IUC Subjective Incidence: Financial Institution Wins Arbitration on Vehicle Tax Liability (CAAD 190/2014-T)

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 190/2014 – T

Subject: IUC

I – REPORT

A. – A. FINANCIAL CREDIT INSTITUTION, S.A., hereinafter referred to as Claimant, legal entity no. …, with registered office at …, requested on 26 February 2014 the constitution of a singular arbitral tribunal in tax matters, under the terms prescribed in article 2, no. 1, paragraph a) of Decree-Law no. 10/2011, of 20 January (Legal Regime for Tax Arbitration – RJAT) and in articles 1, paragraph a) and 2 of Portaria no. 112-A/2011, of 22 March, with the purpose of settling the dispute opposing it to the Tax and Customs Authority, which hereinafter shall be referred to as Respondent.

B. – CONSTITUTION OF THE TRIBUNAL

1. The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the Claimant and to the Tax and Customs Authority on 28/02/2014, with the President of the respective Ethics Board having appointed the undersigned as arbitrator of the Singular Arbitral Tribunal, under the terms of article 6, no. 1, of the RJAT, which appointment was accepted in accordance with the legal requirements.

2. On 15/04/2014, the Parties were notified of this appointment, in accordance with the combined provisions of article 11, no. 1, paragraph b) of the RJAT, in articles 6 and 7 of the Ethics Code, and neither party manifested any intention to refuse the arbitrator's appointment.

3. Under these circumstances, the Tribunal was constituted on 05/05/2014, in accordance with the terms prescribed in paragraph c), of no. 1, of article 11 of Decree-Law no. 10/2011, which was notified to the Parties on that date.

C. – CLAIMANT'S CLAIM

The Claimant requests that the Arbitral Tribunal declare the illegality and consequent annulment of the Vehicle Circulation Tax in the amount of 4,079.33 euros, as described in the Request for Arbitral Pronouncement, and, consequently,

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

D. – CASE MANAGEMENT

Following the notification of the date of constitution of the Arbitral Tribunal, on 05/05/2014, the subsequent procedural steps proceeded as follows:

• On 05/05/2014 – The Respondent was notified to, in accordance with nos. 1 and 2 of article 17 of the RJAT, present its response within 30 days and, if desired, request the production of additional evidence and send to the Arbitral Tribunal a copy of the administrative file, by electronic means.

• On 05/06/2014 – The Respondent submitted its Response to the Request for Arbitral Pronouncement, remitted dispatch designating the jurists representing the Respondent and inserted the administrative file in the CAAD online "Platform", of which the Claimant was notified in full.

• On 16/06/2014 – The Tribunal scheduled 23/06/2014 for the meeting provided for in article 18 of the RJAT, which was notified to the Parties.

• On 23/06/2014 – The meeting provided for in article 18 of the RJAT was held, which resulted in the following:

• The Parties, heard for that purpose, declared that they would not invoke any exception susceptible of being appreciated and decided prior to the knowledge of the claim.

• The Parties declare that they waive the production of additional evidence and oral submissions.

• Scheduling of the date of pronouncement of the decision for 22/09/2014.

• On 24/06/2014, the Arbitral Tribunal issued a dispatch, in order to notify Dr. … to attach to the case file the legal power of attorney, which he had promised to attach in the Request for Arbitral Pronouncement, with ratification of proceedings, and the dispatch was executed on 04/09/2014.

• On 22/09/2014 – Pronouncement of the decision.

E. – CLAIMANT'S CLAIM AND ITS GROUNDS

To substantiate the Request for Arbitral Pronouncement, the Claimant alleged, in summary, the following:

• The Claimant is a financial credit institution subject to supervision by the Bank of Portugal, which pursues its activity in the branch of automobile financing, namely under the modality of granting loans for the acquisition of vehicles or the celebration of financial leasing contracts.

• On 2 September 2013, the Claimant received various notifications for prior hearing related to the IUC levied on vehicles assigned to the aforementioned activity.

• In response, on 26 September 2013, the Claimant exercised, in writing, its respective rights of prior hearing.

• The Tax and Customs Authority proceeded to issue official assessments of IUC, which include the assessments that led to the presentation of this request, which the Claimant itemized as follows:

• Regarding the vehicle with registration plate …, official assessment relating to the years 2010, 2011 and 2012.

