Summary
Full Decision
ARBITRAL DECISION
1 - Report
1.1 – A..., Ltd., hereinafter referred to as the "Claimant", taxpayer no. ..., with head office at Rua "..., no. ... –..., in..., requested the constitution of a sole 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 for Arbitration in Tax Matters, hereinafter referred to only as "RJAT") and Articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, in which the Tax and Customs Authority (hereinafter "Respondent" or "AT") is named as Respondent.
1.2 - The request for arbitral pronouncement, presented on 23 December 2018, has as its object the declaration of illegality and consequent annulment of the assessment of the Additional Municipal Property Tax ("AIMI") with no. 2018..., relating to the year 2018, made by the Tax and Customs Authority on 30-06-2018, in the amount of 17,083.03 €.
1.3 - It further requests the condemnation of the "AT" to refund the amount paid relating to said assessment, increased by the respective indemnity interest, in accordance with 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 improper 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 notified to AT on 02 January 2019.
1.6 - In accordance with the provisions of paragraph a) of no. 2 of Article 6 and paragraph b) of no. 1 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the assignment within the applicable period.
1.7 - On 14 February 2019, the Parties were notified of such designation and did not object thereto, in accordance with the combined provisions of Article 11, no. 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Deontological Code of CAAD.
1.8 - Thus, in accordance with the provisions of Article 11, no. 1, paragraph c), of the RJAT, the sole arbitral tribunal was constituted on 6 March 2019.
1.9 - The Respondent was notified, by arbitral order of 6 March 2019, in accordance with Article 17, no. 1 of the RJAT, to submit a Reply within a period of 30 days, if it so wished, and to request the production of additional evidence.
1.10 - It was further notified to submit, within the same period, the administrative file (PA) referred to in Article 111 of the CPPT.
1.11 On 8 April 2019, the Respondent submitted its Reply, defending itself by way of objection, arguing for the dismissal of the request for arbitral pronouncement, maintaining in the legal order the disputed tax assessment act, with the consequent dismissal of the request and refund of the amount improperly paid, increased by the respective indemnity interest.
1.12 – Alternatively, it requests partial annulment of the disputed tax act, in the amount of 15,379.83 €, as well as refund of said amount, increased by indemnity interest.
1.13 – It further requests, as a subsidiary matter, that Articles 135-A and 135-B of the Property Tax Code be disapplied, due to manifest unconstitutionality, for violation of the constitutional principle of equality and, consequently, the illegality of the disputed tax act be declared and its consequent annulment.
1.14 - It further requests waiver of the holding of the meeting provided for in Article 18 of the RJAT, of production of testimonial evidence and of arguments.
1.15 - Considering that the Parties did not request the production of any evidence, beyond the documentary evidence attached to the file, the Arbitral Tribunal, considering the principles of autonomy in conducting the proceedings, celerity, simplification and procedural informality, inherent in Articles 16 and 29, no. 2, of the RJAT, by order of 08 April 2019, waived the holding of the meeting provided for in Article 18 of the same diploma, having further decided that the proceedings would continue with written arguments, optional, by the Claimant, within a period of 10 days.
1.16 - By the same order it was determined that the arbitral decision would be made by the end of the period referred to in Article 21/1 of the RJAT, by which date the Claimant must pay the subsequent arbitration fee, in accordance with no. 3 of Article 4 of the Regulation of Costs in Tax Arbitration Proceedings.
1.17 – Neither the Claimant nor the Respondent submitted arguments.
1.18 - The Parties have legal personality and capacity, are shown to be legitimate and are regularly represented (Articles 4 and 10, no. 2, of the RJAT and Article 1 of Ordinance no. 112-A/2011, of 22 March).
1.19 - The proceedings do not suffer from any nullities, the request was timely presented and no exceptions were raised.
1.20 - The Arbitral Tribunal is regularly constituted and is materially competent to hear and decide the request, in accordance with Article 2, no. 1, paragraph a) of the RJAT.
1.21 - There are no circumstances that prevent knowledge of the merits of the case.
Position of the Parties
On the part of the Claimant -
It supports its request for arbitral pronouncement, synthetically, as follows:
It is a real estate company whose corporate purpose includes the "purchase and sale of properties, construction of houses for sale, urban developments and subdivisions", and was the owner, on 01-01-2018, of various properties, some of the type "land for construction", of which six intended for housing and eleven for services.
That the legislator intended to ensure that urban properties used for economic activities would not be subject to taxation in AIMI, recognizing that the mere holding of such properties does not constitute and cannot constitute a factor demonstrating wealth, nor a sufficient indicator of tax-paying capacity of the holders of such properties, for which reason the ratio legis that gave rise to the rule of exclusion of objective scope, enshrined in no. 2 of Article 135-B of the Property Tax Code, was based, essentially, on the intention not to impose additional tax burden on taxpayers who, by virtue of their economic activities, hold properties for the pursuit of their respective corporate purpose.
In this manner, such properties constitute true elements of the productive process of the Claimant's economic activity, being intended exclusively for the pursuit of such activity and never being able to be compared with elements demonstrating its wealth, for which reason the holding of properties by a real estate company such as the Claimant, represents the substrate of all its activity, necessary and indispensable for the pursuit thereof, and not an (additional) tax-paying capacity that could legitimize the application of AIMI, as the AT intends, which is why the disputed tax act should be annulled.
On the other hand, if buildings intended for commerce, industry or services cannot be considered as indicative of special tax-paying capacity for purposes of AIMI - because expressly excluded from the scope of the tax having regard to the tax objectives expressed by the legislator - then land for construction intended for the building of properties for those purposes, namely services, as in the present case, also cannot be, on pain of incoherence of the legal system and violation of the principle of equality constitutionally enshrined in Articles 13 and 104, no. 3, of the Constitution of the Portuguese Republic ("CRP") and in Articles 5 and 55 of the General Tax Law ("LGT").
