Summary
Full Decision
ARBITRAL DECISION (consult full version in PDF)
Parties
Claimant: A..., LDA., NIPC PT..., with registered office at Rua ... nº...– ...-... ... .
Respondent: TAX AND CUSTOMS AUTHORITY (AT)
I. REPORT
On 26 December 2017, the Claimant filed with CAAD a request for arbitral pronouncement (PPA) requesting, under the Legal Regime for Arbitration in Tax Matters (RJAT), the constitution of a singular arbitral tribunal (TAS).
THE REQUEST
The Claimant, regarding the Additional Municipal Property Tax (AIMI) with reference to the year 2017, requests that this TAS pronounce itself "... on the illegality of the tax act for the assessment of ... AIMI with no. 2017..., issued by the Tax and Customs Authority (AT), ..., in the total amount of € 17,690.91".
It formalizes the request in the following terms:
"The tax act which is the subject thereof, relating to the assessment of AIMI identified above, shall be annulled, because it is contrary to law, as it suffers from error in the factual and legal presuppositions;
The Tax and Customs Authority shall be condemned to reimburse the Claimant for the value of the tax paid, in the amount of € 17,690.91, regarding the assessment sub judice, and also to pay indemnificatory interest, at the legal rate, until the full reimbursement of the amount owed."
"As a subsidiary matter, and without waiving, it requests
The tax act which is the subject thereof, relating to the assessment of AIMI identified above, shall be annulled, because it is contrary to law, as it suffers from error in the factual and legal presuppositions;
The Tax and Customs Authority shall be condemned to reimburse the Claimant for the value of the tax paid, regarding the assessment sub judice, and also to pay indemnificatory interest, at the legal rate, until the full reimbursement of the amount owed."
"As a subsidiary matter, and without waiving, it requests
Articles 135ºA and 135ºB of the IMI Code shall be inapplicable, in the present case, due to manifest unconstitutionality, by violation of the constitutional principle of equality (as per article 204º of the Constitution of the Portuguese Republic), and consequently the illegality of the tax act for the assessment of AIMI sub judice shall be declared, as it is based on unconstitutional norms, and the same shall be promptly annulled, with all legal consequences".
THE CAUSE OF ACTION
The Claimant is a commercial company whose corporate purpose comprises "buying and selling property, construction of houses for sale, urban developments and subdivisions".
Since the taxation in question in the assessment here challenged concerns "land for construction" with "type of location coefficient: services" that form part of its corporate purpose, its reason for existence as the substratum of all its activity, it contends that "the legislator, in instituting AIMI, aimed to ensure that urban properties assigned to 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 contributory capacity of the holders of such properties", considering "... it is evident that the ratio legis that was at the origin of the exclusion rule 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 virtue of their economic activities, hold properties for the pursuit of their respective corporate purpose".
Therefore, the additional property tax in question cannot be levied on these immovable assets, at the risk of directly taxing an economic activity, and the assessment is illegal.
Even if this were not the case, the assessment would be illegal, since the land for construction in question, which it lists in document no. 3 attached to the PPA, are assigned to "services", based on the tax exclusion rule of no. 2 of article 135ºB of the IMI Code.
Finally, it contends that the AIMI taxation regime is contrary to the principle of equality enshrined in article 13º of the Constitution of the Portuguese Republic and to the principles of tax equality and contributory capacity enshrined in article 104º-3 of the Constitution of the Portuguese Republic, questioning: "if 'commercial, industrial or service properties' and 'other properties' are expressly excluded from the scope of application of AIMI — because they are assigned to economic activities, which the legislator did not wish to burden, — how can 'land for construction' assigned to those same purposes be included in that scope? It cannot."
OF THE SINGULAR ARBITRAL TRIBUNAL (TAS)
The request for constitution of the TAS was accepted by the President of CAAD and automatically notified to AT on 27-12-2017.
By the Ethics Council of CAAD, the undersigned was designated as arbitrator, with the parties being notified thereof on 14.02.2018. The parties did not manifest any intention to refuse the designation, in accordance with article 11.º no. 1 subparagraphs a) and b) of RJAT and articles 6.º and 7.º of the Ethics Code.
The Singular Arbitral Tribunal (TAS) has been regularly constituted, as of 06.03.2018, to examine and decide the subject matter of this dispute (articles 2.º, no. 1, subparagraph a) and 30.º, no. 1, of RJAT).
All these acts are documented in the records contained in the Case Management System, which are hereby reproduced.
On 06-03-2018, AT was notified in accordance with and for the purposes of article 17º-1 of RJAT. It responded on 17.04.2018, not attaching the Administrative File (PA) because it does not exist.
On 17.04.2018, an order was issued on the unnecessary holding of the parties meeting of article 18º of RJAT, unless both or one of the parties came to express a different position. In the same order, presuming that the parties would accept the procedural process proposed by the TAS, they were invited to submit written pleadings within 10 days, successively.
Neither party pleaded or counter-pleaded.
By order of 25.06.2018, the date for the rendering of the final decision was scheduled.
PROCEDURAL REQUIREMENTS
Legitimacy, capacity and representation – The parties are legitimate, possess legal personality and procedural capacity and are represented (articles 4.º and 10.º, no. 2, of RJAT and article 1.º of Ordinance no. 112-A/2011, of 22 March).
Principle of contradiction - AT was notified in accordance with subparagraph l) of this Report. All procedural documents and all documents attached to the process were made available to the respective counterparty in the Case Management System of CAAD. Both parties were always notified of their attachment.
Dilatory exceptions - The arbitral procedure does not suffer from nullities and the request for arbitral pronouncement is timely since it was presented within the deadline prescribed in subparagraph a) of no. 1 of article 10.º of RJAT, as results from the fact that the Claimant presented the request for pronouncement on 26.12.2017 and was notified of the assessment on an unspecified date, but the assessed amount had as the deadline for voluntary payment the day 30.09.2017 (article 2º of the PPA not contested by AT).
SUMMARY OF THE CLAIMANT'S POSITION
(in 155 articles constituting the PPA)
Holding of immovable property by the Claimant vs the illegal application of AIMI
The Claimant states that "... the legislator, in instituting AIMI, intended to create an effective tax on immovable wealth" and "...aimed to ensure that urban properties assigned to 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 contributory capacity of the holders of such properties".
Concluding that "... it is evident that the ratio legis that was at the origin of the exclusion rule 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 virtue of their economic activity, hold properties for the pursuit of their respective corporate purpose", being certain that "... the Claimant, given the activity it develops, is necessarily the owner of multiple immovable properties", since "... it has as its corporate purpose 'buying and selling property, construction of houses for sale, urban developments and subdivisions'", having "... as its main code of classification of economic activity no...." .