• Regarding the vehicle with registration plate …, official assessment relating to the years 2010, 2011 and 2012.

• Regarding the vehicle with registration plate …, official assessment relating to the years 2009, 2010 and 2011.

• Regarding the vehicle with registration plate … official assessment relating to the years 2009, 2010, 2011 and 2012.

• The Claimant paid all the amounts corresponding to those which were assessed by the Tax and Customs Authority.

• The Claimant detailed the following facts relating to the vehicles on which the aforementioned assessments were levied.

• The vehicle with registration plate … was the subject of a financial leasing contract between the Claimant and a client (B, NIF …) with effectiveness commencing on 12/06/2009 and with termination scheduled for 01/06/2016.

• The vehicle with registration plate … was the subject of a financial leasing contract between the Claimant and a client (C, NIF …) with effectiveness commencing on 13/07/2004 and terminating on 01/07/2010, at which time the vehicle was sold by the Claimant and ownership correspondingly transferred on that same day, in favor of the former lessee.

• The vehicle with registration plate … was the subject of a financial leasing contract between the Claimant and a client (D, Unipessoal, Lda., NIF …) with effectiveness commencing on 17/07/2008 and with termination scheduled for 21/04/2011. However, before the end of June 2011, and following non-performance of contractual obligations on the part of the Claimant's client, the Claimant was forced to terminate the financial leasing contractual relationship, which was resolved in advance (relative to the time contractually provided) without, however, the lessee having returned the asset to the lessor.

• The vehicle with registration plate … was sold by the Claimant on 30/11/2006 in favor of E, S.A., NIF ..., and the Claimant ceased to be the owner of the vehicle from that moment onwards.

• The Claimant alleges that it is not the liable person for IUC relating to the registration plates in question in any of the years on which the official assessments now subject to the request for arbitral pronouncement were levied.

• Wherefore, the tax acts assessing the IUC in question are defective due to error concerning the assumptions of the (alleged) taxable fact, which constitutes a defect of violation of law, by virtue of article 99, paragraph a) of the Code of Tax Procedure and Process, in accordance with paragraph c) of no. 2 of article 10 of the RJAT, susceptible of being raised to substantiate the annulment of the tax acts assessing IUC in this forum.

• Regarding the acts relating to vehicles with leasing contracts in effect on the date the tax event occurred, the Claimant alleges that:

• All these situations reduce to the same cause of action, that is, the fact that the vehicle associated with the assessment was the subject of a leasing contract that was in effect on the date the taxable event occurred and the corresponding tax obligation became due.

• And that, from the combined application of nos. 1 and 2 of article 3 of the IUC Code, it follows that IUC matures on an annual basis, and although the liable person is normally the owner, if the vehicle has been the subject of leasing, the liable person should be the financial lessee.

• On the other hand, the owner of a vehicle ceded in leasing cannot be a subsidiary responsible for payment of IUC in case of non-performance by the financial lessee: this is not the solution provided for in article 3, no. 2 of the IUC Code, and the same would violate the principle of equivalence underlying this tax, under which it seeks to "burden taxpayers in proportion to the environmental and road costs that they cause, as a realization of a general rule of tax equality".

• According to the Claimant, whenever vehicles are sold in leasing, there is a true transfer of economic ownership of the vehicle, with legal ownership being preserved by the credit institution financing as a mere guarantee function, and, accordingly, the vehicle is exclusively held by the financial lessee, who bears the respective costs (including insurance), assumes the obligation to claim any defects from the supplier, and bears the risk of its loss or deterioration (See articles 10 to 15 of Decree-Law no. 149/95, of 24 June).

• Moreover, precisely because the financial lessee is the exclusive holder of the vehicle, the Highway Code qualifies it as "holder of the vehicle identification document" for purposes of accountability for infractions relating to the conditions of admission of the vehicle to traffic (e.g., failure to inspect), and it is solely responsible for payment of tolls and for fines and expenses arising from the omission of such payment (See articles 118 and 135 of the Highway Code and article 10 of Law no. 25/2006, of 30 June).

• Wherefore, according to the Claimant, the liable person for tax was exclusively the financial lessee, and not the Claimant.

• Regarding the acts relating to vehicles whose ownership was transferred prior to the tax event, the Claimant alleges that:

• These situations share the cause of action that is constituted by the fact that the vehicle associated with the assessment was sold by the Claimant prior to the date of maturity of the IUC.