Thus, the disputed tax act, in the portion that taxes the "land for construction" intended for "services", and to which corresponds AIMI in the amount of 15,379.83 €, as identified in document no. 3, attached to the request for arbitral pronouncement, is tainted with manifest illegality, due to errors in the factual and legal premises, and should be, as a subsidiary matter, partially annulled, but only in the event of dismissal of the main request for total annulment of the tax act.
It further raises the question of the unconstitutionality of the AIMI regime, for violation of the principle of equality and tax-paying capacity, inherent in Articles 13 and 104, no. 3, of the CRP, in cases of taxation of properties as substrate of an economic activity, and disregard of the legal criterion of allocation of land for construction.
It concludes by arguing for the success of the request for arbitral pronouncement and consequent refund of the amount improperly charged, increased by the corresponding indemnity interest, or alternatively for partial annulment of the tax act, in the amount of 15,379.83 €, relating to land for construction with building allocation for services, or furthermore, and always as a subsidiary matter, for the disapplication of Articles 135-A and 135-B of the Property Tax Code, due to manifest unconstitutionality, for violation of the constitutional principle of equality (see Article 204 of the CRP) and, consequently, the illegality of the tax assessment act of AIMI declared.
On the part of the Respondent -
Defending itself by way of objection, it invokes the following arguments:
That the additional to the Property Tax, created by Article 219 of Law no. 42/2016, of 28 December, which approved the State Budget for 2017, by means of the addition to the Property Tax Code of Articles 135-A to 135-K, emerges as special taxation of high-value patrimonial assets designed to ensure the financing of Social Security.
As is stated in arbitral decision no. 420/2018-T "What the legislator intended with the Additional to Property Tax was to create another avenue for subsidizing the social security system, which is one of the constitutional duties of the State, provided for in Article 63, no. 2, of the CRP (...)"
Furthermore, the creation of AIMI, as a supplementary tax on real estate property, which aimed to introduce into taxation "a progressive element of personal basis, taxing more heavily larger patrimonial assets", is compatible with the objective that the taxation of property should contribute to equality among citizens, affirmed in no. 3 of Article 104 of the CRP, as progressivity has as its corollary, tendentially, to impose greater taxation on those with greater tax-paying capacity.
Similar to the Property Tax regime, the taxpayers of AIMI are owners, usufructuaries or surface rights holders of the respective properties, regardless of their qualities as natural or legal persons, being assimilated to these "any structures or centers of collective interests without legal personality that appear in the registers as taxpayers of the municipal property tax, as well as the undivided succession represented by the head of household", see nos. 1 and 2 of Article 135-A.
Insofar as the modeling of the quantitative amount to be paid abstracts from the economic dimension of the entities, namely the qualification as small, medium or large enterprise, as well as, by not affecting the entirety of the net assets of the entities, it can be stated that, with regard to AIMI inciding on urban properties of which legal persons and assimilated structures are owners, usufructuaries or surface rights holders, assumes the nature of real property tax, see no. 2 of Article 135-A of the Property Tax Code.
In this manner, as doctrine well states, "Thus, with respect to legal entities, AIMI is not intended, in truth, to tax entities with higher wealth indices, because all patrimonial values of the taxed properties are taxed, without minimum limit or any deduction. Also, for this reason, the AIMI that affects legal entities is closer to a general tax on real estate property", see JOSÉ MARIA PIRES, The Additional to Property Tax and Personal Taxation of Property, Almedina, 2017, p.42).
Thus, they are subject to the additional Property Tax the properties used for ''housing" and "land for construction" as defined in said Article 6 of the Property Tax Code, regardless of the potential allocation that may be given to them, as they do not appear in the negative delimitation of scope.
Although it has excluded from the scope urban properties classified as "industrial, commercial or for services" and "others", the legislator expressly chose to maintain other properties that also integrate the assets of companies, such as those classified as residential or land for construction.
As to the alleged violation of the constitutional principle of equality, it cites Professor José Casalta Nabais, when he states "[…] the principle of tax equality always has inherent above all the idea of generality or universality, whereby all citizens are obliged to fulfill the duty to pay taxes, and of uniformity, requiring that such duty be assessed by a single criterion - the criterion of tax-paying capacity. This thus implies equal tax for those with equal tax-paying capacity (horizontal equality) and different tax (in qualitative and quantitative terms) for those with different tax-paying capacity in proportion to that difference (vertical equality), (in Tax Law, Almedina; 2012, 7th Edition, p. 155)."
As well as Constitutional Court Decision no. 563/96, of 16 May, when it states "[…] The principle does not prevent that, taking into account the freedom of legislative formulation, differentiations in treatment can (should) be established, "reasonably, rationally and objectively justified", on pain of, thus not being the case, "the legislator being in breach by omission of acceptance of solutions objectively justified by constitutionally relevant values", in the weighing of mentioned Decision no 335/94. in, Gomes Canotilho, in - Review of Legislation and Jurisprudence, year 124, p. 327; Alves Correia, The Urban Plan and the Principle of Equality, Coimbra, 1989, p. 425; Decision no 330/93).»
Land for construction is not merely instrumental to the exercise of economic activity; on the contrary, it integrates the very core of economic activity, with intrinsic economic value and normally with valuation in the real estate market, that is, they can be sold, exchanged, given as collateral for obligations and obviously evidence a certain economic capacity.
That the taxation embodied in AIMI translates into a specific imposition on property (cf. art. 4, no. 1 of the LGT) and not on income and that in the field of patrimonial taxation, the rule of uniformity what it imposes is horizontal equality, that is, that all those who are holders of the same form of wealth are taxed in the same manner, see SOUSA FRANCO, Public Finances and Financial Law, vol. II, 4th ed., p. 181.