Resulting that "... the holding of such properties, in the terms set out above, effectively constitutes the substratum of all the activity developed by the Claimant", thus demonstrating "... that the Claimant's activity is (in fact) limited to operations related to immovable assets", which "constitute true elements of the production process of the Claimant's activity, whether as rental assets, or as true inventories intended for future transformation, intended exclusively for the pursuit of its activity and never being able to be compared with elements demonstrating its wealth".
"Thus, the holding of immovable property by an immovable property company such as the Claimant here — even in a large number —, does not represent an (increased) contributory capacity that may legitimize the application of AIMI, as AT intends", quite the contrary "... it represents, in truth, the substratum of all the activity of the Claimant — it is inherent, necessary, indispensable to the pursuit thereof".
Therefore, "... it is evident that AIMI — as provided for in articles 135º-A and following of the IMI Code — can never be levied on the immovable property held by the Claimant in the course of its activity, since the principles underlying the taxation in question are not present", for the reason that "... taxing such property would mean directly taxing an 'economic activity' — something which the legislator expressly intended to avoid by creating AIMI".
Concluding that "... it is demonstrated that the assessment of AIMI sub judice, issued with respect to the immovable property held by the Claimant, appears manifestly illegal, due to error in the factual and legal presuppositions, and should be promptly annulled, with all legal effects".
The (illegal) taxation of "land for construction" assigned to purposes "commercial, industrial or services" or "other"
The Claimant considers that "... the assessment sub judice is levied on immovable property that, by its nature, cannot be included within the scope of the objective scope of the norms in question", not accepting that "... for the purposes of determining the value subject to taxation for this tax, the patrimonial value of 'land for construction' intended for the building of properties intended for those purposes" was considered, for the reason that "...no. 2 of article 135º-B of the IMI Code states that 'are excluded from the additional municipal property tax urban properties classified as "commercial, industrial or service" and "other"'"
It states that "... in instituting AIMI, the legislator intended to tax only immovable property — already constructed immovable property and land — for residential purposes. Such intention results from the wording of the law and, moreover, was at the origin of the creation of this additional", "given that the legislator's intention was clear in excluding, through no. 2 of article 135º-B of the IMI Code, the application of AIMI to properties assigned to economic activities, it must necessarily be understood that 'land for construction' assigned to those same activities are equally included in this exclusion rule", since "... 'land for construction' assigned to those purposes do not cease, by the mere fact of being 'land for construction', to be intended for the (future) exercise of economic activities".
It poses the following question: "should AIMI be levied on 'land for construction' intended for the construction of a hotel, but AIMI should not be levied on the already constructed hotel. Why?"
It criticizes the assessment here challenged stating that it does not understand "what the purpose underlying this taxation could be" since "the same does not result from the norms contained in the IMI Code", concluding that it "is manifestly contrary to the principles that were at the origin of this regime and, moreover, violates the principle of equality".
It further concludes that "... the taxation methodology adopted by AT, in the sense of including in the taxable value for AIMI purposes the taxpayers holding 'land for construction' with the purposes identified by no. 2 of article 135º-B of the IMI Code, constitutes discriminatory treatment that violates, without further ado, the principle of equality, constitutionally enshrined in articles 13º and 104º, no. 3, of the Constitution of the Portuguese Republic ('CRP') and in articles 5º and 55º of the General Tax Law ('LGT')".
The unconstitutionality of the AIMI legal regime
The Claimant alleges that the "AIMI taxation regime is contrary to the foundational principle of equality, enshrined in article 13º of the Constitution of the Portuguese Republic and, in parallel, contrary to the principle of tax equality and contributory capacity enshrined in article 104º no. 3 of the same diploma", for the reason that "the principle of equality, foundational in a state of law, expresses the prohibition of any discrimination in the treatment of equal situations (equalizing dimension) and the admission of unequal treatment of unequal situations (differentiating dimension)". "This principle is expressly enshrined in article 13º of the Constitution of the Portuguese Republic and reproduced in various constitutional provisions on multiple matters". On the other hand "... the principle of tax equality assumes itself as a particular expression of the general principle of equality, materially considered, as 'equality in law'" (see Casalta Nabais, Tax Law, 3rd Edition, Coimbra, 2005, page 153)". "In matters of tax equality, contributory capacity assumes itself ... as an essential element to be considered, since the effective equality of tax treatment of taxpayers will depend on the existence of identical taxation for identical contributory capacities". "This principle of contributory capacity is thus based directly on the material principle of equality, constitutionally enshrined, and supported by the remaining fiscal norms of the Constitution of the Portuguese Republic and in tax legislation". "The principle of equality appears in the context of tax legislation, in the first place, in article 5º of the General Tax Law which expressly determines that 'taxation aims to satisfy the financial needs of the State and other public entities and promotes social justice, equality of opportunities and the necessary corrections of inequalities in the distribution of wealth and income'", being that "taxation respects the principles of generality, equality, legality and material justice".
Concluding that "it is thus constitutionally forbidden to the ordinary legislator to create norms arbitrarily, with the same being subject to the dictates of equalization and positive discrimination, as the cases may be", being certain that "... articles 135º-A and 135º-B, both of the IMI Code, and the taxation resulting therefrom, promote differentiated treatment and an unjustified inequality among taxpayers, in manifest violation of the principle of equality enshrined in article 13º of the Constitution of the Portuguese Republic."
The indiscriminate taxation of all "land for construction": the (illegal) disregard of the legal criterion of assignment of the property
It understands that "... it should be understood that it was the intention of the legislator to include within the objective scope of application of AIMI urban properties classified as 'residential' or as 'land for construction' — see article 6º of the IMI Code". "However, as regards the taxation in AIMI of properties classified as 'land for construction', it is important to heed the wording of the aforementioned norm and, moreover, the origin of the taxation in question, to understand the limits of taxation of this type of urban property", since "... in instituting AIMI, the legislator intended to tax properties with residential purposes, as effective manifestations of wealth. Such intention results from the wording of the law and, moreover, was at the origin of the creation of this additional", resulting "... the clear intention of the legislator to exclude from the scope of application of AIMI all properties assigned to economic activities", reason for which "... as regards the taxation of 'land for construction', it should be understood that all 'land for construction' assigned to economic activities are also necessarily excluded from this taxation, i.e. all 'land for construction' that have a (potential) assignment to 'commerce, industry, services' or 'other'".
"In fact, if 'commercial, industrial or service properties' and 'other properties' are expressly excluded from the scope of application of AIMI — because they are assigned to economic activities, which the legislator did not wish to burden, — how can 'land for construction' assigned to those same purposes be included in that scope? It cannot".
