CAAD 692/2017-T: AIMI Tax on Construction Land – Real Estate Investment Fund Challenge

ARBITRAL DECISION

REPORT

A... – REAL ESTATE INVESTMENT FUND MANAGEMENT COMPANY, SA (hereinafter referred to as the "Claimant"), with tax identification number ... and registered address at ... no. ..., ..., ...-..., in Lisbon, in its capacity as fund manager and in representation of B... – CLOSED REAL ESTATE INVESTMENT FUND, with tax identification number ..., filed a request for constitution of a single Arbitral Tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to as RJAT), against which the Tax and Customs Authority (hereinafter AT) is summoned, with the objective of obtaining a declaration of illegality of the assessment act for the Additional Tax on Municipal Real Property Tax (AIMI) No. 2017..., issued by AT, relating to the year 2017, in the amount of €41,587.28.

The request for constitution of the Arbitral Tribunal was accepted by the Honourable President of CAAD on 29 December 2017 and automatically notified to AT.

In accordance with the provision of paragraph c) of No. 1 of Article 11 of RJAT, the single Arbitral Tribunal was constituted on 6 March 2018.

AT responded defending the non-merit of the claim.

The meeting referred to in Article 18 of RJAT was dispensed with, given the nature of the matter contained in the case file.

The Arbitral Tribunal is regularly constituted and materially competent, pursuant to paragraph a) of No. 1 of Article 2 of RJAT.

The parties have legal personality and capacity, are legitimately entitled and are represented (Article 4 and No. 2 of Article 10 of RJAT and Article 1 of Order No. 112/2011, of 22 March).

No nullities, exceptions or preliminary issues exist that would prevent immediate consideration of the merits of the case.

FINDINGS OF FACT

Based on the elements in the case file, the following facts are considered proven:

• The Claimant is the managing entity of the real estate investment fund A..., holding various real properties within the scope of its activity;
• On 10 August 2017, the Fund was notified of the AIMI assessment act No. 2017..., in the amount of €41,587.28;
• On 29 September 2017, the Fund proceeded to pay the above-identified assessment act.

Taking into account the positions assumed by the parties, in light of Article 110, No. 7 of CPPT and the documentary evidence in the case file, the above-listed facts are considered proven as having relevance to the decision.

LEGAL ANALYSIS

A – POSITIONS OF THE PARTIES

Claimant's Position

The Claimant alleges in its petition for arbitral ruling the following:

• The AIMI assessment act subject to these proceedings is vitiated by a breach of law, due to errors in the factual and legal assumptions and, as such, it should be annulled with all legal effects;

• According to information disclosed by the Government, the creation of AIMI aimed to require greater fiscal effort from taxpayers who allegedly reveal higher indices of wealth, thereby configuring itself as a tax of a personal nature that applies to urban real property wealth;

• Assuming a progressive character, AIMI applies to wealth materialised in the right of ownership, usufruct or surface rights over "certain" urban real properties, situated in Portuguese territory;

• Although assuming the character of a true tax, the regulation of AIMI was included in a specific section added to the IMI Code;

• The legislator chose to exclude from the objective scope of this Additional "urban real properties classified as 'commercial, industrial or service' and 'others' pursuant to paragraphs b) and d) of No. 1 of Article 6 of this Code", as provided in No. 2 of that same article;

• Pursuant to the wording of the normative provisions under analysis, it results, by exclusion, that only urban real properties destined for residential purposes and land for construction, as defined in Article 6 of the IMI Code, are subsumed to the taxation rules of this Additional;

• According to the Report of the Public Prosecutor's Office on the draft State Budget for 2017 – "Budget Report 2017", AIMI "introduces into the taxation of real property a progressive element of personal basis, taxing more heavily the larger patrimonies".

• In the same sense, the Opinion of the Parliamentary Commission on Budget, Finance and Administrative Modernisation of 31 October 2016, pronounced itself on the creation of this additional, equally affirming that the above-mentioned exclusion aimed to "avoid the impact of this tax on economic activity";

• Through the "Proposal to amend the Draft Law No. 37/XIII/2 'State Budget for 2017' of 18 November 2016, approved in Plenary of the Assembly of the Republic, No. 2 of the new Article 135-B of the IMI Code would have the legal wording currently in force – i.e. "Excluded from the additional municipal property tax are urban real properties classified as 'commercial, industrial or service' and 'others' pursuant to paragraphs b) and d) of No. 1 of Article 6 of this Code";

• In the Explanatory Statement of that amendment proposal, the Parliamentary Group of the PS expressly stated that the changes to the Additional IMI resulting from public debate since the presentation of the proposal aimed to ensure "the absence of impact on economic activity, greater progressivity of the tax and the strengthening of taxation of real property holdings held by entities resident in tax havens", thus revealing the express intention that AIMI represent an effective tax on real property wealth.

• From these considerations, it is evident that the ratio legis underlying the rule excluding objective scope of application, enshrined in No. 2 of Article 135-B of the IMI Code, was based essentially on the intention not to overburden fiscally taxpayers who, by force of their economic activities, hold real properties for the pursuit of their respective corporate purpose;

• In light of what has been explained, the Claimant cannot accept – or understand – that AT, through the assessment act now disputed, has applied this new AIMI to the property held by the Real Estate Investment Fund here represented;

• According to the Fund's Management Regulation, the Fund "aims to promote and develop real estate projects on land of its ownership and with clear suitability for this", and "the value of real properties cannot represent less than 80% (eighty percent) of the total assets of the Fund";

• In light of what has been expounded and demonstrated above, it does not appear compatible with the ratio legis and with the historical circumstances that presided over the creation of AIMI: i) the taxation of real property held by entities whose economic activity necessarily implies the holding of real properties; and ii) the taxation of "land for construction" whose potential use coincides with purposes of "commercial, industrial or service" or "others";

• Pursuant to the rules contained in the Collective Investment Scheme Regime and the Fund Management Regulations, the activity of the funds is limited to operations related to real property, namely: the "acquisition of real properties for lease or destined for other forms of paid exploitation", the "acquisition of real properties for resale", the "acquisition of other rights over real properties (...) with a view to their economic exploitation", the "carrying out of works of improvement, enlargement and refurbishment of real properties" or the development of "construction and rehabilitation projects of real properties" – cf. Nos 1 and 2 of Article 210 of the Collective Investment Scheme Regime, transcribed above;

• Such real properties are thus the true elements of the production process of the funds, whether as rental assets or as true inventories destined for future transformation, being destined exclusively for the pursuit of their activity and never being comparable to elements demonstrating the wealth of these funds;

• In this context, such real properties are accounted for in the Balance of the funds in their respective Class 3 – Fixed Assets, here included, in accordance with the limitations resulting from the Chart of Accounts of Real Estate Investment Funds, all the real properties in question, whether those held for sale or those held for monetisation through lease or otherwise;

• AIMI – as provided in Articles 135-A and following of the IMI Code – can never apply to real properties held by real estate investment funds within the scope of their activity, since the essential underlying principles for taxation here under analysis are not verified;

• In fact, taxing these real properties would mean directly taxing an "economic activity".