Thus, like any property tax, AIMI is disconnected from any eventual realization of profit from the sale of real property assets, as well as from the existence, or not, of negative or positive net situation, relevant to the economy of the tax being only the patrimonial value of the land. As for land for construction, these do not reduce to mere construction rights, of future things, and all of them are autonomous goods that, even due to their natural scarcity, always have intrinsic economic value and normally have valuation in the real estate market, that is, they can be sold, exchanged, given as collateral for obligations.
And even if the taxed properties could prove to be instrumental to economic activity, they are suitable to indicate that that legal person is the holder of goods that, in themselves, evidence a specific affluence compared to other real estate owners.
It is thus concluded that the holding of high-value real estate property, regardless of allocation or not to economic activity, is tendentially revelatory of high tax-paying capacity, obviously superior to what is to be presumed to exist when low-value property is held or when it does not exist.
It is not seen, in this manner, that the taxation of land for construction, with allocation for "commerce and services", in the manner it is provided for in Articles 135-A and 135-B of the Property Tax Code, clashes with the principles of equality, justice and tax-paying capacity.
In sum, AIMI incides on real estate property that possesses the characteristics indicated in these articles, that is, subjecting any and all entity that is the holder of real rights over urban properties in accordance with objective reality and not merely potential reality at the time of verification of the tax act.
With regard to the payment of indemnity interest provided for in Article 43 of the LGT, the Respondent understands that the disputed act does not suffer from any defect that determines its annulment.
Furthermore, the AT, in its capacity as an organ of the Public Administration, does not have the authority to decide on the non-application of norms regarding which doubts of legality or constitutionality are raised, which, in turn, determines the lack of legal support for the request for indemnity interest, see the jurisprudence of the Administrative Court of which examples are the Decisions in Proceedings nos. 01529/14 and 399/15, respectively of 03-04-2015 and 04-05-2017.
It concludes by arguing for the total dismissal of the request for arbitral pronouncement and discharge of the Respondent, maintaining in the legal order the disputed tax act, as the disputed assessment constitutes a correct interpretation and application of law to the facts, or, if this is not accepted, it requests, by reference to the provisions of Article 280, no. 3 of the CRP and Article 72, no. 3 of the Constitutional Court Law, that notification be made to the Public Prosecutor of the wise arbitral judgment.
2. Matter of Fact
2.1 Proven Facts
With relevance to the appreciation and decision of the questions raised, the following facts are taken as established and proven:
a) The Claimant is a commercial company whose corporate purpose includes the "purchase and sale of properties, construction of houses for sale, urban developments and subdivision", see Article 5 of the request for arbitral pronouncement (ppa);
b) In the course of its activity, the Claimant, on 01 January 2018, was the owner of certain properties, which include land for construction, registered in the urban register of the parish of ..., municipality of ..., with total tax patrimonial value (TPV) of 4,270,757.90 €, see list of urban properties submitted by the Claimant in document no. 1;
c) This list includes eleven parcels of land for construction for building purposes for "services", with TPV of 3,844,957.90 €, see document no. 3 submitted by the Claimant;
d) On 16-08-2018, the Claimant was notified of the AIMI assessment no. 2018..., of 30-06-2018, issued by the Tax and Customs Authority ("AT") with reference to the year 2018, in the total amount of 17,083.03 €, with a payment deadline in September 2018, relating to the land for construction referred to in paragraph c) above, see document no. 2 submitted by the Claimant;
e) On 21-09-2018, the Claimant made payment of the assessed tax, see document no. 2 submitted by the Claimant;
f) The AIMI relating to land for construction intended for "services" corresponds to the amount of 15,379.83 € (TPV 3,844,957.90 € x rate 0.4%);
g) On 23-12-2018, the Claimant submitted the request for arbitral pronouncement that gave rise to the present proceedings.
2.2 Unproven Facts
There are no facts relevant to the decision of the case that should be considered unproven.
2.3 Reasons
With respect to the matter of fact, the Tribunal has no duty to pronounce on all alleged matters, but rather has the duty to select that which is relevant to the decision, taking into account the cause (or causes) of action that justifies the request formulated by the claimant [(see Articles 596, no. 1 and 607, nos. 2 to 4 of the Civil Procedure Code, applicable ex vi of Article 29, no. 1, paragraphs a) and e) of the RJAT)] and to record whether it considers it proven or not proven (see Article 123, no. 2 of the CPPT).
According to the principle of free evaluation of evidence, the Tribunal bases its decision, in relation to the evidence produced, on its inner conviction, formed from the examination and evaluation it makes of the means of proof brought to the proceedings and in accordance with its life experience and knowledge of persons (see Article 607, no. 5 of the Civil Procedure Code). Only when the probative force of certain means is pre-established in law (e.g., full probative force of authentic documents, see Article 371 of the Civil Code) does not the principle of free evaluation of evidence dominate the appreciation of the evidence produced.
Thus, the conviction of the Tribunal was based on the set of documents attached to the record as well as on the positions taken by the parties.
The Tax and Customs Authority did not attach the administrative file nor dispute any of the facts alleged by the Claimant, for which reason they are considered established.
3 - Matter of Law (Legal Reasoning)
Object of the Dispute
The question that constitutes the thema decidendum comes down to whether the properties referred to in the proceedings (land for construction) are covered by the rules of objective scope of AIMI, provided for in Article 135-B of the Property Tax Code, insofar as they constitute the substrate of the economic activity of the Claimant or in light of the building allocation for "services" of some of the land for construction.
Questions to Decide:
- Of the (il)legality of the disputed assessment; and
- Of the request for payment of indemnity interest.