"... It is demonstrated that the legal regime of AIMI, specifically the respective article 135º B of the IMI Code — when interpreted in the sense of including within the scope of application of AIMI 'land for construction' with purposes of 'commerce, industry, services' or 'other' — is manifestly contrary to the principle of equality, constitutionally enshrined" and "as such, and under article 204º of the Constitution of the Portuguese Republic, that norm shall be inapplicable in the present case, because manifestly unconstitutional, and the assessments sub judice shall be promptly annulled, with all legal effects".
The taxation of the substratum of an economic activity
The Claimant understands that "in the analysis of the conformity of the legal regime of AIMI with the Constitution of the Portuguese Republic, account must also be taken of the nature of the taxpayers burdened with the taxation resulting therefrom, specifically the fact that entities are covered by this Additional which exercise, as an activity comprised in their statutory objectives, the activity of buying, selling, construction and rental of immovable property", being the case of "... commercial companies (or other entities) that develop an activity of that nature, the ownership of immovable property constitutes the patrimonial substratum of the own economic activity, being an essential means (almost the only one) for the pursuit thereof", resulting that "... in the application of AIMI to the immovable property assets held by those entities — as is the case with the Claimant —, the essential presupposition of taxation is not present, i.e. the presupposition that the ownership of such properties constitutes evidence of an increased contributory capacity or wealth".
And for the reason that "... immovable property is held by these entities as 'merchandise'", and the taxation of these entities "... could only derive from the idea that such properties, productive factors of these companies and means for the exercise of their economic activity constitute evidence of an increase in their contributory capacity, which cannot be accepted", resulting that "... the application of AIMI to immovable property held by these entities penalizes this sector of activity in an unjustifiably aggravated manner, to the detriment of the remaining sectors" since "... the imposition of this taxation has no relation whatsoever to the actual income of the activity developed by these entities — in the extreme, burdening them even if they have negative results".
Therefore, from this perspective, "the legal regime of AIMI materializes an unjustified negative discrimination of legal persons (companies or equivalent entities) that hold (and must hold) immovable assets as productive factors or means for the exercise of their activity, thus verifying the material unconstitutionality of this norm, by violation of the constitutional principle of equality".
Concluding that "... the legal regime of AIMI, specifically the respective article 135º-A of the IMI Code — when interpreted in the sense of including within the subjective scope of application of AIMI entities that develop an immovable property activity —, promotes differentiated treatment and an unjustified inequality among taxpayers, in manifest violation of the principle of equality, enshrined in article 13º of the Constitution of the Portuguese Republic and of the principle of tax equality and contributory capacity, enshrined in article 104º, no. 3 of the same diploma", the "... norm should be inapplicable in this case, because manifestly unconstitutional when applied to legal persons that develop an immovable property activity, in accordance with article 204º of the Constitution of the Portuguese Republic".
The taxation of "land for construction": recent constitutional case law
It understands that there are similarities between the situation here set out and the regime of "... the revoked item 28 of the General Table of Stamp Duty Tax ('TGIS') and the constitutional case law delivered on the same", proof of which is the recent "Decision no. 250/2017 of the Constitutional Court, of 24 May 2017, delivered in process no. 156/20", since "the constitutional principle of tax equality must be understood as the 'specific expression of the general structuring principle of equality'", that constitutes "an equality 'laterial' in which 'the principle of contributory capacity as the tertium comparationis of equality in the domain of taxes does not require a specific and direct constitutional provision'" — as per the decision of the Constitutional Court no. 211/2017, of 2 May 2017".
The similarities between what was decided by the Constitutional Court with regard to item 28 of the TGIS and the situation here in discussion result from "... reasons of a financial and axiological nature that were at the origin of the creation of both taxes: on the one hand, the need to increase revenues in the context of the crisis in Portuguese public finances and, on the other, the need to impose a greater tax burden on citizens who show higher indices of wealth", and "also its ratio legis is similar, in that both were enshrined as 'complementary taxes' of the IMI, with the intention of including in its scope of application taxpayers who demonstrate a higher contributory capacity compared to the others and, consequently, to exclude those whose immovable property assets are crucial to the development of their respective economic activity".
Concluding that "... the fiscal legislator, by including 'land for construction' in the rules of incidence of AIMI, again erred by disregarding the purpose pursued by the taxpayers who are the recipients of this additional", because "... it confused manifestations of wealth with factors of production of that wealth, by promoting blind taxation in AIMI, not only in the sphere of taxpayers who present economic robustness to support the tax burden of this additional — because they are indeed holders of superior economic capacity —, but also in the sphere of entities whose holding of immovable property constitutes a means to the pursuit and sustenance of their economic activities — as is the case with the Claimant".
"Therefore, also from this perspective, ... the application of AIMI to 'land for construction' of entities that promote economic activities — in this case, the Claimant — promotes differentiated treatment and an unjustified inequality among taxpayers, in clear violation of the principle of tax equality and contributory capacity, enshrined in articles 13º and 104º no. 3 of the Constitution of the Portuguese Republic", resulting that "... the legal regime of AIMI, in particular the norm contained in article 135º-B of the IMI Code — when interpreted in the sense of including 'land for construction' within the objective scope of application of this taxation —, should be inapplicable in this case, because manifestly unconstitutional, in accordance with article 204º of the Constitution of the Portuguese Republic".
Therefore, "... the assessment of AIMI sub judice must be annulled, since it suffers from the vice of violation of law, by constituting error regarding the legal presuppositions of the application of a materially unconstitutional norm. And consequently, the assessment of AIMI sub judice must be annulled, since it suffers from the vice of violation of law, by constituting error regarding the legal presuppositions of the application of a materially unconstitutional norm".
Regarding the request for reimbursement and the request for indemnificatory interest
The Claimant concludes by stating that it proceeded with the full and timely payment of the assessed amount, but because the assessment is manifestly illegal, it should be fully reimbursed for the amount of AIMI assessed, plus the respective indemnificatory interest for the delay in receiving the requested reimbursement, in accordance with the provisions of articles 43º and 100º of the General Tax Law.
SUMMARY OF THE RESPONDENT'S POSITION
(in 154 articles contained in AT's Response)
AT has another reading of the facts and the law and considers "that the assessment of AIMI in question observes all the conditions for its legal validity".
Of the impossibility of inapplicability by AT of a legal norm on grounds of unconstitutionality
AT begins by stating "that in accordance with no. 2 of article 266.º of the Constitution of the Portuguese Republic, the Administration is obliged to act in accordance with the principle of legality", "such principle being concretized at the infra-constitutional level in no. 1 of article 3.º of the Code of Administrative Procedure (CPA), which in turn determines that: 'the organs of Public Administration must act in obedience to the law and to law, within the limits of the powers which are assigned to them and in accordance with the purposes for which such powers were conferred on them'", from which it follows "... that administrative organs and agents do not have competence to decide on the non-application of norms regarding which doubts of unconstitutionality are raised, contrary to Courts which, in accordance with article 204.º of the Constitution of the Portuguese Republic, are prevented from applying unconstitutional norms, being assigned the competence for the diffuse and concrete review of constitutional conformity".