• As a subsidiary argument, and without prejudice to what has been expounded and demonstrated above, if it were to accept the application of the AIMI regime to the Fund here represented by the Claimant, and to the real properties held by it – which is not accepted – the impugned assessment act taxes real properties that are not included within the objective scope of application of the provisions under analysis;

• In fact, pursuant to No. 2 of Article 135-B of the IMI Code, "excluded from the additional municipal property tax are urban real properties classified as 'commercial, industrial or service' and 'others' (...)";

• In this manner, and pursuant to what was already expounded above, it should be understood that it was the legislator's intention to include within the objective scope of application of AIMI urban real properties classified as "residential" or as "land for construction" – see Article 6 of the IMI Code;

• Indeed, given that it was clear the legislator's intention to exclude, through No. 2 of Article 135-B of the IMI Code, the application of AIMI to properties devoted to economic activities, it should necessarily be understood that "land for construction" devoted to those activities are equally included in that exclusion rule;

• Thus, the taxation methodology adopted by AT, in the sense of including in the taxable value for purposes of AIMI taxpayers holding "land for construction" with the purposes identified by No. 2 of Article 135-B of the IMI Code, configures discriminatory treatment that violates, without more, 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 Code ("LGT");

• At the limit, and intending to demonstrate how this taxation methodology can lead to unacceptable situations – violating all underlying taxation principles – consider the following example: AIMI should apply to "land for construction" intended for the construction of a hotel, but should not apply to the hotel already built.

• As a subsidiary argument, and without prejudice to what was expounded above, the Claimant understands that the AIMI taxation regime is contrary to the fundamental principle of equality, enshrined in Article 13 of the CRP and, in parallel, contrary to the principle of fiscal equality and taxpaying capacity enshrined in Article 104, No. 3 of the same instrument;

• In matters of fiscal equality, taxpaying capacity assumes itself as an essential element to be weighed, since effective equal fiscal treatment of taxpayers will depend on the existence of identical taxation for identical taxpaying capacities;

• This principle of taxpaying capacity thus rests directly on the material principle of equality, constitutionally enshrined, having support in the remaining fiscal norms of the CRP and in tax legislation;

• The principle of equality emerges in the context of tax legislation, first and foremost, in Article 5 of LGT which expressly determines that "taxation aims at satisfying the financial needs of the State and other public entities and promotes social justice, equality of opportunity and the necessary corrections of inequalities in the distribution of wealth and income", and that "taxation respects the principles of generality, equality, legality and material justice";

• In matters of property taxation, the CRP provides an essential rule: "taxation of property must contribute to equality among citizens" – See Article 104, No. 3 of the CRP;

• In this manner, "taxpaying capacity does not mean only a presupposition, but also a measure. Given that all must contribute if they have taxpaying capacity, one must go further: they will contribute in the measure of their taxpaying capacity" – see Diogo Leite de Campos, Tax Law, Almedina, 2003, p. 125.

• With regard to the taxation of "land for construction", it should be understood that all "land for construction" devoted to economic activities are also necessarily excluded from this taxation, i.e. all "land for construction" that have a (potential) dedication to commerce, industry, services or others;

• Thus, it is demonstrated that the legal regime of AIMI, in particular its Article 135-B of the IMI Code – when interpreted in the sense of including within the scope of application of AIMI "land for construction" for purposes of commerce, industry, services or others – is manifestly contrary to the principle of equality, constitutionally enshrined;

• In analysing the conformity of the AIMI legal regime with the Constitution of the Portuguese Republic, account should also be taken of the nature of the taxpayers burdened with the taxation resulting from it, in particular the fact that it encompasses entities that exercise, as an activity comprised in their statutory purposes, the activity of purchasing, selling, constructing and leasing real properties.

• In the application of AIMI to real property held by those entities – such as the Real Estate Investment Fund here represented by the Claimant – the essential taxation presupposition is not verified, i.e. the presupposition that ownership of those real properties constitutes an indication of increased taxpaying capacity or wealth;

• Thus, the application of AIMI to real property held by entities dedicated to real estate exploitation (here including purchasing, selling, construction, promotion and leasing) could only result from the idea that those real properties, productive factors of these companies and means for the exercise of their economic activity, configure an indication of increased taxpaying capacity – which cannot be accepted;

• For all that has been expounded, also from this perspective, the AIMI legal regime materialises an unjustified negative discrimination of companies (or equivalent figures) that hold real property as productive factors or means for the exercise of their activity, thus verifying the material unconstitutionality of this norm, by breach of the constitutional principle of equality;

• In light of all that was expounded above, it is demonstrated that the AIMI legal regime, in particular its Article 135-A of the IMI Code – when interpreted in the sense of including within the subjective scope of application of AIMI entities that develop real estate activity – promotes differentiated treatment and unjustified inequality among taxpayers, in manifest violation of the principle of equality enshrined in Article 13 of the CRP and the principle of fiscal equality and taxpaying capacity enshrined in Article 104, No. 3 of the same instrument;

• Constitutional Court Judgment No. 250/2017, of 24 May 2017, handed down in case No. 156/20 addressed specifically the question of whether the extension of the scope of item 28.1 of TGIS to "land for construction whose building, authorised or planned, is for housing" violated the constitutional principle of equality, and also made important observations on the genesis and structure of this special taxation, having concluded that "compliance with the principle of tax equality is not satisfied with a basic rationality test that abstractly identifies any cause which, in light of fiscal policy objectives, is apt to justify a greater burden on some taxpayers to the detriment of others";

• The Constitutional Court is unequivocal in stating that "by gathering in the same item the taxation of luxury homes and land for construction, on the assumption that both are subsumed generically to the category of real property of high patrimonial tax value, the norm whose validity is questioned confused manifestations of wealth with factors of production of that same wealth";

• In this vein, the Constitutional Court specified that the taxation of land for construction "impacts more on the economic activity developed by its owner than on the value of the asset in itself. With the added aggravation that the respective tax burden, if it does not definitively render that activity unviable, will ultimately be borne by the final consumer of the real estate products resulting from it, of whose taxpaying capacity we can presume nothing without knowing the respective building type and value";

• In this manner, pursuant to the reasoned conclusion of the Constitutional Court, the taxation, in Stamp Duty, of "land for construction" "is a violation of the principle of tax equality enshrined in Articles 13 and 104, No. 3 of the Constitution of the Portuguese Republic, both because it does not respect the different taxpaying capacity of the owners of the properties on which it applies, indiscriminately hitting taxpayers with and without the contributive force necessary to bear the tax, and because the differentiations it introduces between those who are included and excluded from its scope of application are not proportional, being inadequate to satisfy the purpose of the norm, which is to tax aggressively real property holdings of greater value in terms that satisfy 'the principle of social equity in austerity'";

• It is demonstrated that the application of AIMI to "land for construction" of entities that promote economic activities – in this case, the Funds – promotes differentiated treatment and unjustified inequality among taxpayers, in clear violation of the principle of fiscal equality and taxpaying capacity, enshrined in Articles 13 and 104, No. 3 of the CRP;

• If this claim is meritorious, the Claimant also requests that the respective indemnitary interest be paid for delay in receiving the requested reimbursements, pursuant to the provisions of Articles 43 and 100 of LGT.