3.1 - Of the (il)legality of the disputed assessment -
For the Claimant, the tax act is illegal because it is supported by substantially unconstitutional norms which, by affecting real property that integrates the assets of a real estate company and thus essential for the obtaining of income in the course of its economic activity, violates the most basic canons of equality, in its aspect of tax-paying capacity and proportionality.
On the other hand, the taxation in AIMI of land for construction with a potential use for services constitutes discriminatory and arbitrary treatment, since properties built with this same use are excluded from taxation in this same Additional, in accordance with no. 2 of Article 135-B of the Property Tax Code.
Before proceeding with the analysis of the alleged unconstitutionalities, it is important to make some considerations on the meaning and scope of the invoked norms.
A - Properties as Substrate of Economic Activity of Real Estate Companies
The Claimant is a commercial company that develops its activity in the real estate sector, consisting of its corporate purpose the purchase and sale of properties, construction of houses for sale, urban developments and subdivision. Thus all real estate property was, on 01-01-2018, intended solely and exclusively for the exploitation of the Claimant in the course of its economic activity.
The Claimant thus understands that AIMI is not applicable to it, as with this tax the legislator aimed to "tax the holding of real estate property for revealing a superior tax-paying capacity of whoever holds it, thereby implementing the principle of fair distribution and tax-paying capacity", for which reason, as properties are essential for the obtaining of income in the course of its economic activity they should be considered excluded from taxation.
However, the Claimant departs from incorrect premises as to the meaning and scope of the applicable provisions, as is demonstrated:
In fact, the Additional to Property Tax was instituted by Law no. 42/2016, of 28 December (State Budget Law for 2017), which added to the Property Tax 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 "taxpayers of the additional to the municipal property tax are natural or legal persons who are owners, usufructuaries or surface rights holders of urban properties situated in Portuguese territory", being "assimilated to legal persons any structures or centers of collective interests without legal personality that appear in the registers as taxpayers of the municipal property tax".
For its part, Article 135-B defines the scope of objective scope, providing as follows:
Article 135-B
Objective scope
1 - The additional to the municipal property tax incides on the sum of the tax patrimonial values of urban properties situated in Portuguese territory of which the taxpayer is the holder.
2 - Excluded from the additional to the municipal property tax are urban properties classified as "commercial, industrial or for services" and "others" in accordance with 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 Property Tax Code is intended to characterize what is meant by urban properties "commercial, industrial or for services" and "others" for purposes of exclusion from the scope of the additional tax.
Thus, the Municipal Property Tax (Property Tax) incides on the tax patrimonial value of rural and urban properties situated in Portuguese territory, as results from Article 1 of the Property Tax Code, and the subsequent articles define, for purposes of the tax, the concepts of property, of rural properties, of urban properties and of mixed properties (Articles 2 to 5).
For its part, 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) Land for construction;
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 destination each of these purposes.
3 - Land for construction are deemed to be lands situated within or outside an urban agglomeration, for which a license or authorization for a subdivision or construction operation has been granted, an admission of prior notification has been made or favorable prior information has been issued regarding a subdivision or construction operation, and also those that have been so declared in the acquisition title, except for lands in which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal territorial planning plans, are allocated to spaces, infrastructure or public equipment.
4 - Included in the provision of paragraph d) of no. 1 are lands situated within an urban agglomeration that are not land for construction nor are covered by the provision of no. 2 of Article 3 and also buildings and constructions licensed or, in the absence of a license, that have as their normal destination other purposes than those referred to in no. 2 and also those of the exception of no. 3.
Given the foregoing, it can be said, straightaway, that the literality of Articles 135-A, no. 1 and 135-B, nos. 1 and 2, of the Property Tax Code is clear and does not lend itself to any interpretative doubt. Being the letter of the law, or grammatical element, the first element to invoke in legal hermeneutics, and being it presumed that the legislator knew how to express its thoughts in adequate terms (no. 3 of Article 9 of the Civil Code), it will not be necessary to invoke other elements from among those available in the range of hermeneutic tools.
In fact, it appears clear that the legislator, in defining the negative delimitation of the scope of the tax by reference to urban properties classified as "commercial, industrial or for services" and "others" in accordance with paragraphs b) and d) of no. 1 of Article 6" of the Property Tax Code, is precisely intending to refer to this typology of properties according to the characterization that the Code itself attributes to it.
As was consigned in the Arbitral Decision, rendered in Proceeding 676/2017-T, of which collective the undersigned was a member, following the Arbitral Decision rendered in Proceeding no. 664/2017-T, whose jurisprudence we now follow, as we agree with it, "The exclusion of the tax comprises, therefore, properties classified as commercial, industrial or for services, being understood as such buildings or constructions licensed for those purposes or that have as their normal destination each of these purposes. It encompasses, moreover, the residual type referred to in paragraph d) of no. 1 of such Article 6, including there lands situated within or outside an urban agglomeration that are not land for construction nor rural properties and also buildings and constructions that do not fall within any of the previous classifications.
The scope of objective scope, by effect of the reference to such Article 6, was thus defined not only by reference to a certain type of urban property, but also by reference to the administrative procedure through which the classification was made or, in the absence of a license, to the normal destination of such properties for commercial, industrial and services purposes or others."
It is indubitable that the legislative concern to "avoid the impact of this tax on economic activity" was announced in the Draft Law of the State Budget for 2017 and was implemented through the exclusion from the scope of "urban properties classified in the type 'industrial', as well as urban properties licensed for tourist activity, these latter provided that their destination is properly declared and proven" and the deduction from the taxable value of the amount of "€600,000.00, when the taxpayer is a legal entity with agricultural, industrial or commercial activity, for properties directly allocated to its functioning".
However, it was not on the basis of the activity to which the properties are allocated that the exclusion of scope came to be defined, as in the approved version, the non-scope was defined, as we have seen, based only on the types of properties indicated in Article 6 of the Property Tax Code, with no allusion whatsoever to allocation or not to the functioning of legal entities.
