IUC Subjective Incidence: Financial Institution Challenges Vehicle Tax on Leased Cars (CAAD 173/2016-T)

ARBITRAL DECISION

I. Report

1. A…– FINANCIAL CREDIT INSTITUTION, S.A. corporate entity no. …, with registered office on Rua … …, in Lisbon, requested the constitution of an arbitral tribunal in tax matters raising a request for arbitral pronouncement against the act of partial dismissal of a claim for administrative review and, consequently, against the acts of assessment of Motor Vehicle Tax (IUC) relating to the years 2013 and 2015 and to the motor vehicles identified by their respective registration number in a document attached to the request (Doc.3). As a consequence of the said annulment, it requests the condemnation of the Tax Administration to the reimbursement of the amount which it considers to have been unduly paid, in the total amount of € 2,999.19, plus the corresponding compensatory interest calculated in accordance with legal provisions. The Claimant further petitions the recognition of the right to compensatory interest with reference to the IUC assessments duly annulled by decision handed down in that administrative review claim.

2. As the basis for the request, filed on 19-03-2016, the Claimant alleges, in summary, that, although the vehicles in question were registered in its name on the date to which the facts giving rise to the disputed assessments relate, the same, in some cases, were no longer its property, having been transferred to third parties or, in other cases, being leased to third parties under financial leasing contracts, long-term rental contracts or operational lease contracts with a promise to sell, in which the present Claimant held the position of lessor.

3. In response to the request, the Respondent (Tax and Customs Authority (AT)) ruled on the merits in the sense of the inadmissibility of the present request for arbitral pronouncement, maintaining within the legal order the disputed tax acts and, in accordance therewith, for the absolution of the respondent entity.

4. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 04-04-2016.

5. Pursuant to the provisions of paragraph a) of no. 2 of article 6 and of paragraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20/01, as amended by article 228 of Law no. 66-B/2012, of 31/12, the Ethics Council designated the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the appointment within the applicable deadline, and notified the parties of such appointment on 18-05-2016.

6. Duly notified of such appointment, the parties did not manifest any intention to challenge the designation of the arbitrator, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b) of RJAT and articles 6 and 7 of the Code of Ethics.

7. Thus, in accordance with the provision in paragraph c) of no. 1 of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31/12, the sole arbitral tribunal was constituted on 03-06-2016.

8. Duly constituted, the arbitral tribunal is materially competent, in light of the provision in articles 2, no. 1, paragraph a), of RJAT.

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

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

11. In view of the knowledge that derives from the procedural documents submitted by the parties, which is deemed sufficient for the decision, the Tribunal decided to dispense with the hearing referred to in article 18 of RJAT.

II. Matters of Fact

1. With relevance to the assessment of the issues raised, the following factual elements are highlighted which, based on the documentary evidence attached to the proceedings, are deemed proven:

12.1. The Claimant is a financial institution which, within the scope of its corporate purpose, engages in all operations and provision of all services permitted to banks, with the exception of the receipt of deposits;

12.2. In the context of its activity, it concludes with its clients contracts for long-term rental (ALD), short-term rental (renting) and financial leasing (leasing) contracts for motor vehicles.

12.3. For this purpose, the Claimant acquires new vehicles from the respective national importers, the ownership of which, upon completion of the said contracts, is transferred to the corresponding lessees or to third parties.

12.4. In July 2015, the Claimant was notified of acts of ex officio assessment of IUC, and respective compensatory interest, relating to the tax periods of 2013 and 2015 and to the vehicles identified in the annex to the claim filed (Doc. 4), which is hereby deemed entirely reproduced, in the total amount of € 4,118.99.

12.5. The Claimant made voluntary payment of the tax referred to in the said assessments.

12.6. However, it reacted against the said assessment acts through a claim for administrative review (Doc. 4) in which, essentially, it alleges that it is not the taxpayer of the tax obligation inasmuch as, on the date of occurrence of the respective tax event, given that the vehicles to which they relate were already transferred to third parties or are leased to the respective lessees under financial leasing contracts, long-term rental or operational lease contracts, these with a promise to sell.

12.7. By order of 18-12-2015, the claim was partially dismissed on the ground that, on the date of the tax exigibility, the vehicles to which it relates were registered in the name of the Claimant, whereby it was the taxpayer of the tax, in accordance with article 3 of CIUC (Docs. 1 and 2).

