CAAD 139/2014-T: IUC Subjective Tax Incidence and Legal Presumptions on Vehicle Circulation Tax

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 139/2014 – T

Subject: IUC – Subjective scope; legal presumptions.

I – REPORT

A. – PARTIES

"A", SA., hereinafter referred to as the Claimant, legal entity No. …, with registered office at …, …-… Lisbon, requested on 15 February 2014 the constitution of a single arbitral tribunal in tax matters, pursuant to the provisions of article 2º, no. 1, paragraph a) of Decree-Law No. 10/2011, of 20 January (Legal Regime for Tax Arbitration – RJAT) and articles 1º, paragraph a) and 2º of Ordinance No. 112-A/2011, of 22 March, in order for the dispute between it and the Tax and Customs Authority, hereinafter referred to as the Respondent, to be resolved.

B. – CONSTITUTION OF THE TRIBUNAL

1. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD on 18/02/2014 and automatically notified to the Claimant and the Tax and Customs Authority on 20/02/2014, with the President of the respective Ethics Council designating the undersigned as arbitrator of the Single Arbitral Tribunal, pursuant to the provisions of article 6º, no. 1, of the RJAT, which assignment was accepted in accordance with the legally established terms.

2. On 04/04/2014, the Parties were notified of such designation, in accordance with the combined provisions of article 11º, no. 1, paragraph b) of the RJAT, in articles 6º and 7º of the Code of Ethics, and neither party expressed an intention to refuse the designation of the arbitrator.

3. Under these circumstances, the Tribunal was constituted on 22/04/2014, in accordance with the provisions of paragraph c), of no. 1, of article 11º of Decree-Law No. 10/2011, which was notified to the Parties on that date.

C. – CLAIM

The Claimant seeks that the Arbitral Tribunal declare the illegality and consequent annulment of 45 assessment acts relating to the Single Circulation Tax, concerning 15 vehicles identified in the proceedings, in the amount of 1,927.63 euros, in the terms described in the Request for Arbitral Decision, and, consequently,

Determine the restitution of the tax that was paid by the Claimant, together with compensatory interest.

D. – PROCEDURE

Following notification of the date of constitution of the Arbitral Tribunal, on 22/04/2014, the subsequent procedural steps proceeded as follows:

• On 23/04/2014 – The Respondent was notified to, pursuant to nos. 1 and 2 of article 17º of the RJAT, present its answer within 30 days and, if it so wished, request the production of additional evidence and remit to the Arbitral Tribunal a copy of the administrative file, by electronic means.

• On 22/05/2014 – The Respondent presented its Answer to the Request for Arbitral Decision, submitted designation order of the legal representatives of the Respondent and uploaded the administrative file to the CAAD online "Platform", with all of this being notified to the Claimant.

• On 30/05/2014 – The Tribunal set 16/06/2014 as the date for the meeting provided for in article 18º of the RJAT, at the request and with the agreement of the Parties, which was notified to them (it had previously been scheduled for 02/06/2014).

• On 16/06/2014 – The meeting provided for in article 18º of the RJAT took place, which resulted in the following:

• The Claimant requested the joinder to the proceedings of the Decision in Case No. 129/2014-T of 06/06/2014 of the CAAD and the respective Information from the Tax Authority, which the Tribunal granted, given the lack of opposition from the Respondent.

• The Claimant requested the grant of a period of 15 days to attach documents proving the payments made by the lessees who purchased the vehicles, and the Tribunal granted this, allowing the Respondent a period of 10 days to comment on the same.

• On 01/07/2014 – The Claimant attached the documentation to whose presentation it had obligated itself.

• On 01/09/2014 – The Respondent commented on the aforementioned documentation.

• On 04/09/2014 – The Tribunal set the date of 22/09/2014 for hearing witnesses and oral arguments.

• On 09/09/2014 – The Claimant waived the hearing of witnesses and requested the production of written arguments, simultaneously, within a period of 15 days.

• On 16/09/2014 – The Respondent objected to the production of simultaneous written arguments.

• On 18/09/2014 – The Tribunal set the date of 22/09/2014 for the meeting to be held for the production of oral arguments, which, at the request of the Claimant, was postponed, by order of the Tribunal of 19/09/2014, to 29/09/2014.

• On 23/09/2014 – The Respondent requested the joinder to the proceedings of two arbitral decisions, which the Tribunal granted on 26/09/2014, with notification to the opposing party.

• On 29/09/2014 – The meeting set by the Tribunal on 18/09/2014 took place, which resulted in the following:

• The Claimant waived the period for review with respect to the Respondent's request of 23/09/2014.

• The joinder to the proceedings of a new designation order of the representatives of the Respondent was requested and granted by the Tribunal, with the agreement of the Claimant.

• Oral arguments were presented by the Parties.

• The date of 20 October 2014 was set for the rendering of the arbitral decision.

• On 20/10/2014 – Rendering of the arbitral decision.

E. – CLAIMANT'S CLAIM AND GROUNDS

To support the Request for Arbitral Decision, the Claimant alleged, in summary, the following:

• The Claimant "A", SA. (and, before it, "B", whose asset portfolio was assumed by the Claimant) is a credit institution with a strong presence in the national market.

• Among its areas of activity, financing in the automotive sector assumes special relevance, and is currently one of the largest Portuguese banks specialized in operating in that particular area of financing.

• Thus, a substantial part of its activity is dedicated to the conclusion – among others – of financial lease contracts intended for the acquisition, by companies and individuals, of motor vehicles.

• These contracts generally follow a common script, typical of this type of financing: the Claimant, after being contacted by the client – who has at that stage already chosen the type of vehicle it wishes to acquire, its characteristics (brand, model, accessories, etc.), and even its price – acquires the vehicle from the supplier indicated by the client, and proceeds subsequently to its delivery to said client – who assumes, therefore, the quality of lessee.

