IUC Subjective Incidence: Vehicle Tax Liability After Sale to Third Party (CAAD 140/2016-T)

ARBITRAL DECISION

I. Report

1. A..., taxpayer no. ..., resident at Av. ..., no. ...-..., ...-... ..., ..., requested the establishment of an arbitral tribunal in tax matters, submitting a request for arbitral decision against the assessment act for the Unique Circulation Tax (IUC), relating to the tax period of 2015 and to the motor vehicle with the registration number ...-...-..., in the amount of € 392.43.

2. As the basis for the request, submitted on 8 March 2016, the Claimant alleges, in summary, that the vehicle in question was no longer in his possession during the period to which the contested assessment relates, given that it had been transferred to a third party by sales contract since at least September 1997.

3. In response to the request, the Tax and Customs Authority (AT) pronounced itself in the sense that the present request for arbitral decision was unfounded, maintaining in the legal order the disputed tax act and, accordingly, for the dismissal of the Respondent entity, invoking, however, its untimeliness as a dilatory exception precluding examination of the merits of the request.

4. The request for establishment of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 18 March 2016.

5. Pursuant to the provisions of subparagraph a) of paragraph 2 of Article 6 and subparagraph b) of paragraph 1 of Article 11 of Decree-Law no. 10/2011, of 20 January, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrator of the singular arbitral tribunal the undersigned, who communicated acceptance of the appointment within the applicable period, and notified the parties of this appointment on 4 May 2016.

6. Duly notified of this appointment, the parties did not manifest any will to challenge the appointment of the arbitrator, pursuant to the combined provisions of Article 11, paragraph 1, subparagraphs a) and b) of the Arbitral Procedure Regulation (RJAT) and Articles 6 and 7 of the Deontological Code.

7. Thus, in accordance with the provisions of subparagraph c) of paragraph 1 of Article 11 of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31/12, the singular arbitral tribunal was established on 19 May 2016.

8. With the arbitral tribunal duly established, it has material jurisdiction, given the provisions of Articles 2, paragraph 1, subparagraph a), of the RJAT.

9. The parties have legal personality and capacity and have standing (Articles 4 and 10, paragraph 2, of the RJAT, and Article 1 of Administrative Order no. 112-A/2011, of 22/03).

10. Following notification for the holding of the meeting provided for in Article 18 of the RJAT and examination of the witnesses cited by it, the Claimant declared, by request filed on 22-09-2016, to waive his hearing.

11. Thus, given the knowledge derived from the procedural documents – in particular from the administrative process and documents presented by the Claimant – which is deemed sufficient, the Tribunal decided to dispense with the meeting referred to in Article 18 of the RJAT.

II. Matters of Fact

1. With relevance to the assessment of the question raised, the following factual elements are highlighted, which, based on the elements comprising this case, are deemed proven:

12.1. On 05-07-2015, due to failure to timely pay the IUC relating to the tax period of 2015 and to the motor vehicle with the registration number ...-...-..., official assessment no. 2015... was issued, by the competent services of the AT, in the amount of € 392.43, being € 386.00 of tax and € 5.43 of compensatory interest.

12.2. As stated in the notification made to the Claimant, the said assessment had as the deadline for its voluntary payment, the day 29-07-2015.

12.3. Disagreeing with the assessment notified to him, the Claimant, on 22-10-2015, filed a gracious complaint against it, under Article 68 of the General Tax Procedure Code (CPPT).

12.4. As the basis of the complaint, he alleges, in essence, that at the date of exigibility of the tax assessed the vehicle to which it relates was no longer his property, since it had been subject to transfer by sales contract, concluded in 1997, and the respective purchaser had not regularized the registration of property of the vehicle in question.

12.5. By order of 07-12-2015, of the head of the competent Finance Service, the complaint was entirely dismissed, on the ground that, according to the information held in the Motor Vehicle Registry the vehicle in question was registered in the name of the complainant, and therefore he was the liable subject of the tax obligation at the date of its exigibility with reference to the period of 2015.

12.6. The said decision, with its respective grounds, was notified to the complainant on 11-12-2015, by means of official letter no. ..., of ... of the same month, from the Finance Service of ....

1. There are no factual elements relevant to the decision on the merits that have not been proven.

III. Matters of Law

1. In the request for arbitral decision the Claimant submits to the appreciation of this tribunal the legality of the IUC assessment act, relating to the period of 2015 and to the vehicle with the registration number ...-...-..., invoking the circumstance that, at the date to which the taxable fact that gave rise to it relates, the vehicle in question had already been subject to transfer to a third party, and therefore does not assume the status of liable subject of the tax that was assessed to him.

