IUC Subjective Incidence: Bank Not Liable for Vehicle Tax After Sale Despite Registration (CAAD 126/2014-T)

Arbitral Decision

CAAD: Tax Arbitration

Case No. 126/2014 – T

Subject Matter: IUC – Taxable Person

I - REPORT

1. Bank A, S.A., taxpayer No. …, with registered office at … hereinafter referred to as the Claimant, filed on 13.02.2014, under the provisions of paragraph a) of No. 1 of Article 2 and Article 10 of Decree-Law No. 10/2011, of 20 January ("Legal Framework for Tax Arbitration" – LFTA), a request for arbitral award in which the Respondent is the AT - Tax and Customs Authority, in order to:

• The annulment of 297 (two hundred and ninety-seven) assessment acts for Single Circulation Tax (IUC);

• Reimbursement of the amount of € 17,716.95 corresponding to tax paid relating to those assessments;

• Payment to the Claimant of compensatory interest for the deprivation of said amount, in accordance with Article 43 of the General Tax Law.

1. To substantiate its claim, the Claimant alleges, in essence, the following:

• The Claimant was notified during the year 2013 to proceed with payment of 297 assessments of IUC relating to 85 motor vehicles and relating to the years 2009, 2010, 2011 and 2012, copies of which are attached to the case file, in Annex A of the initial petition;

• The tax in question was paid in full by the Claimant prior to the filing of this request for arbitral award, under the Special Debt Regularization Scheme, approved by Decree-Law No. 151-A/2013, of 31 October;

• The Claimant does not accept the assessments now challenged on the grounds that it does not consider itself a taxable person for the tax in the period to which the assessments relate, since it had previously already disposed of all the vehicles subject to tax;

• Although on the date of the tax events, the said vehicles remained registered in the name of the Claimant, this fact is not decisive for its status as a taxable person, since registration is not a condition for the validity of the purchase and sale contract;

• And notwithstanding the provision in No. 1 of Article 5 of the Property Registry Code (CRPred) applicable subsidiarily to motor vehicle registration, which stipulates that "facts subject to registration only produce effects against third parties after the date of their respective registration," this does not prevent the alleged disposal from being enforceable against the Respondent, because the latter is not a "third party" for purposes of registration. Third party, for purposes of registration, under Article 4, No. 4 of CRPred, are "those who have acquired from a common ancestor incompatible rights," which is not applicable to the Respondent in the present tax relationship;

• In this sense, several arbitral tribunal decisions have already pronounced themselves, such as those delivered in cases No. 14/2013-T and No. 27/2013-T;

• Subsidiarily, the Claimant further alleges that, if the alleged disposals are not considered proven, then it would have to be concluded that financial leasing contracts would remain in force, which would make the lessees the taxable persons for the tax, under Article 3 No. 2 of the IUC Code;

• The Claimant further alleges, in support of its thesis, that "the tax now under consideration is strongly marked by environmental logic, which justifies that the burden of the tax falls, in the first place, on the person or entity that has the potential to use the motor vehicle;

• In this way, when instead of imposing the tax on whoever effectively has the power to use the vehicle, the tax is imposed on someone who does not have the power to use it – as would be the case according to the Claimant – the rationale of the tax would be violated;

• To avoid this result, the legislator itself provided for cases of equating to ownership for situations in which whoever has the power to use the vehicle is not its owner, one of these situations being that which constitutes the activity of the Claimant: financial leasing;

• This argument serves as the basis for the Claimant to conclude that, where there exists a financial leasing contract, it is the lessee, and not the lessor, the person who must bear the tax, which moreover is in accordance with the aforementioned Article 2, No. 2 of the IUC Code;

• The Claimant further alleges that in the case of financial leasing, there is no responsibility of both parties for the payment of the tax, since such responsibility is not expressly established;

1. In its response to the request for arbitral award presented by the Claimant, the Respondent AT-Tax and Customs Authority argues for the dismissal of the request, alleging in summary the following:

• The tax legislator, in establishing in Article 3, No. 1 who are the taxable persons of the IUC, expressly and intentionally established that these are the owners (or in the situations provided for in No. 2, the persons listed there), being considered as such the persons in whose name the same [vehicles] are registered;

• The legislator did not use the expression "are presumed," as could have been used;

• On the other hand, the tax norm is full of provisions analogous to that established in the final part of No. 1 of Article 3, in which the tax legislator, within its legislative discretion, expressly and intentionally, establishes what should be considered legally, for purposes of incidence, of income, of exemption, of determination and of periodization of taxable profit, for purposes of residence, of location, among many others;

• By way of example, the Respondent points to Articles 2 of the Municipal Tax Code on Onerous Transfers of Real Property (CIMT), 2, 3 and 4 of the Personal Income Tax Code (CIRS) and 4, 17, 18 and 20 of the Corporate Income Tax Code (CIRC), in which the expression "is considered" is used to qualify a situation for tax purposes, without such expression being able to be seen as a presumption;