• During the period to be stipulated in the contract, this lessee maintains the temporary enjoyment of the vehicle – which remains the property of the Claimant – by means of remuneration to be paid to the Claimant in the form of rent; and may acquire the vehicle at the end of the contract by paying a residual value.

• The enjoyment of the motor vehicle acquired during the term of the contract is that of the client/lessee.

• The motor vehicles identified in the list attached to the Request for Arbitral Decision as ANNEX A were given in financial lease, by the Claimant, to the clients also identified therein.

• At the date of termination of these Contracts, the lessees of the said motor vehicles decided to exercise their purchase option, which is legally and contractually assured to them, and thus became owners of the mentioned vehicles and proceeded to pay the respective residual value.

• Recently, the Claimant was notified to proceed with payment of the IUC related to the additional assessment acts identified in the table attached to the Request for Arbitral Decision as ANNEX A, which it did.

• Some of these assessment acts relate to years in which the vehicles in question were still subject to financial lease contracts.

• Others relate to years in which the same vehicles had already been transferred to their respective lessees, as the corresponding financial lease contract had terminated.

• The responsibility for bearing the IUC whose assessment acts the Claimant contests never belonged to the latter, but to the respective lessees (before the date of sale) and owners (after that sale).

• Nevertheless, the Claimant paid, for which reason it requests the competent reimbursement.

• As it proceeded with its payment under the exceptional regime established by Decree-Law 151-A/2013 (Exceptional Regime for Regularization of Tax and Social Security Debts), the Claimant only paid the amount due (and stated in the said assessment acts) as tax, and was exempt from payment of the corresponding compensatory interest.

• Wherefore, it only requests the restitution of the amount paid as tax, in the total amount of € 1,927.63.

• As regards the assessment acts relating to the years during which the leasing contracts were still in force, the Claimant alleges that:

• The IUC is the tax that aims to burden taxpayers with the environmental and road cost associated with them, in a logic of equivalence and tax equality (article 1º of the IUC Code).

• Thus, as regards this tax, the legislator opted to burden the taxpayer not according to (and in the measure of) his wealth – departing from the principle of contributory capacity – but rather in the just measure of the cost to the environment and road infrastructure that that taxpayer, through the use of motor vehicles, may generate.

• Underlying this rule of scope is, of course, the assumption of the potential for use of motor vehicles: it is precisely because he has at his disposal the right to use a vehicle – generator of a certain level of pollution, road wear, etc. – that that taxpayer has an increased potential to cause damage to the environment and infrastructure, damage that justifies, from an economic-legal point of view, his taxation under IUC.

• According to the Claimant, the weight of the environmental component in the IUC is very significant.

• It was, in its view, one of the central points of the comprehensive automobile tax reform that, in 2007, promoted the replacement of the (defunct) Automobile Tax by the (current) IUC, as results from Draft Law No. 118/X, which preceded Law No. 22-A/2007.

• This concern of an environmental nature is reflected in the very configuration of the tax.

• According to the Claimant, article 3º of the IUC Code, after setting the general rule that the obligation to pay tax falls "[o]n the owners of vehicles, considering as such the natural or legal persons, of public or private law, in whose name the same are registered", made them equivalent, immediately thereafter, to "financial lessees, purchasers with reservation of title, as well as other holders of purchase option rights by force of the long-term rental contract".

• In the Claimant's opinion, in these cases – of financial lease, purchase with reservation of title, etc. – the legislator opted to burden with the tax obligation not the owners, but the individuals to whom exclusive enjoyment (potential for use) of the automobiles falls: the financial lessees, purchasers with reservation of title or lessees with purchase option.

• What would be in conformity with the assumption underlying this tax: the potential capacity for pollution associated with the use of the motor vehicle on which taxation is levied.

• In a financial lease contract, the right to use the asset is withdrawn from its owner – who, in this respect, is assumed to be a lessor – to be integrated in the sphere of the lessee.

• With effect, in financial lease contracts, it is the lessee who has the exclusive enjoyment of the leased asset, as results from the very notion of "financial lease", enshrined in the legal instrument that regulates it and established in various provisions of Decree-Law No. 149/95, of 24 June (amended by Decree-Laws 265/97, of 2 October, and 30/2008, of 25 February).

• In conclusion, the Claimant alleges that, according to no. 2 of article 3º of the IUC Code, the rule is very simple: as the entities referred to therein have the exclusive enjoyment of the motor vehicle on which the contract falls, it also falls to them the obligation to pay the tax.

• Namely, as regards financial lease, in which the tax legislator recognizes the lessee as "user of the leased vehicle" (article 19º), wherefore the lessee should bear the responsibility for indemnifying the costs (environmental and road-related) associated with the potential for use of the respective vehicle.

• Thus, according to the Claimant, because they were subject to financial lease contracts, the motor vehicles identified in ANNEX A attached to the Request for Arbitral Decision were not, at any time, used by the Claimant, but rather by their respective lessees.

• Although the Claimant is their owner, as the lessor entity, it never even had the potential for use of those vehicles.

• The Claimant further alleges that the motor vehicles were already in the possession of the respective lessees at the end of the month of registration or, if it was the year of registration of the vehicle, ninety days after the date of registration, without exception.

• Concluding that the responsibility for the assessment of the tax belonged not to the lessor entity, the Claimant, but to the lessees.

• Lessees whose identity would be fully known to the Tax Authority; since the Claimant, in compliance with the provisions of article 19º of the IUC Code, gave timely and opportune information of the existence of the said lease contracts, as well as of the identity (notably, tax identification number) of the "user of the leased vehicle".

