Summary
Full Decision
ARBITRAL DECISION
The arbitrators Counselor Fernanda Maçãs (arbitrator-president), Dr. Rui Rodrigues and Professor Doctor Vasco Valdez (arbitrator-members), designated by the Ethics Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 06 March 2018, agree as follows:
1. Report
1.1
A…, S.A., hereinafter designated as "Claimant", taxpayer no. …, with registered office at …, no. …, in Lisbon, requested the constitution of a collective arbitral tribunal, under the combined provisions of article 2, no. 1, paragraph a) and article 10, both of Decree-Law no. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter designated only as "LRAT") and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, in which the Tax and Customs Authority (TA) is the Respondent, hereinafter designated as "Respondent".
1.2
The request for arbitral pronouncement, presented on 22 December 2017, has as its object the declaration of illegality and consequent annulment of the assessment of the Additional Municipal Property Tax ("AIMI") with no. 2017…, issued by the "TA" on 30 June 2017, with reference to the year 2017, in the total amount of 2,721,059.82 €.
1.3
It further requests the condemnation of the "TA" to reimburse the amount paid concerning the said assessment, plus the respective compensatory interest, under the terms of articles 43, no. 1 of the General Tax Law (LGT) and 61 of the Code of Tax Procedure and Process (CPPT), counted from the date of undue payment of the tax until the date of processing of the respective credit note.
1.4
The Claimant chose not to designate an arbitrator.
1.5
The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the TA on 27 December 2017.
1.6
Under the terms provided in paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 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 undersigned, who communicated their acceptance of the appointment within the applicable period.
1.7
On 14 February 2018, the Parties were notified of this designation and did not object to it, under the combined terms of article 11, no. 1, paragraphs a) and b) of the LRAT and articles 6 and 7 of the Ethics Code of CAAD.
1.8
Thus, in accordance with the provision of article 11, no. 1, paragraph c), of the LRAT, the collective arbitral tribunal was constituted on 06 March 2018.
1.9
The Respondent was notified, by arbitral order of the same date, under the terms of article 17, no. 1 of the LRAT, to present a response within 30 days, if it so wishes, and to request the production of additional evidence.
1.10
Moreover, it was notified to present, within the same period, the administrative file (PA) referred to in article 111 of the CPPT.
1.11
On 23 April 2018, the "TA" presented a response, defending the lack of merit of the request for arbitral pronouncement and, by reference to the provision of article 280, no. 3 of the Constitution of the Portuguese Republic and article 72, no. 3 of the Law of the Constitutional Court, requesting the notification to the Public Prosecution Service of the arbitral award.
1.12
By order of 25 April 2018, the meeting provided for in article 18 of the LRAT was dispensed with and it was decided that the case would proceed with written submissions.
1.13
Given that the Parties declared that they did not wish to make submissions, it was decided that the case would proceed to final decision, with 5 September 2018 being set as the deadline for the arbitral decision to be rendered, and by that date the Claimant should proceed to payment of the subsequent arbitral fee.
1.14
The Parties were notified of this order on 26 April 2018.
2. Position of the Parties
2.1 Of the Claimant
It substantiates its request for arbitral pronouncement, briefly, as follows:
It is a credit institution whose corporate purpose includes, in particular, the performance of financial operations, under article 4 of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law no. 298/92, of 31 December, whereby, in the scope of its activity, it is the owner of various properties, including residential properties, commercial properties and building land.
The legislator chose to exclude from the objective scope of the AIMI "urban properties classified as "commercial, industrial or for services" and "others" under paragraphs b) and d) of no. 1 of article 6 thereof", as provided for in no. 2 of article 135-B of the IMI Code.
It follows, by way of exclusion, that only urban properties intended for residential purposes and building land, as defined in article 6 of the IMI Code, are subsumed under the taxation rules of this Additional.
The Draft State Budget Law for 2017 (Draft Law no. 37/XIII/2nd, of 13-10-2016) would undergo significant changes upon the approval of the State Budget Law for 2017 (Law no. 42/2016, of 28 December), resulting from proposals presented by the Parliamentary Group of the Socialist Party ("PS") which, through the "Proposal to amend the Draft Law no. 37/XIII/2nd "State Budget for 2017"" of 18 November 2016, approved in Plenary of the Assembly of the Republic, came to provide that no. 2 of the new article 135-B of the IMI Code would have the legal wording currently in force.
In the Explanatory Memorandum of that amendment proposal, the PS Parliamentary Group expressly referred to "Changes to the Additional IMI resulting from public debate since the presentation of the proposal, ensuring the absence of impact on economic activity, greater progressivity of the tax and strengthening of taxation of real estate assets held by entities resident in tax havens", thus revealing the express intention of AIMI to represent an actual tax on real estate wealth.
The legislator intended to ensure that urban properties intended for economic activities would not be subject to AIMI taxation, recognizing that the mere holding of such properties does not constitute (and cannot constitute) a factor demonstrating wealth, nor a sufficient indicator of the taxpaying capacity of the holders of such properties.
It is evident that the legislative purpose underlying the rule of exclusion from objective scope, enshrined in no. 2 of article 135-B of the IMI Code, was based essentially on the intention not to impose excessive tax burden on taxpayers who, by force of their economic activities, hold properties for the pursuit of their corporate object.
The Claimant cannot accept – or understand – that the TA, through the assessment act now in dispute, has caused this new AIMI to apply to the real estate assets held by it.
And that it has considered, in determining the taxable property value subject to AIMI, "building land" whose potential use coincides with "commercial, industrial or services" purposes.
The properties held by the Claimant are intended for its installation and operation as well as for the pursuit of its corporate object, namely credit activity in the real estate branch, constituting true elements of the Claimant's production process, and can never be compared with elements demonstrating its wealth.
