IUC Subjective Incidence: Leasing Company Not Liable After Vehicle Ownership Transfer – CAAD 186/2019-T

ARBITRAL DECISION

I. Report

1. A..., S.A., legal entity no. ..., with registered office at Rua ..., no. ..., ...-... Lisbon, requested the constitution of an arbitral tribunal in tax matters, raising a request for arbitral ruling against the acts of dismissal of hierarchical appeals filed against the dismissal of gracious complaints duly submitted and, consequently, against the acts assessing the Unique Motor Vehicle Tax (IUC) for the periods 2010, 2011, 2012, 2015 and 2016 and for the motor vehicles identified by their respective registration plate numbers in the list and documents attached to the request (Annex A), the annulment of which it requests. As a consequence of such annulment, it requests that the Tax Authority be condemned to reimburse the amount it considers to have been unduly paid, in the total amount of € 1,472.19, comprising € 1,381.09 of tax and € 91.10 of compensatory interest, plus the corresponding indemnitary interest, counted in accordance with legal terms.

2. As the basis for the request, filed on 16-03-2019, the Claimant alleges, in summary, that, having filed gracious complaints against the IUC assessments in question, they were dismissed, totally or partially, with the same outcome attending the hierarchical appeals duly filed against those decisions (Annexes B to E).

3. The aforementioned gracious complaints, and subsequent hierarchical appeals of the decisions rendered thereon, are based on the alleged fact that the Claimant is not the taxpayer liable for the IUC obligation relating to the taxation period and vehicles to which the assessments now contested refer.

4. According to what is alleged by the Claimant, the aforementioned vehicles, although they were registered in its name as of the date to which the tax facts refer to which those assessments relate, had been delivered to the respective lessees under financial leasing contracts, and all of them acquired the respective ownership at the end of the contracts by payment of the corresponding residual value at a date prior to the date of the tax-generating event and the due date of the tax in question (cf. Annex A and Docs. 1 to 34).

5. In response to what was requested, the Tax Authority and Customs Authority (AT) expressed itself in the sense of the lack of merit of the present request for arbitral ruling, maintaining in the legal order the impugned tax acts and, accordingly, for the acquittal of the respondent entity.

6. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax Authority and Customs Authority.

7. Pursuant to the provisions of Article 6(2)(a) and Article 11(1)(b) of Decree-Law no. 10/2011, of 20/01, as amended by Article 228 of Law no. 66-B/2012, of 31/12, the Deontological Council appointed the signatory as arbitrator of the singular arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

8. Duly notified of such appointment, the parties did not manifest a willingness to refuse the arbitrator's designation pursuant to the combined provisions of Article 11(1)(a) and (b) of the RJAT and Articles 6 and 7 of the Deontological Code.

9. Thus, in accordance with the provision of Article 11(1)(c) of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31/12, the singular arbitral tribunal was constituted on 29-05-2019.

10. The regularly constituted arbitral tribunal is materially competent, in light of the provision of Articles 2(1)(a) of the RJAT.

11. The parties have legal personality and capacity and have legitimacy (Articles 4 and 10(2) of the RJAT, and Article 1 of Ordinance no. 112-A/2011, of 22/03).

12. There are no nullities and no preliminary questions or exceptions were raised, so nothing prevents judgment on the merits, the present case being thus in a position to have a final decision rendered therein.

13. Given the knowledge that results from the procedural documents submitted by the parties, which is deemed sufficient for the decision, the Tribunal decided to waive the meeting referred to in Article 18 of the RJAT.

14. As there are no doubts regarding the determination of facts duly proven in light of documentary evidence and considering that the matter in question is exclusively one of law, the Tribunal decided to dispense with witness testimony.

II. Factual Matter

1. With relevance to the appraisal of the issues raised, the following factual elements stand out which, on the basis of the documentary evidence attached to the proceedings, are deemed proven:

15.1. The Claimant is a credit institution with a strong presence in the national market.

15.2. Among its areas of activity, automobile sector financing assumes special relevance, and a substantial portion of its activity is reduced to the execution of financial leasing contracts and long-term rental contracts intended for the acquisition, by businesses and individuals, of motor vehicles.

15.3. For this purpose, the Claimant acquires the vehicles indicated by customers from their respective suppliers and subsequently delivers them to the lessees.