• Wherefore the said lessees would be perfectly identified at the Motor Vehicle Registry Office.

• The Claimant concludes by saying that, where a financial lease contract is in force at the moment when the IUC becomes due, it is to the lessee, and not to the lessor (even if it is the latter who holds the ownership of the vehicle), that the obligation to assess it falls.

• Not accepting the thesis that the said tax constitutes the responsibility of both entities – lessee and lessor.

• Being the former the principal obligor, and the responsibility belonging to the lessor to, in the second instance, proceed with the payment of the tax in arrears.

• This is because, according to the Claimant, analyzed the legal norms that were invoked, there is no indication that the legislator intended to burden the lessor entity with the responsibility – subsidiary, joint, solidary or any other – for payment of the tax, whenever a lessee exists.

• As regards the assessment acts relating to the years in which the ownership of the vehicles had already been transferred to the lessees, as the corresponding leasing contract had terminated:

• The Claimant alleges that, in cases where the lessee becomes the owner of the vehicle, the provisions of no. 1 of article 3º of the IUC Code apply to it.

• Wherefore, from the moment in which the lessee acquires the vehicle, it is only to her, now as owner thereof, that the obligation to pay the IUC and other associated charges falls.

• According to the Claimant, the absence of registration does not affect the acquisition of the quality of owner, because registration is not a condition of validity of the contract of sale, nor a condition of production of its transfer effect.

• The Claimant alleges that the Tax Authority cannot use the argument of the lack of registration of transfer to come and demand the tax in arrears from the Claimant.

• Not only because, if the transfer were not valid, it would remain the "mere" lessor entity of the vehicle in question – which, as has already been settled among us and has already been demonstrated, determines its lack of legitimacy to assume the burden of the IUC.

• But, above all, because the lack of registration does not affect the validity of the contract of sale but only its efficacy, and, even this, only vis-à-vis third parties in good faith for purposes of registration; a qualification that the Tax Authority undoubtedly does not assume in the case at hand.

• It concludes that the registration of the acquisition of motor vehicles at the Motor Vehicle Registry Office is not a condition for the transfer of ownership, nor does it affect its validity.

• For this reason, therefore, the assessments made in the sphere of the Claimant should be considered illegal and consequently annulled, which, in this respect, it expressly requests.

• The Claimant concludes that all the additional assessment acts for IUC identified in ANNEX A attached to the Request for Arbitral Decision are illegal, since, as regards all of them, the responsibility for proceeding with their assessment does not fall to the Claimant:

• As regards those relating to years during which a financial lease contract was in force: because that responsibility belonged to the lessee.

• As regards those relating to years in which the contract had already terminated and the vehicle had already been transferred to the lessees: because that responsibility belonged precisely to these lessees, now in the quality of owners.

• Regarding the joinder of claims, the Claimant argues that the Request for Arbitral Decision is made by reference to a vast set of additional tax assessment acts, which are identified in the table attached to the Request for Arbitral Decision as ANNEX A, constituting 45 additional assessment acts for IUC, relating to 15 vehicles, and concerning the years from 2009 to 2012.

• The Claimant understands that all these additional assessment acts for tax are based on the same facts and, likewise, on the same grounds of law, implying the determination of the (il)legality of the aforesaid assessments the analysis of the same grounds of fact and the interpretation and application of the same rules and principles of Law.

• Wherefore, considering this identity of tax facts, grounds of fact and law and, likewise, of the tribunal competent for the decision, and also taking into account the high number of vehicles and the volume of documentation necessary to prove the facts, it requests the Tribunal, pursuant to articles 3º of the RJAT and 104º of the Code of Tax Procedure and Process, and having regard to the principle of procedural economy, that it render, within the scope of this arbitral process, a judgment of illegality regarding the 45 (forty-five) assessment acts for tax in question here.

F. – RESPONDENT'S ANSWER AND GROUNDS

The Respondent, duly notified for that purpose, presented its Answer in a timely manner, in which, in summary, it alleged the following:

• It does not impugn the 45 tax assessment acts for IUC identified in the Request for Arbitral Decision, concerning the 15 vehicles also identified in the proceedings, in the amount of 1,927.63 euros.

• It challenges the alleged lack of legitimacy of the Claimant as taxpayer subject to IUC, in the situations at issue, insofar as, in its view:

• The Claimant makes a biased reading of the letter of the law, given that the legislator expressly and intentionally established that the taxpayers subject to IUC are the owners, or those in the situations indicated in no. 2 of article 3º of the IUC Code, considering as such the persons in whose name the vehicles are registered, reason why the word "are presumed" was not used in this legal provision, but rather "considering as".

• The tax normative is full of provisions analogous to that enshrined in the final part of no. 1 of article 3º, in which the tax legislator, within its freedom of legislative configuration, expressly and intentionally, enshrines what should be considered legally, for purposes of scope, of income, of exemption, of determination and of periodization of taxable profit, for purposes of residence, of location, among many others, as, for example, in articles 2º of the Code of Municipal Tax on Onerous Transfer of Real Estate (CIMT), 2º, 3º and 4º of the Code of Tax on Income of Natural Persons (CIRS) and 4º, 17º, 18º and 20º of the Code of Tax on Income of Legal Persons (CIRC).

• It concludes, affirming that the interpretation made by the Claimant that the legislator enshrined in article 3º, no. 1 a presumption is an interpretation against the law.

• The Respondent further alleges that that interpretation does not take into account the systematic element, violating the unity of the regime that imposes the mandatory nature of motor vehicle registration, in order to prevent the Tax Authority from falling into absolute uncertainty regarding the taxpayer subject to IUC, and even putting at risk the running of the statute of limitations period, reason why the legislator intentionally and expressly wanted that the persons in whose name the vehicles were registered be considered as owners, lessees, purchasers with reservation of title or holders of the right to purchase option in long-term rental, for the mentioned tax purposes.