• In accordance with article 6, no. 3 of the IUC Code, the tax is considered due from the owner (or other vehicle holders equivalently situated) on the first day of the tax period of the vehicle, which, in accordance with article 4, no. 2 of the same Code, occurs on the date on which the registration is assigned.

• Thus, in accordance with this provision, it follows that on the date of maturity of the tax, the Claimant was no longer the owner of the vehicles in question, wherefore the liable person should be the new owner of each vehicle, or another equivalently situated holder under article 3, no. 2 of the IUC Code, which only the latter will be in a position to identify.

• And this occurred with the vehicle with registration plate …, which was sold, regarding the year 2011, before the tax event and maturity of the corresponding tax, and with the vehicle with registration plate …, which was sold, regarding the year 2009, before the tax event and maturity of the tax in question.

• It acknowledges that the ownership of these vehicles may not have been registered in the vehicle registration with the new owner, alleging that the Claimant, in light of the legal regime currently in force, cannot remedy this, inasmuch as only the acquirer of the vehicle, armed with the respective registration certificate, has legitimacy to request such registration.

• However, according to the Claimant, even if no publicity has been given to transfers of ownership of the vehicles through vehicle registration, this does not preclude the IUC from applying to the real owners of the vehicle, once the Claimant has demonstrated the respective transfer.

• In its view, although article 3, no. 1 of the IUC Code provides that "liable persons for the tax are the owners of vehicles, being considered as such the persons (…) in whose name the same are registered", the expression "being considered" should be understood as a legal presumption which can be rebutted, through proof to the contrary by the vehicle transferor, for which the present request is deemed suitable.

• The possibility of rebutting the presumptions is expressly enshrined in article 73 of the General Tax Law, under which "presumptions enshrined in tax incidence provisions always admit proof to the contrary".

• According to the Claimant, any arguments of a hermeneutical nature aimed at placing a different meaning on the expression "being considered" would necessarily lead to an interpretation of article 3, no. 1 of the IUC Code incompatible with the principle of contributive capacity enshrined in the Constitution of the Portuguese Republic.

• Indeed, given that IUC follows the "principle of equivalence, seeking to burden taxpayers in proportion to the environmental and road costs that they cause" (article 1 of the IUC Code), an interpretation whereby the expression "being considered" constitutes an irrebuttable presumption of ownership based on registration would clash frontally with that principle, by making it possible for the new owner, and consequent cause of the "environmental and road costs" inherent thereto, to be exempted from payment of IUC, continuing to be burdened the owner who sold it, and with respect to whom the aforementioned "economic presupposition selected as the object of the tax" no longer exists. This, without neglecting the principle of material truth that impends on the Tax Authority, especially having information been provided by the taxpayer in the prior hearing that would allow the presumptions possibly exercised by the Tax Authority based on the register to be set aside.

• The Claimant concludes by stating that, in light of article 3, no. 1 of the IUC Code, having the vehicle in question been sold by the Claimant prior to the occurrence of the tax event and consequent maturity of the tax, this should apply subjectively to the new owners of the vehicles.

• Regarding the act relating to the vehicle not returned after early termination of the financial leasing, the Claimant alleges that:

• The cause of action associated with this situation is based on the fact that the vehicle associated with the assessment was not in the Claimant's possession on the date of maturity of the IUC.

• This vehicle was ceded in financial leasing to a Claimant client.

• However, following non-performance of contractual obligations on the part of the Claimant's client, the Claimant terminated the financial leasing contractual relationship, which was resolved in advance (relative to the time contractually provided) without, however, the lessee having returned the asset to the lessor as it was obliged to do.

• In this context, the Claimant resorted to the means provided for in article 21 of Decree-Law no. 149/95, of 24 June (Legal Regime of the Financial Leasing Contract), which presupposes prior cancellation of the financial leasing registration.

• According to the Claimant, the non-return of the asset by the lessee to the lessor has the consequence that the former continues to enjoy the vehicle, without the Claimant being able, in any way, to enjoy or dispose of it.

• In practice, there will be a forced prolongation of the financial leasing contractual relationship by omission of the lessee, notwithstanding the leasing registration having been cancelled.

• In the contract executed, the parties stipulated payment by the lessee, during the period in which the non-return of the asset persists, of an amount defined on the basis of the increased value of the installments.