• In the case of No. 1 of Article 2 of the CIMT, for example, the tax legislator does not presume that "there is place for onerous transfer for purposes of No. 1 of Article 2 of the CIMT, in the execution of the preliminary purchase and sale contract of real property in which it is stipulated in the contract or subsequently that the intended purchaser can transfer his contractual position" to a third party, the tax legislator expressly and intentionally assimilates this contract to an onerous transfer of property for purposes of IMT;

• Likewise, in the case of Article 17 of CIRC, the legislator also does not establish that the net surpluses of cooperatives are presumed as the net result of the period, but rather that they are considered as such;

• In fact, much of the incidence norms for Corporate Income Tax purposes have as their underlying rationale to determine what should be considered as income, for purposes of this tax, as opposed to what according to accounting rules is income for the period, so that if it were understood that by using the expression "is considered," the tax legislator would have established a presumption, practically all the incidence norms for Corporate Income Tax would be set aside, precisely because accounting prescribes solutions different from those of CIRC, and it is precisely the legislator's intent to set aside such accounting rules. Otherwise it would frustrate the entire useful effect of said norms;

• In these terms, it is imperative to conclude that, in the case of the present arbitral award proceedings, the legislator expressly and intentionally established that those are to be considered as such (as owners or, in the situations provided for in No. 2, the holders listed there) the persons in whose name the same (vehicles) are registered, because this is the interpretation that preserves the unity of the legal-tax system;

• To understand that the legislator established a presumption here would unequivocally be to carry out an interpretation against the law;

• Faced with this wording, it is manifestly not possible to argue that it is a presumption, as the Claimant contends. Rather, it is a clear choice of legislative policy adopted by the legislator, whose intention, within its legislative discretion, was that, for purposes of IUC, those who as such appear in the motor vehicle register should be considered owners;

• The aforementioned understanding corresponds to that adopted in the jurisprudence of our courts, having been upheld by the Administrative and Tax Court of Penafiel in Case No. 210/13.0BEPNF;

• On the other hand, the presumption of motor vehicle ownership, in the cases in question, derives solely, directly and exclusively from the motor vehicle registration system itself, so that, if the Claimant intends to rebut the registration presumption, it must do so through the appropriate means provided for in the Motor Vehicle Registration Regulation;

• The legislator unequivocally intended that the taxable person for the tax be the person in whose name the ownership is registered, because only this interpretation is consonant with legal certainty and security and with the power-duty of the Respondent to assess taxes;

• The interpretation defended by the Claimant would further violate the principle of efficiency of the tax system, by seeking to disregard the registration reality, on which the legal edifice of the IUC is based.

• Regarding the question of proof of the disposal of the vehicles, the Respondent contends that the probative documents offered by the Claimant – the invoices relating to the sale of the vehicles – are not suitable to prove the conclusion of a bilateral contract, as is the purchase and sale;

• Finally, the Respondent contends that, should the assessments be considered invalid, the Respondent should still never be ordered to pay compensatory interest, since there is no error in the assessments attributable to its services, as required by Article 43, No. 1 of the General Tax Law.

In final arguments, the Claimant alleged, in summary, the following:

• Article 3, No. 1 of the IUC Code contains a presumption;

• The interpretation defended by the Respondent regarding this provision, arguing that it does not contain a presumption, would be inconsistent with the Portuguese Constitution;

• Being a presumption, it is rebuttable;

• The existing jurisprudence on the probative value of the invoice in the context of civil law cannot be transposed to the plane of tax law, in which the invoice assumes a preponderant role;

• It is on the basis of the taxable person's invoicing that VAT and Corporate Income Tax owed by the same are determined. For such purposes, the Respondent accepts the invoices, not considering them insufficient;

• In that measure, the Respondent's invocation of the alleged insufficiency of the invoices for purposes of rebutting the presumption of motor vehicle ownership in the context of the IUC reveals bad faith and violates the principle of trust and legal certainty;

• It is intolerably shocking and violates the principle of Justice that, having the AT reached the conclusion, by exercise of its prerogatives, that the invoices submitted by the Claimant were sufficiently demonstrative of the operations therein referred to for purposes of VAT and Corporate Income Tax, it now seeks to set them aside in the context of the IUC;

• The position defended by the AT – and followed by the arbitral decision delivered in case No. 220/2014-T – is illegal due to violation of Article 75 of the General Tax Law, which establishes a presumption of truthfulness of the elements of the taxpayer's accounting records;

• This presumption makes inapplicable all the considerations spent regarding the probative value of invoices in civil law;

• Against the presumption contained in Article 3 of the IUC Code, the Claimant opposed a document which also benefits from a legal presumption of truthfulness – that of Article 75 - which constitutes full proof regarding the facts contained therein;

• By virtue of Article 75, the transactions to which the invoices submitted by the Claimant relate are presumed true, without need for any additional proof;

• It was thus incumbent upon the AT to collect serious, objective and well-founded indications on the basis of which the presumption of truthfulness enjoyed by the invoices submitted by the Claimant would cease, which the Respondent was not able to do;