• The Respondent also alleges that the mentioned interpretation of the Claimant ignores the teleological element of interpretation of the law: the ratio of the regime enshrined not only in the legal provision at issue, but also throughout the IUC Code.

• The Respondent considers that the IUC Code carried out a reform of the regime for taxation of vehicles in Portugal, substantially altering the regime for automobile taxation, with the taxpayers subject to the tax becoming the owners listed in the property register, regardless of the circulation of the vehicles on public roads. That is, the Single Circulation Tax became due by the persons appearing in the register as owners of the vehicles.

• Such conclusion results from the content of the parliamentary debates surrounding the approval of Decree-Law No. 20/2008, of 31 January, of Recommendation No. 6-B/2012 of the Ombudsman and of the spirit of the IUC Code which, having been motivated, in essence, by an environmental concern, its "ratio" is that of taxing the users of the vehicles, who, by force of their respective use cause environmental cost.

• The Respondent further alleges that the interpretation conveyed by the Claimant is contrary to the Constitution.

• For, the always much-publicized principle of contributory capacity is not the only nor the main fundamental principle that informs the tax system.

• Alongside this principle we find others with the same constitutional dignity, such as the principle of trust and legal certainty, the principle of efficiency of the tax system and the principle of proportionality.

• It is therefore necessary that in the task of interpreting article 3º of the IUC Code the principle of contributory capacity be articulated, or if you prefer tempered, with those other principles.

• The interpretation proposed by the Claimant, an interpretation that in essence undervalues the registration reality to the detriment of an "informal reality" and not susceptible to minimal control by the Respondent, is offensive to the basic principle of trust and legal certainty that should inform any legal relationship, including here the tax relationship.

• Likewise, the interpretation given by the Claimant is offensive to the principle of efficiency of the tax system, insofar as it results in an obstruction and increased expense of the competencies attributed to the Respondent, with obvious prejudice to the interests of the Portuguese State, of which both the Claimant and the Respondent are part.

• Constituting an understanding that is at the antipodes of that principle and of the very reform of automobile taxation, insofar as, in attempting to disregard the registration reality, a reality that constitutes the cornerstone on which the entire structure of the IUC rests, it generates for the Respondent, and ultimately for the Portuguese State, additional administrative costs, obstruction of the performance of its services, absence of control of the tax and uselessness of the registration information systems.

• Finally, the argumentation conveyed by the Claimant represents a violation of the principle of proportionality, insofar as it totally disregards it in confrontation with the principle of contributory capacity, when in reality the Claimant has the legal mechanisms necessary and adequate to safeguard that its capacity (e.g., motor vehicle registration), without, however, having exercised them in due time.

• Moreover, the Claimant would have to provide sufficient proof of the constitutive facts of the right it alleges in arbitral proceedings, which, according to the Respondent, does not occur, since the evidence presented by the Claimant is not, in itself, sufficient to effect conclusive proof of the transfer of the vehicles in question.

• With effect, it presents copies of sales invoices, which, in the Respondent's view, do not constitute proper documentation to prove the sale of the vehicles in question, since they are nothing more than a document unilaterally issued by the Claimant.

• According to the Respondent, invoices are not apt to prove the conclusion of a synallagmatic contract as is the sale and purchase, since that document does not reveal by itself an essential and unequivocal declaration of will (i.e., acceptance) on the part of the alleged purchaser, notably in this case in which the Claimant did not attach documentary evidence of the means of payment of the price, or receipts for payment of the debt.

• There being no shortage of cases of issuance of invoices relating to the transfer of goods and/or provision of services that never came to be realized.

• According to the Respondent, an invoice unilaterally issued by the Claimant cannot substitute the Motor Vehicle Registration Request, which is a document approved by official model.

• Thus, the Respondent concludes that the tax acts in question are not affected by the alleged error regarding the assumptions of fact, insofar as in light of the provisions of article 3º, nos. 1 and 2 of the IUC Code and article 6º of the same code, it was the Claimant, in the quality of owner, who was the taxpayer subject to IUC, since the IUC aims to tax the owner of the automobile, with ownership being revealed through its registration.

• Being responsible for the arbitral costs relating to this request for arbitral decision, given that the lack of supply of the data inexorably gave rise to the issuance of the assessments sub judice.

• As regards the responsibility for payment of arbitral costs, if the IUC is assessed in accordance with the registration information timely transmitted by the Institute of Registers and Notaries, and not in accordance with information generated by the Respondent itself, and if the Claimant did not timely proceed with its updating in the Motor Vehicle Register, the Respondent is not responsible for that payment.

• The same reasoning applies with respect to the request for condemnation to payment of compensatory interest, with the legal requirements that confer the right to be claimed not being met.

• In light of articles 43º of the General Tax Code and 61º of the Code of Tax Procedure and Process, the right to compensatory interest depends on the verification of the following requirements: Tax has been paid, the respective assessment has been annulled, in whole or in part, in a gracious or judicial proceeding, determination, in a gracious or judicial proceeding, that the annulment is founded on error imputable to the services, which would not occur in the case, since the tax acts in question are valid and legal, because in conformity with the legal regime in force at the date of the tax facts, reason why no error imputable to the services occurred.

G. – ISSUES TO DECIDE

Based on the positions assumed by the Parties as per the arguments presented, the following issues are those that fall to be considered and decided:

1. – Principal Issues:

1.1 - Interpretation of no. 1 of article 3º of the IUC Code, in order to determine whether the rule of subjective scope inscribed therein establishes, or not, a legal presumption of tax scope, susceptible of being challenged, that is, admits, or not, that the taxpayer, in whose name the vehicle is registered at the Motor Vehicle Registry Office, may demonstrate, through means of proof permitted in Law, that he is not, in the period to which the tax relates, its owner, or who disposes of it, thereby removing the presumption of subjective taxpayer of the tax that falls upon him.