The holding of properties by the Claimant, even in large numbers, will never represent an (increased) taxpaying capacity that could justify the application of AIMI, as the TA intends, but rather represents the substrate of its credit activity (real estate branch), being inherent, necessary and indispensable to its pursuit.
Taxing the properties held by the Claimant would mean directly taxing an "economic activity" – something the legislator expressly intended to avoid when creating the AIMI.
In the alternative, the Claimant argues that building land intended for construction for commercial, industrial or services purposes cannot be considered in determining the taxable property value subject to AIMI, as it is incomprehensible that the tax is excluded in relation to properties with that intended use and not already with respect to building land with that same potential use.
Further in the alternative, the Claimant alleges the unconstitutionality of the taxation regime of article 135-B of the IMI Code, for violation of the constitutional principle of equality and the principle of fiscal equality and taxpaying capacity, enshrined in articles 13 and 104, no. 3, of the Constitution, respectively, insofar as it promotes differentiated treatment and unjustified inequality among taxpayers, and, additionally, points to the unconstitutionality of the said provision when interpreted in the sense that the exclusion of the additional covers commercial, industrial or services properties and not already building land intended for those same purposes, as it generates a situation of discrimination without material foundation.
Furthermore, the ownership of properties, corresponding to the patrimonial substrate of the entity's own economic activity, cannot be understood as an additional factor of wealth or taxpaying capacity, whereby the rule of article 135-B is also unconstitutional, for violation of the principle of fiscal equality, insofar as it materializes an unjustified discrimination in relation to entities that hold properties as productive factors for the exercise of their activity.
It concludes by seeking the acceptance of the request for arbitral pronouncement, on the ground of breach of law due to errors in the factual and legal assumptions, and by virtue thereof the annulment of the challenged assessment with all the consequences provided for by law.
2.2 Of the Respondent
In its response the Tax and Customs Authority argues the following, in summary:
The AIMI has the nature of real taxation and not personal taxation, insofar as the calculation of the amount to be paid abstracts from the economic dimension of the entities, namely the qualification as a small, medium or large enterprise, as well as does not reach the totality of the net assets of the entities.
The legislator excluded from the scope urban properties classified as "industrial, commercial or services" and "others" but expressly chose to maintain other properties that also form part of the assets of companies, such as those classified as residential or building land, by not including them in the negative delimitation enshrined, whereby it did not exclude from the scope all properties intended for economic activities.
The restriction was effected taking into account the classification of the properties and not their connection with a certain economic activity.
Nothing permitting to conclude, in light of the literality of the law, by an extensive interpretation that would allow to exclude from the scope of application the properties that constitute the substrate of the economic activity of the taxpayer.
The Claimant seeks an abrogating interpretation of the rule, introducing a meaning that was not established by the legislator in the letter of the law, even if merely imperfectly expressed, thus extending the scope of the exclusion from taxation to encompass all properties held by the Claimant.
On the other hand, the legislator intended to adopt an objective negative delimitation criterion, by reference to certain typologies of properties, to the detriment of other criteria that would take into account the actual intended use of the properties through a case-by-case verification, thus promoting greater uniformity and fiscal equality.
As for the legislative purpose, the AIMI aims to reach a portion of the assets of the taxpayers of the tax, focusing on real estate constituting an asset, legally recognizable as capital of a certain entity (singular or collective), but the choice was made in no. 2 of article 135-B by a negative delimitation of the scope, excluding from AIMI properties that, by their potential use, can be economically recognized as factors of production, as capital, that is, as intermediate goods that, combined with the other factors of production, produce new utilities – economic goods that satisfy needs.
In the context of its legislative discretion, the legislator excluded from the tax scope properties intended for purposes other than residential.
The criterion chosen by the legislator – the classification of urban properties as industrial, commercial or services and others – was adopted in preference to others that would appeal to case-by-case verifications of the actual intended use given to the properties.
The intention to ensure "the absence of impact on economic activity" did not, however, lead to the exclusion of the tax scope of commercial companies and other equivalent entities that, by having as their object the pursuit of economic activities, would be affected to a greater or lesser degree by the tax burden.
The negative delimitation of scope was established in the objective scope and not in the subjective scope.
The assets in question and especially building land are not merely instrumental to the exercise of the Respondent's activity, they are the object of commerce or industry, as they are intended for resale or, in the case of building land, also for transformation in case buildings are erected thereon for subsequent sale.
The real estate excluded from subjection to AIMI, under the terms of no. 2 of article 135-B of the IMI Code, are those that perform an instrumental function to industrial, commercial or services economic activities, insofar as they constitute buildings that serve as support to the functioning of the said activities, and are not themselves generators of income.
By force of the regime instituted by article 135-B, building land cannot be understood as excluded from taxation, being irrelevant whether such land is intended in the future for the implantation of a building for those commercial, industrial or services purposes.
The interpretation of the Claimant is clearly abrogating of the law, infused with legislative impulse and, if accepted, violates the constitutional principle of separation and interdependence of powers, enshrined in articles 2 and 111 of the Constitution, constituting itself as reference and limit to the powers of cognition of the courts in the exercise of their function within the State governed by the rule of law (cf. articles 202 and 203 of the Constitution).
As for the issues of constitutionality, the Tax and Customs Authority considers that the legislator, by negatively delimiting the scope of the tax by reference to properties that by their potential use can be recognized as factors of production, by contrast to other properties that constitute the patrimony of the taxpayer, is acting within the margin of free discretion with grounds in economic and social reasons. And, being a tax that focuses on certain manifestations of wealth, it does not violate the principle of fiscal equality or taxpaying capacity, nor does it specifically target a certain type of company or economic group.
There is no unconstitutionality by violation of the principles of equality and taxpaying capacity.
The Tax and Customs Authority cannot refrain from applying the law on the grounds of unconstitutionality, as it is bound by the principle of legality.