• Not having the Respondent been able to set aside the presumption of truthfulness of the invoices submitted, through serious, objective and well-founded indications of their falsity, the proof prevails that the business transactions transferring ownership of the vehicles in question occurred in the terms declared therein;

• Regarding paragraphs c) and d) of No. 1 of Article 25 of the Motor Vehicle Registration Regulation, they do not mean that the entities referred to there can promote the registration in the name of the purchaser of the vehicle;

• The cited provisions have the following scope: the seller who is "a commercial entity whose main activity is the purchase of vehicles for resale" can, through a request proceed "with the request for registration of ownership [by itself] acquired by virtue of [or on account of the future] disposal of a vehicle in the exercise of that activity;

• This is not, however, the case of the Claimant. To register ownership in favor of the purchasers, it would need a declaration signed by the customers;

• In any event, even if the Claimant had the capacity to promote the registration on its own, this fact would not preclude the illegality of the assessments challenged because the Claimant's responsibility regarding the IUC is not dependent on its degree of diligence in promoting the registration;

• The updating of the registration does not resolve the problem in question in the case file, which is that of the lack of contributory capacity on the part of the Claimant regarding the IUC assessments challenged;

• Not considering the above arguments to be well-founded – which the Claimant does not concede – and if it is concluded that the Claimant failed to demonstrate the transfer of ownership of the vehicles, it should then be admitted that, at the moment of exigibility of the IUC in question, the financial leasing contracts were still in force at the end of which said vehicles were disposed of;

• There is no third possibility: only one of these two hypotheses could have occurred;

• What will result in the conclusion that the IUC in question was not, equally, the responsibility of the Claimant but rather that of the customer lessees;

The Respondent also presented final arguments, in which:

• It reaffirmed all the arguments set out in its response;

• The presumption of ownership which rests upon the Claimant regarding the vehicles subject to taxation in the assessments challenged results from the motor vehicle register;

• Thus, its rebuttal is an operation located upstream of Article 3 of the IUC Code, and cannot the result be achieved, as the Claimant now intends, by means of an operation downstream and directed against a mere fiscal consequence of a tabular registration;

• The invoices submitted by the Claimant are not suitable to rebut the presumption of ownership resulting from the motor vehicle register, since they are documents unilaterally issued by the Claimant;

• It is devoid of sense the argument now raised by the Claimant that "The AT, which previously assumed acceptance of the invoices for tax purposes (i.e., their sufficiency to support operations which, based on the invoices, it subjected to tax), now seeks to reject them, invoking that they are unilateral and private documents;"

• Because such argument, if accepted, would imply that, in the absence of opening of an inspection action by the Respondent following the filing of a VAT or Corporate Income Tax declaration, what was declared there by the Claimant itself would be considered as established for all time;

• Regarding the argument that the Respondent "did not even organize its arguments around a possible falsity of the invoices," this is a confusion on the part of the Claimant, because, as is known, the untruthfulness of documents (which is to say the falsity of the documents) is only directed against authentic documents (Articles 363, No. 1 and 2, and Article 372 of the Civil Code), a category into which invoices attached to the case file do not fall;

• The Claimant confuses the probative value of the document as such (that is, its genuineness or authenticity) with the probative value attributed to the facts contained therein;

• The Respondent did not call into question the probative value of the invoices, or in other words, did not call into question their authenticity, so it had no need to resort, for example, to the procedural expedient provided for in Article 444 of the Code of Civil Procedure;

• What the Respondent called into question was, rather, the probative value attributed to the facts contained in the invoices, by stating that those documents cannot, of themselves, prove what the Claimant affirms;

• In support of this interpretation, one is proposed to compare the judgment of the Court of Appeal of Coimbra, of 24-04-1991 (Bulletin of the Ministry of Justice No. 406, p. 731), in which it is stated: "A private document can only be invoked with full probative value by the recipient against the issuer, whereas in relation to third parties it only counts as an element of proof to be freely assessed;"

• And also the judgment of the Court of Appeal of Coimbra, of 3-11-1992 (Bulletin of the Ministry of Justice No. 421, p. 512), in which it is stated: "I- The private document can only have full probative value if it is invoked by the recipient against the issuer, its author. II – In relation to third parties, the private document is an element of proof to be freely assessed by the court;"

• The unequivocal declaration of intent of the presumed purchasers could be indicated by the submission of copies of the requests for motor vehicle registration, as these are documents signed by the intervening parties. However, the Claimant never submitted such documents when it could and should have done so;

• And it is certain that it is not by way of presentation of an invoice that any motor vehicle registration official promotes an alteration of the registration of ownership;

• And not promoting the motor vehicle registration official such alteration, then a fortiori cannot it be intended that the Respondent and this Court incur in such error;

• Should it be considered – which is not conceded – that the Claimant rebutted the presumption of ownership which rests upon it, it would nonetheless always be necessary to take into account that the IUC is assessed in accordance with the registration information duly transmitted by the Institute of Registries and Notaries, and not in accordance with information generated by the Respondent itself;

• Circumstance which cannot fail to be taken into account in determining responsibility for the payment of arbitral costs arising from this case;

• Regarding the purported knowledge of the leasing contracts by the Respondent, the Claimant at no time complied with the obligation to communicate such contracts provided for in Article 19 of the IUC Code.