• The Claimant understands that, despite having been given publicity to the cancellation of the financial leasing registration, this does not result in the Claimant becoming the liable person for the tax.

• In its view, the registration, although operating a legal presumption, does not necessarily constitute a presupposition of taxation.

• Whenever vehicles are ceded in leasing, there is a true transfer of economic ownership of the vehicle, with legal ownership being preserved by the credit institution financing as a mere guarantee function.

• In the case at hand, there is the situation where the lessee maintains in its sphere, by force of the non-return of the asset, all the prerogatives to which the financial leasing contractual relationship entitled it, notwithstanding the leasing registration having been cancelled, wherefore the tax it seeks to assess should be attributed to it as holder of the vehicle/lessee, in line with its demonstrated conduct, given the founding principle of IUC referred to in article 1 of the IUC Code, given that IUC follows the "principle of equivalence, seeking to burden taxpayers in proportion to the environmental and road costs that they cause".

• Concluding, the Claimant alleges that the "economic presupposition selected as the object of the tax" does not exist with respect to it, wherefore it should not be considered that the liable person for tax in the period in question is the Claimant, but rather the holder of the vehicle/lessee.

F. – RESPONDENT'S RESPONSE AND ITS GROUNDS

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

• It does not undermine the tax acts assessing IUC identified in the Request for Arbitral Pronouncement, concerning the vehicles with registration plates …, …, … and ….

• It contests the alleged lack of legitimacy of the Claimant as the liable person for IUC, in the situations at issue, in so far as, in its view:

• The Claimant makes a skewed reading of the letter of the law, given that the legislator expressly and intentionally established that the liable persons for IUC are the owners, or those in the situations indicated in no. 2 of article 3 of the IUC Code, considering them as such the persons in whose name the vehicles are registered, which is why the expression "are presumed" was not used in this legal provision, but rather "are considered".

• The tax norm is replete with provisions analogous to that enshrined in the latter part of no. 1 of article 3, wherein the tax legislator, within its freedom of legislative configuration, expressly and intentionally, establishes what should be considered legally, for purposes of incidence, of income, of exemption, of determination and of periodization of taxable profit, for purposes of residence, of location, among many others, such as, for example, in articles 2 of the Code of Municipal Tax on Onerous Transfers of Real Property (CIMT), 2, 3 and 4 of the Code of Income Tax for Natural Persons (CIRS) and 4, 17, 18 and 20 of the Code of Income Tax for Legal Persons (CIRC).

• It concludes, stating that the interpretation made by the Claimant that the legislator enshrined in article 3, no. 1 a presumption is an interpretation contra legem.

• The Respondent also alleges that such interpretation does not heed the systematic element, violating the unity of the regime that imposes the mandatory nature of vehicle registration, so as to prevent the Tax Authority from falling into absolute uncertainty regarding the liable person for IUC, even risking the lapse of the statute of limitations, which is why the legislator expressly and intentionally intended that those considered as owners, lessees, acquirers with reservation of ownership or holders of the right of purchase option in long-term rental, for the aforementioned tax purposes, should be the persons in whose name the vehicles are registered.

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

• The Respondent considers that the IUC Code effected a reform of the regime for taxation of vehicles in Portugal, substantially altering the regime for automobile taxation, with the liable persons for the tax now being the owners listed in the property register, regardless of the circulation of the vehicles on public roads. That is, the Vehicle Circulation Tax became due by the persons appearing in the register as owners of the vehicles.

• Such conclusion results from the tenor of the parliamentary debates around the approval of Decree-Law no. 20/2008, of 31 January, of Recommendation no. 6-B/2012 of the Ombudsman and the spirit of the IUC Code which, having been motivated, in essence, by environmental concern, its "rationale" is to tax the users of vehicles, who, by virtue of their respective use, cause environmental costs.

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

• For the constantly touted principle of contributive capacity is not the only nor the main fundamental principle that informs the tax system.

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

• It therefore being required that in the interpretive task of article 3 of the IUC Code the principle of contributive capacity be articulated, or, if preferred, tempered, with those other principles.

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

• In parallel, the interpretation given by the Claimant is offensive of the principle of efficiency of the tax system, in so far as it translates into an obstruction and increase in cost of the competencies attributed to the Respondent, with obvious prejudice to the interests of the Portuguese State, of which both the Claimant and the Respondent are part.

