CAAD Decision 694/2017-T: AIMI Additional Property Tax Reform After Constitutional Court Ruling 399/2019

ARBITRATION JURISPRUDENCE ON TAXATION

Case No. 694/2017-T

Date of Decision:
2020-02-04
IMI

Value of Claim:
€ 4,966.11

Subject Matter:
AIMI – Reform of Arbitration Decision (attached to decision)
*Replaces the Arbitration Decision of 30 June 2018.

PDF Version

The present arbitration decision is rendered as a result of Decision No. 399/2019 of the Constitutional Court delivered on 04-07-2019, in the appeal proceedings No. 914/18, which has become final, determining the reform of the arbitration decision of 30-06-2018.

ARBITRATION DECISION

I – REPORT

A... – REAL ESTATE INVESTMENT MANAGEMENT COMPANY, SA, legal person no. ... (hereinafter referred to as Claimant), with registered office at ..., no..., in Lisbon, in the capacity of managing company and representing B... – CLOSED REAL ESTATE INVESTMENT FUND, holder of TIN ... (hereinafter referred to as Fund), came, pursuant to Article 2 no. 1, lit. a) and Articles 10 et seq. of the Legal Regime of Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter briefly designated "LRTA") and Articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, to present a request for arbitral ruling on the legality of the assessment of the Additional Municipal Property Tax (AIMI) no. 2017..., relating to the year 2017, in the amount of € 4,966.11, seeking a declaration of illegality of said assessment and consequent annulment as well as the refund of the amount unduly paid, plus compensatory interest; it further seeks, on a subsidiary basis, that the tax act in question be partially annulled, relating to said AIMI assessment, as regards the taxable value of the urban property register article ...º of the Union of civil parishes ..., ..., ... and ..., of the municipality of ...., and the Fund be ordered to refund the tax paid in the amount of € 4,044.99 plus compensatory interest; and, further on a subsidiary basis, it seeks the disapplication of Articles 135-A et seq. of the Municipal Property Tax Code (CIMI) for unconstitutionality and, consequently, the declaration of illegality of the tax act in question which should be annulled with all legal consequences.

The defendant is the Tax and Customs Authority (hereinafter referred to as "AT" or "Respondent").

The request for establishment of the arbitral tribunal was accepted by the Honorable President of the Administrative Arbitration Center (CAAD) and automatically notified to the Respondent in accordance with regulatory procedures.

Pursuant to the provisions of Article 6, no. 2, lit. a) and Article 11, no. 1, lit. b) of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of CAAD appointed as arbitrator of the singular arbitral tribunal the undersigned, Cristina Aragão Seia, who communicated acceptance of the assignment within the legal timeframe.

On 14.02.2018, the parties were duly notified and did not manifest, within the legal timeframe and terms, any intention to challenge the appointment of the arbitrator (Article 11, no. 1, lit. a) and b) of the Legal Regime of Tax Arbitration (LRTA), read in conjunction with Articles 6 and 7 of the Deontological Code).

In accordance with the provisions of Article 11, no. 1, lit. c) of the LRTA, the Arbitral Tribunal was constituted on 06.03.2018.

Duly notified, the Tax and Customs Authority submitted a response in which it defended the inadmissibility of the claim, defending itself solely by contestation.

Since it was understood that there was no controversy regarding the essential facts relevant to the decision and that they had sufficient documentary support, the meeting referred to in Article 18 of the LRTA was dispensed with, with both Claimant and Respondent waiving the submission of arguments.

The date of 30.06.2018 was set for the rendering of the final decision.

II – PRELIMINARY RULING

The parties have legal personality and capacity, are legitimate as to the request for arbitral ruling and are duly represented, pursuant to the provisions of Articles 4 and 10 of the LRTA and Article 1 of Ordinance no. 112-A/2011, of 22 March.

No nullities are present, so it is necessary to address the merits.

This arbitral tribunal is materially competent.

No exceptions were raised.

III. MERITS

1. MATTERS OF FACT

1.1. Proven Facts

The Tribunal considers the following facts proven:

a) B... – CLOSED REAL ESTATE INVESTMENT FUND is administered, managed and represented by the company A... – REAL ESTATE INVESTMENT MANAGEMENT COMPANY, SA, now Claimant (doc. no. 3 attached to the arbitration request).

b) The Fund was notified of the tax assessment act for AIMI no. 2017..., of 30.06.2017, relating to the year 2017, in the amount of € 4,966.11 (doc. no. 1 attached to the arbitration request).

c) For the purpose of the additional AIMI assessment, the sum of the taxable value of three properties of which the Fund is the owner, classified as "building land" – articles ...º, ...º and ...º, all of the Union of civil parishes ..., ..., ... and ..., municipality of ..., was considered as the taxable matter, which totaled € 1,241,528.10 (doc. 1 attached to the arbitration request and property records attached with the Response).

d) Article ...º corresponds to building land with a reference to Services in the type of Location coefficient, while articles ...º and ...º have a reference to Housing in the type of Location coefficient (property records attached with the Response).

e) The taxable value of article ...º, for AIMI purposes, is € 1,011,248.10 (docs. no. 1 and 4 attached to the arbitration request).

f) The Fund proceeded, on 28.09.2017, to the complete and timely payment of said assessment (doc. no. 2 attached to the arbitration request).

g) The request for establishment of the arbitral tribunal was presented on 29.12.2017.

1.2. Unproven Facts

There are no facts relevant to the decision of the case that have not been proven.

1.3. Reasoning on Matters of Fact

The facts were deemed proven based on the documents submitted by the parties, as well as the positions of the parties. It should be noted that there does not emerge from the positions assumed by Claimant and Respondent any actual disagreement regarding matters of fact, with the dispute being confined to matters of law.

2. MATTERS OF LAW

2.1. Principal Issues

The substantive issues to be addressed in this case are the following:

a) The applicability of AIMI to real property held by real estate investment funds;

b) The illegality of taxation under AIMI of building land intended for commercial, industrial or services purposes;

c) The unconstitutionality of the AIMI taxation regime for violation of the principle of equality, enshrined in Article 13 of the CRP, and the principles of fiscal equality and contributory capacity enshrined in Article 104, no. 3 of the CRP.

It is necessary to decide:

2.1.1. The Applicability of AIMI to Real Property Held by Real Estate Investment Funds

The Claimant contends that the holding of real property constitutes the substrate of all activity of real estate investment funds, and therefore the application of AIMI to such property contradicts the ratio legis that underlaid the rule of exclusion from objective application scope provided in Article 135-B, no. 2 of the CIMI, an argument which the Respondent rebuts by considering it to have no legal support.