Respondent's Position

For its part, the Respondent alleges:

• The assessment act sub judice is grounded in Article 135-B of the IMI Code, according to which "1 - The additional to the municipal property tax applies to the sum of the tax values of urban real properties situated in Portuguese territory of which the taxpayer is the owner. 2 - Excluded from the additional municipal property tax are urban real properties classified as 'commercial, industrial or service' and 'others' pursuant to paragraphs b) and d) of No. 1 of Article 6 of this Code.";

• AIMI applies to properties classified as residential and as land for construction — regardless of their potential use (given that the law merely refers, without more, to Article 6 of the IMI Code) — in that they are not expressly listed in the norm delimiting the negative scope of application;

• The regime provided for permits the deduction of AIMI from corporation tax assessment, with this deduction limited to the fraction corresponding to income generated by real properties and subject to corporation tax, within the scope of rental or lodging activity, or alternatively, the burden of paying AIMI can be considered as a fiscally accepted expense for purposes of determining taxable profit (See Article 135-J of the IMI Code);

• In light of the above, it can thus be stated that, as regards AIMI applying to urban real properties of which legal entities and equivalent structures are owners (No. 2 of Article 135-A of the IMI Code) the tax assumes the nature of a real tax, in that the quantification of the amount to be paid abstracts from the economic dimension of the entities, namely the qualification as small, medium or large enterprise, nor does it affect the entire net assets of the entities;

• In this manner, the Claimant is not correct in qualifying AIMI "as a tax of a personal nature that applies to urban real property wealth", for, as a matter of conceptual accuracy it is important to state that we are not dealing with a personal tax, in line with doctrinal construction (cf., Sérgio Vasques, Manual of Tax Law, Almedina 2011, p. 193): "Personal taxes are those that weigh the social condition of the taxpayer (...) The distinction between personal taxes and real taxes concerns their internal structure and their adaptation to the economic force of the taxpayer, the composition of their family unit and the essential expenses they are obliged to make and which diminish their ability to pay the tax."

• In sum, as José Maria Pires explains: "Thus, with regard to legal entities, AIMI is not in fact intended to tax entities with higher indices of wealth, because all the tax values of the subject properties are taxed, without minimum limit nor any deduction. Also for this reason, AIMI applying to legal entities approximates more to a general tax on real property." (cf. JOSÉ MARIA PIRES, The Additional IMI and Personal Taxation of Property, Almedina, 2017, p.42);

• As to the ratio legis present in Article 135-B of the IMI Code, the legislator excluded from the scope of application urban real properties classified as "industrial, commercial or service" and "others" but expressly chose to maintain other real properties that also form part of the assets of companies, such as those classified as residential or land for construction, by not including them in the negative delimitation enshrined;

• Furthermore, it should be noted that the progressive character of AIMI, highlighted by the Claimant, has manifestation only within the scope of taxpayers - natural persons and not when the taxpayers are legal entities or equivalent legal structures, such as is the case of the Real Estate Investment Fund represented by the Claimant, therefore, by emphasizing that it is an "effective tax on real property wealth" it is necessary to reorient this expression to its real economic dimension, all the more so as the concept of "wealth" reveals itself adequate when it relates to natural persons and not to legal entities or investment funds.

• Contrary to what the Claimant contends, it is not AT that excludes from or includes in AIMI taxation certain real properties, namely urban real properties devoted to certain activities, but rather, because that is what results from Article 135-B, No. 2 of the IMI Code, urban real properties classified as industrial, commercial or service and others are not taxed;

• That is, it was not legally guaranteed in all cases that "urban real properties devoted to economic activities would not be subject to AIMI taxation", contrary to what is said by the Claimant.

• Therefore, given that the impugned assessments were carried out in accordance with the provisions of the law (a fact which, as seen, the Claimant itself expressly recognises, see in particular Article 16 of the application), there is no indication where the factual and legal error attributed to AT may reside;

• In seeking to identify the purpose of AIMI, it is interpreted that this primarily aims to affect a portion of the property of AIMI taxpayers, applying to real property constituting a patrimony, legally recognisable as capital of a given entity (singular or collective), regardless of whether it is devoted to any production process or income-generating activity;

• However, the legislator opted in No. 2 of Article 135-B of the IMI Code for a negative delimitation of the scope of application, excluding from AIMI real properties which, by their potential dedication, can be economically recognised as production factors, as capital, that is, as intermediate goods which, combined with the other factors of production, produce new utilities – economic goods that satisfy needs;

• For this purpose, it resorted to a criterion that convokes the structure of urban real property typologies provided for in Article 6 of the IMI Code and that operates through the subtraction from AIMI of urban real properties which, as a result of the declaration of use licensing by municipalities or, in its absence, of their normal destination, are reconducted to the typologies of paragraphs b) and d) of No. 1 of that provision;

• The different valuation and taxation of a real property with residential dedication as opposed to a real property intended for commerce, industry or services results from the different suitability of the real properties in question, which supports the different treatment given by the legislator who, for economic and social reasons, decided, within its freedom to structure the law, to exclude from the scope of the tax real properties intended for purposes other than residential;

• At issue is merely a partial tax on certain manifestations of taxpaying capacity, therefore, contrary to what the Claimant seeks to suggest, the ratio legis of the exclusion from taxation provided for in Article 135-B, No. 2 of the IMI Code cannot have the scope claimed by it – that is, to also encompass urban real properties classified as residential and land for construction, not mentioned there, when they constitute assets subject to the economic activity of taxpayers, since the criterion chosen by the legislator – the classification of urban real properties as industrial, commercial or service and others – was exactly at the expense of other criteria that would appeal to case-by-case verifications of the actual destination given to the properties;

• Indeed, the negative delimitation of the scope of application was enshrined in objective scope and not in subjective scope, from which it results that it is more consistent with the letter and spirit of the law present in No. 2 of Article 135-B of the IMI Code, the conclusion that the ratio legis underlying the genesis of the exclusion of the objective scope enshrined therein, was guided by the objective to exclude from subjection to the tax, above all, the real properties that give support to the development of economic activities, that is, which are held for use or provision of goods or services or for administrative purposes, not thus caring to, in general, "not overburden fiscally taxpayers who, by force of their economic activities, hold real properties for the pursuit of their respective corporate purpose.";

• Differently, the real properties excluded from subjection to AIMI, pursuant to No. 2 of Article 135-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 as support to the operation of the referred activities, and are not themselves generators of income;