II – QUESTIONS TO BE DECIDED

As to the questions to be decided in this arbitral award, several questions are identified in the initial petition, of which we consider that would, in the abstract, have relevance to the case the following:

• Lack of substantiation of the assessment acts;

• The interpretation of Article 3, No. 1 of the Single Motor Vehicle Circulation Tax Code (IUC) as establishing or not a presumption regarding the qualification, as owner of a vehicle, of the entity in whose name the ownership of the same is registered;

• Concluding that the qualification of this norm as a presumption, its actual rebuttal in the case at hand;

• The status of taxable person for IUC of the lessees in financial leasing contracts of motor vehicles.

As to the question of lack of substantiation, although it is raised by the Claimant, no arguments are offered to substantiate it, which means that the Court is unable to pronounce on it.

III – GROUNDS

A. FACTS PROVEN CONSIDERED RELEVANT TO THE DECISION

The following are the facts proven considered relevant to the decision:

1st: The Claimant was notified during the year 2013 to proceed with payment of 297 assessments of IUC relating to 85 motor vehicles and relating to the years 2009, 2010, 2011 and 2012, copies of which are attached to the case file, in Annex A of the initial petition;

2nd: The 85 vehicles were, all of them, on the date of the tax events, registered in the name of the Claimant;

3rd: The Claimant proceeded with payment of the total amount of the respective tax prior to the filing of this request for arbitral award;

4th: The Claimant issued invoices relating to the sale of the 85 vehicles to which the IUC assessments challenged relate.

The facts indicated were considered proven on the basis of documentary evidence offered.

There are no facts considered not proven with relevance to the decision.

B. AS TO THE MERITS OF THE CASE

1. As to the interpretation of Article 3, No. 1 of the IUC Code, to determine whether it establishes or not a presumption of ownership of the vehicle

On this question, in the exact terms in which it presents itself here, the arbitral award previously delivered in case No. 63/2014-T has already pronounced itself, to which full adherence is given and which, for that reason, is now cited:

"Article 3 of the IUC Code provides:

Article 3

Subjective Incidence

1 - The taxable persons for the tax are the owners of the vehicles, being considered as such the natural or legal persons, of public or private law, in whose name the same are registered.

2 - Equated to owners are the financial lessees, the purchasers with reservation of ownership, as well as other holders of purchase option rights by virtue of the leasing contract.

The taxable persons of the IUC are, in the first place, the owners of the vehicles, and may also be equated to owners the "financial lessees, the purchasers with reservation of ownership, as well as other holders of purchase option rights by virtue of the leasing contract."

Ownership of motor vehicles is subject to mandatory registration (Article 5, Nos. 1 and 2 of Decree-Law No. 54/75, of 12 February).

The obligation to proceed with registration rests with the purchaser – active subject of the fact subject to registration, which is, in the case, the ownership of the vehicle (Article 8-B, No. 1 of the Property Registry Code, applicable to Motor Vehicle Registration by force of Article 29 of Decree-Law No. 54/75, of 12 February and read in conjunction with paragraph a) of No. 1 of Article 5 of Decree-Law No. 54/75).

But the Motor Vehicle Registration Regulation contains a special regime, in force since 2008, for entities that engage in the commercial activity of selling motor vehicles. According to this regime, which is established in Article 25, No. 1, paragraphs c) and d), the registration can be promoted by the seller, through a request subscribed only by himself.

Since 2001, the obligation to declare the sale by the seller "to the authority competent for registration" has also been expressly established in the Road Code (now in its Article 118, No. 4).

Registration must be effected within 30 days from the date of acquisition of the vehicle (Article 42 of the Motor Vehicle Registration Regulation (Decree-Law No. 55/75, of 12 February).

The current IUC is designed to function in integration with the motor vehicle register, which is inferred from Article 3 of the IUC Code itself. The alternative to this articulation would be the obligation to communicate to the AT – Tax and Customs Authority all transfers of vehicles, similar to what happens with the IMT Code, a highly bureaucratic solution which the legislator rejected.

In a situation of complete compliance with the law, where the transfer of ownership of the motor vehicle takes place, this change of ownership will be registered in due time.

The AT- Tax and Customs Authority could thus, at any moment, know which vehicles are registered in Portuguese territory and who are the respective owners for purposes of tax assessment.

There is thus a close articulation between the Motor Vehicle Register and the Single Circulation Tax, so that, if the Tax Administration cannot avail itself of the data contained in the Motor Vehicle Register, this will result in an inevitable loss of efficiency, not to say paralysis, in the administration of the tax.

For that reason, No. 1 of Article 3 of the IUC Code, after establishing that "the taxable persons for the tax are the owners of the vehicles" adds that those are to be considered as such "the natural or legal persons, of public or private law, in whose name the same are registered".