No compensatory interest is due if the unconstitutionality of the legal regime of AIMI is concluded.
The Tax and Customs Authority also alludes to the incompetence of the arbitral tribunal regarding the requests for annulment of the tax acts falling on building land by considering that, in some cases, their use is residential or predominantly residential and have no connection with the specific question submitted to the consideration of the tribunal.
It concludes by seeking the total lack of merit of the request for arbitral pronouncement and absolution of the Respondent, since the disputed assessment embodies a correct interpretation and application of law to the facts.
3. Preliminary Determinations
3.1 Question of the Competence of the Arbitral Tribunal
In articles 88 to 90 of its response, the Tax and Customs Authority invokes the incompetence of the Arbitral Tribunal to rule on the question of the legality of taxation focusing on building land whose potential use is other than commerce, industry or services.
The exception of incompetence is to be determined with priority, as results from the provision of article 13 of the Code of Procedure in Administrative Courts (CPTA), applicable to tax arbitration proceedings by force of the provision of article 29, no. 1, paragraph c), of the LRAT.
The competence of arbitral tribunals operating in CAAD is defined, in the first place, by article 2, no. 1, of the LRAT, which establishes the following:
"1 - The competence of arbitral tribunals comprises the examination of the following claims:
a) The declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account;
b) The declaration of illegality of acts of determination of the taxable matter when it does not give rise to the assessment of any tax, of acts of determination of the taxable matter and of acts of fixation of patrimonial values".
In the second place, the competence of arbitral tribunals operating in CAAD is limited by the binding of the Tax and Customs Authority which, under the terms of article 4, no. 1, of the LRAT, came to be defined by Ordinance no. 112-A/2011, of 12 March, whose article 2 establishes the following:
"The services and bodies referred to in the previous article are bound to the jurisdiction of the arbitral tribunals operating in CAAD that have as their object the examination of claims relating to taxes whose administration is assigned to them referred to in no. 1 of article 2 of Decree-Law no. 10/2011, of 20 January, with the exception of the following:
a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source and payment on account that have not been preceded by recourse to the administrative procedure under articles 131 to 133 of the Code of Tax Procedure and Process;
b)…………………………………………………………………………………………….;
c) …………………………………………………………………………………………….;
d)……………………………………………………………………………………………;
Discussing in the present arbitral request the question of whether the potential use of building land for commercial, industrial or services purposes determines their exclusion from the scope of application of the additional IMI, the Respondent concludes that the tribunal is incompetent to rule on the request insofar as it concerns the tax acts that do not present that connection.
In the case at hand, an act of assessment of the additional IMI is challenged, which falls within the type of claim that in light of the said legal provision is covered by arbitral jurisdiction, see paragraph a) of no. 1 of article 2 of the LRAT, and whose examination is not excluded by any of the rules of the said Ordinance, the Taxpayer having the right to impute the illegalities it deems fit to it, even if it comes to be understood that it has no reason, the Arbitral Tribunal being competent to examine whether they affect or not the assessment.
The circumstance that the grounds of the request only become applicable to some of the tax acts in question, and not others, can only have as a consequence that the cause of action will be inconclusive in that part.
On the other hand, the fact that, possibly, one of the plots is found in the circumstances referred to by the Respondent, is sufficient to conclude that all the questions of constitutionality that have as their presuppositions such circumstances are questions of concrete constitutionality and not of abstract constitutionality, as their solution has potential reflexes in the challenged assessment.
The judgment of partial lack of merit of the request does not, in any case, cease to integrate the powers of cognition of the tribunal, within the scope of its jurisdictional competence, whereby the invoked exception does not obtain.
3.2 Powers of Cognition of the Arbitral Tribunal
The Tax and Customs Authority, in article 110 of its response, invokes the principle of separation and interdependence of powers as an obstacle to the powers of cognition of this Arbitral Tribunal, in the following terms:
"Always it is said, with due respect, that if the interpretation of the Claimant is clearly abrogating of the law, infused with legislative impulse, if accepted, violates the constitutional principle of separation and interdependence of powers, enshrined in articles 2 and 111 of the Constitution, constituting itself as reference and limit to the powers of cognition of the courts in the exercise of their function within the State governed by the rule of law (cf. articles 202 and 203 of the Constitution), which is hereby stated for all legal purposes".
Regarding an identical question, we follow the arbitral decision of 04-05-2018, rendered in Case no. 675/2017-T, of CAAD, in the part where it states:
"There will certainly be some misunderstanding, for, in a State governed by the rule of law, it is for the Courts and not for any other bodies, namely those that have legislative and executive functions, that the administration of justice is charged, "ensuring the defense of the rights and legally protected interests of citizens, repressing the violation of democratic legality and settling conflicts of public and private interests" (articles 202, nos. 1 and 2, of the Constitution), for which they must interpret and apply the laws to settle disputes between citizens and the Administration.
And it is also for the Courts that the Constitution attributes the power to control the constitutionality of laws, issued by bodies with legislative power (article 204 of the Constitution).
The present decision is rendered by a Court, whereby it has a jurisdictional character, and in the exercise of its jurisdictional power it falls to it to apply the law, according to its interpretation, being only bound by the law, as it interprets it, not being obliged to adopt the interpretation adopted by the Tax and Customs Authority or that which would hypothetically be adopted by the bodies with legislative power if they were assigned the competence for the application of law to disputes pending in the Courts.
On the other hand, in the exercise of its interpretative activity the Arbitral Tribunal is not limited by the letter of the law, having to adopt all criteria of interpretation provided for in the law, namely those indicated in article 9 of the Civil Code and 11 of the LGT: "interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative thought, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied", being unable only to consider "the legislative thought that has not in the letter of the law a minimum of verbal correspondence", which may even be "imperfectly expressed"".