2. It is thus necessary to determine whether the Claimant should or should not be considered liable subject of IUC regarding the vehicle and period to which the tax relates, considering that the same, although continuing to be registered in his name, would already have been subject to transfer by sales contract, even though the Motor Vehicle Registry had not been updated.

3. With respect to this matter, Article 3 of the IUC Code (CIUC), in its paragraphs 1 and 2, as worded on the date of the taxable fact to which the contested assessment relates, provides that: "1 - The liable subjects of the tax are the owners of the vehicles, considered as such the natural or legal persons, of public or private law, in whose names the same are registered."

4. According to the understanding of the Respondent, the said rule contains no legal presumption, considering that "the tax legislator ... expressly and intentionally established that these (liable subjects) are the owners (or in the situations provided for in paragraph 2, the persons there listed) considered as such the persons in whose names the same (the vehicles) are registered."

5. For its part, the Claimant argues that that rule establishes a legal presumption, rebuttable under general terms and, in particular, by virtue of the provisions of Article 73 of the General Tax Law (LGT) according to which tax incidence presumptions always admit proof to the contrary.

6. This matter has been the subject of numerous decisions within arbitral tribunals operating at CAAD, generally in the sense of allowing the respective requests, on the ground that the rule in question contains a legal presumption that admits proof to the contrary [i].

7. Adhering without reservation to the position referred to above, the reproduction of the respective grounds is dispensed with, as unnecessary and tedious, since nothing new is advanced in this matter in the present case.

III.1. On the Dilatory Exception

1. The relevant factual elements having been summarized as well as the positions that, regarding the interpretation of the applicable law, are sustained by the Parties, it is important, first of all, to analyze and decide on the exception invoked by the Respondent.

2. According to what the Respondent alleges, the object of the request is the IUC assessment relating to the period of 2015 and to the vehicle with the registration number ...-...-..., and the Claimant has not formulated any request aimed at the annulment of the decision dismissing the gracious complaint filed against the contested assessment.

3. Indeed, the Respondent continues, "from reading the request for arbitral decision it appears that the Claimant did not put forward a single argument against the grounds provided regarding the dismissal of the Gracious Complaint, nor contests the argument invoked by the Respondent for its dismissal."

4. Thus, "...since the Claimant has not put forward any objection or challenge to the arguments made by the Respondent and which culminated in the dismissal of the said complaint, it is necessarily concluded that there is no basis for establishing the timeliness of the request and, consequently, the possibility of this Singular Arbitral Tribunal to appreciate the request formulated regarding the assessment act."

5. On the grounds summarized above, the Respondent concludes that "In this regard and resulting, clear and unequivocally from the request for arbitral decision the direct challenge of the IUC assessment acts and not the dismissal of the Gracious Complaint, the request formulated should be declared untimely, having been filed beyond the 90 days after the deadline for voluntary payment – end of 2013 – and, consequently the Respondent should be absolved of the instance, pursuant to Article 278/1-e) of the Code of Civil Procedure (CPC), ex vi of Article 29/1-e) of the RJAT."

6. The AT thus considers that the Claimant defines as the object of the request for arbitral decision the IUC assessment acts and compensatory interest whose deadline for voluntary payment ended on 29-07-2015, and the request was submitted on 08-03-2016. Now, delivered already after the deadline provided for in paragraph 1 of Article 10 of the RJAT had expired, the same would be manifestly untimely.

7. However, this understanding is not shared. Indeed, it clearly results from the provision of paragraph 1 of Article 10 of the RJAT that, in situations, such as that which is evident in the present case, where there has been a gracious complaint and/or hierarchical appeal, the deadline for filing a request for arbitral decision is counted from the notification of the decision rendered therein.

8. It is emphasized that this matter has been the subject of various arbitral decisions, recalling, in this regard, the arbitral decision rendered in case 419/2014-T, from which the following is transcribed:

"As results from the jurisdiction attributed to arbitral tribunals operating at CAAD to assess the legality of assessment acts, and not decisions dismissing hierarchical appeals or gracious complaints, when there is administrative challenge of assessment acts, these assessment acts are always challengeable within the deadline counted from the notification of the decision of dismissal, since Article 10, paragraph 1, identifies them as initial terms. Therefore, the requester of arbitration does not have to challenge acts of second or third degree and, even when he challenges these, it is considered that the object of the arbitral process is always the mediate object that constitutes the assessment acts maintained by acts of second or third degree whenever the Claimant does not attribute to these own defects. But, obviously, if the requester of arbitration only intends to have the illegality of assessment acts declared, which are those that, being susceptible to coercive execution, affect his legal sphere, he does not have to challenge the acts of second or third degree, which lack autonomous lesivity.