In the case at hand, in which the Claimant alleges to have transferred ownership of all vehicles to which the assessments challenged relate, prior to the dates to which the assessments relate, the same Claimant retained itself, on the date of the tax events, as holder of the registration of ownership of the vehicles allegedly sold.

But since such transfers were not communicated to the Motor Vehicle Register, the Tax Administration adopted the only procedure it could adopt: it applied Article 3, No. 1 of the IUC Code, considering the Claimant as the owner of the vehicles, because it is the entity in whose name the vehicles were registered. It should be noted that, even if Article 3 of the IUC Code did not contain the expression "being considered as such the natural or legal persons, of public or private law, in whose name the same are registered", the Tax Administration would always benefit from this presumption of ownership because it results from the Motor Vehicle Register itself.

In fact, Article 7 of the Property Registry Code (CRPred), applicable to the registration of motor vehicles, by force of Article 29 of the Motor Vehicle Registration Code, stipulates that "the definitive registration constitutes a presumption that the right exists and belongs to the holder registered, in the precise terms in which the registration defines it."

The Claimant acknowledges that, in the period to which the assessments relate, it was the holder of the registration of ownership of the vehicles, but alleges that it was no longer the effective owner of the same because it had in the meantime disposed of them.

The question that arises in this situation is that of the value of the second part of the provision, in determining that "the taxable persons for the tax are the owners of the vehicles, being considered as such the natural or legal persons, of public or private law, in whose name the same are registered".

In saying that "those are to be considered as owners of the vehicles the persons in whose name the same are registered", is the law establishing a legal presumption?

Or, on the contrary, is the law saying that the persons in whose name the vehicles are registered are "owners" for tax purposes, i.e., are taxable persons?

The Claimant contends that the law contains a legal presumption, basing itself for such on the example of several legal provisions in force in the legal system that, using the verb "consider," unquestionably contain presumptions.

The Claimant's thesis is also supported by the merely declarative value of motor vehicle registration.

If the Claimant's thesis is correct, then, in accordance with the provisions of Article 73 of the General Tax Law, and because it is a matter of an incidence norm, the presumption is necessarily rebuttable, which means that it admits proof to the contrary. What in the case means that the Challenger could prove that it was not the owner of the vehicles in the period to which the assessments relate and, therefore, was not the taxable person for the tax assessed.

In the opposite sense, the Respondent contends that in the norm in question no presumption is established whatsoever, and that the legislator expressly and intentionally established that those are to be considered as such ("as owners or, in the situations provided for in No. 2, the persons listed there") the persons in whose name the vehicles are registered, because this is the interpretation that preserves the unity of the legal-tax system.

The Respondent is supported, just as the Claimant is, in the example of several tax legal norms, which, using the verb "consider," do not contain presumptions, but non-presumptive qualifications. Examples would be Articles 2 of the Personal Income Tax Code (CIRS), 2, 3 and 4 of the Personal Income Tax Code, and 4, 17, 18 and 20 of the Corporate Income Tax Code (CIRC).

From the examples furnished by both parties, it is evident, from the outset, that it is possible to find in the legal system as many examples of provisions that use the verb "consider" in the sense of "presume" as examples of legal provisions that use the verb "consider" to establish non-presumptive legal qualifications, so that these arguments are not conclusive.

If a presumption exists in Article 3, No. 1 of the IUC Code, it consists of the presumption regarding the quality of owner: "the taxable persons for the tax are the owners of the vehicles, being considered as such the natural or legal persons, of public or private law, in whose name the same are registered".

On the other hand, if it is understood that the norm does not establish a legal presumption, then it must be considered that the law qualifies non-presumptively as owners of the vehicles, the persons in whose name the vehicles are registered.

We will have, in that case, a legal fiction, detached from the concept of civil law, and which consists of a legal expedient that considers a situation or a fact as distinct from reality to attribute to it certain legal consequences.

Article 11, No. 2 of the General Tax Law constitutes the point of departure regarding this question, saying that "whenever, in tax norms, terms proper to other branches of law are employed, the same must be interpreted in the same sense as that which they have there, unless otherwise directly results from the law".

There is thus need to ascertain whether it results unequivocally from the provisions of Article 3 of the IUC Code that the legislator intended there to establish a concept of "owner of a vehicle" proper to tax law, which encompasses persons who are not holders of such right according to the rules of civil law.

Now, can the "legislative discretion" which the legislator enjoys, which the Respondent refers to in paragraph 17 of its Response, go so far as to determine in a binding manner who is the owner of a vehicle, even if merely for tax purposes, radically dissociating that tax qualification from the qualification of civil law?

And, in consequence of the previous question, another question is imposed: why would the legislator not simply have stipulated - as it would have achieved exactly the same useful effect but eliminating any margin of legal insecurity or uncertainty - that "the taxable persons for the tax are the persons in whose name the vehicles are registered, whether as owners, or as financial lessees, as purchasers with reservation of ownership, or as other holders of purchase option rights by virtue of the leasing contract"? A question all the more pertinent, and a hypothesis all the more attractive, since the legislator was aware of the experience, negative, and which occurs repeatedly, of the prior Circulation Tax?

