017, the Fund paid the assessed amount;
In the assessment mentioned, a taxable value of € 19,736,281.05 was considered (document no. 1);
The Fund is governed by the Management Regulations of the Closed Real Estate Investment Fund B..., which appears in document no. 3 attached to the request for arbitral pronouncement, the contents of which are reproduced;
The real estate are recorded in the Balance of the funds, in their respective Class 3 – Fixed Assets, including, in accordance with the limitations resulting from the Chart of Accounts of Real Estate Investment Funds, all the real estate in question, both those held for sale and those held for income generation through rental or other means (Document 4 attached to the request for arbitral pronouncement, the contents of which are reproduced);
On 21-12-2017, the Claimant submitted the request for arbitral pronouncement that gave rise to this present case.
4.2. Unproven Facts and Basis for Fact Finding
There are no facts relevant to the decision of the case that have not been proven.
The proven facts are based on documents attached by the Claimant with the request for arbitral pronouncement and by the Tax and Customs Authority with the Response.
There is no controversy over the facts.
5. Law
5.1. Positions of the Parties
The Claimant argues, in summary:
– the legal regime established by Law no. 42/2016, of 28 December, excludes from the scope of the AMPT "urban real estate classified as 'commercial, industrial or for services' and 'other'" pursuant to subparagraphs b) and d) of paragraph 1 of article 6 of the Municipal Property Tax Code (MPTC), such that only urban real estate devoted to residential purposes and land for construction, as defined in that article 6, are covered;
– the intention was to create a tax on real estate wealth, in which urban real estate devoted to economic activities would not be subject to AMPT taxation, recognizing that the mere ownership of such real estate does not constitute a demonstrator of wealth or a sufficient indicator of the contributing capacity of the owners of such real estate;
– the legislative ratio underlying the rule of exclusion from objective scope of taxation, enshrined in paragraph 2 of article 135-B of the MPT Code, was essentially based on the intention not to overburden taxpayers who, by virtue of their economic activities, hold real estate for the pursuit of their corporate purpose;
– AMPT cannot apply to the Fund's real estate:
Subsidiarily, the Claimant argues that "land for construction" whose potential use coincides with "commercial, industrial or services" purposes cannot be considered in determining the taxable asset value subject to AMPT, which occurs with the land for construction with property register article .... The Claimant understands that taxation applied to land for construction with these purposes is incompatible with the constitutional principle of equality.
Subsidiarily, the Claimant understands that the legal regime of the AMPT is contrary to the constitutional principle of equality and to the principle of tax equality and contributing capacity, enshrined in articles 13 and 104, paragraph 3, of the CRP.
The Tax and Customs Authority argues, in summary, as follows:
– AMPT has the nature of real and not personal taxation;
– the legislator excluded from the scope "urban real estate classified as 'industrial, commercial or services' and 'other'" but expressly chose to maintain other real estate that also integrates the assets of companies, such as those classified as residential or land for construction, by not including them in the negative delimitation enshrined, such that it did not exclude from the scope all real estate devoted to economic activities;
– the restriction was made by reference to the classification of the real estate and not to their connection with a particular economic activity;
– the Claimant seeks an abrogating interpretation of the norm, introducing a meaning that was not enshrined by the legislator in the letter of the law, even if only imperfectly expressed, thereby expanding the scope of the exclusion from taxation to encompass all real estate held by the Funds;
– as to the legislative ratio, AMPT aims to reach a portion of the assets of the taxpayers of the tax, applying to real estate assets constituting an asset, legally recognizable as capital of a given entity (singular or collective), but paragraph 2 of article 135-B opted for a negative delimitation of the scope, excluding from AMPT real estate which, by virtue of their potential use, can be economically recognized as factors of production, as capital, that is, as intermediate goods which, combined with the other factors of production, produce new utilities – economic goods that satisfy needs;
– in this delimitation of the real scope it is clear that the criterion adopted is intended to be universally objective, inducing greater uniformity and equality in the treatment of real estate subject to taxation, to the detriment of other criteria that would appeal to case-by-case verifications of the actual purpose to which real estate is put;