15.4. During the period stipulated in the contract, these lessees maintain temporary enjoyment of the vehicle — which remains the property of the Claimant — by payment to the Claimant in the form of rental fees; and may acquire the vehicle at the end of the contract by paying a residual value.

15.5. The motor vehicles to which the impugned assessments refer, identified in a list attached to the request for arbitral ruling (Annex A), were delivered to the respective lessees under financial leasing and long-term rental contracts.

15.6. At the end of their respective contracts, the lessees acquired the vehicles by payment of a residual value.

15.7. For this reason, proven documentarily by the respective invoicing, the vehicles to which the assessments refer were no longer the property of the Claimant as of the date of the occurrence of the tax-generating event and the due date of the tax in question (Docs. 18 to 34).

15.8. With respect to the motor vehicles identified in said Annex A by their respective registration plate numbers, and for the taxation period of 2010, 2011, 2012, 2015 and 2016, the Tax Authority (AT) made official assessments of IUC, together with compensatory interest, in the total amount of € 1,472.19.

15.9. Upon notification of said assessments, the Claimant made voluntary payment of the tax (Cf. Docs. 1 to 9).

15.10. However, it reacted against said assessment acts by filing gracious complaints in which, essentially, it alleges not being the taxpayer liable for the tax obligation inasmuch as, as of the date of the occurrence of the respective tax-generating event, the vehicles to which those refer had already been transmitted to third parties by purchase and sale contracts executed as a consequence of financial leasing contracts.

15.11. The complaints against the assessment acts, as results from the elements that form part of the present proceedings, were subjected to express dismissal.

15.12. From said decisions, hierarchical appeals were filed, also dismissed in their entirety (Annexes B to E).

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

III. Joinder of Claims

1. The present request for arbitral ruling relates to diverse assessments of IUC, as well as to diverse decisions rendered in the hierarchical appeal of decisions dismissing gracious complaints. However, considering the identity of the tax facts, the tribunal competent to decide, and the grounds of fact and law invoked, the tribunal considers that nothing prevents, pursuant to the provisions of Articles 3 of the RJAT and 104 of the CPPT, the joinder of claims.

IV. Matter of Law

1. In the request for arbitral ruling, the Claimant submits to the appraisal of this tribunal the legality of acts of express dismissal of hierarchical appeals filed against decisions dismissing gracious complaints (Annexes B to E) and, as the mediate object, the legality of the acts assessing IUC relating to the periods 2010, 2011, 2012, 2015 and 2016 and to the vehicles which it identifies in a list attached to the request (Annex A), invoking the circumstance that, as of the date to which the tax facts giving rise to them refer, they had already been subject to transmission to third parties, previously lessees within the scope of financial leasing and long-term rental contracts, who exercised their respective purchase right by payment of the residual value, and, consequently, does not assume the status of the taxpayer liable for the tax assessed to it (Docs. 18 to 34).

2. The matter at issue is thus to determine whether the Claimant should or should not be considered the taxpayer liable for IUC with respect to the vehicles and periods to which the tax relates, duly identified in an annex to the request, because, as of the date of the tax's due date, they were already transmitted to third parties by purchase and sale contracts, although they remained registered in the name of the Claimant.

3. Regarding this matter, Article 3 of the IUC Code provides, in its paragraphs 1 and 2, in the wording in force at the date of the facts in question, 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 they are registered

1. Financial lessees, acquirers 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 aforementioned rule does not contain any legal presumption, considering that "the legislator expressly and intentionally established that those in whose name they [the vehicles] are registered be considered as such [as owners or in the situations provided for in paragraph 2], because this is the interpretation that preserves the unity of the tax-fiscal legal system."

3. For its part, the Claimant argues that such rule establishes a legal presumption, which may be overcome under general terms and, in particular, by virtue of the provision of Article 73 of the General Tax Law 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 scope of arbitral tribunals operating in the CAAD, generally in the sense of the merits of the respective requests, on the ground that the rule in question, in the wording in force at the date of the facts to which the present request refers, contains a legal presumption that admits proof to the contrary.

5. Adhering, therefore, to the aforementioned position, dispensing with, as unnecessary and tedious, the reproduction of the respective reasoning, since nothing new is advanced in this matter in the present case.