• The fact that a given asset serves, as a "factor of production of wealth" is not sufficient to contradict the finding that the corresponding holder has a real property only accessible to a holder of particular wealth and, thus, capable of bearing an additional contribution for the desired budgetary consolidation;

• Precisely in the field of property taxation, and as explained below regarding the question of unconstitutionality, 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 (SOUSA FRANCO, Public Finances and Financial Law, vol. II, 4th ed., p. 181;

• The legislator, by extending the scope of application to entities whose corporate purpose coincides with the exercise of economic activities, demonstrated that it was not its intention to leave outside the reach of AIMI all real properties the ownership of which belongs to such entities, under penalty of creating a fiscal incentive for the transfer of real properties by natural persons, with the destination being, in particular, Closed Real Estate Investment Funds;

• No illegality is detected in the subjection to AIMI of urban real properties held by closed real estate investment funds, such as the one whose management is ensured by the Claimant;

• In this manner, at the date of taxation in AIMI of land for construction, one can only take account of the actual state of the land itself, as the same is legally characterised, and taking into account the tax value listed in the cadastre, not a future building, with the consequent type of urban real property that might subsequently emerge, including autonomous fractions or floors capable of independent use that might eventually come to exist, which truly are mere virtual abstractions of situations not constituted either legally or factually;

• As to the alleged violation of the constitutional principles of equality and taxpaying capacity, not only, as is uniformly recognised by jurisprudence, cannot AT disapply legal norms on the grounds of unconstitutionality, but moreover, nor does the alleged viciousness of unconstitutionality occur;

• Pursuant to No. 2 of Article 266 of the CRP, the Administration is obliged to act in accordance with the principle of legality, with this principle being concretised at the infra-constitutional level in No. 1 of Article 3 of the Code of Administrative Procedure (CPA), which in turn determines that: "Organs of Public Administration must act in obedience to law and right, within the limits of the powers conferred on them and in accordance with their respective purposes".

• Therefore, and in sum, AT could not/cannot refuse the application of a norm or cease to comply with the law invoking or questioning its (un)constitutionality, as it is subject to the principle of legality, as established in Articles 266 No. 2 of the CRP, 3 No. 1 of CPA and 55 of LGT;

• By way of caution and duty of counsel, it will always be stated further that there is no violation of the constitutional principles of equality and taxpaying capacity;

• However, as regards No. 3 of Article 104 of the CRP, doctrine warns that the principle of equality, with regard to property, must be interpreted with restriction, in the sense that it does not involve a particular and autonomous legal content of the principle of equality in the field of property taxation;

• According to the Constitutional Court: (in judgment No. 197/2013, of 9 April) "…the principle of taxpaying capacity expresses and concretises the principle of fiscal or tax equality. This is because if the principle of tax equality presupposes equal treatment of equal situations and unequal treatment of unequal situations, taxpaying capacity is the tertium comparationis - read, the criterion - which must serve as the basis for comparison. In this sense, the principle of taxpaying capacity operates both as a condition or presupposition as well as a criterion or parameter of taxation (...). It operates as a presupposition or condition since it prevents taxation from reaching a wealth or income that does not exist; it serves as a criterion or parameter because it determines that the exaction of taxpayers' property is made in accordance with their "ability to pay" (ability to pay). That is, taxpayers with the same ability to pay should pay the same taxes (horizontal equality), and taxpayers with different ability to pay should pay different taxes (vertical equality)";

• In this sense the principle of equality concretises itself and thus possesses various dimensions, such as (i) the prohibition of arbitrariness, (ii) the prohibition of discrimination and (iii) the obligation of differentiation;

• To this effect, the Constitutional Court pronounced itself, in judgment No. 563/96, of 16 May, in the following terms:

"The principle of equality of citizens before the law is embraced by Article 13 of the CRP which, in No. 1, provides, generically, that all citizens have the same social dignity, being equal before the law, specifying No. 2, for its part, that 'no one can be privileged, benefited, prejudiced, deprived of any right or exempted from any duty by reason of ancestry, sex, race, language, territory of origin, religion, political or ideological convictions, instruction, economic situation or social condition'.

[…]

Much worked, jurisprudentially and doctrinally, the principle posits that equal treatment be given to essentially equal situations of fact and unequal treatment for unequal situations of fact (prohibiting, inversely, unequal treatment of equal situations and equal treatment of unequal situations) - cf., among so many others, and beyond the already cited judgment No. 186/90, judgments Nos. 39/88, 187/90, 188/90, 330/93, 381/93, 516/93 and 335/94, published in the referred official journal, I Series, of 3 March 1988, and II Series, of 12 September 1990, 30 July 1993, 6 October of the same year, and 19 January and 30 August 1994, respectively.

The principle does not prevent that, taking into account the freedom of conformation of the legislator, differentiated treatment can be (should be) established, "reasonably, rationally and objectively grounded", under penalty of, thus not occurring, "the legislator incurring in arbitrariness, by disregard of objectively justified solutions by constitutionally relevant values", in the weighing of the cited judgment No. 335/94. The point is that there be sufficient material grounds that neutralise arbitrariness and eliminate unjustified discrimination (what matters is that one does not discriminate in order to discriminate, J.C. Vieira de Andrade tells us - Fundamental Rights in the Constitution Portuguese of 1976, Coimbra, 1987, p. 299).

The principle of equality thus is profiled as a "negative principle of control" at the external limit of conformation of the initiative of the legislator – cf. Gomes Canotilho and Vital Moreira, ob. cit., p. 127 and, for example, judgments Nos. 157/88, published in the Official Journal, I Series, of 26 July 1988, and the already cited Nos. 330/93 and 335/94 – without thereby depriving it of the plasticity necessary to, in confrontation with two (or more) groups of recipients of the norm, validate differences justifying diverse legal treatment, in the comparison of the concrete factual and legal situations posed against a given referential ("tertium comparationis"). The difference can, in fact, justify unequal treatment, eliminating arbitrariness (cf., to this effect, Gomes Canotilho, in - Journal of Legislation and Case Law, year 124, p. 327; Alves Correia, The Urban Plan and the Principle of Equality, Coimbra, 1989, p. 425; judgment No. 330/93)."