– within its margin of legislative discretion, the legislator excluded from the scope of the tax real estate intended for purposes other than residential;
– the criterion chosen by the legislator – the classification of urban real estate as industrial, commercial or for services and other – was adopted to the detriment of others that would appeal to case-by-case verifications of the actual purpose to which real estate is put;
– the intention to ensure "the absence of impact on economic activity" did not, however, lead to the exclusion from the scope of the tax of commercial companies and other equivalent entities which, by virtue of having as their purpose the pursuit of economic activities, would be affected to a greater or lesser degree by the burden of the tax;
– the negative delimitation of the scope was enshrined in objective scope and not in subjective scope;
– the goods in question and especially land for construction are not merely instrumental to the exercise of the Fund's activity, they form the very core of the economic activity, they are the object of commerce or industry, since they are intended for resale or, in the case of land for construction, also for transformation in the event that buildings are erected thereon for subsequent sale;
– the real estate excluded from subjection to AMPT, pursuant to paragraph 2 of article 135-B of the MPTC, are those that perform an instrumental function to industrial, commercial or services economic activities, insofar as they constitute buildings that serve as support for the functioning of such activities, and are not themselves generators of income;
– the Funds, such as that here represented by the Claimant, are collective investment structures obtaining capital from investors, and the paradigm underlying the tax regime applied to them has been oriented by the principle of neutrality which consists of designing the taxation of Funds, as much as possible, in the same terms in which the persons investing directly in the real or personal property assets constituting the funds' assets would be taxed;
– since the substance of the activity of Real Estate Investment Funds consists of real rights over real estate, if the legislator granted them an exception regime, it would be privileging indirect investment in real estate assets through the use of this financial product and opening the door to tax avoidance behavior;
– the Claimant's interpretation is clearly abrogating the law, conveying a legislative impulse, and if accepted, would violate the constitutional principle of separation and interdependence of powers, enshrined in articles 2 and 111 of the CRP, constituting itself as a reference and limit to the powers of cognition of the courts in the exercise of their function within the Rule of Law (cf. articles 202 and 203 of the CRP);
– there is no unconstitutionality by violation of the principles of equality and contributing capacity;
– the Tax and Customs Authority cannot refrain from applying the law on the grounds of unconstitutionality, as it is subject to the principle of legality;
– compensatory interest is not due if the conclusion is that the legal regime of the AMPT is unconstitutional.
Indicating the Claimant an order of subsidiarity in the imputation of defects to the assessment challenged, this order must be observed in its assessment, as results from paragraph 2, subparagraph b) of article 124 of the Tax Procedure Code (TPC), applicable to tax arbitration proceedings by virtue of the provision of article 29, paragraph 1, subparagraph c), of the LRAT.
5.2. Question of the Objective Scope of AMPT Based on the Allocation to the Economic Activities of Housing Real Estate and Land for Construction
Law no. 42/2016, of 28 December (State Budget for 2017) added to the MPTC Chapter XV, with articles 135-A to 135-K, which contains the regime of the Additional Municipal Property Tax (AMPT).
Article 135-A defines the subjective scope of this tax, establishing that "the taxpayers of the additional municipal property tax are natural or legal persons who are owners, usufructuaries or superficiaries of urban real estate located in Portuguese territory," with "any structures or collective interest centers without legal personality that appear in the tax matrices as taxpayers of the municipal property tax being equated with legal persons."
Article 135-B defines the objective scope of this additional tax as follows:
Article 135-B
Objective scope
1 - The additional municipal property tax applies to the sum of the taxable asset values of urban real estate located in Portuguese territory of which the taxpayer is owner.
2 - Excluded from the additional municipal property tax are urban real estate classified as "commercial, industrial or for services" and "other" pursuant to subparagraphs b) and d) of paragraph 1 of article 6 of this Code.