Because the issues in the present case are entirely similar to those discussed in case 668/2017-T of CAAD, we will follow closely what was decided there in a judgment recently rendered on 24.04.2018.

On this specific question, of the applicability of AIMI to real property held by real estate investment funds, we proceed to transcribe:

"(...) Law no. 42/2016, of 28 December (State Budget for 2017) added to the CIMI Chapter XV, with Articles 135-A to 135-K, which contains the regime of the Additional Municipal Property Tax (AIMI).

In Article 135-A, the subjective scope of this tax is defined, establishing that 'passive taxpayers of the additional municipal property tax are natural or legal persons who are owners, usufructuaries or superficiaries of urban properties located in Portuguese territory', and that 'any structures or centers of collective interests without legal personality that appear in the registers as passive taxpayers of municipal property tax are equated to legal persons'.

Article 135-B defines the objective scope of this additional tax, establishing the following:

Article 135-B

Objective Scope

1 - The additional municipal property tax applies to the sum of the taxable values of urban properties located in Portuguese territory of which the passive taxpayer is the owner.

2 - Excluded from the additional municipal property tax are urban properties classified as 'commercial, industrial or for services' and 'other' in accordance with lit. b) and d) of no. 1 of Article 6 of this Code.

The Claimant contends that this regime excludes from the scope of AIMI 'urban properties classified as "commercial, industrial or for services" and "other" in accordance with lit. b) and d) of no. 1 of Article 6 (...)' of the Municipal Property Tax Code (CIMI), and therefore only urban properties intended for housing purposes and building land are covered, as defined in said Article 6.

Article 6 of the CIMI establishes the following:

1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Building land;

d) Other.

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

3 - Building land is considered to be land located inside or outside an urban agglomeration, for which a license or authorization has been granted, prior communication admitted, or favorable preliminary information issued for a subdivision or construction operation, and also land that has been declared as such in the acquisition deed, except for land where the competent entities prohibit any of those operations, namely those located in green zones, protected areas or which, in accordance with municipal land use planning plans, are designated for public spaces, infrastructure or equipment.

4 - Land included in the provision of lit. d) of no. 1 comprises land located within an urban agglomeration that is not building land and is not 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 purpose uses other than those referred to in no. 2, and also those under the exception of no. 3.

From this negative delimitation of scope, the Claimant draws the conclusion that the intention was to create a tax on real estate wealth, in which urban properties intended for economic activities will not be subject to AIMI taxation.

The legislative concern to 'avoid the impact of this tax on economic activity' was announced in the Proposal of the Law of the State Budget for 2017 and was to be concretized through the exclusion from the scope of application of 'urban properties classified as "industrial", as well as urban properties licensed for tourist activity, the latter provided that their purpose was properly declared and proven' and the deduction from the taxable value of the amount of '€ 600,000.00, when the passive taxpayer is a legal entity with agricultural, industrial or commercial activity, for properties directly affected by their operation'.

However, it was not on the basis of the activity to which the properties are intended that the exclusion from application was defined, since in the wording that was approved, the non-application was defined only on the basis of the types of properties indicated in Article 6 of the CIMI, with no reference whatsoever to the intended use or not of the legal entities' operation.

If the legislative intention to exclude the application to properties directly intended for the operation of legal entities had been maintained in the final wording of the Budget, the reference to this intended use that appeared in the proposal and that clearly expressed this legislative option would certainly have been maintained.

Thus, having this reference to the intended use of the properties been eliminated, there is no legal support for concluding that residential properties and building land intended for the operation of legal entities do not fall within the scope of AIMI.

'In the absence of other elements that induce the choice of the less immediate sense of the text, the interpreter should in principle opt for that sense which 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 exact) that the legislator knew how to correctly express his thought'.

In the case at hand, given the elimination of the proposed wording in which relevance was given to the intended use of the properties, there is no reason to conclude that the legislator did not know how to express his thought in adequate terms, as must be presumed by virtue of the provision of Article 9, no. 3, of the Civil Code.

For this reason, it must be concluded that the fact that the Fund intends the properties referred to in the present case for its economic activities does not exclude the application of AIMI."

This position is endorsed.

2.1.2. The Illegality of Taxation under AIMI of Building Land Intended for Commercial, Industrial or Services Purposes

In the understanding of the Claimant, Article 135-B of the CIMI should be interpreted to exclude for AIMI purposes the taxable value of building land not intended for housing, arguing that the applicability of AIMI 'would always demonstrate a manifest inconsistency of the legal regime in question' and 'would constitute discriminatory treatment that violates, without qualification, 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)'.

The Claimant thus contends that it should not be relevant for determining the taxable value of AIMI the value of the building land with the urban property register article ...º which, as shown in the property record, was determined on the basis of the 'type of location coefficient: Services', and this is not questioned whether it is intended for the construction of a property for services.

The Constitutional Court has already had the opportunity to pronounce itself on that normative dimension, with substantially identical formulation, in Decision no. 299/2019, rendered by the Full Court and available at www.tribunalconstitucional.pt. In this decision, the 'rule derived from Article 135-B, no. 2, of the CIMI, to the extent of including, within the scope of application of the Additional IMI, "building land" for purposes of commerce, industry, services or other' was examined in light of the principles of equality and contributory capacity, enshrined in Articles 13 and 104, no. 3 of the CRP, concluding with a judgment of non-unconstitutionality.

With special relevance, the following can be read in the reasoning provided:

"(...) The normative sense challenged falls within the regime of the Additional IMI, a tax introduced by Law no. 42/2016, of 28 December, Law of the State Budget for 2017. Under Article 219 of the budget instrument, Chapter XV was added to the IMI Code, comprised of Articles 135-A to 135-K.

It is of particular relevance to the present appeal what is provided in Articles 6 and 135-B of the IMI Code, since the latter expressly refers to the typology of urban properties established in the former.

In fact, no. 2 of Article 135-B of the CIMI contains a rule of non-subjection to taxation (or of tax relief strictly speaking), in the modality of tax exclusion, a species accepted in no. 2 of Article 4 of the Tax Benefits Statute (Decree-Law no. 215/89, of 1 July, last amended by Law no. 71/2018, of 31 December), and defined as a structural measure of normative character that establishes express negative delimitations of scope.

By virtue of that rule, urban properties classified by tax law as 'commercial, industrial or for services' and 'other' are excluded from the objective scope of AIMI – the sum of the taxable values of urban properties of which the passive taxpayer is the owner – which introduces, as is inherent to normative typology, unequal treatment between the passive taxpayers of the tax: while owners of residential urban properties and building land (referred to in lit. a) and c) of Article 6 of the CIMI Code) are obligated to AIMI, owners of properties with commercial, industrial, services or other purposes, whose normal purpose is not residential or construction (referred to in lit. b) and d) of Article 6 of the CIMI Code), are not obligated to such additional payment.

