IUC Tax on Leased Vehicles: Who Pays – Owner or Lessee? CAAD Case 169/2015-T

ARBITRAL DECISION

CAAD: Tax Arbitration

Process No. 169/2015-T

Subject: IUC – Subjective Scope of Application

I. REPORT

1. A... - BRANCH IN PORTUGAL, legal entity No. ..., with permanent representation at Rua ..., No. ..., in Lisbon, which, following a restructuring operation that occurred in the course of the year 2011, succeeded in all rights and obligations assumed by B... - Branch in Portugal, legal entity No. ..., requested the constitution of an arbitral tribunal in tax matters submitting a request for arbitral pronouncement against the decision rejecting an administrative complaint and, consequently, against the acts of assessment of Single Circulation Tax (IUC) relating to the years 2010, 2011 and 2012 and to the motor vehicles which, in the petition, it identifies by their respective registration numbers. As a consequence of the said annulment, it requests the consequent condemnation of the Tax Authority to reimburse the amount which it considers as unduly paid, in the total sum of € 1,115.11 (one thousand one hundred and fifteen euros and eleven cents).

2. As grounds for the request, the Claimant alleges, in summary, that, although the vehicles in question were registered in its name on the date to which the tax facts to which the questioned assessments relate are referred, these same vehicles were the subject of financial leasing contracts in which the now Claimant assumed the position of lessor.

3. In response to the request, the Tax and Customs Authority (AT) expressed its position to the effect that the present request for arbitral pronouncement is without merit, maintaining in the legal order the tax acts impugned and, accordingly, for the absolution of the respondent entity.

4. The request for constitution of an arbitral tribunal was accepted and automatically notified to the Tax and Customs Authority on 13 March 2015.

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 designated as arbitrator of the singular arbitral tribunal the undersigned, who communicated acceptance of the assignment within the applicable period, and notified the parties of such designation on 14 May 2015.

6. Duly notified of such designation, the parties did not manifest any intention to refuse the designation of the arbitrator, in accordance with the combined provisions of Article 11, paragraph 1, subparagraphs a) and b) of 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 RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the singular arbitral tribunal was constituted on 22 May 2015.

8. With the arbitral tribunal duly constituted, it is materially competent, in light of the provisions of Articles 2, paragraph 1, subparagraph a), of RJAT.

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

10. There are no nullities and no preliminary issues or exceptions were raised, whereby nothing prevents judgment on the merits, the present process being thus in conditions for the final decision to be rendered.

11. Given the knowledge derived from the procedural documents, deemed sufficient, it was, by order of 7 July 2015, dispensed with the hearing to which Article 18 of RJAT alludes, while granting the parties the possibility of submitting written submissions.

II. FACTUAL MATTER

1. With relevance to the assessment of the issues raised, the following factual elements stand out, which, based on the documentary evidence attached to the file, are considered proven:

12.1. The Claimant is a financial institution whose purpose is to carry out all operations and provide all services permitted to banks;

12.2. In the scope of its activity, it grants financing intended for the acquisition of motor vehicles, namely through the conclusion of financial leasing contracts.

12.3. The Claimant was notified of acts of ex officio assessment of IUC and respective compensatory interest relating to the tax periods and vehicles identified in paragraphs 6 to 8 of the initial petition, which are hereby deemed to be fully reproduced, in the total amount of € 1,115.11.

12.4. The Claimant made voluntary payment of the tax referred to in the said assessments in order to avoid the institution of tax enforcement proceedings.

12.5. However, it reacted against the said assessment acts through an administrative complaint in which, essentially, it alleges that it is not the liable party for the tax obligation in that, on the date of the occurrence of the respective taxable event, the vehicles to which those assessments relate are the subject of financial leasing contracts in which the then complainant assumes the position of lessor.

12.6. By order of 9 December 2014, the complaint was rejected in its entirety on the ground that on the date of tax liability, the vehicles to which it relates were registered in the name of B... - Branch in Portugal, which was succeeded by the then complainant, whereby it was this entity that was the liable party for the tax, in accordance with Article 3 of CIUC.

12.7. From the said rejection decision it is also extracted that the financial leasing contracts referred to by the then complainant were noted in the motor vehicle register, whereby such circumstance "implies that the lessees are not liable parties for the tax."

12.8. In the present request for arbitral pronouncement, the Claimant manifests its disagreement regarding the aforementioned assessment acts, with the grounds already set out in the administrative complaint proceedings, summarized above.

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

III. JOINDER OF CLAIMS

1. The present request for arbitral pronouncement relates to various IUC assessments. However, given the identity of the tax facts, of the tribunal competent to decide and of the grounds of fact and law invoked, the tribunal considers that nothing prevents, in light of Articles 3 of RJAT and 104 of CPPT, the joinder of claims.

IV. LEGAL MATTER

1. In the request for arbitral pronouncement the Claimant submits to the assessment of this tribunal the decision rejecting the administrative complaint and, in consequence, the legality of the IUC assessment acts, relating to the periods of 2010, 2011 and 2012 and to the vehicles which it identifies in the said request, invoking the circumstance that, on the date to which the tax facts which originated them are referred, these same vehicles are the subject of financial leasing in the framework of contracts in which it appears as lessor and, consequently, does not assume the status of liable party for the tax that was assessed against it.