The Claimant argues that this regime excludes from the scope of the AMPT "urban real estate classified as 'commercial, industrial or for services' and 'other'" pursuant to subparagraphs b) and d) of paragraph 1 of article 6 of the Municipal Property Tax Code (MPTC), such that only urban real estate devoted to residential purposes and land for construction, as defined in that article 6, are covered.
Article 6 of the MPTC establishes the following:
1 - Urban real estate divides 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 structures licensed for such purpose or, absent a license, that have as their normal purpose each of these uses.
3 - Land for construction is considered to be land situated inside or outside an urban area for which a license or authorization has been granted, prior notice admitted, or favorable preliminary information issued for a subdivision or construction operation, and also those that have been declared as such in the acquisition document, with the exception of land where competent entities prohibit any of those operations, particularly those located in green areas, protected areas or that, in accordance with municipal land-use planning, are devoted to spaces, infrastructure or public facilities.
4 - Included in the provision of subparagraph d) of paragraph 1 are land situated inside an urban area that are not land for construction nor are covered by paragraph 2 of article 3 and also buildings and structures licensed or, absent a license, that have as their normal purpose other uses than those referred to in paragraph 2 and also those in the exception of paragraph 3.
From this negative delimitation of the scope, the Claimant draws the conclusion that the intention was to create a tax on real estate wealth, in which urban real estate devoted to economic activities would not be subject to AMPT taxation.
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 to be concretized through the exclusion from the scope of "urban real estate classified as 'industrial' species, as well as urban real estate licensed for tourist activity, the latter provided that its destination is properly declared and proven" and the deduction from the taxable value of the amount of "€ 600,000.00, when the taxpayer is a legal person with agricultural, industrial or commercial activity, for real estate directly devoted to its functioning."
However, the exclusion from the scope was not based on the activity to which the real estate is devoted, for in the wording that was finally approved the non-applicability was defined solely on the basis of the types of real estate indicated in article 6 of the MPTC, without any reference to the allocation or non-allocation to the functioning of legal persons.
Had the final version of the Budget maintained the legislative intention to exclude the scope regarding real estate directly devoted to the functioning of legal persons, the reference to this allocation that appeared in the proposal and that clearly expressed this legislative choice would certainly have been maintained.
Thus, with that reference to the allocation of real estate removed, there is no legal support for concluding that residential real estate and land for construction devoted to the functioning of legal persons do not fall within the scope of AMPT.
"In the absence of other elements that lead to the choice of the less immediate meaning of the text, the interpreter must in principle opt for that meaning which best and most immediately corresponds to the natural significance of the verbal expressions used, and particularly to their technical-legal meaning, in the supposition (not always correct) that the legislator was able to express its intent correctly. ( [1] )
In the present case, given the departure from the proposed wording in which the allocation of real estate was given relevance, there is no reason to conclude that the legislator was unable to express its intent in adequate terms, as must be presumed by virtue of article 9, paragraph 3, of the Civil Code.
For this reason, it must be concluded that the fact that the Fund devotes the real estate referred to in the file to its economic activities does not exclude the application of AMPT.
5.3. Question of the Impossibility of Considering in the Determination of the Taxable Asset Value Subject to AMPT, "Land for Construction" Whose Potential Use Coincides with "Commercial, Industrial or Services" Purposes
The Claimant argues that article 135-B of the MPTC should be interpreted as meaning that the taxable value of land for construction not intended for residential use does not count for purposes of AMPT in coherence with the legislative choice to exclude from the scope real estate classified as "commercial, industrial or for services."
Furthermore, the Claimant argues that the application of AMPT to land for construction for the purposes referred to, alongside the exclusion of real estate with those purposes, is incompatible with the constitutional and legal principle of equality (articles 13 and 104, paragraph 3, of the CRP and articles 5 and 55 of the General Tax Law).