3.3
The Parties have judicial personality and capacity, show themselves to be legitimate and are regularly represented (articles 4 and 10, no. 2, of the LRAT and article 1 of Ordinance no. 112-A/2011, of 22 March).
3.4
The proceeding does not suffer from nullities.
3.5
The Arbitral Tribunal is regularly constituted and is materially competent to know and decide the claim, cf. article 2, no. 1, paragraph a) of the LRAT.
3.6
There are no other circumstances preventing the examination of the merits of the case.
4. Grounds
4.1 Proven Facts
With relevance for the examination and decision of the matter issue raised, the following facts are deemed established and proven:
a) The Claimant is a credit institution whose corporate purpose includes, in particular, the performance of financial operations, under article 4 of the General Regime of Credit Institutions and Financial Companies, approved by Decree-Law no. 298/92, of 31 December;
b) In the scope of its activity, the Claimant is the owner of various properties, namely residential properties, commercial properties, industrial properties, services properties and building land;
c) In August 2017, the Claimant was notified of the assessment of AIMI no. 2017…, of 30-06-2017, issued by the Tax and Customs Authority ("TA") with reference to the year 2017, in the total amount of 2,721,059.82 €, with payment deadline in the month of September 2017 (document no. 1 enclosed with the request for arbitral pronouncement, whose content is given as integrally reproduced);
d) Of the properties identified in the assessment, those indicated in document no. 3, enclosed with the request for arbitral pronouncement, whose content is given as integrally reproduced, are building land intended for the construction of industrial, commercial and services properties with the taxable value, as of 01-01-2017, of 50,998,746.01 €;
e) On 27-09-2017, the Claimant paid the assessed amount (document no. 2 enclosed with the request for arbitral pronouncement, whose content is given as integrally reproduced);
f) In the said assessment the taxable property value of 680,264,956.21 € was considered, as of 1 January 2017 (document no. 1);
g) The properties held by the Claimant are intended for its installation and operation and for the pursuit of its corporate object, namely its credit activity in the real estate branch; and
h) On 22-12-2017, the Claimant presented the request for arbitral pronouncement that gave rise to the present case.
4.2 Unproven Facts
There are no facts relevant to the decision of the case that should be considered unproven.
4.3 Statement of Reasons
Regarding the factual matter, the Tribunal does not have the duty to pronounce on all the matter alleged, but rather has the duty to select that which is relevant to the decision, taking into account the cause (or causes) of action that substantiate the claim formulated by the claimant [(cf. articles 596, no. 1 and 607, nos. 2 to 4 of the CPC, applicable by reference of article 29, no. 1, paragraphs a) and e), of the LRAT)] and to record whether it considers it proven or unproven (cf. article 123, no. 2 of the CPPT).
According to the principle of free appraisal of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its intimate conviction, formed from the examination and evaluation it makes of the evidence presented to the case and in accordance with its experience of life and knowledge of persons (cf. article 607, no. 5 of the CPC). Only when the probative force of certain means is pre-established in law (e.g. full probative force of authentic documents, cf. article 371 of the Civil Code) does not the principle of free appraisal of evidence dominate in the appraisal of the evidence produced.
Thus, the Tribunal's conviction was based on the collection of documents attached to the file as well as on the positions assumed by the parties.
The Tax and Customs Authority did not attach the administrative file nor does it question what is affirmed by the Claimant about the nature of the properties referred to in paragraph d) of the factual matter, whereby it is deemed established that these are building land with the purposes indicated there.
4.4 Matter of Law
As we have seen, the TP imputes to the challenged assessment vices of illegality, both because the same is based on erroneous interpretation of the provisions in question, and because the interpretation of the rule contained in no. 2 of article 135-B of the IMI Code (according to the wording introduced by Law no. 42/2016, of 28 December), followed by the Respondent, suffers from various unconstitutionalities.
Let us see.
Regarding the Illegality of the Assessment Due to Error of Interpretation of the Applicable Rules
The TP argues that the properties in question are directly intended for the economic activity (real estate branch) that it develops, whereby they are not covered by the scope of application of the additional IMI created by Law no. 42/2016, of 28 December, through the addition of articles 135-A and following to the IMI Code, through which the legislator intended to institute a new tax on real estate wealth.
On another plane of analysis, the TP also considers as illegal the taxation of building land intended for the purposes of commerce, industry or services insofar as it concerns properties potentially intended for those economic activities, and, as such, covered by the exclusion clause of article 135-B, no. 2, of the IMI Code.
The additional 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 "the passive subjects of the additional municipal property tax are natural or legal persons who are owners, usufructuaries or superficiary holders of urban properties located in Portuguese territory", being "equated to legal persons any structures or centers of collective interests without legal personality that appear in the matrices as passive subjects of the municipal property tax".
For its part, article 135-B defines the objective scope of application, providing as follows:
Article 135-B
Objective scope
1 - The additional municipal property tax focuses on the sum of the taxable property values of urban properties located in Portuguese territory of which the passive subject is the owner.
2 - The following are excluded from the additional municipal property tax: urban properties classified as "commercial, industrial or for services" and "others" under 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 meant by urban properties "commercial, industrial or for services" and "others" for the purposes of exclusion from the scope of application of the additional tax.
Thus, the municipal property tax (IMI) focuses on the taxable property value of rural and urban properties located in Portuguese territory, as results from article 1 of the IMI Code, and the following articles define, for the purposes of the tax, the concepts of property, of rural properties, of urban properties and of mixed properties (articles 2 to 5).
In turn, article 6 establishes the types of urban properties, providing as follows:
"1 - Urban properties are divided into:
a) Residential;
b) Commercial, industrial or for services;
c) Building land;
d) Others.
2 - Residential, commercial, industrial or for services are buildings or constructions licensed for such purposes or, in the absence of a license, that have as their normal intended use each of these purposes.