• In this same sense, the Constitutional Court more recently understood that: "only those choices of regime made by ordinary legislator can be censured, on the ground of breach of the principle of equality, in those cases where it is proven that they result in differentiated treatment among persons that does not find justification in reasonable, perceptible or intelligible grounds, taking into account the constitutional purposes which, with the measure of the difference, are pursued", as well as that "[t]his principle, in its dimension of prohibition of arbitrariness, constitutes an essentially negative criterion (...) that, without eliminating the 'freedom of legislative conformation' - understood as the freedom that belongs to the legislator to 'define or qualify the situations of fact or life relations that are to function as elements of reference to be treated equal or unequally' -, commits to the courts not the faculty to substitute themselves for the legislator, 'weighing the situation as if they were in his place and imposing their own idea of what would be, in the case, the reasonable, just and opportune solution (of what would be the ideal solution of the case)', but rather that of 'removing those legal solutions that are in no way capable of credentialing themselves rationally'" in Constitutional Court Judgment No. 187/2013 of 5 April;

• This means that the goodness of the legislative measure and its scope is not subject to review, limiting its examination to the aspect of its conformity with the constitutional text and the principles enshrined therein (See Constitutional Court Judgment No. 528/2012, of 7 November);

• In light of what has been set out, it is necessary to determine whether the choices underlying the delimitation of the objective scope of application of AIMI, made within the margin of "freedom of legislative conformation", constitute a breach of the principle of equality, by the fact that taxpayers with equal taxpaying capacity can be unequally affected by the tax by reason of the different weight that urban real properties for residential purposes and land for construction can represent in their respective global patrimonies;

• The Claimant invokes the unconstitutionality of the AIMI regime for breach of the principles of equality (Article 13 of the CRP) and taxpaying capacity (Article 104, No. 3 of the CRP), as well as invokes the said unconstitutionality on the ground that AIMI applies to all land for construction, even if classified as commercial, industrial and service;

• However, save for better opinion, and for various orders of reason, the norms enshrined do not result in unjustified differences of treatment among taxpayers in breach of those constitutional principles. Let us see:

• From the purpose of the tax it is understood that this aims, in a first moment, to affect a portion of the property of AIMI taxpayers, applying to real property constituting a patrimony, legally recognisable as capital of a given entity (singular or collective), regardless of whether it is devoted to any production process or income-generating activity - it is believed this is the purpose of No. 1 of Article 135-B of the IMI Code;

• Coming then the legislator, in a second moment, to negatively delimit the scope of the tax, excluding from AIMI real properties which, by their potential dedication, can be economically recognised as production factors, as capital, that is, as intermediate goods which, combined with the other factors of production, produce new utilities – economic goods that satisfy needs;

• Indeed, the different valuation and taxation of a real property with residential dedication as opposed to a real property intended for commerce, industry or services results from the different suitability of the real properties in question, which supports the different treatment given by the legislator who, for economic and social reasons, decided, within its freedom to structure the law, to exclude from the scope of the tax real properties intended for purposes other than residential;

• Thus, being at issue the establishment of a partial taxation of taxpayers' total property, it is judged not to be normatively adequate to proceed to a comparison between the global value of the property of other taxpayers when one is, as in the situation sub judice, before a specific taxation of urban real properties for residential purposes and of land for construction which are no more than components – with greater or lesser weight – of the global property of taxpayers, being thus impossible to convoke, in attention to the scope of application of the norm under examination, principles of vocation strictly business;

• In these terms, contrary to what the Claimant intends, it will not thus be the circumstance of other taxpayers holding identically valuable real property being exempted from the tax that will justify a specific constitutional censure of the norm under examination, for, it is not a question of a global taxation of real property and, although it can be admitted that AIMI assumes some specificities when applied to real estate promotion companies or Real Estate Funds, this does not result from any disregard for their economic force or from the conversion of the present taxation into a surrogate of tax on income, but rather is a potential negative discrimination resulting from the fact that such companies — since they commercialise real properties classified as residential and land for construction – remain with additional burden when in comparison with the generality of the other legal persons;

• The Claimant further argues that the taxed real properties are the substrate of the Funds' activity. However, truly such goods are not merely instrumental to the exercise of the Funds' activity. On the contrary, they integrate the very core of economic activity, are the object of commerce or industry, as they are destined for resale or, in the case of land for construction, for transformation in case buildings are erected on them for subsequent sale;

• And, as equally has already been explained, differently, the real properties excluded from subjection to AIMI, pursuant to No. 2 of Article 135-B of the IMI Code, perform an instrumental function to industrial, commercial or service economic activities, in that they constitute buildings that serve as support to the operation of the referred activities, and are not themselves generators of income;

• In any case, the fact that a given asset serves as a "factor of production of wealth" is not sufficient to contradict the finding that the corresponding holder has a real property only accessible to a holder of particular wealth and, thus, capable of bearing an additional contribution for the desired budgetary consolidation;

• On the other hand, the factors of production, according to economic theory, are the resources that are used to produce goods and services, in this case, the real properties held for use in the production or provision of goods or services integrate the factor capital (physical), being subject to exclusion from the objective scope of application, by No. 2 of Article 135-B of the IMI Code;

• The legislator, within its margin of freedom to conform the factual-legal realities that constitute the basis of the scope of application of AIMI, denotes the concern to encompass only urban real properties classified as buildings for residential purposes held for sale, in the same state as they are acquired or after a transformation, devoted to lease or subject to other form of exploitation and, likewise, land for construction held for sale or for buildings to be erected on them, with these realities potentially integrating, with greater or lesser weight, the property of natural persons or of legal persons and of other equivalent structures;

• In the field of property 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 (SOUSA FRANCO, Public Finances and Financial Law, vol. II, 4th ed., p. 181);

• Secondly, the Claimant also has no reason in that AIMI applies to all land for construction, even if the potential dedication is commerce, industry or service, alleging such implies a violation of the principle of equality;

• It is neither pertinent nor consistent with the principle of equality to make relevant, for purposes of judgment of constitutional conformity of AIMI, the eventual component of the future building in question on the land for construction, because the only tax value listed in the cadastre pursuant to the Municipal Property Tax Code on which annual taxation in AIMI applies is the tax value of the land for construction itself that exists,

• Constitutional Court Judgment No. 250/2017 was handed down contrary to the unison position assumed by that Court, and with two dissenting votes, drawn up by His Excellency Judge Counsellor Manuel da Costa Andrade (President) and by His Excellency Judge Counsellor João Caupers (Vice-president);

• And precisely because it is in manifest dissonance with the prior jurisprudence of the Constitutional Court that AT filed an appeal in light of art. 79-D of LTC, still pending decision.

• Indeed, the Constitutional Court had already decided in a direction diametrically opposed to that, namely in what was invoked as the founding judgment in the uniformity appeal, judgment No. 568/2016, issued by the 2nd section of the Constitutional Court, within the scope of Appeal case No. 522/16, as well as judgments No. 590/2015 and 247/2016 and in summary decisions No. 268/2016 and 605/2016;

• As regards the payment of indemnitary interest, for all that has been said above, it is understood that the assessment acts do not suffer from any vice that should dictate their annulment or declaration of nullity;

• However, and without conceding, it will be stated that, although the Claimant does not specify in what terms it petitions the respective interest, the same are not due if it is concluded that the legal regime of AIMI is unconstitutional;

• Indeed, recall that, as explained above, AT, in its capacity as a Public Administration organ, has no competence to decide on the non-application of norms as to which doubts about constitutionality are raised.

• Consequently, the services of AT cannot be imputed any error of fact or law, given the obedience to the law that informs all its activity;

• Thus, given the above, since the services of AT cannot be imputed an error which, by itself, determined the payment of tax debt in an amount higher to that legally due - since it was not within their discretion to decide differently from the way it decided - can only be concluded in the sense that indemnitory interest is not due pursuant to Article 43 of LGT.