For this reason, the Claimant argues that the value of the land for construction with property register article ..., which is indicated in the property record that was determined on the basis of "location coefficient type: Services," should not count for determining the taxable value of the AMPT.
It is not contested that this land is intended for construction of a "for services" building, as leads one to conclude the type of location coefficient used.
Given that the tax event chosen as an index of contributing capacity is ownership of real estate assets of value considered high, it would not be coherent to apply the tax to buildings intended for services and not apply it to land intended for their construction, the value of which is incorporated in the value of the buildings.
Thus, from a perspective that bears in mind the unity of the legal system (article 9, paragraph 1, of the Civil Code), which has decisive interpretive value, imposed by the principle of coherent valuation or axiological valuation of the legal order ( [3] ), the exclusion provided for in paragraph 2 of article 135-B of the MPTC relating to urban real estate classified as "for services" should be interpreted expansively as expressing a legislative intention to also exclude from taxation land intended for the construction of such real estate.
In any case, if one adopts a literal interpretation of this norm, with the meaning that all land for construction is covered by the scope of AMPT, it will be materially unconstitutional, being incompatible with the principle of equality (article 13 of the CRP), by considering as a tax event the ownership of land for construction of buildings intended for services and not the ownership of the buildings constructed thereon, insofar as it constitutes a disadvantaged treatment of taxpayers found in the first situation, without material justification, for it is necessarily lower the contributing capacity indicated by real estate property in that situation, which must be present and increased 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, and the inequality must be resolved by elimination of the duties or charges for those who were discriminatorily burdened by them. ( [4] )
In view of the foregoing, the assessment challenged is illegal to the extent that it includes in the taxable value the asset value of the land for construction with property register article ..., such that its annulment is justified, in the respective part, in accordance with article 163, paragraph 1, of the Administrative Procedure Code subsidiarily applicable pursuant to article 2, subparagraph c), of the General Tax Law.
5.4. Question of the Unconstitutionality of AMPT
Subsidiarily, the Claimant invokes the unconstitutionality of the AMPT, with a twofold argument, which should be assessed separately.
5.4.1. The Indiscriminate Taxation of All "Land for Construction": the (Illegal) Disregard for the Legal Criterion of Real Estate Allocation
The Claimant argues "that the regime of taxation in AMPT is contrary to the fundamental principle of equality, enshrined in article 13 of the CRP and, in parallel, contrary to the principle of tax equality and contributing capacity enshrined in article 104, paragraph 3 of the same law," also referred to in articles 5 and 55 of the General Tax Law.
Explicating its imputation of unconstitutionality, the Claimant argues, in the first place, that "the legal regime of the AMPT, specifically its article 135-B of the MPT Code – when interpreted in the sense of including within the scope of application of the AMPT 'land for construction' for purposes of commerce, industry, services or other – is manifestly contrary to the principle of equality, constitutionally enshrined."
This is the question that was already assessed in the previous point, such that reference is made to what was stated there, which only applies to the part of the assessment having as its premise the value of the land for construction intended for services.
5.4.2. Unconstitutionality by Taxation of the Substrate of an Economic Activity
In the view of the Claimant, in summary:
– attention must be paid to the nature of the taxpayers burdened with the resulting taxation, specifically the fact that entities are covered by this Additional Tax that exercise, as an activity comprised in their corporate purposes, the activity of purchase, sale, construction and rental of real estate;
– in the case of commercial companies (or other entities) that develop an activity of such a nature, the ownership of real estate constitutes the asset substrate of the economic activity itself, being an essential (virtually sole) means for its pursuit, such that the essential premise for taxation is not verified, i.e., the premise that ownership of such real estate constitutes an indication of increased contributing capacity or wealth;
– in the case of real estate investment funds, given the activity they are legally able to develop, real estate are productive factors and means for the exercise of their economic activity that are not an indication of increased contributing capacity;
– this Additional penalizes in an unjustifiedly aggravated manner this sector of activity, to the detriment of the rest;
– the imposition of this taxation has no relationship with the real income from the activity developed by these entities – at the limit, burdening them even if they have negative results;
– article 135-A of the MPT Code – when interpreted in the sense of including within the subjective scope of application of the AMPT entities that develop a real estate activity – promotes differentiated treatment and unjustified inequality among taxpayers, in manifest violation of the principle of equality, enshrined in article 13 of the CRP and of the principle of tax equality and contributing capacity, enshrined in article 104, paragraph 3 of the same law;
– especially concerning land for construction, the reasons on which the Constitutional Court based itself in Decision no. 250/2017, of 24-05-2017, are applicable.