Thus, as was consigned in Arbitral Decision no. 675/2017-T, "if the final version of the Budget had maintained the legislative intention to exclude the scope on properties directly allocated to the functioning of legal entities, it would certainly have maintained the reference to this allocation that appeared in the proposal and that clearly expressed this legislative option.
(…), having such reference to the allocation of properties been suppressed, there is no legal support for concluding that residential properties and land for construction allocated to the functioning of legal entities do not fall within the scope of AIMI.
"In the absence of other elements inducing the choice of the less immediate meaning of the text, the interpreter should opt in principle for that meaning that best and most immediately corresponds to the natural meaning of the verbal expressions used, and in particular to their technical-legal meaning, on the assumption (not always correct) that the legislator knew how to express its thoughts correctly.
In the case at hand, in face of the departure from the proposed version in which relevance was given to the allocation of properties, there is no reason to conclude that the legislator did not know how to express its thoughts 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, it can be read in the Arbitral Decision, relating to Proceeding no. 676/2017-T, following the jurisprudence fixed in the Arbitral Decision rendered in Proceeding no. 664/2017-T, hereinabove referred to: "Having the law defined the scope of the tax through technical legal concepts used elsewhere in the system, it is surely with that meaning 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 or more strongly suggesting one of the possible meanings. But if the legislator resorted to special technical-legal language, to express its thoughts with greater precision, it falls to the interpreter to make use 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 (in this sense, see Baptista Machado, Introduction to Law and Legitimating Discourse, Coimbra, 1993, p. 182).
As must be concluded, the intended extension of the legislative formula used to properties allocated to the economic activity of the company, regardless of the specific characterization as commercial, industrial or services properties, has no place in light of the general criteria of legal hermeneutics."
Thus, the Claimant is not correct when it alleges that it would have been the intention of the legislator to intend to exclude from the scope of the tax properties that constitute the substrate of the economic activity of real estate companies, under the pretext that the objective pursued would be not to impose additional tax burden on taxpayers who hold properties by reason of their corporate purpose, so as not to affect the economic activity developed thereby.
Indeed, such interpretation has no support in the letter of the law nor does it follow from the rational and systematic element. It is clear from the reading and interpretation of the provisions in question that the legislator's choice was not in the direction advocated by the Claimant. Such an option would presume that the legislator, instead of having delimited the scope of the tax through characterized types, would have opted for a case-by-case evaluation depending on the allocation of the property, in practical terms, to an economic activity or to the functioning of a legal entity. That is shown not to have happened.
Thus the criterion relevant elected by the legislator, within its broad margin of formulation, was the classification of properties in light of Article 6 of the Property Tax Code and not the allocation of the same to the economic activity of the Claimant as an element of tangible fixed assets. It should also be noted that such allocation does not appear in the law nor in Draft Law no. 37/XIII/2.A, of 13-10-2016, as amended by Amendment Proposal of 18-11-2016, contained in the statement of reasons of the political parties, in particular of the Socialist Party, although in the initial version of said Draft Law as well as in the Budget Report 2017, of October 2016 (Strategy for Promoting Economic Growth and Budgetary Consolidation - IV.2.3. Guidelines for Fiscal Policy) and also in item 1.4.2.1 – "Fiscal Measures for 2017" of the Committee on Budget, Finance and Administrative Modernization, of 31-10-2016, the allocation to productive activity was provided for.
Thus, the fact that the Claimant holds the properties referred to in the proceedings as substrate of its economic activity does not exclude the scope of AIMI.
B - Land for Construction with Building Allocation for Services
On another level of analysis, the Claimant also considers the taxation of land for construction with building potential for "services" to be illegal, when properties built with this allocation are covered by the exclusion clause provided for in no. 2 of Article 135-B of the Property Tax Code.
The Claimant also is not correct, as it departs, from the outset, from the incorrect premise as to the meaning and scope of the provision of Article 135-B, no. 2, of AIMI, according to which, as it was the legislator's intention to exclude from taxation properties allocated to economic activities, land for construction whose potential use coincides with the purposes of "commercial, industrial or services" should also be considered excluded from the scope of the additional Property Tax.
This thesis, in addition to departing from an incorrect premise (in the alleged intention of the legislator to relieve land allocated to economic activity), has no support in the letter of the provision. In fact, Article 135-B, no. 2, of the Property Tax Code simply excluded from the additional the urban properties classified as "commercial, industrial or for services" and "others", referring for the characterization that is made in Article 6 of that Code as to those types of urban properties.
As we have seen, that provision distinguishes, in its no. 1, among properties "residential", "commercial, industrial or for services", "land for construction" and "others" and defines in subsequent numbers the normative criteria on which the classification of an urban property in any of those types depends. Land for construction is, as results from no. 3 of such Article 6, lands that have been covered by a subdivision or construction license operation and are not intended for other purposes of an urban planning nature, and do not confuse 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 destination each of those purposes.
As was consigned in the Arbitral Decision, rendered in Proceeding no. 664/2017-T, "Having the legislator defined an exclusion clause by express and precise reference to certain types of urban properties, which are immediately identifiable in the context of the law, it is not possible to carry out an extensive interpretation so as to include there other typologies that the legislator manifestly did not wish to consider. Nor could one even arrive at such 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 on land for construction 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 such was not the legislative option, which merely excluded from the scope of the tax these types of properties and not those others that could potentially be used for those same purposes."
Finally, this interpretation does not configure any discriminatory treatment violating the principle of equality as we are speaking of diverse realities starting with the fact that land for construction is not assimilable to already-built urban properties, as will be analyzed further below.
Thus, the Claimant has no reason, and its request should be dismissed.