It can be said that, as exceptions to the general rule of application of the corresponding tax, such rules live 'in a permanent relationship of tension with the principle of distribution of tax burdens according to the principle of contributory capacity', which binds them to a special justification: 'the achievement of a certain economic objective of special importance' (SALDANHA SANCHES, Manual of Tax Law, Coimbra Ed., 3rd Ed., 2007, pp. 457-458).

Notwithstanding, the relationship of equality presupposed in the rule of application does not have the same content as the relationship of equality required by the rule of non-application. That rule, because it describes the generating fact of the tax obligation, cannot fail to consider the economic force that the taxpayer has to bear the tax; while the rule of non-application, because it defines a negative element of the legal type of the tax fact, should consider the criterion chosen by the legislator in the delimitation of that negative element. That is, the rules differ both in their effects and in their purposes: while the rule of application represents an interference in the taxpayer's patrimonial sphere, referring to the withdrawal of the taxpayer's monetary obligation to the State, the rule of tax exclusion projects broader economic effects, of which the mitigation of the negative impact in the taxpayer's patrimonial sphere is an instrument; while the rule of application has the objective of revenue collection, the rule of non-application functionalizes the tax to other purposes.

These differences project themselves onto the constitutional parameter in light of which the normative justification should be assessed. The rule of application, because it constitutes an onerousness for the taxpayers' patrimony, is bound to distribute the tax burden according to the capacity that each has to pay the tax – principle of tax capacity; while the rule of tax exclusion, because it creates situations of tax favoritism, beyond the need to ensure respect for the principle of proportionality, in light of the purposes it proposes to achieve, must ensure that the criterion of tax relief applies to realities that are equal in light of that criterion – principle of equality. Thus, in the first typology, the relationship of equality is established through a comparative judgment of taxpayers in light of the criterion of contributory capacity; in the rule of non-application, the relationship of equality is established through the confrontation of persons or situations in light of the distinctive criterion or tertium comparationis that the legislator used for extra-fiscal reasons. In the latter, considering the effects of tax relief or mitigation that the exclusion from taxation causes in taxpayers' patrimony, there is not properly a question of taxation without correspondence in the passive taxpayer's contributory capacity; in that way, by not electing the facts on which the tax applies, the problem does not lie in the observance of the principle of contributory capacity, as a prerequisite of taxation.

(...)

The introduction of said differentiation in the internal structure of AIMI rests eminently on reasons of economic policy: to protect the economic activity of companies that own urban properties.

In fact, it was through reasons of an extra-fiscal nature that the legislator justified in Law Proposal no. 37/XIII the rule of exclusion from taxation, mentioning that with it the intention is to 'avoid the impact of this tax on economic activity'. The pursuit of that objective – the protection of the economy – in the modulation of a tax on patrimony is constitutionally legitimate, as it is aimed at the realization of a priority incumbency of the State: the promotion of economic structures (Articles 9, lit. d), and 81, lit. a) of the Constitution), which presupposes the proper functioning of economic activities.

To pursue that objective of economic policy, it is clear that the exclusion from taxation does not appear inadequate, unnecessary or excessive, since the tax relief constitutes one of the instruments of fiscal policy with aptitude and capacity to pursue the objective of protection and stimulation of the economic activities aimed at. In fact, the protection of commerce, as well as of industries, services or other economic activities, is an extra-fiscal interest that may prove to be of greater importance than the gains obtained through the collection of AIMI revenues.

This does not mean, however, that the legislator intended to exclude from AIMI taxation all economic activities, or that it did so based on the nature of the passive taxpayers, aiming to exclude the impact of the tax on entities whose assets include urban properties, particularly on entities of an entrepreneurial nature.

(...)

(...) the rationale for the delimitation of the scope of the tax in question does not derive from the economic activity exercised by the passive taxpayer, but rather, as with IMI, from the social intended use of the urban property.

(...)

It may be objected that passive taxpayers who acquire residential urban properties for sale or building land for the construction of buildings, whatever their purpose, and who make this their economic activity, hold the properties for an ultimate purpose of a commercial nature. It will be said, then, that the difference to which the legislator attends – excluding these properties from the scope of the rule of tax relief - does not possess nature and weight sufficient to justify unequal treatment.

However, the tax situation of these companies is already considered within the internal framework of IMI. In fact, in cases of acquisition of properties for resale and building land, Articles 9, no. 1, lit. d) and e) of the CIMI provide for non-subjection to IMI for three and four years, respectively, and, by virtue of Article 135-C, no. 3, lit. a) of the same instrument, non-subjection to AIMI, in relation to passive taxpayers who are registered for the exercise of this activity. During the period of 'non-taxation' there is no tax effect to consider under IMI, the property not being a reality qualified as a property for tax purposes. The reason for the tax non-consideration is found in the fact that the property during that timeframe is understood as merchandise for other tax purposes.

(...)

Identical consideration of the criterion of intended use of the property can be advanced as a reason for excluding the scope to urban properties intended for commerce, industry or services, in light of one of the purposes to which the new taxation is devoted, such as the financing of Social Security, ensured through the assignment of AIMI revenues to the Social Security Financial Stabilization Fund, provided in no. 2 of Article 1 of the CIMI Code, in the wording of Law no. 42/2016. Having the principle of diversification of sources of financing for Social Security, in accordance with its Basic Law, the purpose of 'reduction of non-wage labor costs' (Article 88 of Law no. 4/2007, of 16 January), the exclusion of the scope as to urban properties intended for commercial, industrial and services activities is still justified by the consideration that, being these the typologies most frequently connected with the functioning of the business fabric; otherwise companies, already called to support the financing of Social Security in the quality of employers, would tend to see increased (and not reduced as the Basic Law prescribes) the non-wage costs of labor with the expansion of the bases for obtaining financial resources of the system brought by the fiscal measure.

In this perspective, there is reasonable and sufficient ground for that, with regard to real property patrimony not intended for such activities, whose owners will not be associated with the same intensity to the financing of Social Security as employers, the legislator has privileged the collection of revenue allocated to the same system.

And, just as was concluded regarding the purpose of promotion of economic structures, also in this light the new taxation satisfies the requirements of the principle of proportionality. It proves adequate to the purpose pursued – it provides for the increase of revenues -, it is necessary – the diversification and increase of sources of financing for Social Security is a condition of its sustainability – and is not shown to be excessive, either in light of the applicable rates, particularly for legal entities (Article 135-J of the CIMI), or because the tax paid is deductible from the taxable matter for IRC (Article 135-J of the CIMI).