1.2 - Interpretation of article 3º of the IUC Code, in order to determine whether the rule of subjective scope inscribed therein admits, or not, the subjection of the lessee to payment of the IUC, during the term of the lease contract.

2 – Compensatory interest – Existence, or not, of the right to compensatory interest, pursuant to article 43º of the General Tax Code, in the event that the assessments are annulled and reimbursement of the amount claimed is determined, which would have been unduly paid.

3 – Responsibility for payment of arbitral costs.

H. – PROCEDURAL REQUIREMENTS

1. The Arbitral Tribunal is regularly constituted and is materially competent, in accordance with the provisions of paragraph a), of no. 1, of article 2º of the RJAT (Decree-Law No. 10/2011, of 20 January).

2. The Parties enjoy legal capacity and standing, are legitimate and are regularly represented, pursuant to articles 4º and 10º, no. 2 of the RJAT and article 1º of Ordinance No. 112/2011, of 22 March.

3. Considered the identity of the tax fact, of the tribunal competent for the decision and of the grounds of fact and law invoked, the Tribunal admits the joinder of claims for declaration of illegality of the tax acts that are the subject of this process, since the requirements established in article 3º, no. 1 of the RJAT are met.

4. The process is not affected by defects that affect its validity.

I. – MATTER OF FACT

I. 1 – FACTS FOUND PROVEN

With relevance for the consideration of the issues raised, the Tribunal finds the following facts proven:

1 - The Claimant "A", SA. (and, before it, "B", whose asset portfolio was assumed by the Claimant) is a credit institution with a strong presence in the national market.

2 - Among its areas of activity, financing in the automotive sector assumes special relevance, and is currently one of the largest Portuguese banks specialized in operating in that particular area of financing.

3 - Thus, a substantial part of its activity is dedicated to the conclusion – among others – of financial lease contracts intended for the acquisition, by companies and individuals, of motor vehicles.

4 - These contracts generally follow a common script, typical of this type of financing: the Claimant, after being contacted by the client – who has at that stage already chosen the type of vehicle it wishes to acquire, its characteristics (brand, model, accessories, etc.), and also its price – acquires the vehicle from the supplier indicated by the client, and proceeds subsequently to its delivery to said client – who assumes, therefore, the quality of lessee.

5 - During the period to be stipulated in the contract, this lessee maintains the temporary enjoyment of the vehicle – which remains the property of the Claimant – by means of remuneration to be paid to the Claimant in the form of rent; and may acquire the vehicle at the end of the contract by paying a residual value.

6 - The enjoyment of the motor vehicle acquired during the term of the contract is that of the client/lessee.

7 - The motor vehicles identified in the list attached to the Request for Arbitral Decision as ANNEX A were given in financial lease, by the Claimant, to the clients also identified therein.

8 - At the date of termination of these contracts, the lessees of the said motor vehicles decided to exercise their purchase option, which is legally and contractually assured to them, and thus became owners of the mentioned vehicles and proceeded to pay the respective residual value.

9 - Recently, the Claimant was notified to proceed with payment of the IUC related to the additional assessment acts identified in the table attached to the Request for Arbitral Decision as ANNEX A, which it did.

10 - Some of these assessment acts relate to years in which the vehicles in question were still subject to financial lease contracts, communicated to the Respondent.

11 – And the others relate to years in which the same vehicles had already been transferred to their respective lessees, as the corresponding financial lease contract had terminated.

12 – The Claimant paid the IUC in question, under the exceptional regime established by Decree-Law 151-A/2013 (Exceptional Regime for Regularization of Tax and Social Security Debts).

13 – On 18 February 2014, the Claimant presented the Request for Arbitral Decision, which gave rise to these proceedings.

I. 2 – GROUNDS FOR THE FACTS FOUND PROVEN

The facts found proven are based on the documents indicated with respect to each of them, and on the factual elements brought to the process by the Parties, insofar as their correspondence to reality was not contested.

Regarding the invoices and sales documents relating to the vehicles, which were subsequently attached to the process, the Tribunal decided that the same constitute evidence with sufficient force to prove the transfer of their ownership, by enjoying the presumption of truthfulness established in article 75º, no. 1 of the General Tax Code, and based on the remaining grounds that are better stated in the Decision.

I. 3 – FACTS NOT FOUND PROVEN

There are no facts not found proven with relevance for the consideration of the issues to be decided.

J. – MATTER OF LAW

With the matter of fact established, we proceed, next, to its legal subsumption and to the determination of the Law to be applied, taking into account the issues to be decided that were enunciated.

As to the first issue to be decided, the Claimant alleges that it was not the owner of the vehicles it identifies at the date when the tax facts occurred that originated the IUC assessments, and, consequently, it was not the taxpayer subject to the tax that was assessed against it.

The Respondent Tax Authority assumes an opposite position with respect to this issue of the subjective scope of the IUC, arguing that, pursuant to article 3º, no. 1 of the IUC Code, the taxpayer subject to IUC is the person in whose name the vehicle is registered at the Motor Vehicle Registry Office, a fact that occurred with the Claimant, during the period in question.

Article 3º, no. 1 of the IUC Code provides with respect to this disputed matter, the following:

"Article 3º - Subjective scope

1. The taxpayers subject to the tax are the owners of vehicles, considering as such the natural and legal persons, of public or private law, in whose name the same are registered."