6. Thus, concluding, in line with the orientation that has invariably been followed by the arbitral case law, that the rule on subjective incidence of IUC, in the wording then in force, 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.

7. As mentioned above, regarding the factual matter, in the situation to which the present request refers, the issue at hand is the taxation, in IUC, of motor vehicles which, as of the date the tax became due, would already be the property of third parties, by way of purchase and sale contracts concluded with the Claimant as a consequence of and at the end of financial leasing and long-term rental contracts.

8. With respect to the situation referred to, copies of the invoices that supported the respective transmissions are presented as evidence, as well as of the financial leasing and long-term rental contracts under which the sale of the vehicles was effected by payment of a residual value.

On the Rebuttal of the Presumption

1. Presumptions of tax incidence may be rebutted through the contentious procedure provided for in Article 64 of the CPPT or, alternatively, by way of gracious complaint or judicial impugnation of the tax acts based thereon.

2. In the present case, the Claimant did not use such proper procedure, so the present request for arbitral decision, following the dismissal of gracious complaints and of subsequent hierarchical appeals, is an appropriate means to rebut the presumption of subjective incidence of IUC that supports the tax assessments the annulment of which is the object of the request, since it is a matter that falls within the scope of the material competence of this arbitral tribunal (Articles 2 and 4 of the RJAT).

3. Since the Claimant appears in the Motor Vehicle Register as the owner of the vehicles identified in the request in the taxation period to which the questioned assessments refer, and alleging that they had already been transmitted to third parties by purchase and sale contracts, it remains to evaluate the evidence 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. With a view to rebutting the aforementioned presumption, derived from the motor vehicle register entry, the Claimant presents, annexed to the present request, a copy of the invoices that supported the transmissions, issued on a date prior to that of the occurrence of the tax fact and the due date of the tax as well as of the financial leasing and long-term rental contracts that preceded them.

5. Commenting on the documentary evidence presented, the Respondent considers that, even if admitting the rebuttal of the presumption to be permissible, which it only by way of academic hypothesis admits, the invoices "... are not apt to prove the execution of a synallagmatic contract, since they do not reveal in themselves an indispensable and unequivocal declaration of will (i.e., acceptance) on the part of the alleged acquirers."

6. Furthermore, in the view of the Respondent, "... the rules of the motor vehicle register have not yet reached the point where mere invoices can replace the application for motor vehicle registration, moreover, a document approved by official form."

7. In support of this thesis, the Respondent cites case no. 63/2014-T of CAAD in which, although with a dissenting vote, the Arbitral Tribunal considered invoices to be "private documents, unilateral and internal, with an insufficient value to, in light of substantive evidentiary law, deny the validity of facts – the ownership of vehicles – with respect to which there is legal proof – a legal presumption – that exempts the Respondent from any burden of proof, and which is not challengeable through mere counter-evidence that casts doubt on the facts proven by the presumption."

8. In the same sense of the insufficiency of invoices to overcome the presumption contained in paragraph 1 of Article 3 of the IUC Code, the arbitral decision rendered in case no. 130/2014-T is also cited.

9. As well emerges from the Respondent's position regarding the evidence produced, resting on the substantiation of the cited arbitral decisions, it would be insufficient to rebut the presumption enshrined in the rule of tax incidence, defined on the basis of ownership, as appears in the motor vehicle register.

10. This is not, however, the understanding of the tribunal, so it is important to evaluate the evidence produced by the Claimant in order to determine whether it is sufficient to rebut the presumption derived from the register which, in the plane of subjective incidence, is, in the wording of Article 3(1) of the IUC Code in force at the date of the facts, is accepted for purposes of this tax.

11. For this purpose, it is important to bear in mind that, in the situation under analysis, we are dealing with purchase and sale contracts which, relating to movable property and not being subject to any special formalities (Civil Code, Article 219), effect the corresponding transfer of real rights (Civil Code, Article 408(1)).

12. Being contracts that involve the transmission of ownership of movable goods by payment of a price, they have, as essential effects, among others, that of delivering the thing (Civil Code, Articles 874 and 879).