12.8. From the said decision resulted that from a total of IUC initially claimed of € 4,118.99, the same was reduced to € 2,999.19, this amount corresponding to the assessments not annulled (Doc.3).

12.9. In the present request for arbitral pronouncement, the Claimant manifests its disagreement regarding the mentioned assessment acts, with the grounds already presented in the administrative review claim, summarized above, arguing for the annulment of the assessments not annulled through the administrative review claim, identified in a document annexed to the petition (Doc.3), as well as the recognition of the right to compensatory interest, both as concerns the IUC assessments that were annulled in the administrative review and those that are the subject of the present proceeding.

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

III. Cumulation of Requests

1. The present request for arbitral pronouncement relates to several IUC assessments. However, in view of the identity of the tax facts, of the court competent to decide and of the grounds of fact and law invoked, the tribunal considers that nothing prevents, in light of the provisions in articles 3 of RJAT and 104 of CPPT, the cumulation of requests.

IV. Matters of Law

1. In the request for arbitral pronouncement, the Claimant submits to the assessment of this tribunal the act of partial dismissal of the administrative review claim and, in consequence, the legality of the IUC assessment acts, relating to the periods of 2013 and 2015 and to the vehicles which it identifies in a relation annexed to the request (Doc.3), invoking the circumstance that, on the date to which the tax facts giving rise to them relate, the same were already transferred to third parties or were leased to the lessees under financial leasing contracts or other leasing contracts, with a purchase option for the respective lessees, and, consequently, does not assume the status of the taxpayer of the tax that was assessed to it.

2. It is therefore a matter of determining whether the Claimant should or should not be considered the taxpayer of IUC regarding the vehicles and periods to which the tax relates, duly identified in the annex to the request (Doc.3), because, on the date of the tax exigibility, they were already transferred by sale to third parties or as regards which leasing contracts, or other leasing contracts with a purchase option, were in effect, even though such contracts were not registered with the Motor Vehicle Registry, the lessor remaining identified as the owner therein.

3. Regarding this matter, article 3 of CIUC provides, in its numbers 1 and 2, in the wording in force on the date of the facts under analysis, that:

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

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

2. According to the understanding of the Respondent, the said rule does not contain any legal presumption, considering that "The tax legislator, when establishing in article 3, no. 1, who are the taxpayers of IUC, expressly and intentionally established that these are the owners (or in the situations provided for in no. 2 the persons stated therein), being considered as such the persons in whose name the same are registered.

3. For its part, the Claimant argues that that rule establishes a legal presumption, which may be rebutted in accordance with general terms and, in particular, by virtue of the provision in article 73 of LGT, according to which presumptions of tax incidence always admit proof to the contrary.

4. This matter has been the subject of numerous decisions within the framework of arbitral tribunals functioning at CAAD, generally in the sense of the admissibility of the respective requests, on the ground that the rule in question, in the wording in force on the date of the facts to which the present request relates, contains a legal presumption that admits proof to the contrary.[i]

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

6. However, the conclusion that the rule on the subjective incidence of IUC contains a rebuttable presumption does not preclude another question which, for the present case, is important to clarify, namely, whether the verification of the circumstance provided for in no. 2 of article 3 of CIUC precludes or not the rule of incidence established in no. 1 of the same article, in the case that compliance with article 19 of CIUC has not been given.

7. This provision, in force on the date of the facts to which the present request relates, established that "For the purposes of the provision in article 3 of this code, as well as in no. 1 of article 3 of the law of its approval, the entities engaging in financial leasing, operational leasing or long-term rental of vehicles are obliged to provide to the Directorate-General for Taxation the data relating to the tax identification of the users of the leased vehicles."

8. From the rule of no. 2 of article 3 of CIUC, combined with the cited article 19 of the same code, there are no doubts that being vehicles leased to third parties under a financial leasing regime or other leasing contracts with a purchase option, the taxpayer of this tax will be the lessee and not the respective owner, being thus precluded the rule of subjective incidence of no. 1 of that article, provided that sufficient proof is made to rebut the presumption that it contains.

9. However, this will not be the understanding of the Respondent which, moreover, points out that "in the case in question the Claimant did not even comply with the accessory obligation imposed by article 19 of CIUC, which imposes on the Lessor that it provide to the Tax Administration the tax identification of the users of the vehicles leased under a financial leasing regime, operational leasing or long-term rental regime."