From the positions assumed by the Parties in this process, it is clear that fundamentally this first issue reduces itself to knowing whether the rule of subjective scope above transcribed, contained in no. 1 of article 3º of the IUC Code, establishes a legal presumption, susceptible of being challenged, as the Claimant contends, or, expressly and intentionally, considers the persons in whose name the vehicles are registered as owners for purposes of the subjective scope of the IUC, as the Respondent understands.

The orientations assumed by the Claimant and the Respondent regarding this matter and their grounds are set forth in summary, or with partial transcription, in sections E. and F. of the Report of this Decision.

It is therefore necessary to decide:

A preliminary point in order to consider the issue of the legal value of motor vehicle registration.

No. 1 of article 1º of Decree-Law No. 54/75, of 12 February, which regulates the registration of motor vehicles, provides that the registration of vehicles "essentially has the purpose of publicizing the legal situation of the vehicles… with a view to the safety of legal commerce".

For its part, article 7º of the Property Register Code, applicable to motor vehicle registration by force of the provisions of article 29º of the said Decree-Law No. 54/75, provides that "Definitive registration constitutes a presumption that the right exists and belongs to the registered holder in the precise terms in which the registration defines it".

It is verified, thus, that definitive registration is only a presumption of the existence of the right, which admits contrary proof, thus constituting a rebuttable presumption, as, furthermore, has been recognized in case law.

Given that there is no provision in this Code that requires registration as a condition of validity of contracts, it is concluded that, in order to acquire the quality of owner of a vehicle, it is sufficient to appear as purchaser in a contract of sale and purchase.

Regarding the content of the rule at issue – article 3º, no. 1 of the IUC Code – it must be said that, as is unanimously recognized and is enshrined in article 11º of the General Tax Code, tax laws must be interpreted in accordance with the general principles of interpretation, thus standing out, for that purpose, the fundamental provision of interpretation that is article 9º of the Civil Code, which provides the rules and elements for the interpretation of norms.

This means that the traditional instruments of legal hermeneutics should be used, with a view to determining the legislative intent, in accordance with the provisions of article 9º of the Civil Code.

In this respect, let us begin the interpretation of article 3º, no. 1 of the IUC Code, by the literal element, that in which one seeks to detect the legislative intent that is objectified in the norm, to verify whether it contemplates a presumption, or whether it definitively determines that the taxpayer subject to the tax is the owner appearing in the register.

The question that arises is whether the expression "considering as" used by the legislator in the IUC Code, instead of the expression "are presumed", which was what appeared in the instruments that preceded the IUC Code, will have removed the nature of presumption from the legal provision at issue.

In our view, the answer must necessarily be negative, since, from the analysis of our legal order, it is clear that the two expressions have been used by the legislator with equivalent meaning, whether at the level of rebuttable presumptions, or within the framework of irrebuttable presumptions, wherefore nothing enables the extraction of the conclusion intended by the Tax Authority for a mere semantic reason.

In fact, this occurs in various legal norms that enshrine presumptions using the verb to consider, of which the following are indicated, merely by way of example:

In the scope of civil law - no. 3 of article 243º of the Civil Code, when it establishes that "there is always presumed to be bad faith the third party who acquired the right after the registration of the action of simulation, when this shall take place";

also in the scope of intellectual property law the same occurs, when article 59º, no. 1 of the Industrial Property Code provides that "Inventions whose patent was applied for during the year following the date on which the inventor left the company are considered to have been made during the performance of the employment contract";

and, also, in the scope of tax law, when nos. 3 and 4 of article 89-A of the General Tax Code provide that it is the burden of the taxpayer to prove that the declared income corresponds to reality and that, if such proof is not made, it is presumed (or "is considered" in the letter of the Law) that the income is that which results from the table that appears in no. 4 of the said article;

This conclusion of there being total equivalence of meanings between the two expressions, which the legislator uses indifferently, satisfies the condition established in article 9º, no. 2 of the Civil Code, since the minimum correspondence of terms is ensured for purposes of determining the legislative intent.

It is important, next, to submit the rule at issue to the other elements of logical interpretation, namely, the historical element, the rational or teleological element and the element of systematic order.

Through analysis of the historical element, it is concluded that, since the entry into force of Decree-Law 59/72, of 30 December, the first to regulate this matter, through Decree-Law No. 116/94, of 3 May, the last to precede the IUC Code, the presumption was enshrined that the taxpayers subject to IUC are the persons in whose name the vehicles were registered at the date of their assessment.

It is verified, therefore, that tax law has always had the objective of taxing the true and effective owner and user of the vehicle, appearing indifferent the use of one or the other expression which, as we have seen, have in our legal order a coinciding meaning.

The same should be said when we resort to elements of interpretation of a rational or teleological nature.

With effect, the current and new framework of automobile taxation enshrines principles that aim to subject the owners of vehicles to bearing the losses from damage to roads and environmental damage caused by these, as is understood from the content of article 1º of the IUC Code.

Now, the consideration of these principles, in particular, the principle of equivalence, which merit constitutional protection and are enshrined in community law, and are also recognized in other branches of the legal order, determines that the aforementioned costs be borne by the real owners, the causers of the said damage, which entirely removes an interpretation that aimed to prevent the presumed owners from making proof that they are no longer so because ownership is in the legal sphere of another.

This interpretation is grounded in the provisions of no. 1, of article 9º of the Civil Code, which provides that the search for the legislative intent should take especially into account "the unity of the legal system and the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied".

Thus, also, from the interpretation carried out in light of elements of a rational and teleological nature, considering what the rationality of the system guarantees and the purposes aimed at by the new IUC Code, it is clear that no. 1 of article 3º of the IUC Code enshrines a rebuttable legal presumption.

In view of the above, it is important to conclude that the ratio legis of the tax points in the direction of taxing the effective owner-users of the vehicles, wherefore the expression "considering as" is used in the normative at issue in a sense similar to "are presumed", reason why there is no doubt that a legal presumption is enshrined.