2. It is thus a question of determining whether the Claimant should or should not be considered liable party for IUC regarding the vehicles and periods to which the tax relates, duly identified in the request, for which leasing contracts are in effect, even though these have not been the subject of registration at the Motor Vehicle Registry Office, where it remains identified as owner, the lessor.

3. Regarding this matter, Article 3 of CIUC provides, in its paragraphs 1 and 2, that:

"1 - The liable parties for the tax are the owners of the vehicles, considering as such the natural or legal persons, of public or private law, in whose name the same are registered.

1. Financial lessees are equated to owners, as well as purchasers with reservation of ownership, as well as other holders of purchase option rights by virtue of leasing contract"

2. According to the understanding of the Respondent, the said rule does not contain any legal presumption, considering that "the tax legislator intentionally and expressly wished that those considered as owners, lessees, purchasers with reservation of ownership or holders of the purchase option right in long-term rental be the persons in whose name the vehicles are registered."

3. For its part, the Claimant maintains that such rule establishes a legal presumption, rebuttable under general terms and, in particular, by virtue of what is provided in Article 73 of the General Tax Law, according to which presumptions of tax scope of application always admit proof to the contrary.

4. This matter has been the subject of numerous decisions within tax arbitral tribunals operating in CAAD, generally in the sense of the merit of the respective requests, on the ground that the rule in question contains a legal presumption that admits proof to the contrary.

5. Adhering, therefore, to the position referred to above, it is dispensed with, as unnecessary and tedious, the reproduction of its respective reasoning, in that in the present process nothing new is put forward on this matter.

6. However, the conclusion that the rule on subjective scope of application of IUC establishes a rebuttable presumption does not preclude another issue which, for the present case, is important to clarify, namely to know whether the verification of the circumstance provided for in paragraph 2 of Article 3 CIUC eliminates or not the scope of application rule established in paragraph 1 of the same article, in the case of non-compliance with what is provided in Article 19 of CIUC.

7. This provision establishes that "For the purposes of what is provided in Article 3 of the present code, as well as in paragraph 1 of Article 3 of the law of its approval, the entities that proceed to financial leasing, operational leasing or long-term rental of vehicles are obliged to provide to the Directorate-General of Taxes the data relating to the tax identification of the users of the leased vehicles."

8. From the rule of paragraph 2 of Article 3 of CIUC, combined with the cited Article 19 of the same Code, there subsist no doubts that being the vehicles in a financial leasing regime, the liable party for this tax will be the lessee and not the respective owner, thus being eliminated the rule of subjective scope of application of paragraph 1 of that article, provided that sufficient proof is made to rebut the presumption it contains.

9. This will not, however, be the understanding of the Respondent which, admitting by mere hypothesis that "if the proposed thesis defended by the Claimant regarding the fact that Article 3 of CIUC establishes a rebuttable presumption is followed, then it is necessarily concluded that the operation of that article (that is, the rebuttal of the presumption) depends equally on compliance with what is established in Article 19 of CIUC, as may be extracted from its literal element ("for the purposes of Article 3 of the present Code...")

10. Following that understanding, the Respondent maintains that "In the matter of financial leasing and for the purposes of the rebuttal of Article 3 of CIUC, it is necessary that financial lessors (such as the Claimant) comply with the obligation inherent in Article 19 of that Code to relieve themselves of the obligation to pay the tax."

11. The Respondent concluding that "the Claimant made no proof of compliance with this obligation, as it was moreover incumbent on it to do, whereby the intended rebuttal of Article 3 in question must necessarily fail" and "...not having the Claimant complied with that obligation, it is necessarily concluded that it is the liable party for the tax."

12. Recognizing, however, that financial lessors of motor vehicles are bound by the obligation to communicate to the Tax Authority the tax identification of the lessees, it is not possible to follow the understanding of the Respondent to the effect that owners only relieve themselves of the tax obligation if they have complied with the said obligation.

13. This matter has been the subject of various arbitral decisions, recalling for this purpose the arbitral decision, of 14 July 2014, in case 136/2014-T:

"Indeed, what is provided in Article 3, paragraph 2, of CIUC is quite clear regarding the subjective scope of application of IUC, in the validity of financial leasing contracts, subjecting the lessee to that obligation, when it equates the lessee to the owner for this purpose.

Accordingly, not assigning the law that obligation to the owner-lessor, there will be no place for any exemption on the part of the latter, with the communication provided for in the said Article 19 of CIUC, for the simple reason that the lessor was never subject to the obligation to pay the tax.

The subjective scope of application of IUC is established, in all its elements, in Article 3 of CIUC, and it will be through the application of this provision that the liable party will be ascertained, with non-compliance of the said ancillary obligation being irrelevant for the purposes of the scope of application of the tax."

1. It is, therefore, to this jurisprudential orientation, to which, without reservation, adherence is given.

On the Rebuttal of the Presumption

1. Presumptions of tax scope of application may be rebutted through the proper adversarial procedure provided for in Article 64 of CPPT or, alternatively, by way of administrative complaint or judicial challenge of tax acts which are based thereon.