The answer seems evident: because, in this latter hypothesis, which the legislator did not follow, the subjective incidence of the tax could become totally disconnected from any economic substance and would depend exclusively on a legal appearance.

Now, if the legislator had, as the Respondent contends, established in the law a non-presumptive qualification regarding who is the owner of the vehicles (a legal fiction), it would thereby be establishing, through a different formulation, a rule entirely identical to the hypothetical rule referred to. It would be basing the subjective incidence of the tax on a legal fiction, in total disconnection from any economic substance as the basis of subjective incidence.

It is true that the efficiency of taxation determines the need for the IUC to be based on motor vehicle registration and, consequently, requires that the tax administration can rely on that motor vehicle registration.

But the principle of efficiency of taxation cannot override in absolute terms the principle of contributory capacity, to the point of eliminating it as a criterion of subjective incidence. And it is also true that the tax legislator would have at its disposal other means of holding the seller of the vehicle responsible, in default as to its duty to communicate the sale of the vehicle, for the payment of the tax, without being as a direct taxable person (by configuring, for example, a case of tax liability for the debt of a third party).

And, if this is so, it must also be concluded forcefully that Article 3, No. 1 can only establish a presumption of ownership of the vehicle, even with all the negative consequences that this conclusion will certainly entail, in terms of efficiency of tax administration."

It is thus concluded, following the cited decision, that Article 3 of the IUC Code contains a presumption in the matter of tax incidence, relating to the quality of owner of a vehicle.

2. As to the rebuttal of the presumption of titularity of the right of ownership which rests upon the Claimant

2.1. On the rebuttal of the presumption of ownership resulting from motor vehicle registration through invoices for the sale of vehicles

Having concluded that No. 1 of Article 3 of the IUC Code establishes a presumption that the holder of motor vehicle registration is its owner, it follows from this that such presumption is rebuttable, in accordance with Article 73 of the General Tax Law.

However, ownership of motor vehicles, in the Portuguese legal system, is subject to mandatory registration, from which there equally results a presumption that the holder of the right of ownership is the entity in whose favor the same right is registered. This presumption is expressly established in Article 7 of the Property Registry Code, applicable to Motor Vehicle Registration by force of Article 29 of the Motor Vehicle Registration Code.

If it is true that the presumption of Article 3, No. 1 of the IUC Code is established with a view to the purposes of taxation, already the presumption established by registration law has in view legal certainty in general. As is stated in the judgment of the Lisbon Court of Appeal of 24-3-2011 (case No. 195/09.8TBPTS.L1-2), "the property registry pursues, at one and the same time, purposes of a private nature and purposes characteristically of a public nature. It pursues purposes of a private nature, given that it guarantees security in the domain of private rights, specifically in the plane of rights with real effect – security of legal commerce (…), globally considered – facilitates traffic and the interchange of goods, and ensures the performance of the social function of real rights; it pursues purposes of public interest, as an instrument of certainty of law, of protection of third parties and of security of legal commerce, and of guarantor of the updating of the register in the face of the publicized fact".

As regards the rebuttal of the presumption of motor vehicle registration, there is established jurisprudence to the effect that it is necessary to prove that the titularity of the inscribed right belongs to another (see judgment of the Coimbra Court of Appeal of 22-01-2013, case No. 3654/03.2TBLRA.C1; judgment of the Coimbra Court of Appeal of 3-06-2008, case No. 245-B/2002.C1).

To prove that the right of ownership of the vehicles belongs to another, the Challenger presents invoices relating to the sale of the vehicles in question. And intends, with such documents, to prove that it disposed of the vehicles.

However, in the view of this Arbitral Court, and in consonance with the arbitral decision previously cited, neither do the invoices prove the disposal, nor does proving the disposal amount to proving that the titularity of the inscribed right belongs to another, for the reasons that follow.

Since purchase and sale is a bilateral transaction, proving that the purchase and sale contract was concluded presupposes proving that effective declarations of intent were issued by both parties to the contract. The invoice, however, is a unilateral document, which can only make proof of the declaration of its issuer.

In this sense there is solid jurisprudence of the civil courts relevant to the case that occupies us, cited in the arbitral decision referenced before.

In a judgment of the Lisbon Court of Appeal of 4-2-2010, (Case No. 224338/08.7YIPRT.L1-8) it is affirmed, referring to the invoices presented as a means of proof of a purchase and sale contract: "The documents attached are limited to the existence of the statements contained therein, that is, that invoices were issued relating to goods supplied to the defendant/appellant with the corresponding delivery note (allegation of the appellant)".

In another judgment of the same Court of 26-11-2009 (Case No. 29158/03.5YXLSB.L1-2), it is stated that "the probative force of the private document is limited to the statements of its respective subscriber").

And also in a third judgment of the same Court of 5-6-2008 (Case 1586/2008-8), the Court rules that "the requirement of payment by invoice is not sufficient to prove that the contract to which the payment relates was concluded with the entity invoiced."

In light of the above, it is necessary to conclude, as in the arbitral decision cited, that the Claimant failed to prove the disposal of the vehicles.