Issues for Determination

In light of the above, and relative to the positions of the Parties and the arguments invoked to determine whether the AIMI assessment acts are or are not illegal or unconstitutional, it is important to verify:

• What is the interpretation that should be given to Article 135-B of the IMI Code?
• If it is concluded that the legal interpretation underlying the assessment act sub judice is lawful, does Article 135-B of the IMI Code violate Article 13 and/or 103 of the CRP?

A – INTERPRETATION OF ARTICLE 135-B OF THE IMI CODE

Purposes of AIMI

Law No. 42/2016, of 28 December introduced in the IMI Code, approved by Decree-Law No. 287/2003, of 12 November, the "Additional Municipal Property Tax" ("AIMI"), which entered into force on 1 January 2017.

With the creation of AIMI it was intended to correct the deficiencies suffered by the Tax on Urban Real Properties of High Added Value (ISPUEVP), which it replaced, and to tax more heavily taxpayers with real properties valued above 1 million Euros.

The grounds of AIMI are of a financial nature, since the aim is to increase tax revenues, but also of an axiological nature, in that greater fiscal effort is demanded of citizens who reveal higher indices of wealth.

Subjective Scope of Application

It was established in Nos 1 and 3 of Article 135-A of the IMI Code that AIMI taxpayers are "natural or legal persons who are owners, usufructuaries or superficiaries of urban real properties situated in Portuguese territory" on 1 January of the year to which the Additional relates.

It is further clarified in No. 2 of the above normative provision that "are equivalent to legal persons any structures or centres of collective interests without legal personality that appear in the cadastral records as taxpayers of the municipal property tax, as well as the undivided succession represented by the head of household".

In sum: given the delimited scope of AIMI with regard to the taxpayers encompassed by the tax, it is concluded that the Legislator elected natural and legal persons who are owners, usufructuaries or superficiaries of urban real properties situated in Portuguese territory as AIMI taxpayers.

Objective Scope of Application

From the point of view of objective scope of application, Article 135-B of the AIMI Code determines the following:

"1 - The additional to the municipal property tax applies to the sum of the tax values of urban real properties situated in Portuguese territory of which the taxpayer is the owner.

2 - Excluded from the additional municipal property tax are urban real properties classified as 'commercial, industrial or service' and 'others' pursuant to paragraphs b) and d) of No. 1 of Article 6 of this Code."

No. 2 of the new Article 135-B of the IMI Code was not contained in the initial wording of the Draft State Budget for 2017, having been amended through the "Proposal to amend the Draft Law No. 37/XIII/2 - 'State Budget for 2017' of 18 November 2016, approved in Plenary of the Assembly of the Republic, pursuant to the Explanatory Statement of the amendment proposal presented by the Parliamentary Group of the PS due to "public debate since the presentation of the proposal, ensuring the absence of impact on economic activity, greater progressivity of the tax and the strengthening of taxation of real property holdings held by entities resident in tax havens", thus revealing the express intention that AIMI represent an effective tax on real property wealth.

Article 6 of the IMI Code, under the heading "Species of urban real properties", establishes:

"1- Urban real properties are divided into:

a) Residential;

b) Commercial, industrial or service;

c) Land for construction;

d) Others.

2 - Residential, commercial, industrial or service are buildings or constructions licensed for such purpose or, in the absence of a license, which have as their normal destination each of these purposes.

3 - Land for construction means land situated inside or outside an urban agglomeration for which a license or authorization has been granted, admittance of prior communication or issuance of a favourable prior information on a subdivision or construction operation has been made, and also those that have been declared as such in the acquisition title, excepting land on which the competent entities prohibit any of those operations, namely those located in green areas, protected areas or which, in accordance with municipal spatial planning plans, are devoted to spaces, infrastructure or public facilities.

4 - Falling under the provision of paragraph d) of No. 1 are the land situated inside an urban agglomeration which are not land for construction nor are they covered by the provision of No. 2 of Article 3 and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination purposes other than those referred to in No. 2 and also those of the exception of No. 3."

From the analysis of the norm of tax scope and the norm delimiting the negative scope of application described above, it results that subject to AIMI are urban real properties devoted to residential purposes and land for construction, as defined in Article 6 of the IMI Code.

Taxation under AIMI

Pursuant to the provision of Article 135-F of the IMI Code, the rate to be applied is 0.4% for legal entities and 0.7% for natural persons and undivided successions, with the proviso that, in cases where the taxable value exceeds €1,000,000, a rate of 1% is applicable when the taxpayer is a natural person,

The additional is assessed annually, in the month of June, based on the tax values of subject real properties and in relation to taxpayers appearing in the cadastral records on 1 January of each year, with the same to be paid by the end of September, as results from the provision of Articles 135-G and 135-H, both of the IMI Code.

In light of the legal review of AIMI it is observed that, although the underlying purposes of AIMI creation reveal concern with justice, vertical equality and progressivity of the tax system, the Legislator did not distinguish, for purposes of subjective scope of application of the tax, between natural persons and legal persons.

Also from the point of view of the objective scope of the tax, the taxation of legal persons does not evidence any objectives of personalisation and progressivity, contrary to what is verified with regard to the taxation of natural persons.

In consequence, considering the unity of the legal system and notwithstanding the atypical nature both of AIMI and of ISPUEVP, it is understood that AIMI applying to real properties held by legal persons assumes itself as a real tax, as is the IMI itself, whereas, with regard to natural persons, AIMI presents itself as a personal and progressive tax.

Subsumption of the Provision of No. 2 of Article 135-B of the IMI Code to the Concrete Case

The Claimant alleges in the present proceedings that the AIMI assessment act, already identified, is illegal due to error in the factual and legal assumptions, considering that land for construction held by the Claimant whose potential use coincides with purposes of "commercial, industrial or service" are not subject to AIMI. In this vein, the Claimant understands that No. 2 of Article 135-B of the IMI Code encompasses the land for construction held by the Fund. Let us see:

In accordance with the provision of Article 11 of the General Tax Code (LGT), the interpretation of tax law should be carried out attending to the general principles of interpretation.

The main principles of interpretation are established in Article 9 of the Civil Code (CC), as follows:

"1. Interpretation should not be limited to the letter of the law, but should reconstruct from the texts the legislative thinking, taking above all into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.

1. The interpreter cannot, however, consider the legislative thinking that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

2. In determining the sense and scope of the law, the interpreter shall presume that the legislator enshrined the most accurate solutions and knew how to express its thinking in appropriate terms."

Considering the literal, historical, systematic and teleological elements underlying the interpretation of the Law it is important to analyse the legal basis now in issue, that is, No. 2 of Article 135-B of the IMI Code, according to which:

"Excluded from the additional municipal property tax are urban real properties classified as 'commercial, industrial or service' and 'others' pursuant to paragraphs b) and d) of No. 1 of Article 6 of this Code."