3 - Building land is considered to be land located within or outside an urban settlement, for which a license or authorization has been granted, prior notification admitted or favorable prior information issued for a subdivision or construction operation, and also those that have been so declared in the title deed, except for land in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or that, in accordance with municipal land use plans, are intended for spaces, infrastructure or public facilities.
4 - The provision of paragraph d) of no. 1 includes land located within an urban settlement that is not building land nor is covered by the provision of no. 2 of article 3 and also buildings and constructions licensed or, in the absence of a license, that have as their normal intended use purposes other than those referred to in no. 2 and also those in the exception of no. 3."
Given the above and regarding the first issue, it should be said from the outset that the literal wording of articles 135-A/1 and 135-B/1 and 2 of the IMI Code is clear and does not lend itself to any interpretative doubt. Given that the letter of the law, or grammatical element, is the first element to invoke in legal hermeneutics, and given that it is to be presumed that the legislator knew how to express its thought in adequate terms (no. 3 of article 9 of the Civil Code), it will not prove necessary to invoke other elements from among those available in the range of hermeneutical tools.
In effect, it appears clear that the legislator, in defining the negative delimitation of the tax scope by reference to urban properties classified as "commercial, industrial or for services" and "others" under paragraphs b) and d) of no. 1 of article 6 of the IMI Code, is precisely intending to refer to that typology of properties in accordance with the characterization that the Code itself attributes to it.
As was recorded in the Arbitral Award rendered in Case no. 664/2017-T, whose jurisprudence we now follow, as we agree with it, "The exclusion of the tax thus encompasses properties classified as commercial, industrial or for services, being understood as such buildings or constructions licensed for such purposes or that have as their normal intended use each of these purposes. It encompasses, furthermore, the residual species referred to in paragraph d) of no. 1 of that article 6, including therein land located within or outside an urban settlement that is not building land nor rural properties and also buildings and constructions that do not fit in any of the previous classifications.
"The objective scope of application, by effect of the reference to that article 6, thus came to be defined not only by reference to a certain species of urban properties, but also by reference to the administrative procedure through which the classification was effected or, in the absence of a license, the normal intended use of those properties for commercial, industrial and services purposes or others."
It is true that the legislative concern to "avoid the impact of this tax on economic activity" was announced in the Draft State Budget Law for 2017 and was achieved through the exclusion from the scope of application of the "urban properties classified in the species "industrial", as well as urban properties licensed for tourism activity, the latter provided that their intended use was duly declared and proven" and of the deduction from the taxable value of the amount of "€ 600,000.00, when the passive subject is a legal person with agricultural, industrial or commercial activity, for properties directly intended for its operation".
However, it was not on the basis of the activity for which the properties are intended that the exclusion of scope came to be defined, because in the wording that came to be approved, the non-application was defined, as we have seen, only on the basis of the types of properties indicated in article 6 of the IMI Code, without any reference to the intended use or not to the operation of legal persons.
Thus, as was recorded in the Arbitral Award no. 675/2017-T, "if the final version of the Budget had maintained the legislative intention to exclude the application regarding properties directly intended for the operation of legal persons, the reference to this intended use that appeared in the proposal and that clearly expressed that legislative option would certainly have been maintained.
"(…), given that this reference to the intended use of properties was suppressed, there is no legal support to conclude that residential properties and building land intended for the operation of legal persons are not relevant to the scope of application of the AIMI.
"In the absence of other elements that induce the selection of the less immediate sense of the text, the interpreter should opt in principle for that sense that best and most immediately corresponds to the natural meaning of the verbal expressions used, and in particular to their technical-legal meaning, in the supposal (not always accurate) that the legislator knew how to express its thought correctly. ([1])
"In the case at hand, given the abandonment of the proposed wording in which the intended use of properties was given relevance, there is no reason to conclude that the legislator did not know how to express its thought in adequate terms, as must be presumed, by force of the provision of article 9, no. 3, of the Civil Code."
In the same sense can be read in the Arbitral Award, relating to Case no. 664/2017-T, referred to above, that: "Having the law defined the scope of application of the tax through technical legal concepts used in other places of the system, it is surely with that sense that the applicative scope of the legal provision must be defined. Norms, at times, contain more than one meaning and then the positive function of the text translates into giving stronger support to or more strongly suggesting one of the possible senses. But if the legislator resorted to a special technical-legal language, to express its thought with greater precision, it falls to the interpreter to avail itself of the technical-legal meaning of the expressions used, dispensing itself with circumstantial elements that could only lead to an interpretative result not intended by the legislator (cf., in this sense, Baptista Machado, Introduction to Law and Discourse Legitimizing, Coimbra, 1993, page 182).
"As must be concluded, the pretended extension of the legislative formula used to properties intended for the entity's economic activity, independently of the specific characterization as commercial, industrial or services properties, has no place in light of the general criteria of legal hermeneutics."
Thus, the TP is not right in arguing that it would have been the legislator's intention to intend to exclude from the scope of application of the tax the properties intended for economic activities, under the pretext that the objective pursued would be not to impose excessive tax burden on taxpayers who hold properties by effect of their corporate purpose.
In effect, such interpretation has no support in the letter of the law nor does it result from the rational and systematic element. It is clear from the reading and interpretation of the rules in question that the legislator's option was not in the sense advocated by the TP. Such an option would presume that the legislator, instead of having delimited the scope of application through characterized types, had opted for a case-by-case evaluation depending on the intended use of the property, in practical terms, to an economic activity or to the operation of a legal person. What is shown not to have happened.