10. The relevance of failure to comply with such obligation regarding the incidence of the tax in question has been the subject of various arbitral decisions, noting for this purpose the Arbitral Decision, of 14-07-2014, in proc. no. 136/2014-T:

"Indeed, the provision in art. 3, no. 2 of CIUC is quite clear regarding the subjective incidence of IUC, in the context of financial leasing contracts, subjecting the lessee to that obligation, when it equates him to the owner for this purpose.

Thus being, not the law assigning 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 art. 19 of CIUC, for the simple reason that it was never subject to the payment of the tax.

The subjective incidence of IUC is established, in all its elements, in art. 3 of CIUC, and it will be through the application of this normative provision that the taxpayer will be determined, not being relevant for the purposes of the incidence of the tax the failure to comply with the mentioned accessory obligation."[ii]

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

On the Rebuttal of the Presumption

1. Tax incidence presumptions may be rebutted through the adversarial procedure specifically provided for in article 64 of CPPT or, alternatively, through administrative review or judicial challenge of the tax acts based thereon.

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

3. Given that the Claimant appears in the Motor Vehicle Registry as the owner of the vehicles identified in the request during the tax periods to which the disputed assessments relate and alleging that the same were already transferred on the date of the tax exigibility or are leased to third parties under leasing contracts without compliance with the provision in article 19 of CIUC, it remains to assess the proof presented, in order to determine whether the same is sufficient to rebut the presumption established in no. 1 of article 3 of the same Code.

4. With a view to rebutting the said presumption, derived from the Motor Vehicle Registry entry, the claimant presents, annexed to the present request, copies of the sales invoices of the vehicles as well as of the financial leasing contracts and other leasing contracts with a purchase option, those issued and these executed in a date prior to that of the occurrence of the tax event and the tax exigibility.

5. Ruling on the elements of proof presented, the Respondent considers that the same are not, by themselves, sufficient to effect conclusive proof of the transfer of the vehicles in question and that, as regards the leased vehicles, the Claimant "could only be exempted from the tax if it had complied with the specific obligation provided for in article 19 of CIUC, which did not occur."

On the Rebuttal of the Presumption Based on Commercial Invoices

1. Regarding the copies of the invoices presented as proof of the transfer of the vehicles on a date prior to that of the tax exigibility, the Respondent alleges that invoices, in general, do not constitute suitable documents to effect the proof sought in the sense that the Claimant is not the owner of the vehicles during the tax periods to which the assessments in question relate.

2. In that sense, the Respondent argues that "The invoices (by themselves) do not constitute a suitable document to prove the sale of the vehicles in question, since the same is nothing more than a document unilaterally issued by the Claimant."

3. Furthermore, according to the Respondent, "The rules of motor vehicle registration have (still) not reached the point where a unilaterally issued invoice by the Claimant can replace the Motor Vehicle Registration Application, which is, moreover, approved by official model."

4. It is therefore a question of determining whether invoices that title commercial transactions constitute elements of proof for rebutting the presumption contained in article 3 of CIUC and, if so admitted, whether the copies of the invoices presented by the Claimant constitute sufficient proof for this purpose.

5. For this, it is important to bear in mind that, in the situation under analysis, we are dealing with contracts of sale and purchase which, relating to movable property and not being subject to any special formalism (Civil Code, art. 219), effect the corresponding transfer of real rights (Civil Code, art. 408, no. 1).

6. Being contracts that involve the transfer of ownership of movable goods, by means of the payment of a price, these have, as essential effects, among others, that of delivering the thing (Civil Code, arts. 874 and 879).

7. However, being the case of contracts of sale and purchase that have as their object motor vehicles, in which registration is mandatory, their proper performance presupposes the issuance of a sales declaration necessary for the registration in the record of the corresponding acquisition in favour of the purchaser, as has been understood by the jurisprudence of the superior courts.[iii] Such declaration, relevant for registration purposes, may constitute proof of the transaction, but does not constitute the sole or exclusive means of proof of such fact.

8. For registration purposes, no special formalism is required either, being sufficient the submission to the competent entity of an application subscribed by the purchaser and confirmed by the seller who, through a declaration of sale, confirms that the ownership of the vehicle was acquired by the latter by verbal contract of sale and purchase (see Motor Vehicle Registry Regulation, art. 25, no. 1, paragraph a)).[iv]

9. Notwithstanding these being the rules deriving from the provisions of civil law, relating to the informality of the transfer of movable property and, as may be the case, of the respective registration, it cannot fail to also bear in mind that, in the situation under analysis, we are dealing with commercial transactions, effected by a company within the scope of its business activity.