Thus, from No. 2 of Article 135-B of the IMI Code it results that excluded from AIMI are:

• Urban real properties classified as commercial, industrial or service; and
• Urban real properties classified as Others,

Pursuant to paragraphs b) and d) of No. 1 of Article 6 of the IMI Code.

Now, pursuant to paragraphs b) and d) of No. 1 of Article 6 of the IMI Code, real properties are divided into:

"b) Commercial, industrial or service;

(…)

d) Others."

Urban real properties that are commercial, industrial or service "are buildings or constructions licensed for such purposes or, in the absence of a license, which have as their normal destination each of these purposes." – See No. 2 of Article 6 of the IMI Code.

Urban real properties classified as "Others" are "land situated inside an urban agglomeration which are not land for construction nor are they covered by the provision of No. 2 of Article 3 and also buildings and constructions licensed or, in the absence of a license, which have as their normal destination purposes other than those referred to in No. 2 and also those of the exception of No. 3." – See No. 4 of Article 6 of the IMI Code.

It is thus clear that, from the point of view of literal and systematic interpretation, No. 2 of Article 135-B of the IMI Code did not exclude from taxation land for construction, since no reference is made to that type of real property.

The Claimant alleges, however, that the Report on the State Budget for 2017 expressly mentioned that "to avoid the impact of this tax on economic activity, excluded from the scope of application are rustic, mixed, industrial real properties and those devoted to tourist activity", which reveals that the Legislator aimed to guarantee that urban real properties devoted to economic activities would not be subject to AIMI taxation, recognising that mere holding of such real properties does not constitute (and cannot constitute) a factor demonstrating wealth, nor a sufficient indicator of the taxpaying capacity of the holders of such real properties. For this reason, the Claimant concludes that it is evident that the ratio legis underlying the rule excluding objective scope of application, enshrined in No. 2 of Article 135-B of the IMI Code, was based essentially on the intention not to overburden fiscally taxpayers who, by force of their economic activities, hold real properties for the pursuit of their respective corporate purpose.

The fact is that, taking into account the referred objectives – of not overburdening economic activity with AIMI taxation – the Legislator chose as tax facts those which it expressly referred to in No. 2 of Article 135-B of the IMI Code and not others, creating for this purpose a norm delimiting the negative scope of application, with the specific purpose of excluding from the scope of AIMI the realities specifically provided therein.

The Legislator will have considered, based on real facts and political-ideological and constitutional considerations, that AIMI should apply to land for construction and to residential real properties. In a different manner, the Legislator considered that urban real properties devoted to commercial, industrial or service activities should be excluded from taxation, so as not to burden the economic activity developed by the holders of such real properties.

The Claimant understands that land for construction should receive the same tax treatment as urban real properties devoted to commercial, industrial or service activities, as land for construction is also the object of an economic activity.

However, the Claimant is not followed in the reasoning developed, for the possible coincidence, as instruments of an economic activity, of urban real properties with economic dedication and of land for construction is not sufficient for us to consider that the purpose of the Law under analysis was to protect any real property object of economic activity from taxation.

Moreover, in light of the wording of the norm under analysis, only through an analogical interpretation would it be possible to consider that land for construction would be excluded from taxation. But as is known, analogical interpretation is forbidden by force of the provision of Article 11, No. 4 of LGT, and thus it is not possible, in this case, for the interpreter to qualify land for construction as urban real properties devoted to commercial, industrial or service activities or others.

Furthermore, taking into account the history of disputes associated with the collection of ISPUEVP, in particular that which concerned land for construction, and the necessity of its express provision as a tax fact, it does not appear at all plausible to conclude that the Legislator which intended to replace that tax with AIMI did not say about land for construction all that it intended to say, after so much discussion about that concept.

Considering the fundamental principle of interpretation, according to which where the legislator does not distinguish it is not incumbent on the interpreter to distinguish (See Article 9, No. 3 of the Civil Code), it does not appear, also, reasonable to consider that the Legislator wished to exclude land for construction from AIMI when expressly it did not so do, despite having expressly and specifically excluded other real properties.

Thus, it is concluded that No. 2 of Article 135-B of the IMI Code does not exclude land for construction from taxation.

Let us see whether, as the Claimant contends, the interpretation of the Law should be different, considering its status as a Real Estate Investment Fund.

Status of the Claimant – Real Estate Investment Fund

Property taxation in Portugal has been carried out on a real and not personal basis, that is, in the taxation of property essential regard has been had to the goods held and not to the characteristics of the holders.

With the reform of property taxation in 2003, the taxation of real properties ceased to be carried out on the basis of real or potential income of the real properties to be carried out in accordance with an objective assessment system based on market value.

With the creation of AIMI it appears that, in some manner, it was intended to introduce a personal and progressive sense to property taxation, through the aggregation of the property of taxpayers and the consideration of the deductions contained in No. 2 of Article 135-C of the AIMI Code, in the case where the taxpayers are natural persons. As regards legal persons, AIMI only attends to the tax value of real property held by them.

Generically one can follow José Maria Fernandes Pires, when he argues that in AIMI "As in IMI, the beneficiaries of the economic utility resulting from the existence of the respective real properties are taxed, as resources generating wealth, since it is this latter that constitutes the purpose of the tax."

For that reason, although the relevance of the arguments invoked by the Claimant regarding the taxation of its economic activity, as a Real Estate Investment Fund, is understood, it is observed that since the reform of property taxation in 2003 the taxation of property began to rest not on the real or potential income of the real properties, but rather on their market value. This means that the Legislator chose not to confer differentiated treatment on property taxation according to the economic activity developed by legal persons.

It is thus concluded that, although the Claimant is a Real Estate Investment Fund and the goods subject to AIMI constitute instruments of its activity, AIMI applies to all urban real properties not excluded by No. 2 of Article 135-B of the AIMI Code.

As a subsidiary argument, the Claimant also alleges that the AIMI taxation regime is contrary to the fundamental principle of equality, enshrined in Article 13 of the Constitution of the Portuguese Republic (CRP) and, in parallel, contrary to the principle of fiscal equality and taxpaying capacity enshrined in Article 104, No. 3 of the same instrument. In particular, the Claimant understands that the legal regime of AIMI, in particular Articles 135-A and 135-B, both of the IMI Code, and the taxation resulting from it, promote differentiated treatment and unjustified inequality among taxpayers, in manifest violation of the principle of equality enshrined in Article 13 of the CRP.

Let us see:

B – UNCONSTITUTIONALITY OF ARTICLE 135-B OF THE IMI CODE

To analyse the Claimant's argument it is first necessary to attend to the provisions of Articles 13, 103 and 104 of the CRP.

Thus, Article 13 of the CRP establishes the principle of equality, in the following terms:

"1. All citizens have the same social dignity and are equal before the law.

1. No one can be privileged, benefited, prejudiced, deprived of any right or exempted from any duty by reason of ancestry, sex, race, language, territory of origin, religion, political or ideological convictions, instruction, economic situation, social condition or sexual orientation."