In sum, it is repeated, the relevant criterion elected by the legislator, in the context of its broad margin of discretion, was the classification of properties in light of article 6 of the IMI Code and not their intended use for the Claimant's economic activity, either as an element of tangible fixed assets or of current assets, as goods (properties intended for sale) or raw materials (land intended for construction). "Furthermore, such intended use does not appear in the law nor in Draft Law no. 37/XIII/2nd, of 13-10-2016, in the wording introduced by the Amendment Proposal of 18-11-2016, contained in the statement of reasons of the political parties, namely the Socialist Party, notwithstanding that in the initial wording of the said Draft Law as well as in the Budget Report 2017, of October 2016 (Strategy for the Promotion of Economic Growth and Budget Consolidation – IV.2.3. Fiscal Policy Guidelines) and also in point 1.4.2.1 – "Tax Measures for 2017" of the Budget, Finance and Administrative Modernization Commission, of 31-10-2016, the intended use for productive activity was provided for".
Given that the AIMI focuses on the sum of the taxable property values of urban properties located in Portuguese territory of which the taxpayer is the owner and given that these, in light of the provision of article 6/1 of the IMI Code, are divided into residential; commercial, industrial or for services; building land; and others, and that, under the terms of article 135-B/2 of the IMI Code, only properties classified as "commercial, industrial or for services" and "others" under paragraphs b) and d) of no. 1 of article 6 of the IMI Code are excluded from the AIMI. From which results unambiguously the conclusion that the remaining properties, namely residential and building land are subject to the AIMI.
Thus, the fact that the TP holds the properties referred to in the file in the scope of its economic activities does not prevent the application of the AIMI.
Nor is the TP right in arguing, in the alternative, that "Having been clear the legislator's intention in excluding, through no. 2 of article 135-B of the IMI Code, the application of AIMI to properties intended for economic activities, must it necessarily be understood that the "building land" intended for those same activities are also included in that exclusion rule" (article 74 of the Petition).
It happens that the TP assumes, from the start, as has already been demonstrated, the wrong presupposition regarding the sense and scope of the provision of article 135-B, no. 2, of the AIMI, according to which because it was the legislator's intention to exempt from taxation properties intended for economic activities, should it be considered equally excluded from the scope of application of the additional IMI the building land whose potential use coincides with the "commercial, industrial or services" purposes.
As the letter of the law constitutes the starting point and limit of interpretation, the interpreter cannot arrive at a result that does not have in the letter of the law the minimum of verbal correspondence, even if imperfectly expressed (cf. no. 2 of article 9 of the Civil Code).
This thesis, besides being based on a wrong presupposition (in the pretended intention of the legislator to relieve building land intended for economic activity), has no support in the letter of the provision. In fact, article 135-B, no. 2, of the IMI Code limited itself to excluding from the additional urban properties classified as "commercial, industrial or for services" and "others", referring to the characterization that is effected in article 6 of that Code regarding those species of urban properties.
As we have seen, that provision distinguishes, in its no. 1, among properties "residential", "commercial, industrial or for services", "building land" and "others" and defines in the following numbers the normative criteria upon which depends the classification of an urban property in any of those species. Building land are, as results from no. 3 of that article 6, land that have been encompassed by a subdivision or construction license operation and are not intended for other purposes of an urbanistic nature, and are not confused with properties classified as "commercial, industrial or for services", which are those that are licensed for those purposes or, in the absence of a license, have as their normal intended use each of those purposes.
As was recorded in the Arbitral Award rendered in Case no. 664/2017-T, "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 effect an extensive interpretation so as to include therein other typologies that the legislator manifestly did not wish to consider. Not even being able to reach that interpretative result on the basis of mere considerations of a pragmatic order or of teleological identity.
"Even if it were justified, from a fiscal policy perspective, to confer upon building land intended for buildings for commercial, industrial or services purposes the same status that came to be attributed to properties classified as "commercial, industrial or for services", the fact is that that was not the legislative option, which limited itself to excluding from the scope of application of the tax those types of properties and not those others that potentially could be used for those same purposes."
Finally, this interpretation does not constitute any discriminatory treatment and violation of the principle of equality insofar as we are speaking of diverse realities from the outset because building land is not assimilable to already built urban properties, as will be analyzed further below.
Thus, the TP has no reason, and its respective claim should be rejected.
Regarding Constitutional Issues
Finally, the TP raises the unconstitutionality of the legal provision of article 135-B, no. 2, of the IMI Code, for violation of the principle of fiscal equality and the principle of taxpaying capacity, when interpreted in the dual sense that the scope of application of the additional tax encompasses the ownership of property when these correspond to the substrate of its own economic activity developed as a credit institution, and that the exclusion from the scope of application encompasses urban properties classified as commercial, industrial or for services and not already building land intended for those same purposes.
The TP raises, in the second place, the unconstitutionality of the taxation regime of the additional IMI in a dual aspect.
It considers, on the one hand, that the additional tax promotes differentiated treatment and unjustified inequality among taxpayers, in violation of the principle of fiscal equality (article 13 of the Constitution), insofar as it does not exclude from taxation all building land intended for economic activities. Taxing properties classified as building land with potential use for industry and not taxing a built property with that use, besides constituting an absurd situation constitutes a discriminatory situation.
Thus, the TP argues that the rule of article 135-B, no. 2, of the IMI Code is unconstitutional, for violation of the principle of fiscal equality and taxpaying capacity, when interpreted in the sense that the exclusion of the additional encompasses commercial, industrial or services properties and not already building land intended for those same purposes, as it generates a situation of discrimination without material foundation.
As was recorded in the Arbitral Award that we have been following "the Constitutional Court has underlined, one of the essentially constitutional 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 to the reduction of inequality in the social distribution of income and wealth that requires that it be progressive. This requirement is expressly enshrined in the context of personal income taxation: according to no. 1 of article 104, personal income tax aims at "the reduction of inequalities and shall be unique and progressive, taking into account the needs and income of the family group".
"Fiscal progressivity requires that the relationship between the tax paid and the level of income be more than proportional, which can only be achieved by applying to taxpayers with higher income a higher tax rate. In other words, there is progressivity when the value of the tax increases in proportion greater than the increase in taxable matter.