Stating in summary "... the Administration is subject to the law and to law and its organs and agents must be the first to comply with it", "not being able, therefore, to be required to pronounce itself on the choices of the legislator, since these, after being embodied in law, are the normative discipline within which it exercises its attributions in the pursuit of the public interest", concluding that "... AT could not/cannot refuse to apply a norm or fail to comply with the law by invoking or questioning its constitutionality, since it is subject to the principle of legality, as established in articles 266.º no. 2 of the Constitution of the Portuguese Republic, 3.º no. 1 of the CPA and 55.º of the General Tax Law".
Defense by challenge
Characterization of AIMI
AT, in disagreement with the invoked unconstitutionality by violation of the principle of equality, states that "in light of the fact that it is transversal to the discussion in the proceedings, it is important to note that, as regards AIMI levied on urban properties of which legal persons and equivalent structures are owners, usufructuaries or superficiaries (no. 2 of art.º 135.º-A of the IMI Code) the tax assumes the nature of a real tax, in that the modeling of the quantitative to be paid abstracts from the economic dimension of the entities, specifically the qualification as a small, medium or large enterprise, nor does it affect the entire net patrimony of the entities", "thus, with respect to legal persons, AIMI is not intended, in truth, to tax entities with the highest indices of wealth, because it taxes all the patrimonial values of the properties subject thereto, without a minimum limit nor any deduction. Also, for that reason, AIMI levied on legal persons comes closer to a general tax on immovable property." (according to JOSÉ MARIA PIRES, The Additional to IMI and the taxation of personal property, Almedina, 2017, p.42)"
Therefore, "... as regards legal persons and equivalent structures, AIMI has the nature of taxation of a real nature, thus reflecting the idea that the elements forming part of the immovable property assets held by these entities perform, as a rule, an economic function, not representing, therefore, mere accumulation of wealth".
This being "... the framework in which the legislator moved in drawing up the configuration of the subjective and objective scope of application of AIMI, basing its choices also on other specific considerations such as mitigating the impact of this taxation on the exercise of business activities in general, through the exclusion of urban properties with industrial, commercial and service purposes, and "other", "(…) with the purpose of not burdening in fiscal terms the competitiveness of companies, especially in international markets (…)" (cf. JOSÉ MARIA PIRES, The Additional to IMI and the taxation of personal property, Almedina, 2017, p. 50)".
The alleged violation of constitutional principles
AT maintains that "... the choices underlying the delimitation of the objective scope of application of AIMI are carried out within the margin of 'legislative configuration freedom'" and aimed "... first, to reach a portion of the patrimony of the taxpayers of the tax, being levied on immovable assets constituting a patrimony, recognizable in law as capital of a determined entity (singular or collective), independently of the same being assigned to any production process or income generating activity - it is believed this is the purpose of no. 1 of article 135.º-B of the IMI Code".
"However, the legislator chose in no. 2 of that provision a negative delimitation of incidence, excluding from AIMI properties that, by their potential assignment, can be economically recognized as production factors, as capital, or rather, as intermediate goods that, combined with the other factors of production, produce new utilities – economic goods that satisfy needs", using "a criterion that calls upon the structure of typologies of urban properties provided for in article 6.º of the IMI Code and that operates through the subtraction from AIMI of urban properties that, as a result of the licensing of use declared by municipalities or, in the absence thereof, of their normal destination, are reclassified to the typologies of subparagraphs b) and d) of no. 1 of that provision", therefore "the universe of urban properties subject to AIMI is determined by recourse to the remaining two typologies contained in no. 1 of article 6.º: residential urban properties and land for construction".
"In effect, the different valuation and taxation of a property with residential assignment as opposed to a property intended for commerce, industry or services results from the different capability of the properties in question, which sustains the different treatment given by the legislator which, for economic and social reasons, decided, within the scope of its formative freedom, to exclude from the scope of the tax properties intended for purposes other than residential", all the more so "... the tax under review does not aim at a generic taxation of patrimony", being only in question "... a partial tax on certain manifestations of contributory capacity".
"Thus, being in question the establishment of a partial taxation of the total patrimony of taxpayers, it is believed to be not normatively appropriate to carry out a comparison between the overall value of the patrimony of other taxpayers", which is "... proper to a general or synthetic taxation of patrimony, leading to distorted conclusions when one is, as in the situation sub judice, faced with specific taxation of urban properties for residential purposes and of land for construction which are nothing more than components – with greater or lesser weight – of the overall patrimony of taxpayers", it results that "... the terms that should appropriately be taken as a basis for comparison, to assess compliance with the principle of equality, are the patrimonies of immovable property entities", "since only then is there a comparison between objectively equal situations, and therefore it must be rejected that the comparison be established between patrimonial realities of entities that engage in different economic activities (e.g., shoe or clothing manufacturers), as well as of natural persons".
"By selecting the legislator an element of the patrimony to tax it is necessarily consequent that the taxpayers (singular or collective) holders of that patrimony are burdened"
"In this way, AIMI respects a partial taxation of patrimony without specifically targeting companies, since it includes all kinds of taxpayers who are holders of the real rights enunciated over the properties in question, independently of assuming a business character or not, covering, thus, beyond companies, foundations, associations, natural persons", "and thus, it is impossible to invoke, given the scope of application of the norm under review, principles of strictly business vocation"
All the more so "... the Constitution requires that an articulation and balancing be made between recognized fundamental rights and goods or constitutionally protected interests, which implies that the content and limits of these rights be determined having regard to those protected goods", being manifest that "among the interests clearly protected by the Constitution is found the collection of taxes in order to satisfy public needs (as per art.º 103.º, no. 1 of the Constitution of the Portuguese Republic), therefore the duty to contribute to public spending via taxes is an immanent limit to the rights of property and freedom of economic initiative".
Concluding that "... it is not possible to configure the unconstitutionality of a tax norm based simply on the fact that it has a significant influence on the economic decisions of taxpayers - by nature, this is a typical effect of tax rules", "being that, as has been seen, there is no significant influence on the ownership of properties by immovable property companies, given that AIMI does not have general reach, but has its scope of application restricted to urban properties located in Portugal independently of the nature of the owner, usufructuary or superficiary".
And it continues: "... repeat, it is not a question of a global taxation of immovable property; and, although it may be admitted that AIMI assumes some specificities when applied to immovable property promotion companies, such does not derive from any disregard for its economic force or the conversion of the present taxation into a surrogate for income tax, but rather one perceives a potential negative discrimination resulting from the fact that such companies — since they commercialize land for construction – end up with an additional burden when compared with the generality of other legal persons".