The Tax and Customs Authority argues, in the first place, that it is obliged to apply the law and cannot disapply it on the grounds of unconstitutionality.
Furthermore, the Tax and Customs Authority argues, in substance:
– that the choices underlying the delimitation of the objective scope of the AMPT were made within the margin of "legislative discretion" and do not violate the principles of equality and taxation in accordance with contributing capacity, in light of the doctrine and jurisprudence of the Constitutional Court;
– we are dealing with a "partial tax on certain manifestations of contributing capacity," such that it is "normatively inappropriate to make a comparison between the global value of the assets of other taxpayers," and should instead, take as a basis for comparison, to assess compliance with the principle of equality, the assets of other Funds with the same corporate purpose;
– "the different valuation and taxation of a real estate devoted to residential purposes as opposed to real estate intended for commerce, industry or services results from the different suitability of the real estate in question, which supports the different treatment given by the legislator which, for economic and social reasons, decided, within its margin of legislative discretion, to exclude from the scope of the tax real estate intended for purposes other than residential";
– the circumstance that other taxpayers holding identically valuable real estate assets are exempted from the tax would be what would justify a specific constitutional censure of the norm under scrutiny;
– real estate investment funds are holders of goods deemed by the legislator as a manifestation of particular wealth;
– the real estate are not merely instrumental to the exercise of the Funds' activity, as they form the very core of the economic activity, they are the object of commerce or industry, for they are intended for resale or, in the case of land for construction, for transformation in the event that buildings are erected thereon for subsequent resale;
– differently, real estate excluded from subjection to AMPT, pursuant to paragraph 2 of article 135-B of the MPTC, perform an instrumental function to industrial, commercial or services economic activities, insofar as they constitute buildings that serve as support for the functioning of such activities, and are not themselves generators of income;
– the circumstance that a given good is worth, as a "factor of production of wealth," is not sufficient to contradict the finding that the corresponding holder holds real estate only accessible to one holding particular wealth and, thus, capable of supporting an additional contribution to the Financial Stabilization Fund of Social Security, to which the revenue of the AMPT is allocated;
– the principle of equality imposes horizontal equality, that is, that all who are holders of the same form of wealth are taxed in the same manner;
– like any tax on assets, the AMPT is dissociated from any eventual realization of profit from the sale of real estate goods, as well as from the existence or non-existence of a negative or positive net situation, being relevant, for the economy of the tax, only the asset value of the land.
Regarding the invoked obligation of the Tax and Customs Authority to apply the law, it not being competent to oversee constitutionality, it is irrelevant to the assessment of the legality of the assessment challenged, for this Arbitral Tribunal has such competence, as it cannot "apply norms that infringe the provisions of the Constitution or the principles enshrined therein" (article 204 of the CRP).
For this reason, the obligation of the Tax and Customs Authority to apply the law does not constitute grounds for disregarding any eventual illegality of the assessment.
In article 13 of the Constitution of the Portuguese Republic the principle of equality of citizens before the law is proclaimed and article 104, paragraph 3, of the CRP establishes that "taxation of assets must contribute to equality among citizens."