13. However, being a purchase and sale contract that has as its object a motor vehicle, in which registration is mandatory, its proper performance presupposes the issuance of a deed of sale necessary for registration in the register of the corresponding acquisition in favor of the purchaser, as has been understood by the jurisprudence of the superior courts. Such declaration, relevant for registration purposes, may constitute proof of the transaction, but does not constitute the only or exclusive means of proof of such fact.

14. For registration purposes, no special formality is required either, requiring only the presentation to the competent entity of an application subscribed by the purchaser and confirmed by the seller, who, through a deed of sale confirms that the ownership of the vehicle was acquired by the former by oral purchase and sale contract (see Motor Vehicle Register Regulation, Article 25(1)(a)).

15. Notwithstanding these being the rules resulting from the provisions of civil law, concerning the informality of the transmission of movable property and, as the case may be, of the respective registration, one cannot fail to also bear in mind that, in the situation under analysis, we are dealing with commercial transactions, conducted by a business entity within the scope of the activity that constitutes its corporate purpose.

16. In this scope, the enterprise is bound by compliance with specific accounting and tax norms, in which invoicing assumes special relevance.

17. Foremost, by virtue of tax norms, the entity transmitting the goods is obliged to issue an invoice for each transmission of goods whatever the status of the respective acquirer (VAT Code, Article 29(1)(b)).

18. Also in accordance with the provision of tax norms, the invoice must comply with a determined form, detailed in Articles 36 of the VAT Code and Article 5 of Decree-Law no. 198/90, of 19/06.

19. It is on the basis of this document issued by the supplier of the goods that the acquirer, when it is an economic operator - as is the case with the vast majority of situations to which the present case refers - will deduct the VAT to which it is entitled (VAT Code, Article 19(2)) and record the expense of the operation (Corporation Tax Code, Articles 23(6) and 123(2)).

20. For its part, it is also on the basis of invoicing issued by it that the supplier of the goods should record the respective income, as results from the provision of paragraph 2(b) of Article 123 of the Corporation Tax Code.

21. Once issued in legal form and constituting supporting elements of accounting entries in accounting organized in accordance with commercial and tax legislation, the data contained therein are covered by the presumption of truthfulness referred to in Article 75(1) of the General Tax Law.

22. Indeed, the aforementioned presumption covers not only the accounting books and records, but also the respective supporting documents, as, moreover, constitutes settled understanding of the tax administration itself and the established jurisprudence of the superior courts.

23. 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, sufficing for this that the Tax Authority collects and demonstrates well-founded indications of such fact (General Tax Law, Article 75(2)(a)).

24. In the present case, the Respondent did not impugn, nor raises any doubt regarding the operations supported by the invoices presented by the Claimant, limiting itself to impugn the documents themselves presented as means of evidence on the ground that "Invoices are not apt to prove the execution of a synallagmatic contract such as purchase and sale, since such documents do not reveal in themselves an indispensable and unequivocal declaration of will (i.e., acceptance) on the part of the alleged acquirers."

25. Not accompanying such position and having regard to the relevance attributed by tax legislation to invoices issued, in accordance with legal terms, by commercial enterprises within the scope of their business activity and the presumption of truthfulness of the operations supported by them, it cannot fail to be considered that they themselves constitute, in themselves, sufficient proof of the transmissions invoked by the Claimant, accompanying, in this matter, the majority arbitral case law.

26. Thus, the transmission of the right of ownership of the vehicles in question being deemed proven documentarily, it remains only to determine the date on which, according to the respective invoice, it will have been verified, bearing in mind that the due date of the tax, with respect to new land vehicles, occurs on the first day of the taxation period, which begins on the date of registration, as provided for in Article 6(3) of the IUC Code, such being the moment when the tax legal relationship is defined.

27. On the basis of the documents that form part of the present case, it is verified that, as of the date the tax became due, the vehicles identified therein were no longer the property of the Claimant by virtue of having been transmitted by it to third parties.

28. In light of the foregoing, it is concluded that there is no legal ground for the acts of assessment of IUC and compensatory interest with respect to the vehicles and periods identified in an annex to the request for arbitral ruling.

29. In these terms, considering that the presumption of ownership derived from the motor vehicle register accepted in Article 3 of the IUC Code - in the wording in force at the date of the facts to which the assessments in question refer - is rebutted, the assessments identified in a list attached to the present request for arbitral ruling shall be annulled, in the total amount of € 1,472.19, on the ground of illegality and error in the assumptions on which they rest.