Moreover, a hypothetical deficiency in the formulation of the request would not have as a corollary the dismissal of the instance, only giving rise, if necessary, but always when necessary, to a correction, as imposed by subparagraph c) of paragraph 1 of Article 18 of the RJAT, in line with the constitutional right to contentious challenge of all acts of the Administration that injure the rights of taxpayers (Articles 20, paragraph 1, and 268, paragraph 4, of the Constitution of the Portuguese Republic)."

1. In the same sense, it can be read in an arbitral decision of 27-10-2015, in case 124/2015-T:

"We are once again in that case in which there seems to be confusion between the material scope of arbitration (Article 2 of the RJAT) with the date from which the request for arbitral decision can be filed (Article 10 of the RJAT) and also and once again, this is the approach to the question of the recoverability, through arbitration, of acts of second or third degrees. The problem of acts of second and third degrees in tax arbitration concerns, as it is believed, at least two distinct questions: a first one, whether, having resorted to an administrative gracious remedy, the object of the arbitral process will be the decision to be rendered by the Tax Administration – under a gracious complaint, hierarchical appeal or official revision request – or, conversely, the assessment act, self-assessment, withholding at source or payment on account; a second, which interlinks questions of jurisdiction and questions of deadline, and which is whether the tribunal will have jurisdiction – and, if so, to what extent – to assess an act of the first degree when the request is submitted in consequence of a tacit dismissal of a gracious complaint, hierarchical appeal or official revision request previously submitted.

As regards the first question, already within the scope of judicial challenge, it was debatable whether, faced with an express decision of gracious complaint, hierarchical appeal or official revision request, the taxpayer directly challenged the assessment act previously complained about, appealed or revised (the act of first degree) or the very decision (of dismissal) of complaint, appeal or official revision request which, in turn, assessed the (il)legality of the challenged act – the act of second degree. The Supreme Administrative Court (STA) pronounced itself on the question, in judgment dated 18 May 2011, rendered in case no. 0156/11[1], admitting that "(…) the real object of the challenge is the assessment act and not the act which decided the complaint, and therefore it is the defects of that act and not of this order that are truly in dispute (…)."

"(…) the challenge is not, therefore, limited by the grounds invoked in the gracious complaint, and may have as basis any illegality of the tax act. (…)"

This is the first question that must be clear: the object of the arbitral process is the IRS assessment act.

Different from this question is whether the request for arbitral decision was filed within the deadline. Here the Tribunal understands that the arbitral legislator was clear in compartmentalizing questions of jurisdiction and questions of deadlines.

Thus it is that as to jurisdiction or material scope in which the object of arbitration is, as concluded, the assessment of the illegality of IRS assessment acts.

As to the deadline, the taxpayer may resort to arbitration either upon notification of the assessment acts for taxes, self-assessment, withholding at source and payment on account or, having resorted to the administrative remedy, after notification of the decision of dismissal or the formation of tacit dismissal. This answer is found, in turn, in Article 10. From this rule one should not however draw the jurisdiction to directly assess acts of second degree. This is a rule that concerns solely and exclusively the dies a quo of the deadline for submitting the request for arbitral decision. It is a rule that concerns therefore the moment from which the deadline for requesting the establishment of the arbitral tribunal begins to run.

Indeed, Article 2, paragraph 1, subparagraph a), determines that arbitral tribunals have jurisdiction to assess "the declaration of illegality of assessment acts for taxes, self-assessment, withholding at source and payment on account". There is, therefore, no reference to acts dismissing gracious complaints, hierarchical appeals or official revision requests, i.e., there is no mention of the arbitrability of decisions of dismissal, express or tacit, of the prior administrative remedies used. There is not, nor did there need to be.

It is understood in this regard that acts of second or third degrees may always be arbitrable, insofar as they themselves contain, and only to this extent, the (il)legality of the assessment acts in question. At the basis of this understanding will be, for part of the Doctrine, a teleological interpretation, namely because subparagraph a) of paragraph 1 of Article 10 expressly refers to "decision of hierarchical appeal" and it is also, as it is believed, the fact that the act of second or third degree is assessing the assessment act, self-assessment, withholding at source or payment on account which is the object of arbitration.