C - As to Issues of (Un)constitutionality
The issues of unconstitutionality raised by the Claimant have already been addressed in the negative by various arbitral decisions, whose jurisprudence we now reproduce, for ease of exposition.
As to the principles of equality and tax-paying capacity, as was consigned in the Arbitral Decision rendered in Proceeding no. 676/2017-T, reproducing Arbitral Decision no. 664/2017-T "The Constitutional Court has emphasized, one of the essential objectives constitutionally defined of the tax system, alongside the satisfaction of the financial needs of the State and other public entities, is that of fair distribution of income and wealth, as can be inferred from Article 103, no. 1, of the Constitution.
It is this attachment 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: in accordance with no. 1 of Article 104, tax on personal income aims at "the reduction of inequalities and shall be single and progressive, taking into account the needs and income of the household aggregate."
Tax 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 tax value 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 in income inequality (on all these aspects, Constitutional Court Decision no. 187/13, nos. 97, 98 and 99).
The progressivity of the tax system also constitutes a requirement of the principle of material equality.
As Casalta Nabais states, the principle of tax equality has inherent above all "the idea of generality or universality, whereby all citizens are obliged to fulfill the duty to pay taxes, and of uniformity, requiring that such duty be assessed by a single criterion - the criterion of tax-paying capacity. This thus implies equal tax for those with equal tax-paying capacity (horizontal equality) and different tax (in qualitative or quantitative terms) for those with different tax-paying capacity in proportion to that difference (vertical equality)" (Tax Law, 5th edition, Coimbra, 2009, pp. 151-152).
Configuring itself the general principle of equality as a material equality, the principle of tax-paying capacity – according to the same author - as tertium comparationis of equality in the domain of taxes, does not need a specific and direct constitutional provision. Its constitutional foundation is the principle of equality articulated with the other principles and provisions of the respective "tax constitution" and, in particular, those that already flow from the structural principles of the tax system that appear in Articles 103 and 104 of the Constitution (ob. cit., p. 152).
As a presupposition and criterion of taxation, the principle of tax-paying capacity – within the same line of understanding - "keeps the tax legislator from arbitrariness, obliging it that in the selection and articulation of the tax facts, it adheres to revelations of tax-paying capacity, that is, erects as object and taxable matter of each tax a certain economic presupposition that is a manifestation of that capacity and is present in the various legal hypotheses of the respective tax" (ob. cit., p. 154).
The Constitutional Court, more recently, has also analyzed the principle of tax equality under the lens of tax-paying capacity, as can be seen namely in Decision no. 142/2004, where it is stated that "[t]he principle of tax-paying capacity expresses and implements the principle of tax or fiscal equality in its aspect of uniformity – the duty of all to pay taxes according to the same criterion – with tax-paying capacity filling the unitary criterion of taxation".
The recognition of the principle of tax-paying capacity as a criterion intended to assess the constitutional inadmissibility of certain solution(s) adopted by the tax legislator, has also led to the idea, expressed for example in Constitutional Court Decision no. 348/97, that taxation in conformity with the principle of tax-paying capacity will imply "the existence and maintenance of an effective connection between the tax obligation and the economic presupposition selected as object of the tax, requiring, therefore, a minimum of logical coherence of the various concrete hypotheses of tax provided for in law with the corresponding object thereof".
The Constitutional Court has been, therefore, moving away from merely negative control of tax equality, coming to adopt the principle of tax-paying capacity as an appropriate criterion for the distribution of taxes; but it does not cease to accept the prohibition of arbitrariness as an adjuvant element in the verification of the constitutional validity of normative solutions in the fiscal field, 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 implemented through diverse aspects: a first is in the generality of the tax law, in its application to all without exception; a second, in the uniformity of the tax law, in treating equally the taxpayers who find themselves in equal situations and differently those who find themselves in different situations, to the extent of the difference, to be assessed by tax-paying capacity; a last, is in the prohibition of arbitrariness, in barring the introduction of discriminations among taxpayers that are devoid of rational basis (see Constitutional Court Decisions nos. 306/2010 and 695/2014)".
Applying the foregoing to the case under analysis, it is emphasized, first of all, as can be read in the Budget Report for 2017 (p. 60), that the creation of the additional to Property Tax, as a supplementary tax on real estate property, aimed to introduce into taxation "a progressive element of personal basis, taxing more heavily larger patrimonial assets", and, in that sense, is compatible with the principle of tax progressivity to which no. 3 of Article 104 of the Constitution refers, which has as its corollary the tendential imposition of greater taxation on those with greater tax-paying capacity.
According to doctrine, it has also been understood that taxation of property, alongside taxation of income, constitutes a projection of tax-paying capacity, functioning as an extension of personal income tax and as the reinforcement of qualitative discrimination (Sérgio Vasques, "Tax-paying Capacity, Income and Property", Taxation – Review of Law and Tax Management, no. 23, Coimbra, 2005, pp. 33 and 36).
Now, in this context, it is not seen that the taxation of the real estate property of the Claimant violates the principle of tax equality and tax-paying capacity merely because the ownership of real property constitutes the very object of its economic activity.
In fact, the properties held by it will be allocated to activities freely accessible to the generality of property owners and any other entities, even if of an entrepreneurial nature, that devote themselves to real estate promotion.
As can be read in the Arbitral Decision, rendered in Proceeding no. 664/2017-T, "The ownership of real estate property, for purposes of sale and transformation, with a view to obtaining economic results, does not cease to constitute a patrimonial asset that is revelatory of an increased tax-paying capacity, which goes beyond the tax that applies to taxable profit by reason of the economic activity developed. What is at issue, therefore, is not the taxation of the actual income earned by such entities through the activity developed, but the complementary tax-paying capacity that flows from the ownership of property and which in itself can facilitate the procurement of credit or the reinforcement of its negotiating position in the celebration of contracts (…)"; in the same sense, the Arbitral Decision rendered in Proceeding no. 676/2017-T can also be seen.