• The position defended by the Claimant is an understanding that is at the antipodes of that principle and of the automobile taxation reform itself in so far as, in attempting to disregard registered reality, a reality that constitutes the cornerstone upon which the entire structure of IUC rests, it generates for the Respondent, and ultimately for the Portuguese State, additional administrative costs, obstruction of the performance of its services, absence of tax control and futility of registered information systems.

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

• Furthermore, the Claimant would have to provide suitable proof of the facts constituting the right it claims in the arbitral proceeding, which, according to the Respondent, does not occur, for the proof presented by the Claimant is not by itself sufficient to provide conclusive proof of the transfer of the vehicles in question.

• Thus, regarding the vehicle …, it presents copies of invoices/receipts for sales, which, in the Respondent's view do not constitute suitable documentation to prove the sale of the vehicles in question, since the same is nothing more than a document unilaterally issued by the Claimant.

• According to the Respondent, invoices are not suitable to prove the celebration of a bilateral contract such as a purchase and sale, for that document does not itself reveal an indispensable and unequivocal statement of intent (i.e., acceptance) on the part of the purported acquirer.

• Not lacking cases of issuance of invoices relating to transfer of assets and/or provision of services that never came to be realized.

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

• Thus, the Respondent concludes that the tax acts in question are not defective due to the alleged error concerning the presuppositions of fact, in so far as in light of the provisions of article 3, nos. 1 and 2 of the IUC Code and article 6 of the same code, it was the Claimant, in the capacity of owner, the liable person for IUC.

• Also regarding the financial leasing contracts, the Respondent states that the Claimant did not even demonstrate having complied with the ancillary obligation imposed by article 19 of the IUC Code.

• It being important to recall that the application of article 3 of the IUC Code must be combined with the provision of article 19 of the same Code, in which it is established that "for purposes of article 3 of this code (…), entities proceeding to financial leasing, operational leasing or long-term rental of vehicles are obliged to provide the Tax Administration the data relating to the identification of users of the leased vehicles."

• It concludes that, should the thesis defended by the Claimant regarding article 3/2 of the IUC Code be followed, then it is necessary to conclude that the operation of that article equally depends on compliance with that established in article 19 of the IUC Code, as is extracted from its literal element ("for purposes of article 3 of this code (…)").

• The Respondent further alleges that, in the matter of financial leasing and for purposes of the operation of article 3/2 of the IUC Code, it is necessary that the lessors (such as the Claimant) comply with the obligation inherent in article 19 of that Code to exonerate themselves from the obligation to pay the tax and the Claimant has not provided proof of compliance with this obligation.

• In the matter of financial leasing the Claimant could only exonerate itself from the tax had it complied with the specific obligation provided for in that norm of the IUC Code.

• Being responsible for the arbitral costs relating to the present request for arbitral pronouncement, given that the failure to provide the data inexorably led to the issuance of the assessments sub judice.

• As for responsibility for payment of arbitral costs, if IUC is assessed in accordance with registration information timely transmitted by the Institute of Registers and Notary, and not in accordance with information generated by the Respondent itself, and if the Claimant did not observe the duty of communication established in article 19 of the IUC Code, nor timely proceeded to its update in Vehicle Registration, the Respondent is not responsible for such payment.

• The same reasoning applies regarding the request for condemnation for payment of compensatory interest, the legal presuppositions conferring the right to be claimed not being met.

• In light of articles 43 of the General Tax Law and 61 of the Code of Tax Procedure and Process, the right to compensatory interest depends on verification of the following presuppositions: Payment of the tax, the respective assessment having been annulled, in whole or in part, in gracious or judicial proceedings, determination, in gracious or judicial proceedings, that the annulment is based on error attributable to the services, which would not occur in this case, since the tax acts in question are valid and lawful, because conforming to the legal regime in effect at the time of the tax events, which is why no error attributable to the services occurred.

G. – ISSUES TO BE DECIDED

Given the positions assumed by the Parties in accordance with the arguments presented, the following are the issues that it falls to the Tribunal to appreciate and decide:

1. – Principal Issues:

1.1 - Interpretation of no. 1 of article 3 of the IUC Code, so as to be determined whether the rule of subjective incidence inscribed therein establishes, or not, a legal presumption of tax incidence, susceptible of being rebutted, that is, whether it admits, or not, that the taxpayer, in whose name the vehicle is found registered in the Vehicle Registration Office, may demonstrate, through means of proof permitted by law, that it is not, in the period to which the tax relates, its owner, or one who has it at its disposal, thus setting aside the presumption of subjective person liable for the tax that falls upon it.