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 found in equal situations be treated equally and those found 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 distinctions lacking objective and rational justification. ( [5] )
The creation of the AMPT, as a complementary tax on real estate assets, which aimed to introduce into taxation "a progressive element on a personal basis, taxing more highly the larger assets" (Budget Report for 2017, page 60) is compatible with the objective that taxation of assets should contribute to equality among citizens, affirmed in paragraph 3 of article 104 of the CRP, for progressivity has as a corollary, tending to impose greater taxation on those with greater contributing capacity.
On the other hand, the exclusion from taxation of real estate specifically intended for productive activity, particularly "commercial, industrial or for services," finds constitutionally acceptable foundation in the obligation of the State to promote the increase in economic welfare, which presupposes the proper functioning of productive activities and constitutes one of its priority tasks in the economic sphere [article 81, subparagraph a), of the CRP].
Furthermore, in line with what was understood in the arbitral decision of 17-03-2016, issued in case no. 507/2015-T, it should be understood that while ownership of high-value real estate devoted to housing is a tending-to-be reliable indication of economic prosperity superior to that of the generality of citizens, one cannot consider that there exists a reliable indication of superior contributing capacity when dealing with ownership of rights over real estate intended for the exercise of economic activities (commercial, industrial, provision of services or related), for they must be adequate to the functioning of the respective companies, and their dimension and correlative value is not an indication of prosperity.
Thus, the restriction of the scope of the AMPT to residential real estate and land for construction of residential buildings, which came to be enshrined in the approved wording of paragraph 2 of article 135-B of the MPTC, in the interpretation adopted above, would have constitutionally acceptable foundation.
The specific situation of real estate investment funds, as collective investment entities holding real estate property intended for housing, does not appear to merit special treatment relative to the generality of citizens individually found in the same situation.
In truth, the activities that funds are able to develop, indicated in article 210 of the General Regime of Collective Investment Entities, approved by Law no. 16/2015, of 24 February (acquisition of real estate for rental or intended for other forms of profit-making operation; acquisition of real estate for resale; acquisition of other rights over real estate with a view to their economic exploitation; performance of improvement, extension and requalification works on real estate; development of construction and real estate rehabilitation projects), are freely accessible to the generality of real estate owners, even outside corporate structures.
On the other hand, ownership by real estate investment funds of high-value real estate assets evidences, as in relation to any owner of real estate devoted to housing, special economic capacity to be able to contribute additionally to the Financial Stabilization Fund of Social Security, to which the revenue of the AMPT is allocated, and which "corresponds to the objective of the government program to broaden the financing base of Social Security" (Budget Report for 2017, page 57).
For this reason, the non-application of the AMPT to the values of residential real estate or land for construction of housing belonging to real estate investment funds would constitute an unjustified privileged tax treatment relative to the generality of other owners of real estate with those characteristics.
In view of the foregoing, the imposition on real estate investment funds of the AMPT relative to their assets constituted by residential real estate and land for construction intended for housing does not appear to be materially unconstitutional, in light of the principles of equality and contributing capacity.
6. Request for Reimbursement of the Amount Paid and Compensatory Interest
The Claimant makes a request for reimbursement of the amounts collected by the Tax and Customs Authority, as well as payment of compensatory interest.
The Tax and Customs Authority argues, in summary, that "in its capacity as a body of the Public Administration, it does not have competence to decide on the non-application of norms regarding which doubts of constitutionality are raised" and "consequently, the services of the TCA cannot be imputed any error of fact or law, given compliance with the law that informs all of its activity."
6.1. Possibility of Assessment in Tax Arbitration Proceedings of Requests for Reimbursement of Tax Paid and Compensatory Interest
In accordance with the provision of article 24, subparagraph b) of the LRAT, the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the Tax Administration from the end of the period provided for appeal or challenge, such that this, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of decisions of judicial tax courts, must "reestablish the situation that would have existed if the tax act that was the subject of the arbitral decision had not been performed, adopting the necessary acts and operations for that purpose," which is in harmony with the provision of article 100 of the General Tax Law [applicable by virtue of the provision of article 29, paragraph 1, subparagraph a) of the LRAT] which establishes that "the tax administration is obliged, in case of total or partial success of a claim, judicial challenge or appeal in favor of the taxpayer, to immediate and full restoration of the legality of the act or situation that is the subject of the dispute, including the payment of compensatory interest, if applicable, from the end of the period of execution of the decision."