10. In that context, the selling company is bound by the compliance with specific accounting and tax rules, in which invoicing assumes special importance.

11. Firstly, by virtue of tax rules, the entity transferring the goods is obliged to issue an invoice regarding each transfer of goods, whatever the status of the respective purchaser may be, whether it is a company, subject to VAT, or a final consumer (CIVA, art. 29, no. 1, paragraph b).

12. Also in accordance with the provision in tax rules, the invoice must comply with a determined form, detailed regulated in articles 36 of the VAT Code and 5 of Decree-Law no. 198/90, of 19/06.

13. It is on the basis of this document issued by the supplier of the goods that the purchaser, when it is an economic operator, will deduct the VAT to which it is entitled (CIVA, art. 19, no. 2) - unless the tax borne on the acquisition of the vehicle, by its characteristics, is not deductible - and record the cost of the operation (CIRC, arts. 23, no. 6 and 123, no. 2).

14. For its part, it is also on the basis of the invoicing issued that the supplier of the goods must record the respective income, as derives from the provision in paragraph b) of no. 2 of article 123 of CIRC.

15. Since issued in the legal form and constituting elements supporting accounting entries in accounts organized in accordance with commercial and tax legislation, the data contained therein are covered by the presumption of truthfulness referred to in article 75, no. 1, of LGT.

16. Indeed, the said presumption covers not only accounting books and records, but also their respective supporting documents, as it is, moreover, a settled understanding of the tax administration itself[v] and the established jurisprudence of the superior courts[vi]

17. The presumption of truthfulness of commercial invoices issued in accordance with legal terms may, however, be set aside whenever the operations to which they refer do not correspond to reality, it being sufficient, for this purpose, that the Tax Administration gathers and demonstrates well-founded indications of that fact (LGT, art. 75, no. 2, al. a)).[vii]

18. In the present case, even though the Respondent asserts, in general terms, that there are no lack of cases of invoices relating to operations that never occurred, it raises no doubt as to the operations titled by the invoices presented by the Claimant.

19. Considering, therefore, the relevance attributed by tax legislation to invoices issued, in accordance with legal terms, by commercial companies within the scope of their business activity and the presumption of truthfulness of the operations titled by them, it cannot fail to be considered that the same may constitute, by themselves, sufficient proof of the transfers invoked by the Claimant.

20. In the situation under analysis, it is noted that the invoices titling the transactions in question identify the selling company, the purchaser and, by the respective registration, the transacted vehicle and the price of the sale, as well as the date on which they were issued, fulfilling the formal requirements imposed by tax law.

21. In these terms, it is considered that the invoices presented by the Claimant constitute sufficient proof of the facts alleged for the purposes of rebutting the presumption in question, the presumption of ownership derived from motor vehicle registration contained in article 3 of CIUC being thus rebutted, regarding the vehicles to which they refer.

On the Rebuttal of the Presumption Based on Copies of Contracts

1. With regard to financial leasing contracts or leases with a purchase option, as proof capable of overcoming the presumption of article 3 of CIUC, it is noted that the same are configured as private documents which, when duly signed by the intervening parties, carry probative force. The legal requirement, relevant for the purpose of attributing formal probative force to them, is satisfied by the signature of their author, this being considered genuine when recognized, or not challenged, by the party against whom the document is presented (Civil Code, arts. 373 and 374, no. 1).

2. In the present case, finding the documents offered by the Claimant as elements of proof duly signed and the signatures thereon not having been challenged nor the same having been subject to allegation and proof of falsity on the part of the Respondent, they constitute full proof as to the statements attributed to their author (Civil Code, art. 376, no. 1).

3. Thus, the formal validity of the contracts submitted by the Claimant not being questioned, it is documentally proven that, on the date of the tax exigibility, the vehicles to which they refer, being although the property of the Claimant, were placed by it in a regime of financial leasing or leasing with a purchase option.