It is defended here, therefore, an interpretation according to which the own defects of acts dismissing gracious complaints, hierarchical appeals or requests for revision of the tax act are not arbitrable because they escape the material scope of tax arbitration. In other words, these acts of dismissal may only be "brought" to arbitral jurisdiction, on the strict condition that they themselves have assessed the (il)legality of the tax act that the liable subject, truly and actually, intends to challenge through arbitration.

In this sense, see the arbitral decision rendered in case no. 272/2014-T]:

"65 - The dismissal of gracious complaint embodies, within the scope of judicial challenge, the case provided for in paragraph 2 of Article 102 of the CPPT, raising the question of whether, given the jurisdictions legally assigned to arbitral tribunals, the same will be competent to, in any circumstances, assess acts dismissing gracious complaints.

66 - Being the jurisdiction of arbitral tribunals, operating at CAAD, circumscribed and limited, as has already been referred to above, to the declaration of illegality of assessment acts for taxes, self-assessment, withholding at source and payment on account, the assessment of acts dismissing gracious complaints, by the said tribunals, must be conditioned to the effective knowledge that such acts had of the legality of the assessment acts with which they are related.

67 - The decision dismissing the gracious complaint, rendered in the above mentioned circumstances, reaffirms the legality of the assessment act in question and reconfirms it, as it had initially been configured.

68 - The dismissal of the gracious complaint is a lesive act susceptible to challenge by the interested party, which, insofar as it proceeds to the reaffirmation of the underlying primary assessment act and of which it is inseparable, cannot fail to have its assessment committed to arbitral tribunals, which, as already referred to, have their jurisdictions fundamentally centered on the declaration of illegality of assessment acts for taxes."

1. Following the position expressed in the arbitral decisions in the segments transcribed above, which is adhered to without reservation, it is found, in the present case, that the notification of the decision dismissing the gracious complaint that assessed the assessment act in question in the present process, occurred on 11-12-2015 and the request for arbitral decision was presented on 08-03-2016, therefore within the deadline provided for in Article 10, paragraph 1, subparagraph a), of the RJAT.

2. In these terms, the exception invoked by the Respondent (AT) is considered unfounded.

III.2. On the Merits of the Request

1. Concluding, in the wake of the guidance that has invariably been followed by arbitral jurisprudence, that the rule of subjective incidence of IUC establishes a rebuttable presumption, it is important to analyze the documentation offered by the Claimant in order to determine whether it constitutes, or not, sufficient proof for its rebuttal, since the Claimant, in a request filed on 22-09-2016, came to declare waiving the hearing of the witnesses cited by him.

2. As referred to above, in the matter of fact, in the situation to which the present request refers, at issue is the taxation in IUC of a motor vehicle which, at the date of exigibility of the tax, would already be property of a third party, transacted by sales contract concluded with the Claimant, as alleged by him.

3. With respect to the situation referred to, various documents are presented as evidentiary elements, of which the following stand out:

a) Copy of a communication, dated 18-09-1997, made by the Claimant to the insurance company requesting that the insurance policy become ineffective due to sale of the respective vehicle (Doc.1);

b) Declaration issued on 30-11-1998 by the purchaser of the vehicle in question in which he declares to be responsible for any charges relating to it occurring in the period in which it circulates with the registration in the name of the now Claimant (Doc.2);

c) Information relating to the motor vehicle registration of the vehicle from which it is extracted that this was effected, in favor of the now Claimant on 29-04-1998, and on which two garnishments rest, registered in 2004 and in 2008 (Doc. 3);

d) Certification, by the Commercial Registry Office of ..., that he is a partner of company B..., on which a garnishment registered in 2004 fell, the purchaser of the vehicle in question, identified in the declaration which constitutes document 3 (Doc. 4);

e) Citation of the Claimant, in 2005, of garnishment of the vehicle in question in execution brought by C..., S.A., against the company referred to in the preceding subparagraph; (Doc, 5).

f) Copy of a document not identified as to its origin relating to the cancellation of insurance of the vehicle of which the entity D..., Ltd. would be the policyholder, from 19-11-1998 to 26-02-2009; (Doc.6).

On the Rebuttal of the Presumption

1. Tax incidence presumptions may be rebutted through the specific adversarial procedure provided for in Article 64 of the CPPT or, alternatively, through the remedy of gracious complaint or judicial challenge of the tax acts on which they are based.