1.2 - Interpretation of article 3 of the IUC Code, so as to be determined whether the rule of subjective incidence inscribed therein admits, or not, the subjection of the lessee to payment of IUC, during the validity of the leasing contract.

1.3 – Interpretation of article 3 of the IUC Code, so as to be determined whether the rule of subjective incidence inscribed therein admits, or not, the subjection of one who was a lessee and did not return the vehicle to the lessor to payment of IUC after termination of the leasing contract.

2 – Compensatory interest – Existence, or not, of the right to compensatory interest, under article 43 of the General Tax Law, in the event that the assessments are annulled and restitution of the amount claimed is determined, which would have been improperly paid.

3 – Responsibility for payment of arbitral costs.

H. – PROCEDURAL PRESUPPOSITIONS

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

2. The Parties have standing and legal capacity, are legitimate and are duly represented, in accordance with articles 4 and 10, no. 2 of the RJAT and article 1 of Portaria no. 112/2011, of 22 March.

3. Considering the identity of the taxable fact, of the tribunal competent to decide and of the factual and legal grounds invoked, the Tribunal admits the joinder of requests for declaration of illegality of the tax acts that are the object of this proceeding, once the requirements established in article 3, no. 1 of the RJAT are met.

4. The proceeding is not defective in ways that affect its validity.

I. – STATEMENT OF FACTS

I. 1 – PROVEN FACTS

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

1 - The Claimant is a financial credit institution subject to supervision by the Bank of Portugal, which pursues its activity in the branch of automobile financing, namely under the modality of granting loans for the acquisition of vehicles or the celebration of financial leasing contracts.

2 - On 2 September 2013, the Claimant received various notifications for prior hearing related to the IUC levied on vehicles assigned to the aforementioned activity.

3 - In response, on 26 September 2013, the Claimant exercised, in writing, its respective rights of prior hearing.

4 - The Tax and Customs Authority proceeded to issue the following official assessments of IUC, which are contained in the case file:

5 - Regarding the vehicle with registration plate …, official assessment of IUC relating to the years 2010, 2011 and 2012.

6 - Regarding the vehicle with registration plate …, official assessment of IUC relating to the years 2010, 2011 and 2012.

7 - Regarding the vehicle with registration plate …, official assessment of IUC relating to the years 2009, 2010 and 2011.

8 - Regarding the vehicle with registration plate …, official assessment of IUC relating to the years 2009, 2010, 2011 and 2012.

9 - The Claimant paid all the amounts corresponding to those which were assessed by the Tax and Customs Authority.

10 - The vehicle with registration plate … was the subject of a financial leasing contract between the Claimant and a client (B, NIF …) commencing on 12/06/2009, with termination scheduled for 01/06/2016.

11 – The vehicle with registration plate … was the subject of a financial leasing contract between the Claimant and a client (C, NIF …) commencing on 13/07/2004 and terminating on 01/07/2010, on which date the vehicle was sold by the Claimant to the lessee.

12 - The vehicle with registration plate … was the subject of a financial leasing contract between the Claimant and a client (D, Unipessoal, Lda., NIF …) commencing on 17/07/2008 and with termination scheduled for 21/04/2011.

13 – The Claimant on an undetermined date, in the latter part of June 2011, and following non-performance of contractual obligations on the part of the Claimant's client, terminated the financial leasing contractual relationship relating to the vehicle …, whose registration date is 27/06/2008, by means of early termination, without the lessee having returned the vehicle to the Claimant.

14 – After the termination of this contract, the former lessee continued to enjoy the vehicle …, and the Claimant cancelled the leasing registration.

15 – By judgment appended to the case file, delivered on 11/07/2011 in Precautionary Proceeding No. …, brought by the Claimant, and which was conducted in the 3rd Court, 3rd Section, of the Tribunal of the District of Lisbon, the seizure of the vehicle … and its delivery to the Claimant was ordered, delivery which took place on 16/09/2011.

16 – The vehicle with registration plate … was sold by the Claimant on 30/11/2006 to the company E, S.A., NIF … and the Claimant ceased to be the owner thereof from that moment onwards.

17 – On 26 February 2014, the Claimant presented the Request for Arbitral Pronouncement that gave rise to the present case.