However, as was said earlier, it would not have been sufficient for the Claimant, to rebut the presumption of ownership that results from the register, to prove that it disposed of the vehicles. As is said in the aforementioned court judgments, to rebut the presumption of truthfulness of the facts contained in the register, in this case the presumption of motor vehicle ownership, one must prove that another is the holder of the inscribed right.

Now, to prove – which was not proven – that a purchase and sale contract was concluded at a certain moment does not imply that it is proven that, several years later, another is the holder of the right, according to the most elementary rules of logic.

It is irrelevant, to this question, any consideration regarding the concrete and particular circumstances of the transaction that may be in question, because the question being analyzed is not a question of fact, but a question of substantive probative law. The question of probative law in question is whether a private and unilateral document has probative force to, of itself, destroy the full proof that the register constitutes.

Being a question of law, what matters is to know whether a private and unilateral declaration should, in the abstract, be considered sufficient to destroy the registration presumption.

On the rebuttal of the presumption of truthfulness of the register, Mouta Guerreiro says (Mouteira Guerreiro, J. A., Notions of Registration Law, 2nd ed. Coimbra ed.1994, p. 70): "The protection conferred by the register is expressed in our system, in a rebuttable presumption. But, we cannot forget it, it is a legal presumption. (…) What the register reveals cannot be impugned, even in court, without simultaneously requesting its cancellation.

The same author (Ibidem, p. 71) adds: "It follows from the principle of presumption of truth or exactitude the rule provided for in Article 8 of CRP. If the definitive registration presumes that the right exists and belongs to the holder registered "in the precise terms in which the registration defines it", it would make no sense to attack in court that publicized truth, without simultaneously attacking the register itself. For this reason, whoever intends to contest the truthfulness of the facts tabularly recorded will equally have to request the cancellation of the register. If he does not do so, the action will not proceed after the pleadings, because there would be the risk of reaching an actual contradiction: on one hand, having a judgment declaring legally irrelevant or untruthful certain facts and, on the other, having a register presuming erga omnes the truthfulness and validity of those same facts.

The understanding set out is sanctioned by the jurisprudence of the higher courts. See the aforementioned judgments, in which it is stated that, to set aside the presumption of ownership that results from the motor vehicle register, it is necessary to prove that the titularity of the inscribed right belongs to another, but such not being sufficient, it being also necessary to request, simultaneously, its respective cancellation (see judgment of the Coimbra Court of Appeal of 22-01-2013, case No. 3654/03.2TBLRA.C1; judgment of the Coimbra Court of Appeal of 3-06-2008, case No. 245-B/2002.C1).

That is, given the function of guaranteeing the security of legal relationships relating to property subject to registration, so that the probative function of the register is not destroyed, the one who intends to set aside the presumption will have to be in a position to request the cancellation of the register. This is the sense, as we interpret it, of previous arbitral decisions, in which it is stated that the taxable person, to set aside the presumption of motor vehicle ownership that rests upon him by force of the register, would have to be in a position to prove who is the owner of the register.

There is thus a need to conclude that the documents presented by the Claimant do not prove that another is the holder of the inscribed right, as was required in order for the registration presumption to be considered rebutted.

The Claimant alleges that, in deciding in this sense, one is imposing on the taxable person an impossible burden of proof.

However, it is the Claimant itself that acknowledges that it could have requested the cancellation of the registration of the vehicles and that it did not do so, not because it lacked the legal means, but only for reasons relating to the convenience of its commercial activity. It is the Claimant itself, therefore, that acknowledges that the proof required of it is within its reach.

2.2. Regarding the question of the applicability to the case at hand of the presumption of Article 75 of the General Tax Law

The Claimant argues that to the presumption of Article 3 No. 1 of the IUC Code, it opposes another presumption, that of Article 75 of the General Tax Law.

In the view of the Claimant, in not having the Tax Administration called into question the validity of the Claimant's accounting for purposes of Corporate Income Tax and VAT, it would also have to accept the truthfulness of the statements contained in the invoices presented.

The Claimant incurs, also here, in an error of logic.

In the scope of Corporate Income Tax, the principle applies that, in Portugal, the majority doctrine designates as partial dependence between the determination of taxable profit and commercial accounting (Cantista Tavares, T., Corporate Income Tax and Accounting - From Realization to Fair Value, Almedina, Coimbra, 2011) and which can also be stated through the expression "preclusive effect of commercial accounting for the determination of taxable profit" or "formal connection".

Dissecting this principle, the following corollaries are deduced from it:

1st: Commercial accounting – accounting prepared for purposes of commercial law and validated by the control bodies of private law - when it is in compliance with accounting law, has probative value regarding the facts it reflects;

2nd The discretionary accounting decisions made by the taxable person in commercial accounting are preclusive for tax purposes.

Let us focus on the first corollary: commercial accounting has commercial value regarding the facts it reflects.

What facts do invoices reflect, when we are referring to the determination of either accounting profit or taxable profit? Exactly the same as those which the civil courts admit are proven through invoices, namely, the business statements of their respective issuers and nothing more.