Also as was consigned in the Arbitral Decision, rendered in Proceeding no. 675/2017-T, "the ownership of high-value real estate property evidences, as in relation to any property owner devoted to housing, a special economic capacity to contribute additionally to the Financial Stabilization Fund of Social Security, to which AIMI revenue is assigned, and which "corresponds to the government program's objective 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 land for construction of residential properties does not appear to be materially unconstitutional, in light of the principles of equality and tax-paying capacity."
Further, in line with what was understood in the Arbitral Decision, of 17 March 2016, rendered in Proceeding no. 507/2015-T, "a distinction must be made between the ownership of real estate property intended for housing which constitutes, in itself, a tendentially secure indication of economic affluence, superior to that of the generality of citizens, and the ownership of rights over real estate intended for the exercise of commercial, industrial activities, provision of services or similar 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 for the functioning of the company.
There thus appears to be constitutionally acceptable ground for the restriction of the scope of the additional to Property Tax to residential properties by contrast with properties classified as commercial, industrial or services provision, and the invoked unconstitutionality based on violation of the principles of equality and tax-paying capacity is ruled out."
In sum, it is possible to discern a sufficient material basis for distinguishing between these different tax facts for purposes of the taxation of property, there being likewise no disproportionate taxation.
The principle of tax equality was invoked in the Arbitral Decision, rendered in Proceeding no. 664/2017-T, "because it was understood that the inclusion in the scope of the norm of land for construction alongside an already-built residential property does not reflect the different tax-paying capacity of the respective owners, that being the determining reason for the judgment of unconstitutionality. In the present case, on the contrary, for purposes of the exclusion of the Additional to Property Tax, it is intended to establish the assimilation between land for construction and urban properties commercial, industrial or for services in the inverse perspective that land for construction potentially usable for such purposes does not distinguish itself from already-built properties that are classified as commercial, industrial or for services."
In the very recent Decision no. 299/2019 of the Constitutional Court, of 21-05-2019, rendered following the appeal filed in Arbitral Proceeding no. 664/2017-T abundantly above cited, it was decided "Not to declare unconstitutional the norm extracted from Article 135-B, no. 2, of the Property Tax Code, in the sense of including, in the scope of application of Additional to Property Tax, "land for construction" for purposes of commerce, industry, services or others".
In this Decision, rendered with the intervention of the Plenary, in accordance with no. 1 of Article 79-A of the Constitutional Court Law, it is referred among other things:
"21. Beyond the broader critique to the objective scope of AIMI that has just been reviewed, the reclaimer problematizes specifically the situation of land for construction. It points to the fact that the normative sense questioned comprises the taxation of land for construction with allocation established for purposes of commerce, industry, services or others, when subjection to AIMI is excluded with respect to properties built for these same purposes, regardless of their effective use. It considers that there are legal-subjective situations deserving of the same treatment, without there being a material reason that constitutionally legitimizes the difference. Also on this point, it is not correct, as it places in confrontation materially distinct realities, in light of the tax fact and the presupposition of AIMI.
In truth, the scope of the tax on "land for construction", as defined in no. 2 Article 6° of the Property Tax Code, derives from there having constituted rights to build or carry out subdivision operations, either by way of act of granting administrative license or authorization, or by the tacit recognition resulting from admission of prior notification, or, still, by the favorable response to request for prior information or favorable prior information issued regarding a subdivision or construction operation. Accessorily, the legislator also embraced, as a criterion of allocation to the construction of the land, that it be acquired expressly for that purpose and that it possess constructive viability.
And, in accordance with the normal functioning of the market, the ownership of rights over land with respect to which construction or subdivision rights have already been constituted or are recognized to meet conditions of constructive viability, configures a wealth susceptible to autonomous evaluation of what may be built, by force of the juridically founded expectation that comes to incorporate the legal-subjective sphere of its title holder.
The legislator's recognition that land for construction translates into a patrimonial position of its holder and market value in itself, makes unusable the invocation of the purpose and value corresponding to the property that may be built there: land for construction and built property are not economic realities equivalent or assimilable, in the domain of the taxation of urban real estate property. Thus it was affirmed by the Court, with emphasis on the pronouncement of the Plenary in the already referred Decision no. 378/2018, doctrine entirely transposable to the norm of AIMI here scrutinized.
Also within the scope of AIMI, even if guided by a personal optic, cannot fail to be recognized that land for construction is well distinct from already-built urban properties and allocated to a specific purpose by way of licensing or normal use. In fact, and basing itself, as has been seen, the reason for the non-taxation of urban properties, commercial, industrial, for services or others in the purpose of promoting the good functioning of economic activities — which implies the creation of stimuli to the reallocation of resources to productive purposes, so as to increase economic growth - land for construction can only contribute to that desideratum in potentia, in a hypothetical and conditional future, as even if a construction right has been formed, nothing prevents the change of will of its holder regarding the destination to give to the property. Beyond that, what is relevant for purposes of annual taxation in AIMI is the tax patrimonial value of the existing property and appearing in the register, as one cannot tax a future and eventual tax-paying capacity, but only current and effective tax-paying capacity. Land for construction constitutes an economic asset with patrimonial value, in itself revealing tax-paying capacity of its holder, and therefore constitutionally legitimized is its inclusion in the patrimonial accrual globally subject to AIMI, regardless of what may be effectively implanted there (…).
But, beyond this discussion on ordinary law, argues the reclaimer that "constitutes discriminatory and arbitrary treatment the taxation in AIMI of a 'land for construction' with a potential use for [purposes of commerce, industry, services or others], while not being taxed in this same Additional a property built with this same potential use, an affirmation that roots in the weighing of the allocation coefficients (Ca) and location (Cl) both in the calculation of the tax patrimonial value of constructed properties, as of land for construction (Article 45° of the Property Tax Code).