Now, article 73º of the General Tax Code provides that "Presumptions enshrined in the rules of tax scope always admit contrary proof, wherefore they are rebuttable".

Thus, enshrining article 3º, no. 1 of the IUC Code a presumption juris tantum, therefore rebuttable, the person inscribed in the register as owner of the vehicle and who, for that reason, was considered by the Tax Authority as the taxpayer subject to the tax, may present elements of proof aiming to demonstrate that the holder of ownership is another person, to whom ownership was transferred.

Analyzed the elements brought to the process by the Claimant, it is concluded that the latter was not the owner of the vehicles to which the assessments at issue relate, because, in the meantime, it had already transferred the ownership thereof, pursuant to civil law.

This transfer of ownership is opposable to the Respondent Tax Authority, because, although the facts subject to registration only produce effects against third parties when registered, in view of the provisions of article 5º, no. 1 of the Property Register Code, the Tax Authority is not a third party for purposes of registration, since it is not in the situation provided for in no. 2 of the said article 5º of the Property Register Code, that is, it did not acquire from a common author rights that are incompatible with one another.

Regarding the issue raised by the Respondent on the probative adequacy of the invoices, which the Respondent puts in question in generic terms, the Tribunal has no doubt in accepting them as means of proof of the transfer of ownership of the vehicles, particularly when accompanied by the sales documents, subsequently attached by the Claimant, for the following reasons:

In the situation of these proceedings, we are before a contract of sale and purchase of movable things, which, by application of the provisions of article 219º of the Civil Code, is not subject to any special formalism.

Although it is recognized that the documentation of these contracts, as they have motor vehicles as their object, in which registration is mandatory, benefits from the issuance of a declaration of sale, which is necessary for registration, this does not prevent the contract from being proven in another way, as this declaration does not constitute the only and exclusive means of proof of the sale.

For the case at hand, the fact that, since the Claimant has a business nature, the invoices, which were attached to the proceedings by the Claimant, are subject to rigorous legal rules of an accounting and tax nature, with implications, also, in the collection of other taxes, is of special importance.

In fact, tax legislation attributes to them a very special relevance, which cannot fail to confer on them evidential credibility, and which is well expressed in the provisions of the following legal rules which, by way of example, are cited: articles 29º, no. 1, paragraph b) and 19º, no. 2 of the VAT Code and articles 23º, no. 6 and 123º, no. 2 of the Corporate Income Tax Code.

Now, provided that those invoices have been issued in accordance with commercial and tax legislation, a question that the Respondent does not raise, and what is not put in question, the same enjoy the presumption of truthfulness, which is attributed to them by article 75º, no. 1 of the General Tax Code.

It would be incumbent upon the Respondent to present and demonstrate concrete and grounded indications that the operations documented by the mentioned invoices did not correspond to reality, in view of the provisions of no. 2 of article 75º of the General Tax Code, which did not occur.

In this respect, considering the very special relevance that tax legislation attributes to invoices in the situation here in question and that these enjoy the presumption of truthfulness, which is conferred on them by the provisions of article 75º, no. 1 of the General Tax Code, completed, in the case, by the respective sales documents, we conclude that they constitute sufficient evidence to rebut the presumption that derives from article 3º, no. 1 of the IUC Code, since they prove that the Claimant was not the owner of the vehicles at the time to which the assessment of the IUC relates.

Under these circumstances, the assessments relating to this first situation, in which there was a transfer of ownership of the vehicles, should be annulled and, consequently, the tax that was unduly charged to it should be restored to the Claimant by the Tax Authority.

In the Request for Arbitral Decision, the Claimant also alleges that, at the date when the tax facts occurred that originated some of the IUC assessments, it was the lessor of the vehicles it identifies, since the same had been the object of financial lease contracts, which were in force and, consequently, it was not the taxpayer subject to the tax that was assessed against it, constituting this the second issue to be decided.

For its part, the Respondent Tax Authority argues that, pursuant to article 3º of the IUC Code, the taxpayer subject to IUC is the person in whose name the vehicle is registered at the Motor Vehicle Registry Office, a fact that occurred with the Claimant, during the period in question.

From the positions assumed by the Parties in this process, it is clear that, fundamentally, the issue reduces itself to knowing whether on the date of occurrence of the tax event generating the IUC there is in force a financial lease contract, having a motor vehicle as its object, whether the taxpayer subject to IUC is the lessor, its owner, or, by force of the provisions of no. 2 of article 3º of the IUC Code, whether it is the lessee.

The orientations assumed by the Claimant and the Respondent regarding this matter and their grounds are set forth, also, in summary, or with partial transcription, in sections E. and F. of the Report of this Decision.

It is therefore necessary to decide regarding this issue:

In order for a correct and rigorous interpretation of the normatives at issue, it becomes necessary to inquire into the principles informing the institutes disciplined by the same.

As to the IUC, it should be noted that, at present, its structuring principle is the principle of equivalence, in its acceptation of compensation for the nefarious effects in environmental and energy areas caused by the circulation of motor vehicles.

This means that the legislator, when it disciplined the IUC, took into account the road and environmental costs that road circulation causes, and that this is underlying this tax.

With effect, the current and new framework of automobile taxation enshrines this principle, aiming to subject the owners of vehicles, in principle, their users, to bearing the costs arising from losses from damage to roads and environmental damage caused by these, as is understood from the content of article 1º of the IUC Code.

In this way, its scope should be on whoever uses the motor vehicle, that is, whoever causes the said damage, which entirely removes an interpretation that aimed to prevent the taxation of others, who are not those who benefit from the enjoyment of motor vehicles.