I. 2 – SUBSTANTIATION OF PROVEN FACTS

The facts found proven are based on the documents indicated in relation to each of them, and on the factual elements brought to the proceeding by the Parties, in so far as their conformity with reality was not questioned.

Regarding the invoice/receipt relating to the vehicle with registration plate …, the Tribunal decided that the same constitutes means of proof with sufficient weight to support the transfer of ownership thereof, by enjoying the presumption of truthfulness established in article 75, no. 1 of the General Tax Law and based on the remaining grounds that are contained in this Decision.

I. 3 – UNPROVEN FACTS

The Claimant did not provide proof of having complied with the obligation imposed by the provision of article 19 of the IUC Code, regarding the financial leasing contracts sub judice.

J. – LEGAL MATTER

Having fixed the statement of facts, there follows subsumption under law and determination of the Law to be applied, taking into account the issues to be decided that were enunciated.

Regarding the first issue to be decided, the Claimant alleges that it was not the owner of the vehicles it identifies on the date on which the tax events occurred that gave rise to the IUC assessments, and, consequently, was not the liable person for the tax that was assessed against it.

The Respondent Tax Authority assumes an opposite position regarding this question of subjective incidence of IUC, defending that, in accordance with article 3, no. 1 of the IUC Code, the liable person for IUC is the person in whose name the vehicle is found registered in the Vehicle Registration Office, a fact which occurred with the Claimant in the period in question.

Article 3, no. 1 of the IUC Code provides regarding this disputed matter, the following:

"Art. 3 - Subjective incidence

1. Liable persons for the tax are the owners of vehicles, being considered as such natural and legal persons, of public or private law, in whose name the same are registered

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From the positions assumed by the Parties in the present proceeding, it is clear that in essence this first issue reduces to knowing whether the rule of subjective incidence above transcribed, contained in no. 1 of article 3 of the IUC Code, establishes a legal presumption, susceptible of being rebutted, as the Claimant claims, or, expressly and intentionally, considers the persons in whose name the vehicles are registered as owners for purpose of subjective incidence of IUC, as the Respondent understands.

The positions arrogated by the Claimant and by the Respondent regarding this matter and its substantiation are set out in summary, or with partial transcription, in E. and F. of the Report of this Decision.

It thus falls to decide:

A preliminary point to appreciate the issue of the legal value of vehicle registration.

No. 1 of article 1 of Decree-Law no. 54/75, of 12 February, which governs the registration of motor vehicles, provides that the registration of vehicles "has essentially the purpose of giving publicity to the legal situation of vehicles… with a view to the security of legal commerce".

For its part, article 7 of the Code of Real Property Registration, applicable to vehicle registration by virtue of the provision of article 29 of the aforementioned Decree-Law no. 54/75, establishes that "Definitive registration constitutes a presumption that the right exists and belongs to the holder registered in the precise terms in which the registration defines it".

It is thus verified that definitive registration is merely a presumption of the existence of the right, which admits proof to the contrary, thus constituting a presumption which can be rebutted, as has indeed been recognized in case law.

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

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

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

Accordingly, let us begin the interpretation of article 3, no. 1 of the IUC Code, with the literal element, that in which one seeks to detect the legislative intent that is objectified in the norm, to verify whether the same contemplates a presumption, or whether it definitively determines that the liable person for the tax is the owner appearing in the register.

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

In our view, the answer necessarily has to be negative, since, from the analysis of our legal order, it is clearly derived that the two expressions have been used by the legislator with equivalent meaning, whether at the level of rebuttable presumptions, whether in the context of irrebuttable presumptions, wherefore nothing enables the extraction of the conclusion sought by the Tax Authority by mere semantic reason.

Indeed, this happens in various legal norms that enshrine presumptions using the verb consider, of which the following are indicated, merely by way of example:

In the ambit of civil law - no. 3 of article 243 of the Civil Code, when it establishes that "is always considered in bad faith the third party who acquired the right after the registration of the action of simulation, when the latter takes place"; also in the ambit of intellectual property law the same occurs, when article 59, no. 1 of the Intellectual Property Code provides that "Inventions whose patent has been requested during the year following the date on which the inventor leaves the company, are considered made during the execution of the employment contract"; and, also, in the ambit of tax law, when nos. 3 and 4 of article 89-A of the General Tax Law provide that it is incumbent upon the taxpayer the burden of proof that the income declared corresponds to reality and that, if such proof is not made, it is presumed ("is considered" in the letter of the Law) that the income is that which results from the table that appears in no. 4 of the aforementioned article;

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

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

Through the analysis of the historical element, is extracted the conclusion that, from the entry into force of Decree-Law 59/72, of 30 December, the first to regulate this matter, until Decree-Law no. 116/94, of 3 May, the last preceding the IUC Code, the presumption was enshrined that the liable persons for IUC were the persons in whose name the vehicles were registered on the date of their assessment.