(...) Beyond the broader criticism of the objective scope of AIMI that has been examined, the party seeking review specifically problematizes the situation of building land. It points out the fact that the normative sense challenged involves the taxation of building land with established intended use for purposes of commerce, industry, services or other, when subjection to AIMI is excluded with regard to buildings constructed for those same purposes, regardless of their actual use. It considers that it is dealing with legal-subjective situations worthy of the same treatment, without there being a material reason that constitutionally legitimates the difference. Also on this point it is not right, because it places in confrontation materially distinct realities, in light of the tax fact and the economic presupposition of AIMI.

In fact, the application of the tax on 'building land', as defined in no. 2 Article 6 of the IMI Code, derives from the constitution of construction rights therein or the performance of subdivision operations, whether through the administrative act of granting a license or authorization, whether through the tacit recognition resulting from the admission of prior notification, or, further still, the favorable response to a request for preliminary information or the issuance of favorable preliminary information for a subdivision or construction operation. Accessorily, the legislator also adopted, as a criterion for the intended use of the property for construction, that it be acquired expressly for this purpose and that it possess construction viability.

And, in accordance with the normal functioning of the market, the holding of rights over land with respect to which construction or subdivision rights have already been constituted, or which is recognized to meet conditions of construction viability, configures wealth susceptible to autonomous evaluation from what comes to be built, by virtue of the legally founded expectation that comes to be incorporated into the legal-subjective sphere of its owner. As JOSÉ PIRES notes (Lessons of Taxes on Patrimony..., p. 140):

'In the market, the value of building land depends not only on its intrinsic characteristics, such as its area, location or topography. More important than that is a factor that is extrinsic to it and which depends on the powers public, which is its construction potential, namely the authorized volume and the characteristics of a reality that does not yet exist, which is the urban property that will be able to be constructed on it.

The value of building land corresponds, fundamentally, to a legal expectation, embodied in a right to come to construct a property thereon with certain characteristics and with a certain value. It is that expectation of production of wealth materialized in a property to be constructed that makes the value of the patrimony and the wealth of the owners of building land increase, as soon as the land comes to be considered as being for construction. For that reason, the greater the value of the properties to be constructed, the greater is the value of the building land.

We must take into account that on the land nothing is yet constructed, but the mere constitution of a right to come to construct on it immediately increases its value. Furthermore, the measure of that value also always depends on the value of the property that will come to be constructed on it. This is how market mechanisms work and this is also how the legislator conceived the model of evaluation of building land'.

The recognition by the legislator that building land translates a patrimonial position of its holder and its own market value makes the invocation of the purpose and the value corresponding to the property to be constructed thereon useless: building land and constructed property are not economically equivalent or assimilable realities, in the domain of taxation of urban real property. Thus it was affirmed by the Court, with emphasis on the pronouncement of the Full Court in the already referred Decision no. 378/2018, doctrine entirely transposable to the AIMI rule here examined:

'[It is] clear that, for the purpose of application of the Stamp Tax Code, as well as for the purpose of application of the CIMI, building land is not equal to urban property, whether for housing or for other purposes (...). But, precisely because it is thus, it is not possible to make applicable retroactively, even for purposes of mere analysis or legal construction, tax criteria that only apply after the construction of the building, not before it.

As has been emphasized, what is relevant for purposes of application of the rule of item 28.1 is the legal-patrimonial situation existing at the date of the accrual of the tax payment obligation, and it is therefore by reference to the concrete tax fact existing on that date that the existence, or lack thereof, of a rational or reasonable foundation for justifying the legal-tax consequences that immediately emerge therefrom should be evaluated.

The juridically relevant transformations that the object of property may undergo in the course of time, from that moment on, resulting, in particular, from the possibility of coming to be constructed on building land of lesser value, configure hypotheses of verification and uncertain content, even considering the existence of a licensing in those terms, which may come to be altered or not even used. They cannot, therefore, have decisive bearing on the evaluation of the constitutionality of norms, or segments thereof, which, by virtue of their occurrence will cease to be applicable'.

Also within the scope of AIMI, even if oriented by a personal perspective, cannot fail to be recognized that building land are quite distinct from urban properties already constructed and intended for a specific purpose through licensing or normal use. In fact, and grounding, as has been seen, the reason for the non-taxation of urban properties, commercial, industrial, for services or other in the purpose of promoting the proper functioning of economic activities – which implies the creation of stimuli for the reallocation of resources to productive purposes, so as to increase economic growth -, building land can only contribute to that desideratum in potentiality, in a hypothetical and conditional future, since even if a construction right has been formed, nothing prevents a change of will by its owner regarding the purpose to be given to the property. Furthermore, what is relevant for purposes of annual taxation in AIMI is the taxable patrimonial value of the existing property appearing in the register, since one cannot tax a future and eventual contributory capacity, but only current and effective contributory capacity. Building land constitutes an economic asset with patrimonial value, in itself revealing the contributory capacity of its owner, and therefore constitutionally legitimated is its inclusion in the patrimonial assets globally subject to AIMI, regardless of what may actually be implanted therein.

(...)

(...) the party seeking review argues that 'it constitutes discriminatory and arbitrary treatment the taxation in AIMI of a "building land" with a potential use for [purposes of commerce, industry, services or other], while not taxed in this same Additional a property built with this same potential use', an affirmation that is based on the consideration of the coefficients of intended use (Ca) and location (Cl) both in the calculation of the taxable patrimonial value of constructed properties as well as of building land (Article 45 of the IMI Code),

This view rests on the presupposition, which we have already seen to be incorrect, that the purpose of the tax imposes that the scope be cut according to a case-by-case evaluation of the intended use of the property to an economic activity. Rather, the legislator mobilized the same objective normative criteria on which depends the classification of an urban property in any one of the species provided for in Article 6 of the IMI Code (...).

The specific criteria for calculation of the taxable patrimonial value invoked by the party seeking review are not placed outside this paradigm, with the coefficient of intended use regulated in Article 41 not intending to reflect a rationality different from that underlying the classification of the property or its nature.