4. As was already concluded above, in situations where the vehicles, on the date of occurrence of the tax event, are leased to the lessees, under financial leasing contracts or other leases involving a purchase option, the taxpayer of the tax obligation is not the owner-lessor, but, in accordance with no. 2 of article 3 of CIUC, the respective lessee, by being the one who has the use of the vehicle. And this occurs independently of whether or not the provision in article 19 of that Code has been complied with and of the circumstance that the property registration remains in the name of the lessor, without the leasing contract having been registered therein.

5. In light of the foregoing, it is concluded that there is no legal basis for the IUC assessment acts and compensatory interest regarding the vehicles and periods identified in the annex to the request for arbitral pronouncement which, on the date of the tax exigibility, were leased to the respective lessees under leasing contracts with a purchase option.

6. Finding the facts alleged by the Claimant documentally proven, it is considered unnecessary to examine the witnesses listed by it, whereby their examination is dispensed with.

7. In these terms, considering the presumption of ownership derived from motor vehicle registration contained in article 3 of CIUC – in the wording in force on the date of the facts to which the assessments in question relate – to be rebutted, the annulment of the assessments identified in the annex to the present request for arbitral pronouncement (Doc.3) should be proceeded with, in the total amount of € 2,999.19, on the ground of illegality and error in the assumptions on which they are based.

On the Right to Compensatory Interest

1. Alongside the annulment of the assessments and consequent reimbursement of the amounts unduly paid, the Claimant further requests that it be recognized the right to compensatory interest, under article 43 of LGT.

2. Indeed, in accordance with the provision of no. 1 of the said article, compensatory interest will be due "when it is determined, in administrative review or judicial challenge, that there was error imputable to the services as a result of which the tax debt was paid in an amount greater than legally due." Beyond the means referred to in the provision which is transcribed, we understand that, as derives from no. 5 of article 24 of RJAT, the right to the mentioned interest may be recognized in the arbitral process and, thus, we hear the request.

3. The right to compensatory interest referred to in the provision of LGT above referred to presupposes that tax has been paid in an amount greater than due and that such derives from error, of fact or of law, imputable to the services of AT.

4. In the present case, even though it is recognized that the tax paid by the Claimant is not due, because it is not the taxpayer of the tax obligation, determining, in consequence, the respective reimbursement, it is not seen that, at its origin, there is the error imputable to the services that determines such a right in favour of the taxpayer.

5. Indeed, in promoting the ex officio assessment of IUC, considering the Claimant as the taxpayer of this tax, the Tax Administration could not proceed otherwise, being limited to giving compliance with the rule of no. 1 of article 3 of CIUC, which, as above extensively referred to, imputes such status to the persons in whose name the vehicles are registered.

6. On the other hand, also as was already concluded, the said rule has the nature of a legal presumption, from which derives, for the AT, the right to assess and exact the tax from these persons, without need to prove the facts that lead to it, as expressly provided for in no. 1 of article 350 of the Civil Code.

7. However, regarding the assessments that constitute the object of the present request for arbitral pronouncement, it is important to know whether the act of dismissal of the pretension of the now Claimant, formulated in the administrative review claim timely filed, does or does not constitute error imputable to the Tax Administration for purposes of the exigibility of compensatory interest, under article 43, no. 1, of LGT.

8. In this matter, attention is paid to the orientation deriving from the jurisprudence of the Supreme Administrative Court, which goes in the direction of recognizing that a decision of the Tax Administration that dismisses a request for annulment of assessment recognized as illegal and consequent restitution of tax unduly collected, constitutes error imputable to the services.

9. According to the mentioned jurisprudence – set forth in a learned judgment of 28-10-2009, in proc. no. 601/09 – compensatory interest is due from the date of dismissal of the administrative review until the date of processing of the respective credit note, in accordance with article 61 of CPPT.

V. Decision

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

a) To uphold the request for arbitral pronouncement, insofar as it concerns the illegality of the assessments relating to the vehicles and periods identified in document 3 annexed to the request for arbitral pronouncement, determining their annulment and consequent reimbursement of the amounts unduly paid.

b) To uphold the request for recognition of the right to compensatory interest but only with reference to the assessments whose annulment is determined in the present decision and counted from the date of dismissal of the administrative review claim.

Value of proceedings: € 2,999.19.

Costs: Pursuant to article 22, no. 4, of RJAT, and in accordance with Table I annexed to the Costs Regulation in Tax Arbitration Proceedings, I fix the amount of costs at € 612.00, to be borne by the Respondent (AT).

Lisbon, 26 September 2016.

The Arbitrator, Álvaro Caneira.