For its part, Article 103 of the CRP determines the following:

"1. The tax system aims at satisfying the financial needs of the State and other public entities and a fair distribution of income and wealth.

1. Taxes are created by law, which determines the scope of application, the rate, tax benefits and guarantees of taxpayers.

2. No one can be obliged to pay taxes that have not been created pursuant to the Constitution, that have a retroactive nature or whose assessment and collection are not carried out pursuant to the law."

Finally, Article 104 of the CRP establishes the following:

"1. Tax on personal income aims at decreasing inequalities and shall be unique and progressive, taking into account the needs and income of the family unit.

1. Taxation of enterprises primarily applies to their actual income.

2. Taxation of property must contribute to equality among citizens.

3. Taxation of consumption aims to adapt the structure of consumption to the evolution of needs for economic development and social justice, and should burden luxury consumption."

The constitutional principle of tax equality constitutes a specific expression of the general structuring principle of equality, "which translates not only formal equality – equality before the law, (…), but also and above all material equality – equality of the law, which also obligates the legislator in various respects."

Thus, the principle of fiscal equality unfolds into two aspects: the aspect of generality of taxes and the aspect of uniformity of taxes.

In the dimension of generality of taxes, the principle of fiscal equality determines that the duty to pay taxes is universal, whereas in the dimension of uniformity of taxes it implies the referred principle the adoption of the same criterion for all taxpayers.

In essence, "the principle of fiscal equality requires that what is (essentially) equal be taxed equally, and what is (essentially) unequal be taxed unequally in the measure of that inequality."

To determine what is equal and what is unequal emerges, then, the criterion of taxpaying capacity, which is concretised in the dimension of horizontal equality when it imposes that taxpayers with the same taxpaying capacity pay the same tax, and in the dimension of vertical equality, in that it leads to taxpayers with different taxpaying capacity paying different taxes (qualitatively and/or quantitatively), with arbitrariness being prohibited.

In light of the referred principles, the Claimant understands that the legal regime of AIMI, in particular its Article 135-B of the IMI Code – when interpreted in the sense of including within the scope of application of AIMI "land for construction" for purposes of commerce, industry, services or others – is manifestly contrary to the principle of equality constitutionally enshrined, both by leading to the taxation of the substrate of an economic activity and by the disregard of the legal criterion of dedication of the real property.

The Claimant, however, is not correct.

In truth, from the principle of tax equality there does not result the prohibition of the freedom of choice by the Legislator of taxation of certain tax facts at the expense of others, but rather the prohibition of arbitrariness.

In the case under analysis, the Legislator considered that on residential urban real properties and on land for construction AIMI should apply, attending to the necessity of imposing greater tax effort on citizens and collective entities which reveal higher indices of wealth. The intention was with the referred taxation to demand a greater fiscal contribution from all those who exhibit greater signs of wealth through the holding of the identified real properties.

The fact that real properties are held by collective entities "does not refute the finding that such companies are holders of a good considered by the legislator as manifestation of particular fortune. Although the land reveals itself instrumental to the activity of the real estate promotion company, we have that the same is apt to reveal that that legal person is holder of a good which, in itself, evidences a specific affluence compared to the other real property owners. The fact that a given asset serves, (…), as a 'factor of production of wealth' is not sufficient to contradict the finding that the corresponding holder has a real property only accessible to a holder of particular wealth and, thus, capable of bearing an additional contribution for the desired budgetary consolidation." – See Declaration of Vote of Manuel Costa Andrade, in Constitutional Court Judgment No. 250/2017.

In this manner, it is understood that taxation, under AIMI, of land for construction held by the Claimant does not constitute a violation of the principle of equality, in the dimension of taxpaying capacity, by the fact that taxation applies to real properties that integrate the economic activity of the Fund (See Constitutional Court judgments No. 590/2015, No. 83/2016, No. 247/2016 and No. 568/2016 and declaration of vote of Counsellor Manuel da Costa Andrade contained in Judgment No. 250/2017).

The Claimant also contends the unconstitutionality of the provision of Article 135-B of the IMI Code when interpreted in the sense of including within the scope of application of AIMI "land for construction" for purposes of commerce, industry, services or others, as such configures discriminatory treatment, devoid of legal basis, generating disproportional and inadequate differentiations to achieve the purpose of this taxation.

The unconstitutionality or not of the differentiation between the taxation of land for construction for purposes of commerce, industry, services or others and of real properties devoted to purposes of commerce, industry, services or others must be determined taking into account that the configuration of AIMI with regard to legal persons is to tax all wealth revealed by the holding of real properties subject to AIMI, regardless of the value and at a proportional rate. Account should also be taken in the judgment of constitutionality of the lesser expression of the principle of taxpaying capacity in the field of taxes on property. In truth, as to property taxation, the Legislator is essentially obliged to contribute to equality among citizens (Article 104, No. 3 of the CRP), which does not prevent it from proceeding to the discrimination of property.

In this context, Article 135-B of the AIMI Code provides for taxation on real properties for housing and on land for construction, with the legislator not making the taxation of land for construction dependent on its future dedication to housing or other purpose.

In truth, the concept of land for construction is detailed in Article 6, No. 3 of the IMI Code, in accordance with which the classification of land for construction occurs when: a) a license or authorization for subdivision operation has been granted; b) a license or authorization for construction has been granted; c) a prior communication has been admitted or a favourable prior information issued for subdivision or construction operation; or d) it has been declared as being for construction in the acquisition title.

It therefore does not matter, within the scope of the classification of urban real properties carried out by the IMI Code, the dedication of the land for construction, as this can occur immediately or mediately, depending on the determining condition of the classification of the land for construction as such. Furthermore, as results from Article 45 of the IMI Code, the taxation of land for construction applies to rights of construction, that is, to future things.

Although it is understood that both tax facts – land for construction devoted to commercial, industrial, service or other purposes and urban real properties devoted to commercial, industrial, service or other purposes – are potentially similar assets, their taxation occurs on the basis of the verification of different tax facts and at different temporal moments. Since it is not possible to compare the incomparable, that is, existing real properties with commercial, industrial or service dedication and land for construction which in the future may or may not have commercial, industrial or service dedication, due to the absence of a comparative term, there is no discrimination.

To this effect it has also been understood that "Only those choices of regime made by ordinary legislator can be censured on the ground of breach of the principle of equality in those cases where it is proven that they result in differentiated treatment among persons that does not find justification in reasonable, perceptible or intelligible grounds, taking the constitutional purposes which, with the measure of the difference, are pursued into account (…) this principle, in its dimension of prohibition of arbitrariness, constitutes an essentially negative criterion (…) which, without eliminating the 'freedom of legislative conformation' – understood as the freedom belonging to the legislator to 'define or qualify the situations of fact or life relations that are to function as elements of reference to be treated equally or unequally' – commits to the courts not the faculty to withdraw from the legislator,