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

3. Given that the Claimant appears in the Motor Vehicle Register as owner of the vehicles identified in the request during the tax periods to which the questioned assessments relate and, not having it complied with what is provided in Article 19 of CIUC, 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.

4. For rebuttal of the said presumption, derived from the registration in the motor vehicle register, the Claimant offers copies of the financial leasing contracts concluded on a date prior to the occurrence of the taxable event and in force on the date of tax liability, as appears from the following table:

1. Pronouncing itself on the evidence elements presented, the Respondent considers that, "being a private document it only has the evidentiary force of a private document, nor does it serve to prove the effectiveness of the factual materiality whereby for due purposes the same are considered challenged".

2. Beyond the aspect referred to above, the Respondent verifies, from the analysis of the documents submitted by the Claimant, that documents identified under numbers 4, 5 and 6 do not contain the signature of the representative of the lessor and that the document identified under number 9 appears illegible.

3. Regarding what is alleged by the Respondent there are, indeed, the deficiencies noted as to documents Nos. 5 and 6, relating to the leasing contracts relating to the vehicles with the registration numbers ...-...-... and ...-...-..., and which are not signed by the representative of the lessor. The same does not apply to document No. 4, relating to the vehicle with the registration number ...-...-..., which is shown to be duly signed. As for the document identified under number 9, relating to the vehicle with the registration number ...-...-..., the Claimant, on 8 May 2015, proceeded to replace it with another which is shown to be entirely legible and duly signed by the respective parties.

4. It is noted that, in submissions, the Claimant came to withdraw the request regarding the tax assessment relating to the vehicle with the registration number ...-...-....

5. As well noted by the Respondent, the documents presented are configured as private documents which, when duly signed by the intervening parties, have evidentiary force. The relevant legal requirement for the purposes of attributing formal evidentiary force is satisfied with the signature of its author, this being considered authentic when acknowledged or not challenged by the party against whom the document is presented (Civil Code, Articles 373 and 374, paragraph 1).

6. In the present case, the documents to which the Respondent makes reference, not being duly signed, cannot constitute admissible evidence. As for the remainder, the signatures of the documents presented not having been challenged, nor having the same been subject to challenge and proof of forgery by the Respondent, they make full proof as to the declarations attributed to their author (Civil Code, Article 376, paragraph 1).

7. The circumstance that the Respondent declares it challenges, in its entirety, the contracts attached to the file by the Claimant, a fact which it reaffirms in submissions, seems, save as to the documents which lack signatures, not to be based properly on their formal validity but on the conviction it expresses to the effect that "the proof presented by the Claimant consists, exclusively, of private, internal documents, affected by various vicissitudes, with insufficient value to, in light of substantive evidence law, deny the validity of facts - the ownership of the vehicles - on which there exists legal proof - a legal presumption - which relieves the Respondent of any burden of proof, and which is not contradicted by mere counter-proof, which casts doubt on the facts proven by the presumption".

8. In submissions, and on this matter, the Respondent concludes that, "Notwithstanding and without yet conceding that it be concluded we are dealing with financial leasing contracts executed by the Claimant, it would always be incumbent on the latter to demonstrate that it had complied with the obligation imposed by Article 19 of CIUC."

9. Thus, the formal validity of the financial leasing contracts submitted by the Claimant not being directly questioned - save as to those that constitute documents Nos. 5 and 6 - it is considered documentarily proven that on the date of tax liability the vehicles to which the same relate, being though property of the Claimant, were by it given in a financial leasing regime to third parties.

10. Thus, it is concluded that, if on the date of the occurrence of the tax facts financial leasing contracts are in force, the liable party for the obligation to pay tax is not the lessor but, pursuant to paragraph 2 of Article 3 of CIUC, the lessee, being the one who has the use of the vehicle, independently of non-compliance with what is provided in Article 19 of the same Code and of the registration of ownership remaining in the name of the lessor, without the leasing contract having been recorded in it.

11. In light of the above, it is concluded that there is no legal ground for the acts of assessment of IUC and compensatory interest regarding the vehicles and periods contained in the following table:

V. DECISION

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

a) To declare without merit the request insofar as it relates to the assessments regarding the vehicles with the registration numbers ...-...-... and ...-...-..., and to the period of 2012, to which correspond the assessment notices Nos. 2012 ... and ..., respectively;

b) To declare with merit the request for arbitral pronouncement, insofar as it concerns the illegality of the assessments relating to the vehicles and periods identified in the table inserted in point 45 that precedes, determining their annulment and consequent reimbursement of the amounts unduly paid.

c) To condemn the Claimant and Respondent to the costs of the process, in the proportion of their respective success.

Value of the case: € 1,049.62

Costs: Pursuant to Article 22, paragraph 4, of RJAT, and in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Cases, I fix the amount of costs at € 306.00, to be borne by the Claimant and Respondent (AT), in the proportion of their respective success.

Lisbon, 30 September 2014

The Arbitrator, Álvaro Caneira.