Commercial invoices reflect two species of financial facts: revenues (or gains) and expenses (or costs), as these are the only facts that matter for purposes of determining profit – whether fiscal or accounting -, as results from the very notion of net result, which forms the basis of taxable profit.

Suppose that taxable person A contracted, in the capacity of seller, with B, purchaser, for the sale of a good X. It issued an invoice. It recorded this invoice in its accounting. When the end of the year arrives, the invoice is not yet paid. At the beginning of the following year the purchaser informs that it intends to make a return of the good. This fact is irrelevant for purposes of accounting for the revenue in the year in which the invoice was issued.

Suppose another case: taxable person C contracted, in the capacity of seller, with D, purchaser, for the sale of a good Y. It issues an invoice and accounts for the revenue. The purchaser pays the price but never collects the good, so the good never leaves the possession of the seller. The invoice and the accounting record relating to the sale do not reflect this fact, without this affecting in any way the validity of either one or the other.

Suppose further another case: taxable person E is convinced that it contracted, in the capacity of seller, with F, in the capacity of purchaser, for the sale of a good Z. It issues an invoice and accounts for the revenue. But F does not consider itself bound to E. The invoice and the corresponding revenue will, nonetheless, be accounted for and reflected in taxable profit. Also here, the validity of the invoice and the accounting entry are not affected.

In summary, in Corporate Income Tax, invoices prove revenues and expenses and these are the facts that the Administration accepts as true when it accepts the accounting as valid. They do not prove, nor the conclusion of contracts nor the transfer of ownership.

As for VAT, the situation is identical. The invoice proves that the taxable person considers that it concluded the sale or the provision of services. Also here, the invoice does not prove – and is irrelevant for purposes of VAT assessment, in accordance with Article 7, No. 1, paragraph a) – whether the good left or did not leave the possession and ownership of the taxable person, and reveals nothing regarding what may have occurred at a later moment in the relationship between the taxable person and its client. In the law of this tax there is even an extensive provision – Article 78 – regarding regularizations that become necessary by virtue of the occurrence of facts that modify the conditions of the transaction, namely in case of "invalidity, resolution, rescission, or reduction of the contract".

Because accounting documents prove only the business statements of those who issue them, the Tax Administration, regarding the income of the taxable person (fact against the taxable person), is satisfied with the invoices issued by it. But already in relation to costs (fact in favor of the taxable person) it requires the statement of another entity (the rules of commercial law on the probative value of accounting apply in full here, according to which accounting records make proof against the trader but not in his favor), no longer being satisfied with a unilateral statement of the taxable person.

Not calling into question the validity of the taxable person's accounting for purposes of Corporate Income Tax and VAT, the Tax Administration accepts as true the unilateral business statements contained therein, whether in accounting records or in invoices, limiting its acceptance to the value that such unilateral statements have. Since in the accounting of the Claimant there are not found unilateral business statements of the alleged purchasers of the vehicles, it is not derived from it that the vehicles were disposed of.

There is, consequently, no violation of the principle of Justice.

2.3. Conclusion as to the rebuttal of the presumption of titularity of the right of ownership which rests upon the Claimant

From all of the above it results that the Claimant does not rebut the presumption which rests upon it regarding the titularity of ownership of the vehicles on which the IUC assessments challenged are levied, and that, consequently, the assessments challenged do not suffer from any illegality.

The Claimant's claim regarding the illegality of the assessments challenged on the basis of error in the legal assumptions, due to lack of the assumptions of the subjective incidence of the Tax regarding the Claimant, is therefore dismissed.

3. As to the exclusion of the Claimant's status as a taxable person due to that status belonging to the lessees of the vehicles

Subsidiarily, the Claimant further alleges that, if the alleged disposals are not considered proven, then it would have to be concluded that the financial leasing contracts would remain in force, which would make the lessees the taxable persons for the tax, under Article 3 No. 2 of the IUC Code.

This argument is also based on an elementary error of logic. Where there exists a financial leasing contract, and the financial leasing contract reaches its term, without the lessee acquiring ownership of the good, this latter fact does not imply, in any manner whatsoever, that the financial leasing contract continues in force.

If the financial leasing contracts to which the Claimant refers are in force, what the Claimant had to do was offer elements that would prove that the financial leasing contracts are in force.

Now, the Claimant did not attempt to prove that the financial leasing contracts are in force, which, if they are in force, it could have done.

IV. DECISION

For the grounds set out, this Court decides to dismiss the present arbitral claim in its entirety.

Value of the case: The value of the case is fixed at 17,716.95 euros.

Costs: In accordance with Article 22, No. 4, of the LFTA, the amount of arbitral costs is fixed at 1,224.00 euros, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Register and notify.

Lisbon, Administrative Arbitration Centre, 30 October 2014.

The Arbitral Tribunal

(Nina Aguiar)

[1] Decree-Law No. 54/75, of 12 February.

[2] GALEOTTI-FLORI, M. A., "Fiscal Aspects of Budget Policy", Journal of Certified Public Accountants, 6 (1974), p. 963.