As for what is alleged by the Claimant that the land for construction taxed is the fruit of its activity, it states that "truly, land for construction is not merely instrumental to the exercise of the activity, on the contrary, it is part of the very nucleus of the economic activity, it is the object of commerce or industry, since it is intended for resale or transformation if constructions are erected on it for subsequent sale". "Differently, the properties excluded from subjection to AIMI, in accordance with no. 2 of art.º 135.º-B of the IMI Code, are those that perform an instrumental function to industrial, commercial or service economic activities, in that they constitute buildings that serve to support the functioning of these activities, and are not themselves generators of income".
"But even if ... land for construction can prove to be instrumental to the activity of the immovable property promotion company, we have that the same are suitable to indicate that that legal person is a holder of goods which, in themselves, evidence a specific abundance compared to other immovable property owners", that is, "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 an immovable asset only accessible to one with particular wealth and, thus, capable of supporting an additional contribution to the desired budget consolidation", concluding that "it would only be possible to understand it differently if the specific quality of the taxpayer and/or its nature were projected in the normative criterion under review".
"Precisely, in the field of patrimonial taxation, the rule of uniformity is what imposes is a horizontal equality, that is, that all those who are holders of the same form of wealth be taxed in the same way (SOUSA FRANCO, Public Finances and Financial Law, volume II, 4th edition, page 181).", therefore it will be concluded that "it is well understood, then, the legislative solution of subjecting to taxation all taxpayers in view of the ownership of the relevant legal situations over the urban properties identified in the objective scope, independently of the legal or economic structure which such taxpayers may possess", and "... any dissertation on the situation of companies commercializing land for construction, on the success or lack of success of the commercial activity they develop or even on the type of immovable property assets they hold, is not relevant in this case, since there is the invocation of elements of economic consistency which are very variable and contingent, which depend largely on the manner of management, the situation of framework circumstances, the type of use made of the properties, the situation in each year of the patrimonial assets held, all preventing the configuration of any uniform basis capable of leading to the affirmation that the normative solution subject to AIMI leads to an unjustified negative discrimination of these companies, all the more so when limited predial components of the taxpayer's patrimony are in question".
On the other hand, it states the Respondent "... it will always be said that the fact that the properties are investment goods, assigned to immovable property operations usually developed by the owner, not affecting the contributory capacity revealed, will determine that taxation in AIMI be susceptible to some mitigation within the business sphere, already because it constitutes a cost of the activity, already for the possibility of shifting (in prices) that, to a greater or lesser degree, always exists even in taxes on the income of companies", since "... AIMI is, furthermore, a deductible expense, negatively influencing the taxable profit of the fiscal year, or is deductible from the collection of corporate income tax when the properties in the taxable matter are included incomes generated by immovable property, subject to it, within the scope of rental or hospitality activity (nos. 1 and 2 of art.º 135.º-J IMI Code)". "Thus, the AIMI supported in each year relieves the amount of corporate income tax assessed and paid".
AT states that "as for what was alleged by the Claimant that AIMI is levied on all land for construction, even if classified as commercial, industrial and services, the judgment of unconstitutionality in light of an alleged, but non-existent, violation of the principle of equality rests on the difference that would exist in relation to natural persons", resulting that this TAS is not competent to pronounce itself, since ".... without nexus of dependence between the subject matter of the dispute and the grounds of the judgment of unconstitutionality of the norm at issue everything is limited to an abstract evaluation of the confrontation between the norm or the constitutional principle and the ordinary norm, therefore, without direct and effective connection with the 'case submitted for trial' (art.º 204.º of the Constitution of the Portuguese Republic), with the consequence of determining the inapplicability of a norm due to unconstitutionality based on grounds inapplicable to the subject matter of the dispute"
On the other hand "the understanding that it is unconstitutional, by infringement of the principle of equality, the taxation of land for construction without regard to the type of property that might be built on it does not proceed", "because the factual reality of the proceedings and its subsumption to the legal norms is not altered by the configuration, in individual terms, of this potential assignment, at the risk of the present Tribunal carrying out a judgment (forbidden) of vertical partial unconstitutionality (knowingly, that which resides in the applicability of the norm to certain situations or categories not autonomized in the normative content - as per the decision of the Constitutional Court no. 12/84, of 8 February)"
And it adds: "... it is neither pertinent, nor in accordance with the principle of equality to make relevant, for the purposes of a judgment of constitutional conformity of AIMI, the eventual component of the future building in question on the land for construction, because the only value for real property tax purposes contained in the cadastral record in accordance with the Code of Municipal Property Tax which is subject to annual AIMI taxation is the value for real property tax purposes of the land for construction itself existing, and not that of those fractions still non-existent, whose value for real property tax purposes will only arise when one finds, after construction, a property intended for services and no longer with land for construction".
"In this way, on the date of taxation in AIMI of land for construction, only the property itself should be taken into account, as the same is legally characterized, and taking into account the value for real property tax purposes contained in the cadastral record, not a future building, with the consequent type of urban property that may subsequently arise, including the autonomous fractions or floors susceptible to independent use that may exist, which are truly mere virtual abstractions of situations neither constituted nor legally, nor factually"
"It is that the principle of equality has its express consecration in our Fundamental Law (as per article 13.º of the Constitution of the Portuguese Republic)". "From this it results that this principle can also be expressed in the obligation of imposition of differentiating measures in order to obtain equality of opportunities necessary to (tendentially real) equality among citizens".
"Indeed, that which is erroneously compared by the Claimant to land for construction with non-residential assignment, respects mere virtual abstractions of situations not constituted, since what might be built on land with an assignment other than residential cannot be called here for the purposes of comparability, because that future building will always depend, and ultimately, on a choice of the owner as to what type of building he will or will not build", "being certain that after that construction, we will have a new taxable event, a new value for real property tax purposes and a new legal-tax reality that will have, at the moment of verification of the new taxable event, its treatment in the context of taxation carried out in consonance with that new reality", therefore concluding that "... being forbidden a judgment of vertical partial unconstitutionality, ... there is no place here for any possibility of judgment of unconstitutionality of AIMI based on the violation of the principle of equality departing from premises which are based on a comparison between incomparable situations, i.e., on one side what is factual, on the other mere prognosis judgments, virtual abstractions and speculations about situations not constituted and that may never come to be constituted", because "in summary where the legislator did not distinguish, it is not up to the interpreter to distinguish. Therefore, ... there cannot, in this excursion, be any censure on the conformity of the legal-constitutional of AIMI", being instead "... the contrary understanding, ... violator of the constitutional principle of equality, which is here invoked for all legal purposes".