As a rule, the legislator assigned that situation to the owner, which is understood to be so because it is the most common, in which the owner is simultaneously the user of the vehicle.

However, where the situations referred to in no. 2, of article 3º, of the IUC Code are verified, in which the owner, although maintaining that quality, cedes the exclusive enjoyment of the vehicle to a third party, the law equated that situation to that of the owner, for purposes of the subjective scope of the IUC, because it is this one the potential "polluter".

Such is what occurs in the term of financial lease contracts in which, although the lessor maintains the quality of owner of the leased asset, it is the lessee who has the exclusive enjoyment thereof, using it in exactly the same terms as the owner would use it, had the said contract not been concluded.

With effect, from the Legal Regime of the Financial Lease Contract (approved by Decree-Law No. 149/95, of 24 July, with subsequent amendments), it results, namely from the combined provisions of articles 9º and 10º, that the use of the leased vehicle is attributed exclusively to the lessee, with a view to using and enjoying it, as if he were the owner.

In this respect, there is no doubt that pursuant to the letter of article 3º of the IUC Code, particularly in its no. 2, and also of its ratio, it is the lessee who is responsible for the payment of the IUC, given that he is equated to the owner by having exclusive use of the motor vehicle and, for that reason, causing the environmental and road damage that the tax intends to compensate.

Thus, we are in a position to conclude that, where it is verified, as was proven, that, at the dates of occurrence of the tax events generating the IUC to which the assessments at issue relate, financial lease contracts were in force, which were communicated, pursuant to article 19º of the IUC Code, to the Respondent, it was the lessees who were the taxpayers subject to the same.

Reason why the mentioned assessments should be annulled and, consequently, the tax that was unduly charged to it should be restored to the Claimant by the Tax Authority.

As to compensatory interest, this matter is regulated in article 24º of the RJAT, which expressly determines in its no. 1, paragraph b) that the arbitral decision obliges the tax administration, in the cases indicated therein, to "Re-establish the situation that would exist if the tax act that is the subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose", and further provides, in its no. 5, that "Payment of interest is due, regardless of its nature, in the terms provided for in the general tax law and in the Code of Tax Procedure and Process".

Also, article 100º of the General Tax Code, whose application is authorized by the provisions of article 29º, no. 1, paragraph a) of the RJAT, provides in an identical manner, in the sense of immediate restoration of legality, including the payment of compensatory interest, if such be the case.

For its part, article 43º, no. 1 of the General Tax Code conditions the right to compensatory interest to cases in which "there was error imputable to the services resulting in payment of a tax debt in an amount greater than the legally due".

In this respect, the issue that arises is that of whether, in view of the circumstances demonstrated and the content of the provisions of article 3º, nos. 1 and 2 of the IUC Code, it can be considered that there was, or not, an error imputable to the services in the situation here in question.

Analyzed the situation, it is verified that the Tax Authority, in assessing the IUC in the terms in which it did, complied with the dictate of the legal norm of a general nature established in the said normative, in the point in which the taxpayer subject to the tax is the owner of the vehicle, assigning that quality of owner, for the said purposes, to the taxpayer in whose name the vehicle is registered at the Motor Vehicle Registry Office, without the need to carry out any proof.

Only after the recognition by this arbitral tribunal that the provision at issue has the nature of a presumption juris tantum, is the Claimant in a position to rebut the said presumption, which it came to do and to prove, ceasing from now on to be the taxpayer subject to the tax obligation in analysis, the same being said with respect to the situation of financial lease, in which the Respondent will have proceeded with the assessment of the IUC in accordance with the registration information supplied by the Institute of Registers and Notaries, reason why it is concluded that there is no error imputable to the services.

As to the responsibility for payment of arbitral costs, the Respondent alleges that it is not responsible for their payment, because it proceeded with the assessments of the tax with the elements it had available, and cannot be held responsible for what it calls the "lack of diligence" of the Claimant.

This argument cannot be considered, because the law is categorical in the imputation of responsibility for payment of costs to the party that is condemned, in view of the provisions of nos. 1 and 2, of article 527 of the Code of Civil Procedure, applicable by force of article 29º, no. 1, paragraph e) of the RJAT.

Thus, the responsibility for payment of arbitral costs is that of the Respondent.

L. – DECISION

In view of the above, this Arbitral Tribunal decides:

a) To find the claim for a declaration of illegality of the IUC assessment, with grounds in a violation of law, as having merit, regarding all the vehicles whose registration plates are identified in the proceedings, relating to the years indicated therein, and, in consequence,

b) To annul the corresponding tax assessment acts.

c) To find the claim for recognition of the right to compensatory interest in favor of the Claimant as without merit.

d) To condemn the Respondent to pay the costs of this process (article 527º, nos. 1 and 2 of the Code of Civil Procedure, ex vi article 29º, no. 1, paragraph e) of the RJAT).

Value of the process: In conformity with the provisions of articles 306º, no. 2 of the Code of Civil Procedure (ex. 315º, no. 2) and 97º-A, no. 1 of the Code of Tax Procedure and Process and in article 3º, no. 2 of the Regulations on Costs in Tax Arbitration Processes, the value of the process is fixed at 1,927.63 euros.

Costs: In accordance with no. 4 of article 22º of the RJAT, the amount of costs is fixed at 306.00 euros, in accordance with Table I annexed to the Regulations on Costs in Tax Arbitration Processes.

Notification is ordered.

Lisbon, 20 October 2014

The Arbitrator

José Nunes Barata

Text prepared by computer, pursuant to no. 5 of article 131º of the Code of Civil Procedure, applicable by referral of paragraph e) of no. 1 of article 29º of Decree-Law No. 10/2011, of 20/01.

The drafting of this decision follows the old spelling.