Although article 2, paragraph 1, subparagraphs a) and b), of the LRAT uses the expression "declaration of illegality" to define the competence of arbitral courts operating in CAAD, making no reference to condemnatory decisions, it should be understood that the competences of such courts include the powers that in judicial challenge proceedings are attributed to tax courts, this being the interpretation that is in harmony with the sense of the legislative authorization on which the Government based itself to approve the LRAT, in which the first guideline is proclaimed that "the tax arbitration process must constitute a means of alternative procedure to the judicial challenge process and to the action for recognition of a right or legitimate interest in tax matters."
The judicial challenge process, despite being essentially a process of annulment of tax acts, admits condemnation of the Tax Administration to payment of compensatory interest, as can be inferred from article 43, paragraph 1, of the General Tax Law, which establishes that "compensatory interest is due when it is determined, in administrative recourse or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount superior to that legally due" and from article 61, paragraph 4 of the Tax Procedure Code (in the wording given by Law no. 55-A/2010, of 31 December, to which corresponds paragraph 2 in the original wording), which provides that "if the decision recognizing the right to compensatory interest is judicial, the period of payment is counted from the beginning of the period of its voluntary execution."
Thus, paragraph 5 of article 24 of the LRAT, in providing that "payment of interest is due, regardless of its nature, in the terms provided for in the general tax law and in the Tax Procedure and Process Code," should be understood as permitting the recognition of the right to compensatory interest in the arbitration process.
On the other hand, since the right to compensatory interest depends on the right to reimbursement of amounts paid unduly, which are its calculation base, the possibility of recognition of the right to compensatory interest is inherent in the possibility of assessment of the right to reimbursement of such amounts.
It is therefore necessary to assess the request for reimbursement of amounts unduly paid and payment of compensatory interest.
6.2. Right to Reimbursement
From what was mentioned, the request for arbitral pronouncement only succeeds partially, relative to the first subsidiary claim, as to the part of the assessment having as its foundation the value of the land for construction intended for services.
The value of the respective assessment is € 34,915.80.
Consequent on the partial illegality of the assessment act, there is entitlement to reimbursement of illegally paid tax, by virtue of the aforementioned articles 24, paragraph 1, subparagraph b), of the LRAT and 100 of the General Tax Law, for this is essential to "reestablish the situation that would have existed if the tax act that was the subject of the arbitral decision had not been performed."
In view of the foregoing, the request for reimbursement of the amount of € 34,915.80 succeeds.
6.3. Compensatory Interest
As results from point 5.3, the illegality of the assessment does not result from unconstitutionality, but rather from the interpretation that must be made of paragraph 2 of article 135-B of the MPTC.
Thus, the jurisprudence invoked by the Tax and Customs Authority on the non-existence of the right to compensatory interest in cases where the illegality of the assessment derives from unconstitutionality does not apply here.
The Claimant paid the assessed amount and is entitled to reimbursement of the amount of € 34,915.80.
From what was mentioned, the partial illegality of the assessment act is attributable to the Tax and Customs Authority, for it issued the assessment on its own initiative, with an erroneous interpretation of the law, in the mentioned part.
Consequently, the Claimant is entitled to compensatory interest, in accordance with articles 43, paragraph 1, of the General Tax Law and 61 of the Tax Procedure Code, relative to the amount to be reimbursed.
The compensatory interest shall be paid from the date on which the Claimant made the payment until full payment of the amount that must be reimbursed, at the statutory default rate, in accordance with articles 43, paragraph 4, and 35, paragraph 10, of the General Tax Law, article 61 of the Tax Procedure Code, article 559 of the Civil Code and Ministerial Order no. 291/2003, of 8 April.