"The impugned assessment deserving no censure, the arbitral request should be judged to be without foundation, with all other legal consequences".
Of the right to indemnificatory interest
AT states in this respect: "... although the Claimant does not specify in what terms it petitions the respective interest, the same are not owed", for the reason that "... the organ of Public Administration does not have competence to decide on the non-application of norms regarding which doubts of unconstitutionality are raised", not being able to "... the services of AT ... be imputed any error of fact or of law, given the obedience to law that informs all its activity", therefore "... there is no legal support for the request for indemnificatory interest".
Notification to the Public Prosecutor of the decision to be adopted
Finally AT requests: "... by appeal to the provision of article 280.º, no. 3 of the Constitution of the Portuguese Republic and article 72.º, no. 3 of the Law of the Constitutional Court, that the notification to the Public Prosecutor" of the arbitral decision be determined.
II - QUESTIONS WHICH IT FALLS TO THE TRIBUNAL TO SOLVE
The question or questions raised in this process have already been the subject of review at CAAD, namely through collective decisions nos. 668/2017-T; 675/2017-T and 688/2017-T, where identical situations were discussed, all adopted in the same sense and with equal reasoning.
Following the order of the vices pointed to the assessment, according to the PPA (reproduced in b) of the Report) the initial request shall be examined, to wit:
"The tax act which is the subject thereof, relating to the assessment of AIMI identified above, shall be annulled, because it is contrary to law, as it suffers from error in the factual and legal presuppositions;
The Tax and Customs Authority shall be condemned to reimburse the Claimant for the value of the tax paid, in the amount of € 17,690.91, regarding the assessment sub judice, and also to pay indemnificatory interest, at the legal rate, until the full reimbursement of the amount owed".
The analysis of the subsequent requests, deduced subsidiary shall follow.
Should the PPA proceed, in whole or in part, by the verification of any of the invoked illegalities, account must be taken of the contradiction between
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the value referred to in the PPA, of 17,690.91 euros (VPT of 4,422,727.90 x 0.4 = 17,690.91 euros (which corresponds to the value of IMI assessed according to documents nos. 1 and 2 attached to the PPA – 10 urban properties) and
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the value contained in document no. 3 attached to the PPA – which identifies 11 urban properties subject of dispute, generating the tax collected challenged – of 15,379.83 euros (VPT of 3,844,957.90 x 0.4 = 15,379.83 euros).
In this regard, AT in article 2º of the Response, identifies 10 urban properties, lacking article ...º, (since in document no. 3 attached to the PPA, not challenged, 11 urban properties are referred to) which also does not appear in documents 1 and 2 attached to the PPA, but here it states that "the complete list follows in a separate envelope", a list which was not attached to this process, so a failure to attach, inadvertently, the complete list may certainly have occurred.
This review shall be made in accordance with nos. 6 and 7 of article 110º of the Code of Tax Procedure.
Should the PPA proceed, in whole or in part, by the verification of any of the invoked illegalities, the question of the right to reimbursement of amounts paid and the request for condemning AT to payment of indemnificatory interest shall be examined.
III. FACTS PROVED AND NOT PROVED. REASONING
With respect to the matter of fact, the Tribunal is not required to pronounce itself on all that was alleged by the parties, it being incumbent on it, indeed, the duty to select the facts which are important to the decision and to discriminate between proven and unproven facts (as per article 123.º, no. 2, of the Code of Tax Procedure and article 607.º, no. 3 of the Code of Civil Procedure, applicable ex vi article 29.º, no. 1, subparagraphs a) and e), of RJAT).
In this way, the facts pertinent to the trial of the case are chosen and carved out in function of their legal relevance, which is established in view of the various plausible solutions to the question(s) of law (as per former article 511.º, no. 1, of the Code of Civil Procedure, corresponding to current article 596.º, applicable ex vi of article 29.º, no. 1, subparagraph e), of RJAT).
Thus, taking into account the positions assumed by the parties and the documentary evidence attached, the following facts were considered proved, with relevance to the decision, with indication, for each point brought to the established facts, of the means of proof considered relevant, as reasoning.
Proved Facts
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The Claimant is an immovable property company whose corporate purpose comprises "buying and selling property, construction of houses for sale, urban developments and subdivisions" and holds as its main code of classification of economic activity no. 41,100 (CAE Rev3 of the National Institute of Statistics) – as per articles 5, 56º and 57º of the PPA and consultation at www.smi.sne.pt.
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The Claimant, given the activity it develops, is the owner of multiple immovable properties, namely the following land for construction:
[List of properties]
- as per article 55º of the PPA; document no. 3 attached with the PPA and article 2º of AT's response.
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With reference to the year 2017, on an unascertained date, the Claimant was notified of the assessment of additional IMI, with no. 2017..., issued by the Tax and Customs Authority (AT), from which resulted a total amount to pay of € 17,690.91, with a deadline for payment until 30.09.2017 – as per the preamble of the PPA, articles 2º and 6º of the PPA and Documents nos. 1 and 2 attached with the PPA.
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In the real property records of the urban properties referred to in no. 2 above, appears in the "property description" table: "type of property: land for construction" and in the "valuation data" table: "type of location coefficient: services" – as per document no. 3 attached with the PPA.
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On 20 September 2017 the Claimant proceeded to pay € 17,690.91 - as per the label placed on document no. 1 attached with the PPA and copy of check contained in document no. 2 attached with the PPA.
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On 26 December 2017 the Claimant filed in CAAD the present request for arbitral pronouncement (ppa) – registration of entry in the Case Management System of CAAD of the request for arbitral pronouncement.
Facts Not Proved
There is no other factuality alleged that has not been considered proved and that is relevant for the composition of the procedural case.
The facts brought to the established facts are configured as being accepted, expressly or tacitly, by both parties.
IV. EXAMINATION OF THE QUESTIONS WHICH IT FALLS TO THE SINGULAR ARBITRAL TRIBUNAL (TAS) TO SOLVE
In view of the uniformization and simplification of decisions, because as was stated above, there already exist at least 3 collective decisions adopted at CAAD, all in the same sense, this TAS will follow what was decided in the CAAD decision of 22 June 2018, taken in Process 675/2017-T, adhering to what was decided therein.
The similarity of the factual situation of this process with that reported in Process CAAD 675/2017-T is significant, since in this process urban properties acquired by a credit institution were in question, in processes for recovery of impaired credits (credit impairments), thus the properties would be "current assets" of the credit institution, whose corporate purpose is banking intermediation and the provision of banking services, but not the buying for resale of immovable goods, nor their purchase for lease. In the process which we are here dealing with, we are faced with a company whose object is "buying and selling" immovable property. That is, it is an entity in which the immovable property it buys are clearly the "merchandise" (current asset), the object and the essence of its activity. It buys immovable property which it later sells, which is evident from the regime of article 7º of the IMT Code and subparagraph e) of no. 1 of article 9º of the IMI Code, applicable to this type of company.