On the Right to Indemnitary Interest

1. Alongside the revocation of the decision dismissing the requests for official revision and annulment of the assessments, and consequent refund of the amounts unduly paid, the Claimant further requests that it be recognized the right to indemnitary interest, under Article 43 of the General Tax Law.

2. Indeed, pursuant to the provision of paragraph 1 of said article, indemnitary interest will be due "when it is determined, in gracious complaint or judicial impugnation, that there was error attributable to the services from which resulted payment of the tax debt in an amount superior to that legally due." Besides the means referred to in the rule that is transcribed, we understand that, as results from paragraph 5 of Article 24 of the RJAT, the right to the mentioned interest may be recognized in the arbitral process and thus, the request is known.

3. The right to indemnitary interest alluded to in the aforementioned General Tax Law rule presupposes that tax was paid in an amount superior to that due and that such derives from error, of fact or of law, attributable to the services of AT.

4. In the present case, although it is recognized that the tax assessed to the Claimant is not due, because it is not the taxpayer liable for the tax obligation, resulting in, consequently, the annulment of the questioned assessments, it does not appear that, in its origin, there is the error attributable to the services that determines such right in favor of the taxpayer.

5. Indeed, in promoting the assessments of IUC considering the Claimant as the taxpayer liable for this tax, the Tax Authority could not proceed differently, merely complying with the rule of paragraph 1 of Article 3 of the IUC Code, which, as extensively mentioned above, imputes such status to persons in whose name the vehicles are registered.

6. Furthermore, also as already concluded, the aforementioned rule has the nature of a legal presumption, from which results, for AT, the right/duty to assess the tax and demand it from such persons, without need to prove the facts that lead to it, as expressly provided for in paragraph 1 of Article 350 of the Civil Code.

7. Thus, not being the prerequisites on which the right to indemnitary interest rests fulfilled, cannot, therefore, in this aspect, the request proceed.

8. However, with respect to the assessments that constitute the object of the present request for arbitral ruling, it is important to know whether the act of dismissal of the claim of the Claimant, formulated in the gracious complaints duly filed, constitutes, or not, error attributable to the Tax Authority for purposes of the exigibility of indemnitary interest, under Article 43(1) of the General Tax Law.

9. In this matter, regard is had to the orientation resulting from the jurisprudence of the Supreme Administrative Court, which goes in the direction of recognizing that a decision of the Tax Authority that dismisses a request for annulment of assessment recognized as illegal and consequent restitution of tax unduly collected, constitutes error attributable to the services.

10. According to the aforementioned jurisprudence – expressed in a learned judgment of October 28, 2009, in case no. 601/09 – indemnitary interest is due from the date of dismissal of the complaint until the date of processing of the respective credit note, pursuant to Article 61 of the CPPT.

11. Accompanying the cited jurisprudence, the Claimant's right to indemnitary interest is recognized, counted in accordance with legal terms, from the date of dismissal of the gracious complaints relating to the assessments that constitute the object of the present request for arbitral ruling.

V. Decision

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

a) To uphold the request for a declaration of illegality of the dismissal of the hierarchical appeals of the decisions dismissing the gracious complaints duly filed against the assessments now contested;

b) To uphold the request for arbitral ruling, insofar as it concerns the rebuttal of the presumption of subjective incidence of IUC, with the consequent annulment of the assessments of Unique Motor Vehicle Tax, with respect to the taxation period and vehicles identified in a list attached to the present request for arbitral ruling;

c) To uphold the request insofar as it concerns the recognition of the right to indemnitary interest that shall be due from the date of dismissal of the gracious complaints counted until the date of restitution to the Claimant of the amounts of the annulled assessments.

d) To condemn the Respondent in the costs of the present case.

Value of the case - In accordance with the provision of Article 315(2) of the Code of Civil Procedure and 97-A(1)(a) of the Code of Tax Procedure and 3(2) of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at € 1,472.19.

Costs - Pursuant to Article 22(4) of the RJAT, the amount of costs is fixed at € 306.00, in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax Authority and Customs Authority.

Lisbon, September 9, 2019

The arbitrator, Álvaro Caneira