(...) On the other hand, it is clear that, following the teleology of the rule of no. 2 of Article 135-B of the IMI Code to the desideratum of not excessively burdening immovable assets with intermediary function within the entrepreneurial organization of the passive taxpayer, as to building land this functional nexus is not yet established with sufficient guarantee, since its owner is not at all prevented from changing the projected purpose, so as to dedicate to the construction of properties for housing land initially licensed for construction with other purposes. Already in the case of properties built with purposes of commerce, industry, services or other, even if the possibility of coming to exist non-conformity between normal and materialized use cannot be excluded, particularly in cases where there is no licensing, or other intervention constituting rights of public powers, the legislator assumes that the probability of such a deviation is sparse and, in that measure, that the risk proves insufficient to put into crisis the configuration of the tax. Such an empirical assessment, which does not appear unreasonable, is situated in the margin of freedom of configuration of the democratic legislator, with it not being the role of the Court to subject it to examination 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 urban properties – carries relevance in the problematic nucleus in question, nor the holders of the two typologies of urban properties placed in confrontation – building land with purposes of commerce, industry, services or related, on one hand, and constructed properties classified, in accordance with Article 6 of the IMI Code, as 'commercial, industrial or for services' or 'other', on the other - are in comparable position, in accordance with the tax fact and the structure of objective scope of AIMI, and therefore no foundation is found, also on this point, to support a judgment of unconstitutionality of the rule questioned, in the specific hypothesis under examination.

(...) Based on the foregoing, the taxation of AIMI does not merit censure in light of the principles of equality, proportionality and contributory capacity (Articles 13, 18, no. 2 and 104, no. 3, of the Constitution)'.

Adhering to this judgment, as well as to the reasoning that underlies it, it is concluded that the rule resulting from the combination of Article 135-B, no. 2 with Article 6, no. 1, both of the CIMI, according to which the exclusion from the objective scope of AIMI covers urban properties for services but not building land, whose projected intended use of the buildings to be constructed is for services, is not unconstitutional.

Thus, we must conclude by the legality of the challenged assessment as regards the taxable value of the building land with the urban property register article ...º of the Union of civil parishes ..., ..., ... and ..., of the municipality of ... .

2.1.3. The Unconstitutionality of the AIMI Taxation Regime for Violation of the Principle of Equality, Enshrined in Article 13 of the CRP, and the Principles of Fiscal Equality and Contributory Capacity Enshrined in Article 104, no. 3 of the CRP

The Claimant invokes, on a subsidiary basis, the unconstitutionality of AIMI, with arguments which we address separately:

2.1.3.1. The Indiscriminate Taxation of All "Building Land": the (Illegal) Disregard of the Legal Criterion of Intended Use of the Property

The Claimant maintains in Article 83 of the arbitration petition '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 contributory capacity enshrined in Article 104, no. 3 of the same instrument' and in Articles 5 and 55 of the LGT (Articles 90 and 91 of the arbitration petition).

The Claimant then contends that the legal regime of AIMI, in particular, its Articles 135-A and 135-B of the CIMI - when interpreted in the sense of including within the scope of application of AIMI "building land" with purposes of commerce, industry, services or other – promote differentiated treatment and an unjustified inequality between taxpayers, in manifest violation of the principle of equality enshrined in Article 13 of the CRP.

This issue has already been examined in the preceding point, and reference is made to what was stated there.

2.1.3.2. Unconstitutionality for Taxation of the Substrate of an Economic Activity

In the understanding of the Claimant, in summary:

• regard must be had to the nature of the passive taxpayers burdened with the taxation resulting from AIMI, in particular the fact that entities are covered by this Additional which exercise, as an activity comprised in their respective statutory objects, the activity of purchase, sale, construction and rental of property;

– in the case of commercial companies (or other entities) that develop an activity of that nature, the ownership of property constitutes the patrimonial substrate of the economic activity itself, being an essential (almost sole) means for its pursuit, and therefore the essential taxation presupposition is not met, i.e., the presupposition that the ownership of such property constitutes an indication of increased contributory capacity or wealth;

– in the case of real estate investment funds, in light of the activity that they may legally develop, the properties are productive factors and means for the exercise of their economic activity, not being an indication of increased contributory capacity;

– this Additional penalizes in an unjustifiably aggravated manner this activity sector, to the detriment of the remaining ones;

– the imposition of this taxation has no relation whatsoever to the actual income of the activity developed by these entities - in the limit, burdening them even when they have negative results;

– 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 a real estate activity -, promotes differentiated treatment and an unjustified inequality between taxpayers, in manifest violation of the principle of equality, enshrined in Article 13 of the CRP and the principle of fiscal equality and contributory capacity, enshrined in Article 104, no. 3 of the same instrument;

– especially with regard to building land the reasons on which the Constitutional Court based its Decision no. 250/2017, of 24-05-2017 are applicable.

The Tax and Customs Authority defends, in the first place, that it is obligated to apply the law, and cannot disapply it on the ground of unconstitutionality.

Furthermore, the Tax and Customs Authority defends, in essence:

– that the choices underlying the delimitation of the objective scope of AIMI were made within the margin of 'legislative configuration freedom' and do not violate the principles of equality and taxation based on contributory capacity, in light of the doctrine and jurisprudence of the Constitutional Court;

– there is a 'partial tax on certain manifestations of contributory capacity', and therefore it is 'normatively inadequate to proceed to a comparison between the global value of the patrimony of other taxpayers', and instead, should take as the basis of comparison, to assess the observance of the principle of equality, the patrimony of other Funds with the same social purpose;

– 'the different valuation and taxation of a property with housing intended use as opposed to a property intended for commerce, industry or services results from the different aptitude of the properties in question, which supports the different treatment given by the legislator which, for economic and social reasons, decided, within its configuration freedom, to exclude from the scope of the tax properties intended for purposes other than housing';

– the circumstance that other taxpayers holding real property patrimony of identical value are exempt from the tax that will justify a specific constitutional censure of the rule in examination; – real estate investment funds are owners of goods considered by the legislator as manifestation of particular wealth;

– the properties are not merely instrumental to the exercise of the activity of the Funds, as they integrate the very core of economic activity, they are the object of commerce or industry, since they are intended for resale or, in the case of building land, for transformation in the event of constructions being erected thereon for subsequent sale;

– differently, the properties excluded from subjection to AIMI, pursuant to no. 2 of Article 135-B of the CIMI, perform an instrumental function to economic, industrial, commercial or services activities, in that they constitute buildings that serve as support to the functioning of said activities, and are not themselves generators of income;

– the circumstance that a given asset serves, as a 'factor in the production of wealth' is not sufficient to contradict the finding that the corresponding owner holds property only accessible to a holder of particular wealth and, thus, capable of supporting an additional contribution for the desired budget consolidation;

– the principle of equality imposes a horizontal equality, that is, that all those who are holders of the same form of wealth be taxed in the same manner; – as with any tax on patrimony, AIMI is dissociated from any eventual realization of profit from the sale of immovable assets, as well as from the existence, or not, of a negative or positive net situation, with only the patrimonial value of the land being relevant to the economy of the tax.