7. Decision
In these terms, the arbitrators of this Arbitral Tribunal agree to:
– Judge the request for arbitral pronouncement partially well-founded, as to the question of the application of the AMPT to the value of the land for construction with property register article ...;
– Partially annul the assessment of the Additional Municipal Property Tax ("AMPT") with number 2017..., as to the amount of € 34,915.80;
– Judge the request for reimbursement of the amount paid partially well-founded, as to the amount of € 34,915.80 and condemn the Tax and Customs Authority to reimburse the Claimant this amount;
– Judge the request for compensatory interest partially well-founded and condemn the Tax and Customs Authority to pay this interest to the Claimant calculated on the amount of € 34,915.80, from the date of payment until the date of issuance of the credit note;
– Judge the request for arbitral pronouncement unfounded as to the remaining questions and absolve the Tax and Customs Authority from the respective claims.
8. Value of the Case
In accordance with the provision of article 305, paragraph 2, of the Code of Civil Procedure and article 97-A, paragraph 1, subparagraph a), of the Tax Procedure Code and article 3, paragraph 2, of the Regulation of € 78,945.12.
9. Costs
Pursuant to article 22, paragraph 4, of the LRAT, the amount of costs is fixed at € 2,448.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant and the Tax and Customs Authority in the percentages of 55.77% and 44.23%, respectively.
10. Notification to the Public Prosecutor's Office
The Tax and Customs Authority requests notification of this arbitral decision to the Public Prosecutor's Office.
Since the Public Prosecutor's Office does not have special representation before arbitral courts operating in CAAD (article 4, paragraph 1 of the Statute of the Public Prosecutor's Office), this decision shall be communicated to the Office of the Attorney General, for such purposes as it may deem appropriate.
Lisbon, 24-04-2018
The Arbitrators
(Jorge Lopes de Sousa)
(Paulo Ferreira Alves)
(Mariana Vargas)
[1] BAPTISTA MACHADO, Introduction to Law and the Legitimating Discourse, page 182.
[2] In the present case, the question only arises relative to one land parcel for construction of a building or buildings intended for services.
[3] BAPTISTA MACHADO, Introduction to Law and the Legitimating Discourse, page 191.
[4] Essentially in this sense, GOMES CANOTILHO and VITAL MOREIRA, Constitution of the Portuguese Republic Annotated, volume I, 4th edition, 2007, page 344.
[5] Essentially in this sense, among others, the following decisions of the Constitutional Court may be seen:
– no. 143/88, of 16-6-1988, issued in case no. 319/87, published in the Bulletin of the Ministry of Justice no. 378, page 183;
– no. 149/88, of 29-6-1988, issued in case no. 282/86, published in the Bulletin of the Ministry of Justice no. 378, page 192;
– no. 118/90, of 18-4-90, issued in case no. 613/88, published in the Bulletin of the Ministry of Justice no. 396, page 123;
– no. 169/90, of 30-5-1990, issued in case no. 1/89, published in the Bulletin of the Ministry of Justice no. 397, page 90;
– no. 186/90, of 6-6-1990, issued in case no. 533/88, published in the Bulletin of the Ministry of Justice no. 398, page 81;
– no. 155/92, of 23-4-1992, issued in case no. 204/90, published in the Bulletin of the Ministry of Justice no. 416, page 295;
– no. 335/94, of 20-4-1994, issued in case no. 61/93, published in the Bulletin of the Ministry of Justice no. 436, page 129;
– no. 468/96, of 14-3-1996, issued in case no. 87/95, published in the Bulletin of the Ministry of Justice no. 455, page 152;
– no. 1057/96, of 16-10-1996, issued in case no. 347/91, published in the Bulletin of the Ministry of Justice no. 460, page 284;
– no. 128/99, of 3-3-1999, issued in case no. 140/97, published in the Bulletin of the Ministry of Justice no. 485, page 26.
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