"Consequently, the Constitution requires a progressivity with the intrinsic virtue of contributing to a reduction of income inequality (on all these aspects, the judgment of the Constitutional Court 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 mentioned by Casalta Nabais, the principle of fiscal equality has inherent especially "the idea of generality or universality, under which all citizens are bound to comply with the duty to pay taxes, and of uniformity, requiring that such duty be measured by the same criterion – the criterion of taxpaying capacity. This thus implies equal tax for those who have equal taxpaying capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those who have different taxpaying capacity in proportion to this difference (vertical equality)" (Tax Law, 5th edition, Coimbra, 2009, pages 151-152).
"Configuring itself the general principle of equality as a material equality, the principle of taxpaying capacity – according to the same author – as the tertium comparationis of equality in the domain of taxes, does not lack 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, especially, those that result already from the structuring principles of the tax system that appear in articles 103 and 104 of the Constitution (ob. cit., page 152).
"As presupposition and criterion of taxation, the principle of taxpaying capacity – within the same line of understanding – "distances the fiscal legislator from arbitrariness, obliging it to that in the selection and articulation of the tax facts, it adheres to revelations of taxpaying capacity, that is, erects into object and taxable matter of each tax a certain economic presupposition that is a manifestation of this capacity and is present in the various legal hypotheses of the respective tax" (ob. cit., page 154).
"Also the Constitutional Court, more recently, has analyzed the principle of fiscal equality under the prism of taxpaying capacity, as can be seen in particular in judgment no. 142/2004, where it is recorded that "[t]he principle of taxpaying capacity expresses and concretizes the principle of fiscal or tax equality in its uniformity aspect – the duty of all to pay taxes according to the same criterion – with taxpaying capacity filling the unitary criterion of taxation".
"The recognition of the principle of taxpaying capacity as a criterion designed to assess the constitutional inadmissibility of certain or certain solutions adopted by the fiscal legislator has also led to the idea, expressed for example in judgment of the Constitutional Court no. 348/97, that taxation in accordance with the principle of taxpaying capacity will imply "the existence and maintenance of an effective connection between the tax payment and the economic presupposition selected for the object of the tax, requiring, therefore, a minimum of logical coherence of the various concrete hypotheses of tax provided for in the law with the corresponding object thereof".
"The Constitutional Court has thus been moving away from a merely negative control of tax equality, coming to adopt the principle of taxpaying capacity as an adequate criterion for the distribution of taxes; but it continues to accept the prohibition of arbitrariness as an additional element in the verification of the constitutional validity of normative solutions in the fiscal sphere, especially when these are dictated by considerations of legislative policy related to the rationalization of the system.
"In sum, the principle of tax equality can be concretized through diverse aspects: a first one lies in the generality of the tax law, in its application to all without exception; a second, in the uniformity of the tax law, in treating equally taxpayers who find themselves in equal situations and differently those who find themselves in different situations, in the measure of the difference, to be assessed by taxpaying capacity; a last one, lies in the prohibition of arbitrariness, in preventing the introduction of discriminations among taxpayers that are devoid of rational foundation (cf. judgments of the Constitutional Court no. 306/2010 and 695/2014)".
Applying the above to the case under analysis, it is highlighted, in the first place, as can be read in the Report on the Budget for 2017 (page 60), that the creation of the additional IMI, as a complementary tax on real estate assets, aimed to introduce in the taxation "a progressive element of personal basis, taxing more highly the most substantial assets", and, in that sense, is compatible with the principle of tax progressivity referred to in no. 3 of article 104 of the Constitution, which has as a corollary the tendency to impose greater taxation on those with greater taxpaying capacity.
According to doctrine it has also been understood that the taxation of assets, alongside the taxation of income, constitutes a projection of taxpaying capacity, functioning as an extension of the personal tax on income and as the reinforcement of qualitative discrimination (Sérgio Vasques, "Taxpaying Capacity, Income and Assets", Fiscality – Journal of Law and Tax Management, no. 23, Coimbra, 2005, pages 33 and 36).
Now, in this context, it is not seen that the taxation of the TP's real estate assets offends the principle of tax equality and taxpaying capacity merely because the ownership of immovable property constitutes the very object of its economic activity.
In effect, the properties held by it will be intended for activities freely accessible to the generality of property owners and any other entities, even if of an entrepreneurial nature, that dedicate themselves to real estate promotion.
As can be read in the Arbitral Award rendered in Case no. 664/2017-T, "The ownership of a real estate asset, 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 taxpaying capacity, which goes beyond the tax that focuses on taxable profit by reason of the economic activity developed. What is at issue, therefore, is not the taxation of the real income earned by these entities through the activity developed, but the complementary taxpaying capacity that results from the ownership of the asset and that by itself can facilitate the raising of credit or the strengthening of its negotiating position in the conclusion of contracts (…)".
Also as was recorded in the Arbitral Decision rendered in Case no. 675/2017-T, which focused on a similar situation (building land held by a credit institution), "The specific situation of entities that develop credit granting activity in the real estate sphere does not appear to deserve special treatment in relation to the generality of citizens with regard to the holding of properties intended for residential purposes.
"In truth, the ownership of a high-value real estate asset evidences, as in relation to any owner of residential property, a special economic capacity to be able to contribute additionally to the Financial Stabilization Fund of Social Security, to which the income from the AIMI is assigned, and which "corresponds to the objective of the government program of broadening the financing base of Social Security" (Budget Report for 2017, page 57).
"Therefore, the imposition on the generality of holders of residential properties or building land for residential properties does not appear to be materially unconstitutional, in light of the principles of equality and taxpaying capacity."