Here too we will follow the judgment rendered by CAAD on 24.04.2018, in case 668/2017, which we proceed to cite:

'As regards the invoked obligation of the Tax and Customs Authority to apply the law, with it not being its responsibility to supervise constitutionality, this is irrelevant for the assessment of the legality of the challenged assessment, since this Arbitral Tribunal has such competence, since it cannot 'apply norms that infringe the provisions of the Constitution or the principles enshrined therein' (Article 204 of the CRP).

For this reason, the obligation of the Tax and Customs Authority to apply the law does not constitute grounds for rejecting any illegality of the assessment.

Article 13 of the Constitution of the Portuguese Republic proclaims the principle of equality of citizens before the law and Article 104, no. 3, of the CRP establishes that 'the taxation of patrimony must contribute to equality between citizens'.

As has been uniformly understood by the Constitutional Court, the principle of equality, as a limit to legislative discretion, does not require equal treatment of all situations, but rather implies that those in equal situations be treated equally and those in unequal situations be treated unequally, so as not to create arbitrary and unreasonable discriminations, because they lack sufficient material foundation.

The principle of equality does not prohibit the establishment of distinctions, but rather distinctions devoid of objective and rational justification.

The creation of AIMI, as a complementary tax on real property patrimony, which aimed to introduce into taxation 'a progressive element of personal basis, taxing more highly the more substantial patrimonies' (Report of the Budget for 2017, page 60) is compatible with the objective that the taxation of patrimony should contribute to equality between citizens, stated in no. 3 of Article 104 of the CRP, since progressivity has as a corollary, tendentially, to impose greater taxation on those with greater contributory capacity.

On the other hand, the exclusion from taxation of properties especially intended for productive activity, namely 'commercial, industrial or for services', finds constitutionally acceptable foundation in the obligation of the State to promote the increase of economic well-being, which presupposes proper functioning of productive activities and constitutes one of its priority incumbencies in the economic sphere [Article 81, lit. a), of the CRP].

Furthermore, in line with what was understood in the arbitral judgment of 17-03-2016, rendered in case no. 507/2015-T, it should be understood that, while the ownership of high-value housing real property patrimony is a tendentially secure indication of economic abundance, superior to that of the generality of citizens, it cannot be considered that there exists a secure indication of superior contributory capacity when dealing with ownership of rights over properties intended for the exercise of economic activities (commercial, industrial, provision of services or related), since they must be adequate to the functioning of the respective companies, with their dimension and correlative value not being an indication of affluence. Thus, there will be constitutionally acceptable foundation for the restriction of the scope of AIMI to residential properties and building land for residential properties, which came to be enshrined in the approved wording for no. 2 of Article 135-B of the CIMI, in the interpretation which was adopted above.

The specific situation of real estate investment funds, as collective investment entities holding real property patrimony intended for housing, does not appear to merit special treatment in relation to the generality of citizens who individually find themselves in the same situation.

In fact, the activities that the funds may develop, indicated in Article 210 of the General Regime of Collective Investment Organisms, approved by Law no. 16/2015, of 24 February (acquisition of property for rental or intended for other forms of onerous exploitation; acquisition of property for resale; acquisition of other rights over property with a view to their economic exploitation; carrying out improvement, extension and requalification works on property; development of construction and rehabilitation projects of property), are freely accessible to the generality of property owners, even outside corporate structures. On the other hand, the ownership of high-value real property patrimony by real estate investment funds evidences, as with any owner of housing property, a special economic capacity to be able to contribute additionally to the Social Security Financial Stabilization Fund, to which AIMI revenues are allocated, and which 'corresponds to the objective of the government program to broaden the base of financing of Social Security' (Report of the Budget for 2017, page 57).

For this reason, the non-application of AIMI to the values of residential properties or building land for residential purposes belonging to real estate investment funds, would constitute an unjustified privileged tax treatment in relation to the generality of other owners of properties with those characteristics. Based on the foregoing, the imposition on real estate investment funds of AIMI with respect to their patrimony constituted by residential properties and building land does not appear materially unconstitutional, in light of the principles of equality and contributory capacity, and therefore the present petition is dismissed.

IV. DECISION

Given the foregoing, this Arbitral Tribunal decides:

a) To dismiss entirely the arbitration petition filed, absolving the Respondent of all requests.

b) To condemn the Claimant in the costs of the proceedings.

V. VALUE OF THE CASE

In accordance with the provisions of Article 306, no. 2 of the CPC, Article 97-A, no. 1, lit. a) of the CPPT and Article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 4,966.11.

VI. COSTS

Pursuant to Article 22, no. 4 of the LRTA, the amount of costs is fixed at € 612.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Notify parties.

Lisbon, 4 February 2020

The Arbitrator,

Cristina Aragão Seia

ARBITRATION DECISION

I – REPORT

A..., SA, legal person no. ... (hereinafter referred to as Claimant), with registered office at ..., no..., in Lisbon, in the capacity of managing company and representing B... – CLOSED REAL ESTATE INVESTMENT FUND, holder of TIN ... (hereinafter referred to as Fund), came, pursuant to Article 2, no. 1, lit. a) and Articles 10 et seq. of the Legal Regime of Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter briefly designated "LRTA") and Articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, to present a request for arbitral ruling on the legality of the assessment of the Additional Municipal Property Tax (AIMI) no. 2017..., relating to the year 2017, in the amount of € 4,966.11, seeking a declaration of illegality of said assessment and consequent annulment as well as the refund of the amount unduly paid, plus compensatory interest; it further seeks, on a subsidiary basis, that the tax act in question be partially annulled, relating to said AIMI assessment, as regards the taxable value of the urban property register article ...º of the Union of civil parishes ..., ..., ... and ..., of the municipality of ...., and the Fund be ordered to refund the tax paid in the amount of € 4,044.99 plus compensatory interest; and, further on a subsidiary basis, it seeks the disapplication of Articles 135-A et seq. of the Municipal Property Tax Code (CIMI) for unconstitutionality and, consequently, the declaration of illegality of the tax act in question which should be annulled with all legal consequences.

The defendant is the Tax and Customs Authority (hereinafter referred to as "AT" or "Respondent").

The request for establishment of the arbitral tribunal was accepted by the Honorable President of the Administrative Arbitration Center (CAAD) and automatically notified to the Respondent in accordance with regulatory procedures.

Pursuant to the provisions of Article 6, no. 2, lit. a) and Article 11, no. 1, lit. b) of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of CAAD appointed as arbitrator of the singular arbitral tribunal the undersigned, Cristina Aragão Seia, who communicated acceptance of the assignment within the legal timeframe.