This vision rests on the presupposition, which we have already seen to be incorrect, that the ratio of the tax imposes that the scope be carved out as a function of a case-by-case evaluation of the allocation of the property to an economic activity. To the contrary, the legislator mobilized the same objective normative criteria on which depends the classification of an urban property in any of the types provided for in Article 6° of the Property Tax Code, for which it is irrelevant whether the holder of the property uses in its entirety, or does not use at all — for reasons of opportunity or others - the aptness of the same for the purpose for which it is licensed or to which it is normally destined. Such a weighing would be relevant in another model of taxation of property and of calculation of its respective value, in which the income-product was attended to, which is not that which came to be positivized in the reform operated in 2003. In this, the criterion of real or market value to assess the respective value, starting from the rigid categories provided for in Article 6° (…) prevailed.
On the other hand, it is clear that, obeying the teleology of the norm of no. 2 of Article 135°-B of the Property Tax Code to the desideratum of not excessively burdening the immovable assets with intermediate function within the business organization of the taxpayer, as for land for construction such functional nexus is not yet established with sufficient guarantee, since its holder is not in any way prevented from altering the intended purpose, so as to allocate to the construction of properties for housing lands initially licensed for construction with other designations. Already in the case of properties built for purposes of commerce, industry, services or others, even if one cannot exclude the possibility of there coming to exist nonconformity between normal use and that materialized, particularly in cases where there is no licensing, or other intervention constitutive of rights of the public authorities, does the legislator assume that the probability of such a deviation is scarce and, to that extent, that the risk is insufficient to call into question the configuration of the tax. Such an empirical evaluation, which does not appear unreasonable, situates itself within the margin of freedom of formulation of the democratic legislator, it not falling to the Court to proceed to its scrutiny within the scope of the control of equality, in its negative aspect, here invoked.
Thus being, neither the term elected to compare the legal-subjective situations - the potential use of the urban properties - comprises relevance in the problematic nucleus in equation, nor the holders of the two typologies of urban properties placed in confrontation - land for construction for purposes of commerce, industry, services or similar, on the one hand, and properties built classified, in accordance with Article 6º of the Property Tax Code, as "commercial, industrial or for services" or "others", on the other - are in an equiparable position, in accordance with the tax fact and the structure of objective scope of AIMI, for which there is not, also on this point, basis to support a judgment of unconstitutionality of the norm questioned, in the specific hypothesis under consideration.
- By the foregoing, the taxation of AIMI does not merit censure in light of the principles of equality, proportionality and tax-paying capacity (Articles 13, 18, no. 2 and 104, no. 3, of the Constitution)".
Terms in which, before the foregoing, the request formulated by the Claimant is dismissed, it being necessary to maintain the disputed assessment in the legal order.
In the same sense, beyond the arbitral decisions above referred to (664/2017, of 26-06-2018 and 676/2017, of 16-07-2018), others were rendered in the following proceedings operating under the aegis of CAAD, which we follow in their entirety: 654/2017, of 03-09-2018; 667/2017, of 05-09-2018; 678/2017, of 06-09-2018; 682/2017, of 20-07-2018; 683/2017, of 12-07-2018; 684/2017, of 06-09-2018; 685/2017, of 06-09-2018; 690/2017, of 06-09-2018; 692/2017, of 11-05-2018; 6/2018, of 26-07-2018; 291/2018, of 28-02-2019; 324/2018, of 22-01-2019; and 574/018, of 17-04-2019.
And also in arbitral proceedings nos. 668/2017, of 24-04-2018; 669/2017, of 19-09-2018; 675/2017, of 04-05-2018; 677/2017, of 26-06-2018; 679/2017, of 24-06-2018; 681/2017, of 23-05-2018; 686/2017, of 07-05-2018; 691/2017, of 06-08-2018; 693/2017, of 03-09-2018; 694/2017, of 30-06-2018; 696/2017, 23-07-2018; 306/2018, of 28-12-2018; 310/2018, of 10-12-2018; 356/2018, of 11-01-2019; 420/2018, of 15-01-2019; 502/2018, of 29-03-2019; 535/2018, of 17-04-2019; and 559/2018, of 23-04-2019, as to the question of properties as substrate of the economic activity of companies, and 401/2018, of 22-01-2019 and 506/2018, of 29-04-2019, as to the question related to land for construction with building allocation for commerce, industry or services.
3.2 - Moot Requests
In light of the legal solution of the case, the request for refund of the amount paid by way of additional to Property Tax and the condemnation to payment of indemnity interest is rendered moot (Article 608, no. 2, of the Civil Procedure Code).
4 – Decision
In light of the foregoing, it is decided:
a) To dismiss as completely without merit the requests for arbitral pronouncement, for not being proven, discharging the Tax and Customs Authority therefrom, in the manner petitioned, maintaining in the legal order the disputed act (assessment of the Additional to the Municipal Property Tax with no. 2018..., relating to the year 2018, made by the Tax and Customs Authority on 30-06-2018, in the total amount of 17,083.03 €); and
b) To condemn the Claimant to payment of the arbitration costs of the proceedings.
Value of the Proceeding
In accordance with the provisions of Articles 306, no. 2, of the Civil Procedure Code, 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 proceeding is fixed at 17,083.03 € (seventeen thousand, eighty-three euros and three cents).
Costs
In accordance with Article 22, no. 4 of the RJAT, the amount of costs is fixed at 1,224.00 €, in accordance with Table I, attached to the RCPAT, to be borne by the Claimant.
Let it be notified.
Lisbon and CAAD, 06 June 2019
The Arbitrator,
(Rui Ferreira Rodrigues)
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