Furthermore, in line with what was understood in the Arbitral Award of 17 March 2016, rendered in Case no. 507/2015-T, "it will be necessary to establish a distinction between the ownership of real estate assets intended for residential purposes that constitutes, in itself, a tending indication of economic abundance, superior to that of the generality of citizens, and the ownership of rights over properties intended for the exercise of commercial, industrial, services provision or similar activities that can be recognized as factors of production and whose dimension and patrimonial value constitutes, not so much a manifestation of wealth, but a standard of adequacy to the operation of the company.
"It thus appears that there is constitutionally acceptable ground for the restriction of the scope of application of the additional tax to residential properties by comparison with properties classified as commercial, industrial or for services provision, the invoked unconstitutionality being ruled out on the basis of the violation of the principles of equality and taxpaying capacity."
The Claimant further alleges unconstitutionality resulting from the discrimination operated by the rule of article 135-B, no. 2, of the IMI Code, regarding building land, for disregard of the potential use of such land for the purposes of commerce, industry or services, taking as a point of reference the properties classified as commercial, industrial or for services that are excluded from taxation by force of the provision in that article.
Returning again to that recorded in the Arbitral Award rendered in Case no. 664/2017-T, "one must take into account that we are facing diverse tax facts. In one case, the law subjects to taxation urbanizable land that constitutes an economic asset by effect of its aptness for construction. In another case, the law excludes from the tax the built asset that performs an instrumental function in relation to the productive activity.
"There is no necessary connection between those two realities. The building land has its own patrimonial value that constitutes, in itself, an indicator of taxpaying capacity that is capable of 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. The already built asset that is classified as commercial, industrial or services property has already an instrumental function in relation to a certain productive activity that the legislator, within its margin of free discretion, may intend to safeguard in the context of its duties to promote economic and social development, which have constitutional foundation (article 81 of the Fundamental Law)."
In this context, it would make no sense to be exempting from AIMI the building land, as such, which enjoys a merely potential constructive capacity of the type of property to be built (for commerce, industry or services), as the legislator would thereby be encouraging their non-construction and actual use in a productive activity.
In sum, it is possible to discern a sufficient material foundation to distinguish between those different tax facts for purposes of the taxation of assets.
The Claimant further makes reference, on the subject of constitutional issues, to the Judgment of the Constitutional Court no. 250/2017, which judged unconstitutional the rule of item 28.1 of the General Table of Stamp Duty, in the wording of Law no. 83-C/2013, of 31 December, insofar as it imposes annual taxation on the ownership of building land whose authorized or planned construction is for residential purposes, whose patrimonial value equals or exceeds € 1,000,000.00.
Recall that such judgment, shifting the previous constitutional jurisprudence on that matter (cf. judgments nos. 590/215, 83/2016, 247/2016 and 568/2016), stressed that it is not possible to compare residential buildings that correspond to a real definitively incorporated buildability in the legal sphere of the holder and building land that corresponds to a merely potential buildability, not yet materialized, to conclude that it is not possible to integrate within the same normative provision of tax buildings of high patrimonial value and building land that are essentially worth their future urban development.
Also here we will follow that recorded in the Arbitral Award rendered in Case no. 664/2017-T, in the terms that follow: "It must be said from the outset that the provision analyzed there does not have the same normative content as the provision that is now under examination and that the legal understanding that came to be established cannot be transposed directly to the situation of the case at hand.
"The principle of tax equality was mobilized in that judgment by the understanding that the inclusion in the scope of application of the rule of building land alongside an already built residential property does not reflect the different taxpaying capacity of the respective owners, that being the determinative reason for the judgment of unconstitutionality. In the case at hand, on the contrary, for purposes of the exclusion of the additional IMI, it is sought to establish the equation between building land and urban properties classified as commercial, industrial or services from the inverse perspective that building land potentially usable for that purpose do not distinguish themselves from properties already built that are classified as commercial, industrial or for services.
"But, as was left to be understood, there is no, in that circumstance, any reason to consider verified the violation of the principle of fiscal equality, given that – as, moreover, is recognized in judgment no. 250/2017 – building land and built assets correspond to distinct realities, and the exclusion of the additional IMI in relation to properties classified as commercial, industrial or for services shows itself to be justified by their instrumental function in relation to a certain productive activity, which is not applicable to land that will only be able to achieve that potential in the future.
"The cited judgment of the Constitutional Court no. 250/2017 thus brings no new argument that could found, in the situation of the case, a judgment of unconstitutionality."
Terms in which, before the above, the principal and alternative claims of the TP are rejected, being necessary to maintain the challenged assessment in the legal order.
Prejudiced Claims
Given the judicial solution of the case, the claim for reimbursement of the amounts paid as additional IMI and condemnation to the payment of compensatory interest is prejudiced, as well as the issue raised by the Tax Authority regarding the tax acts that refer to building land intended for residential purposes (article 608, no. 2, of the CPC).
5. Decision
In these terms, the arbitrators agree in this Arbitral Tribunal in judging the request for arbitral pronouncement to be totally without merit, as unproven, absolving the Tax and Customs Authority of all claims, in the terms requested, maintaining in the legal order the challenged act.
6. Value of the Case
In accordance with the provision of articles 306, no. 2, of the CPC, 97-A, no. 1, paragraph a) of the CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), the value of the case is fixed at 2,721,059.82 €.
7. Costs
Under the terms of article 22, no. 4 of the LRAT, the amount of costs is fixed at 34,884.00 €, under the terms of Table I, attached to the RCPAT, at the charge of the Claimant.
Notify.
Lisbon, 16 July 2018.
The Arbitrators,
(Fernanda Maçãs)
(Rui Rodrigues)
(Vasco Valdez)
Text prepared by computer, under the terms provided for in article 131, no. 5, of the CPC, applicable by reference of article 29, no. 1, paragraph e), of the LRAT.
[1] BAPTISTA MACHADO, Introduction to Law and Discourse Legitimizing, page 182.
Frequently Asked Questions
Automatically Created