On 14.02.2018, the parties were duly notified and did not manifest, within the legal timeframe and terms, any intention to challenge the appointment of the arbitrator (Article 11, no. 1, lit. a) and b) of the Legal Regime of Tax Arbitration (LRTA), read in conjunction with Articles 6 and 7 of the Deontological Code).

In accordance with the provisions of Article 11, no. 1, lit. c) of the LRTA, the Arbitral Tribunal was constituted on 06.03.2018.

Duly notified, the Tax and Customs Authority submitted a response in which it defended the inadmissibility of the claim, defending itself solely by contestation.

Since it was understood that there was no controversy regarding the essential facts relevant to the decision and that they had sufficient documentary support, the meeting referred to in Article 18 of the LRTA was dispensed with, with both Claimant and Respondent waiving the submission of arguments.

The date of 30.06.2018 was set for the rendering of the final decision.

II – PRELIMINARY RULING

The parties have legal personality and capacity, are legitimate as to the request for arbitral ruling and are duly represented, pursuant to the provisions of Articles 4 and 10 of the LRTA and Article 1 of Ordinance no. 112-A/2011, of 22 March.

No nullities are present, so it is necessary to address the merits.

This arbitral tribunal is materially competent.

No exceptions were raised.

III. MERITS

2. MATTERS OF FACT

2.1. Proven Facts

The Tribunal considers the following facts proven:

h) B... – CLOSED REAL ESTATE INVESTMENT FUND is administered, managed and represented by the company A... – REAL ESTATE INVESTMENT MANAGEMENT COMPANY, SA, now Claimant (doc. no. 3 attached to the arbitration request).

i) The Fund was notified of the tax assessment act for AIMI no. 2017..., of 30.06.2017, relating to the year 2017, in the amount of € 4,966.11 (doc. no. 1 attached to the arbitration request).

j) For the purpose of the additional AIMI assessment, the sum of the taxable value of three properties of which the Fund is the owner, classified as "building land" – articles ...º, ...º and ...º, all of the Union of civil parishes ..., ..., ... and ..., municipality of ..., was considered as the taxable matter, which totaled € 1,241,528.10 (doc. 1 attached to the arbitration request and property records attached with the Response).

k) Article ... corresponds to building land with a reference to Services in the type of Location coefficient, while articles ... and ...º have a reference to Housing in the type of Location coefficient (property records attached with the Response).

l) The taxable value of article ...º, for AIMI purposes, is € 1,011,248.10 (docs. no. 1 and 4 attached to the arbitration request).

m) The Fund proceeded, on 28.09.2017, to the complete and timely payment of said assessment (doc. no. 2 attached to the arbitration request).

n) The request for establishment of the arbitral tribunal was presented on 29.12.2017.

2.2. Unproven Facts

There are no facts relevant to the decision of the case that have not been proven.

2.3. Reasoning on Matters of Fact

The facts were deemed proven based on the documents submitted by the parties, as well as the positions of the parties. It should be noted that there does not emerge from the positions assumed by Claimant and Respondent any actual disagreement regarding matters of fact, with the dispute being confined to matters of law.

2. MATTERS OF LAW

2.1. Principal Issues

The substantive issues to be addressed in this case are the following:

d) The applicability of AIMI to real property held by real estate investment funds;

e) The illegality of taxation under AIMI of building land intended for commercial, industrial or services purposes;

f) The unconstitutionality of the AIMI taxation regime for violation of the principle of equality, enshrined in Article 13 of the CRP, and the principles of fiscal equality and contributory capacity enshrined in Article 104, no. 3 of the CRP.

It is necessary to decide:

2.1.1. The Applicability of AIMI to Real Property Held by Real Estate Investment Funds

The Claimant contends that the holding of real property constitutes the substrate of all activity of real estate investment funds, and therefore the application of AIMI to such property contradicts the ratio legis that underlaid the rule of exclusion from objective application scope provided in Article 135-B, no. 2 of the CIMI, an argument which the Respondent rebuts by considering it to have no legal support.

Because the issues in the present case are entirely similar to those discussed in case 668/2017-T of CAAD, we will follow closely what was decided there in a judgment recently rendered on 24.04.2018.

On this specific question, of the applicability of AIMI to real property held by real estate investment funds, we proceed to transcribe:

"(...) Law no. 42/2016, of 28 December (State Budget for 2017) added to the CIMI Chapter XV, with Articles 135-A to 135-K, which contains the regime of the Additional Municipal Property Tax (AIMI).

In Article 135-A, the subjective scope of this tax is defined, establishing that 'passive taxpayers of the additional municipal property tax are natural or legal persons who are owners, usufructuaries or superficiaries of urban properties located in Portuguese territory', and that 'any structures or centers of collective interests without legal personality that appear in the registers as passive taxpayers of municipal property tax are equated to legal persons'.

Article 135-B defines the objective scope of this additional tax, establishing the following:

Article 135-B

Objective Scope

1 - The additional municipal property tax applies to the sum of the taxable values of urban properties located in Portuguese territory of which the passive taxpayer is the owner.

2 - Excluded from the additional municipal property tax are urban properties classified as 'commercial, industrial or for services' and 'other' in accordance with lit. b) and d) of no. 1 of Article 6 of this Code.

The Claimant contends that this regime excludes from the scope of AIMI 'urban properties classified as "commercial, industrial or for services" and "other" in accordance with lit. b) and d) of no. 1 of Article 6 (...)' of the Municipal Property Tax Code (CIMI), and therefore only urban properties intended for housing purposes and building land are covered, as defined in said Article 6.

Article 6 of the CIMI establishes the following:

1 - Urban properties are divided into:

a) Residential;

b) Commercial, industrial or for services;

c) Building land;

d) Other.

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

3 - Building land is considered to be land located inside or outside an urban agglomeration, for which a license or authorization has been granted, prior communication admitted, or favorable preliminary information issued for a subdivision or construction operation, and also land that has been declared as such in the acquisition deed, except for land where the competent entities prohibit any of those operations, namely those located in green zones, protected areas or which, in accordance with municipal land use planning plans, are designated for public spaces, infrastructure or equipment.

4 - Land included in the provision of lit. d) of no. 1 comprises land located within an urban agglomeration that is not building land and is not 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 purpose uses other than those referred to in no. 2, and also those under the exception of no. 3.

From this negative delimitation of scope, the Claimant draws the conclusion that the intention was to create a tax on real estate wealth, in which urban properties intended for economic activities will not be subject to AIMI taxation.

The legislative concern to 'avoid the impact of this tax on economic activity' was announced in the Proposal of the Law of the State Budget for 2017 and was to be concretized through the exclusion from the scope of application of 'urban properties classified as "industrial", as well as urban properties licensed for tourist activity, the latter provided that their purpose was properly declared and proven' and the deduction from the taxable value of the amount of '€ 600,000.00, when the passive taxpayer is a legal entity with agricultural, industrial or commercial activity, for properties directly affected by their operation'.