It is said in the CAAD decision, of 22 June 2018, taken in Process 675/2017-T:
"Question of the objective scope of incidence of AIMI as a function of assignment to economic activities of residential properties and land for construction
The Law no. 42/2016, of 28 December (State Budget for 2017) added to the IMI Code chapter XV, with articles 135.º-A to 135.º-K, from which the regime of the Additional Municipal Property Tax (AIMI) is contained.
In article 135.º-A the objective incidence of this tax is defined, establishing that 'are subject to the additional municipal property tax natural or legal persons who are owners, usufructuaries or superficiaries of urban properties located in Portuguese territory', being 'equivalent to legal persons any structures or centers of collective interests without legal personality that appear in the records as taxpayers of the municipal property tax'.
Article 135.º-B defines the objective incidence of this additional tax establishing the following:
Article 135.º-B
Objective incidence
1 - The additional municipal property tax is levied on the sum of the real property tax values of urban properties situated in Portuguese territory of which the taxpayer is the holder.
2 - Are excluded from the additional municipal property tax urban properties classified as 'commercial, industrial or service' and 'other' in accordance with subparagraphs b) and d) of no. 1 of article 6.º of this Code
The Claimant contends that this regime excludes from the incidence of AIMI 'urban properties classified as "commercial, industrial or service" and "other" in accordance with subparagraphs b) and d) of no. 1 of article 6.º' of the Code of the Municipal Property Tax (IMI Code), and therefore only urban properties assigned to residential purposes and land for construction, as defined in that article 6.º, are covered.
Article 6.º of the IMI Code establishes the following:
1 - Urban properties are divided into:
a) Residential;
b) Commercial, industrial or service;
c) Land for construction;
d) Other.
2 - Residential, commercial, industrial or service are buildings or constructions licensed for such purposes or, in the absence of license, that have as their normal destination each of these purposes.
3 - Land for construction is considered land situated within or outside an urban settlement, for which a license or authorization has been granted, admitted prior notification or favorable prior information issued for subdivision or construction operations, and also those that have been declared as such in the acquisition title, excepting land in which the competent entities prevent any of these operations, specifically those located in green areas, protected areas or that, in accordance with municipal land use planning plans, are assigned to spaces, public infrastructure or facilities.
4 - The provision of subparagraph d) of no. 1 covers land situated within an urban settlement that are not land for construction nor are covered by the provision of no. 2 of article 3.º and also buildings and constructions licensed or, in the absence of license, that have as their normal destination purposes other than those referred to in no. 2 and also those of the exception of no. 3.
From this negative delimitation of incidence, the Claimant extracts the conclusion that it was intended to create a tax on immovable wealth, in which urban properties assigned to economic activities would not be subject to AIMI 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 achieved through the exclusion from the scope of incidence of 'urban properties classified in the type "industrial", as well as urban properties licensed for tourism activity, these latter as long as duly declared and proven their destination' 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 properties directly affected by its operation'.
However, it was not on the basis of the activity to which the properties are assigned that the exclusion of incidence came to be defined, since in the final wording that came to be approved only the non-incidence was defined based on the types of properties indicated in article 6.º of the IMI Code, without any reference to the assignment or not to the operation of legal persons.
If it had been maintained, in the final wording of the Budget, the legislative intention to exclude incidence over properties directly assigned to the operation of legal persons, it would certainly have maintained the reference to this assignment that appeared in the proposal and which clearly expressed this legislative option.
Thus, with the suppression of that reference to the assignment of properties, there is no legal support for concluding that residential and land for construction properties assigned to the operation of legal persons do not fall within the incidence of AIMI.
'In the absence of other elements which induce the election of the less immediate sense of the text, the interpreter should in principle choose that sense which best and most immediately corresponds to the natural meaning of the verbal expressions used, and in particular to its technical-legal meaning, in the supposition (not always exact) that the legislator knew how to express correctly its thought'. (Baptista Machado, Introduction to Law and the Discourse of Legitimation, page 182)
In the case in question, in light of the departure from the proposed wording in which relevance was given to the assignment of properties, 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.º, no. 3, of the Civil Code.
Therefore, it is to be concluded that the fact that the Claimant holds the properties referred to in the proceedings in the course of its economic activities does not exclude the incidence of AIMI".
What has just been reproduced and to which this TAS adheres will be applied in general terms to all entities, except, in our understanding, to entities referred to in article 7º of the IMT Code and subparagraph e) of no. 1 of article 9º of the IMI Code, with respect to the properties which they acquire for resale and as regards the period of 3 years to which the two legal provisions allude, that is, during the period in which the regimes of non-subjection to IMT and IMI are maintained.
And such reading has support in law, since, by force of no. 3 of article 135ºA of the IMI Code, referring to article 8º of the IMI Code, it will have to be considered that AIMI (as a mere additional) can only be applied if IMI is owed, resulting in article 9º of the IMI Code being necessarily applicable to AIMI (notably the regime of subparagraph e) of no. 1 of article 9º of the IMI Code).
However, as results from the position of the Claimant and the proved facts, the same has neither alleged nor proved that the properties which it claims to be its merchandise (so-called "current assets"), are encompassed in the regime of article 7º of the IMT Code and subparagraph e) of no. 1 of article 9º of the IMI Code, benefiting from the non-taxation of these taxes, and only these, given the legal order in force, in our view must be incorporated or can be incorporated into the said desideratum, in terms relevant to taxation, in this case the non-subjection to AIMI.
In fact, it is striking to note whether an immovable asset is not subject to IMI whether it seems it can or should be subject to an additional to the IMI, as will result clearly from the regime of article 9º of the IMI Code.
It is further said in the CAAD decision, of 22 June 2018, taken in Process 675/2017-T which has full application here:
"Question of inability to be considered in the determination of the real property tax value subject to AIMI, 'land for construction' whose potential use coincides with purposes 'commercial, industrial or services'
The Claimant contends that article 135.º-B of the IMI Code should be interpreted in the sense that the taxable value of land for construction not intended for residence does not matter for the purposes of AIMI in coherence with the legislative option to exclude from the incidence properties classified as 'commercial, industrial or service'.
Moreover, the Claimant contends that the application of AIMI to land for construction for the purposes referred to, parallel to the exclusion of properties with such purposes, is incompatible with the constitutional and legal principle of equality (articles 13.º and 104.º, no. 3, of the Constitution of the Portuguese Republic and 5.º and 55.º of the General Tax Law).