2. In the present case, the Claimant did not use that specific procedure, and therefore the present request for arbitral decision is the proper means to rebut the presumption of subjective incidence of IUC that supports the tax assessments whose annulment is the object of the request, since it is a matter that falls within the scope of the material jurisdiction of this arbitral tribunal (Articles 2 and 4 of the RJAT).

3. Appearing the Claimant in the Motor Vehicle Registry as the owner of the vehicle identified in the request in the tax period to which the contested assessment relates and alleging that the vehicle in question, at the date of exigibility of the tax, had already passed to the property of a third party, by sales contract, it remains to evaluate the proof presented, in order to determine whether it is sufficient to rebut the presumption established in paragraph 1 of Article 3 of the same Code, as worded on the date of the taxable fact to which the contested assessment relates.

4. For the rebuttal of the said presumption, derived from the entry in the motor vehicle registry, the Claimant offers the documents listed above, identified as documents 1 to 6, which, for all legal purposes, the Respondent came to challenge, in the following terms:

"116. First, the circumstance that allegedly the Claimant requested the annulment of the insurance policy is not, by itself alone, synonymous with sale of the vehicle in question.

1. In simpler words, the sale of a motor vehicle is not demonstrable by the mere request for cancellation of a motor vehicle insurance policy.

2. Second, the Claimant alleges having sold the vehicle in question to E... in mid-September 1997, which is in direct contradiction with Document 2 attached hereto.

3. Indeed, the declaration embodied in Document 2 attached hereto concerns a legal relationship existing between 'F... – Car Sales' and E... and not a legal relationship existing between the Claimant and E...".

4. On the other hand, the declaration embodied in Document 2 attached hereto relates to an alleged sale made on 1998-11-30 and not to an alleged sale made in mid-September 1997.

5. Third, the Claimant alleges having sold the vehicle in question to E... in mid-1997, which is in direct contradiction with Document 3 attached hereto.

6. Indeed, the registry information embodied in Document 3 attached hereto and invested with public trust (and which was transmitted to the Respondent – See pages ... of the ADMINISTRATIVE PROCESS) clearly and unequivocally states that the Claimant registered to his favor the ownership of the vehicle in question on 1998-04-29"

...

1. The Respondent concludes that "... the incongruities and contradictions between the facts alleged and the documents attached hereto are of such an order that serious doubts are raised about their truthfulness ..." and that "... as a direct consequence of what has just been stated it is necessarily concluded that the documents attached hereto are far from constituting sufficient proof to undermine the (supposed) legal presumption established in Article 3 of the IUC Code."

2. Indeed, in light of the insufficiencies and contradictions noted, it cannot fail to recognize the Respondent's reasoning, with the Tribunal concluding that the documents presented by the Claimant do not constitute proof capable of rebutting the presumption contained in Article 3 of the IUC Code, as worded on the date of the taxable fact to which the contested assessment relates.

IV. Decision

In these terms, and with the grounds set forth, the Arbitral Tribunal decides:

a) To find the dilatory exception invoked by the Respondent (AT) unfounded;

b) To find the request for arbitral decision unfounded, insofar as concerns the illegality of the IUC assessment and compensatory interest, relating to the vehicle with the registration number ...-...-... and to the period of 2015.

Value of the case: € 392.43

Court costs: Under Article 22, paragraph 4, of the RJAT, and pursuant to Table I annexed to the Regulation of Court Costs in Tax Arbitration Processes, I fix the amount of court costs at € 306.00, to be borne by the Claimant.

Lisbon, 4 October 2016,

The Arbitrator, Álvaro Caneira.

[i] By way of merely exemplary reference, see Cases 14/2013-T, 26/2013-T, 27/2013-T, 73/2013-T, 170/2013-T, 217/2013-T, 256/2013-T, 289/2013-T, 294/2013-T, 21/2014-T, 42/2014-T, 43/2014-T, 50/2014-T, 52/2014-T, 67/2014-T, 68/2014-T, 77/2014-T, 108/2014-T, 115/2014-T, 117/2014-T, 118/2014-T, 120/2014-T, 121/2014-T, 128/2014-T, 140/2014-T, 141/2014-T, 152/2014-T, 154/2014-T, 173/2014-T, 174/2014-T, 175/2014-T, 182/2014-T, 191/2014-T, 214/2014-T, 219/2014-T, 221/2014-T, 222/2014-T, 227/2014-T, 228/2014-T, 229/2014-T, 230/2014-T, 233/2014-T, 246/2014-T, 247/2014-T, 250/2014-T, 262/2014-T, 302/2014-T, 333/2014-T, 414/2014-T, 646/2014-T, all available at www.caad.org.pt.