However, it was not on the basis of the activity to which the properties are intended that the exclusion from application was defined, since in the wording that was approved, the non-application was defined only on the basis of the types of properties indicated in Article 6 of the CIMI, with no reference whatsoever to the intended use or not of the legal entities' operation.

If the legislative intention to exclude the application to properties directly intended for the operation of legal entities had been maintained in the final wording of the Budget, the reference to this intended use that appeared in the proposal and that clearly expressed this legislative option would certainly have been maintained.

Thus, having this reference to the intended use of the properties been eliminated, there is no legal support for concluding that residential properties and building land intended for the operation of legal entities do not fall within the scope of AIMI.

'In the absence of other elements that induce the choice of the less immediate sense of the text, the interpreter should in principle opt for that sense which 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 exact) that the legislator knew how to correctly express his thought'.

In the case at hand, given the elimination of the proposed wording in which relevance was given to the intended use of the properties, there is no reason to conclude that the legislator did not know how to express his thought in adequate terms, as must be presumed by virtue of the provision of Article 9, no. 3, of the Civil Code.

For this reason, it must be concluded that the fact that the Fund intends the properties referred to in the present case for its economic activities does not exclude the application of AIMI."

2.1.2. The Illegality of Taxation under AIMI of Building Land Intended for Commercial, Industrial or Services Purposes

In the understanding of the Claimant, Article 135-B of the CIMI should be interpreted to exclude for AIMI purposes the taxable value of building land not intended for housing, arguing that the applicability of AIMI 'would always demonstrate a manifest inconsistency of the legal regime in question' and 'would constitute discriminatory treatment that violates, without qualification, 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)'.

The Claimant thus contends that it should not be relevant for determining the taxable value of AIMI the value of the building land with the urban property register article ...º which, as shown in the property record, was determined on the basis of the 'type of location coefficient: Services', and this is not questioned whether it is intended for the construction of a property for services.

Now, resuming the judgment referred to above, '(...) having chosen as an index of contributory capacity the ownership of real property patrimony of value considered elevated, it will not have coherence not to apply the tax to buildings intended for services and to apply it to the land intended for their construction, whose value is incorporated in the value of the buildings.

Thus, from a perspective that has in mind the unity of the legal system (Article 9, no. 1, of the Civil Code), which has decisive interpretative value, imposed by the principle of axiological or valuational coherence of the legal order, the exclusion provided in no. 2 of Article 135-B of the CIMI concerning urban properties classified as 'for services' should be interpreted extensively as expressing a legislative intention to also exclude from taxation the land intended for the construction of such properties. In any case, should one adopt a literal interpretation of this norm, with the sense that all building land falls within the scope of AIMI, it will be materially unconstitutional, being incompatible with the principle of equality (Article 13 of the CRP), by considering as a tax fact the ownership of building land for properties intended for services and not the ownership of the properties constructed therein, as it constitutes disadvantaged treatment of taxpayers who find themselves in the first situation, without material justification, since the contributory capacity indicated by real property patrimony in that situation is necessarily lesser, which must be present, and with increase, in the second.

In situations of unjustified discriminatory treatment, translated in the imposition of a duty or burden with violation of the principle of equality, what is illegitimate is, in principle, the act of imposing the duty only on some of the taxpayers, and the inequality should be resolved with elimination of the duties or burdens for those who were discriminatorily burdened with them.

Thus being, cannot but be considered illegal the challenged assessment as regards the taxable value of the building land with the urban property register article ....º, and therefore its annulment is justified, in the respective part, in accordance with the provisions of Article 163, no. 1, of the Code of Administrative Procedure (CPA), subsidiarily applicable in accordance with Article 2, lit. c), of the LGT.

2.1.3. The Unconstitutionality of the AIMI Taxation Regime for Violation of the Principle of Equality, Enshrined in Article 13 of the CRP, and the Principles of Fiscal Equality and Contributory Capacity Enshrined in Article 104, no. 3 of the CRP

The Claimant invokes, on a subsidiary basis, the unconstitutionality of AIMI, with arguments which we address separately:

2.1.3.1. The Indiscriminate Taxation of All "Building Land": the (Illegal) Disregard of the Legal Criterion of Intended Use of the Property

The Claimant maintains in Article 83 of the arbitration petition '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 contributory capacity enshrined in Article 104, no. 3 of the same instrument' and in Articles 5 and 55 of the LGT (Articles 90 and 91 of the arbitration petition).

The Claimant then contends that the legal regime of AIMI, in particular, its Articles 135-A and 135-B of the CIMI - when interpreted in the sense of including within the scope of application of AIMI "building land" with purposes of commerce, industry, services or other – promote differentiated treatment and an unjustified inequality between taxpayers, in manifest violation of the principle of equality enshrined in Article 13 of the CRP.

This issue has already been examined in the preceding point, and reference is made to what was stated there, with this being applicable only to the part of the assessment which has as its presupposition the value of the building land intended for services.

2.1.3.2. Unconstitutionality for Taxation of the Substrate of an Economic Activity

In the understanding of the Claimant, in summary:

• regard must be had to the nature of the passive taxpayers burdened with the taxation resulting from AIMI, in particular the fact that entities are covered by this Additional which exercise, as an activity comprised in their respective statutory objects, the activity of purchase, sale, construction and rental of property;

– in the case of commercial companies (or other entities) that develop an activity of that nature, the ownership of property constitutes the patrimonial substrate of the economic activity itself, being an essential (almost sole) means for its pursuit, and therefore the essential taxation presupposition is not met, i.e., the presupposition that the ownership of such property constitutes an indication of increased contributory capacity or wealth;

– in the case of real estate investment funds, in light of the activity that they may legally develop, the properties are productive factors and means for the exercise of their economic activity, not being an indication of increased contributory capacity;

– this Additional penalizes in an unjustifiably aggravated manner this activity sector, to the detriment of the remaining ones;

– the imposition of this taxation has no relation whatsoever to the actual income of the activity developed by these entities - in the limit, burdening them even when they have negative results;

– 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 a real estate activity -, promotes differentiated treatment and an unjustified inequality between taxpayers, in manifest violation of the principle of equality, enshrined in Article 13 of the CRP and the principle of fiscal equality and contributory capacity, enshrined in Article 104, no. 3 of the same instrument;

– especially with regard to building land the reasons on which the Constitutional Court based its Decision no. 250/2017, of 24-05-2017 are applicable.

The Tax and Customs Authority defends, in the first place, that it is