Therefore, the Claimant contends that the value of land for construction indicated in subparagraph d) of the facts established should not matter for determination of the taxable value of AIMI.
Being the taxable event chosen as an index of contributory capacity the ownership of immovable property assets of value considered elevated, there will be no coherence in not applying the tax to buildings intended for commerce, industry and services and in applying it to land intended for their construction, whose value is incorporated in the value of the buildings to be constructed.
Thus, from a perspective which has in mind the unity of the legal system (article 9.º, no. 1, of the Civil Code), which has decisive interpretive value, imposed by the principle of evaluative or axiological coherence of the legal order (Baptista Machado, Introduction to Law and the Discourse of Legitimation, page 182), the exclusion provided for in no. 2 of article 135.º-B of the IMI Code relating to urban properties classified as 'commercial, industrial or service' and 'other' should be interpreted extensively as expressing a legislative intention to exclude also from taxation land intended for the construction of such properties.
In any case, adopting a literal interpretation of this norm, in the sense that all land for construction are covered by the incidence of AIMI, it will be materially unconstitutional, being incompatible with the principle of equality (article 13.º of the Constitution of the Portuguese Republic), by considering taxable event the ownership of land for construction of properties intended for commerce, industry and services and not the ownership of the properties built on it, by constituting a treatment disadvantaged for taxpayers in the first situation, without material justification, since it is necessarily lesser the contributory capacity indicated by the immovable property assets in that situation, which will have to be present, and with increase, in the second.
In situations of unjustified discriminatory treatment, translated in the imposition of a duty or charge with violation of the principle of equality, what is illegitimate is, in principle, the act of imposition of the duty only on some of the taxpayers, the inequality being resolved with elimination of duties or charges for those who with them were discriminatorily burdened. (Essentially in this sense, GOMES CANOTILHO and VITAL MOREIRA, Constitution of the Portuguese Republic Annotated, volume I, 4th edition, 2007, page 344)."
For the above, the assessment challenged is illegal as far as the amount referred to in point 2 of the established facts (15,379.83 euros) is concerned, which corresponds to the taxable value of € 3,844,957.90, resulting from the sum of the real property tax values of the land for construction indicated in document no. 3 attached to the PPA.
"This illegality justifies the annulment, in the respective part, in accordance with the provision of article 163.º, no. 1, of the Code of Administrative Procedure subsidiarily applicable in accordance with article 2.º, subparagraph c), of the General Tax Law".
Finally, the CAAD decision, of 22 June 2018, taken in Process 675/2017-T, states, which has full application here:
"Question of the unconstitutionality of AIMI
Alternatively, the Claimant invokes the unconstitutionality of AIMI, with twofold argument, which deserves separate examination.
The indiscriminate taxation of all "land for construction": the (illegal) disregard of the legal criterion of assignment of the property
The Claimant contends 'that the regime of taxation in AIMI is contrary to the foundational principle of equality, enshrined in article 13.º of the Constitution of the Portuguese Republic and, in parallel, contrary to the principle of tax equality and contributory capacity enshrined in article 104.º, no. 3 of the same diploma', also referred to in articles 5.º and 55.º of the General Tax Law.
Making explicit its imputation of unconstitutionality, the Claimant contends, in the first place, that the 'the legal regime of AIMI, in particular its article 135.º-B of the IMI Code - when interpreted in the sense of including within the scope of application of AIMI 'land for construction' with purposes of commerce, industry, services or other - is manifestly contrary to the principle of equality, constitutionally enshrined.
This is the question which was already examined in the previous point, therefore reference is made to what was stated there, which is only applicable to the part of the assessment which has as its presupposition the value of land for construction intended for services.
The unconstitutionality due to taxation of the substratum of an economic activity
As far as the alleged obligation of the Tax and Customs Authority to apply the law, not being its competence to review constitutionality, is irrelevant for the examination of the legality of the assessment challenged, since this Arbitral Tribunal has such competence, since it cannot 'apply norms that infringe the Constitution or the principles enshrined therein' (article 204.º of the Constitution of the Portuguese Republic).
Therefore, the obligation of the Tax and Customs Authority to apply the law does not constitute grounds for setting aside the possible illegality of the assessment.
In article 13.º of the Constitution of the Portuguese Republic proclaims the principle of equality of citizens before the law and article 104.º, no. 3, of the Constitution of the Portuguese Republic establishes that 'taxation of property 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 in equal situations be treated equally and those in unequal situations be treated unequally, in such a manner as not to create discriminations that are arbitrary and unreasonable, because lacking sufficient material foundation. The principle of equality does not prohibit the establishment of distinctions, but only distinctions lacking objective and rational justification. (Essentially in this sense, can be seen, among others, the following decisions of the Constitutional Court: no. 143/88, of 16-6-1988, delivered in process no. 319/87, published in the Bulletin of the Ministry of Justice no. 378, page 183; no. 149/88, of 29-6-1988, delivered in process no. 282/86, published in the Bulletin of the Ministry of Justice no. 378, page 192; no. 118/90, of 18-4-90, delivered in process no. 613/88, published in the Bulletin of the Ministry of Justice no. 396, page 123; no. 169/90, and 30-5-1990, delivered in process no. 1/89, published in the Bulletin of the Ministry of Justice no. 397, page 90; no. 186/90, of 6-6-1990, delivered in process no. 533/88, published in the Bulletin of the Ministry of Justice no. 398, page 81; no. 155/92, of 23-4-1992, delivered in process no. 204/90, published in the Bulletin of the Ministry of Justice no. 416, page 295; no. 335/94, of 20-4-1994, delivered in process no. 61/93, published in the Bulletin of the Ministry of Justice no. 436, page 129; no. 468/96, of 14-3-1996, delivered in process no. 87/95, published in the Bulletin of the Ministry of Justice no. 455, page 152; no. 1057/96, of 16-10-1996, delivered in process no. 347/91, published in the Bulletin of the Ministry of Justice no. 460, page 284; no. 128/99, of 3-3-1999, delivered in process no. 140/97, published in the Bulletin of the Ministry of Justice no. 485, page 26).
The creation of AIMI, as a complementary tax on immovable property assets, which aimed to introduce into taxation 'a progressive element of personal basis, taxing more elevated patrimonies more highly' (Report of the Budget for 2017, page 60) is compatible with the objective that taxation of property should contribute to equality among citizens, affirmed in no. 3 of article 104.º of the Constitution of the Portuguese Republic, since progressivity has as a corollary, tendentially, to impose greater taxation on those with greater contributory capacity.
On the other hand, the exclusion from taxation of properties specially dedicated to productive activity, in particular 'commercial, industrial or service', finds a constitutionally acceptable foundation in the obligation of the State to promote the increase of economic well-being,
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