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

The same is said when we avail ourselves of elements of interpretation of a rational or teleological nature.

Indeed, the current and new framework of automobile taxation establishes principles aimed at subjecting the owners of vehicles to bearing the prejudices from damage to roads and the environment caused by these, as is ascertained from the tenor of article 1 of the IUC Code.

Now the consideration of these principles, namely, the principle of equivalence, which merit constitutional protection and enshrinement in community law, and are also recognized in other branches of the legal order, determines that the aforementioned costs be borne by the real owners, the causes of the referred damage, which completely rules out an interpretation that sought to prevent the presumed owners from proving that they no longer are because the ownership is in the legal sphere of another.

This interpretation has basis in the provision of no. 1, of article 9 of the Civil Code, which prescribes that the search for legislative intent should above all take into account "the unity of the legal system and the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied".

Thus, also, from the interpretation effected in light of elements of a rational and teleological nature, given what the rationality of the system guarantees and the aims sought by the new IUC Code, it is clear that no. 1 of article 3 of the IUC Code establishes a rebuttable legal presumption.

In view of the above, it is important to conclude that the ratio legis of the tax points toward the taxing of the effective owner-users of vehicles so that the expression "being considered" is used in the norm at issue in a sense similar to "being presumed", which is why there is no doubt that a legal presumption is enshrined.

Now, article 73 of the General Tax Law establishes that "Presumptions enshrined in tax incidence provisions always admit proof to the contrary, whereby they are rebuttable".

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

Analyzing the elements brought to the proceeding by the Claimant, it is extracted the conclusion that this was not the owner of the vehicles to which the assessments at issue relate, because it had meanwhile transferred the ownership thereof, in accordance with civil law.

This transfer of ownership is opposable to the Respondent Tax Authority, inasmuch as, although facts subject to registration only produce effects against third parties when registered, given the provision of article 5, no. 1 of the Code of Real Property Registration, the Tax Authority is not a third party for purposes of registration, since it is not in the situation provided for in no. 2 of the aforementioned article 5 of the Code of Real Property Registration, that is, did not acquire from a common author rights incompatible with one another.

Regarding the question raised by the Respondent about the evidential suitability of the invoice/receipt relating to the vehicle …, raised by the Respondent in generic terms, the Tribunal has no doubts in accepting it as a means of proof of the transfer of ownership of the vehicle, for the following reasons:

In the situation of the case, we are facing a purchase and sale contract for movable things, which, by application of the provision of article 219 of the Civil Code, is not subject to any special formalism.

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

For the case at hand, it is of special importance the fact that, since the Claimant has an entrepreneurial nature, the invoice/receipt, which was attached to the case file by the Claimant, is subject to rigorous legal rules of an accounting and tax nature, with implications, also, in the collection of other taxes.

Indeed, tax legislation attributes to it a very special relevance, which cannot fail to confer upon it probative credibility, and which is well expressed in the provision of the following legal norms which, by way of example, are cited: articles 29, no. 1, paragraph b) and 19, no. 2 of the VAT Code and articles 23, no. 6 and 123, no. 2 of the Income Tax Code for Legal Persons.

Now, provided that such invoice/receipt has been issued in accordance with commercial and tax legislation, a question that the Respondent does not raise, and which does not call into question, the same enjoys the presumption of truthfulness, which is attributed to it by article 75, no. 1 of the General Tax Law.

It would be incumbent upon the Respondent to present and demonstrate concrete and substantiated indications that the transaction titled by the aforementioned invoice/receipt did not correspond to reality, given the provision of no. 2 of article 75 of the General Tax Law, which did not occur.

Accordingly, given the very special relevance that tax legislation attributes to invoicing in the situation at hand and that it enjoys the presumption of truthfulness, which is granted to it by the provision of article 75, no. 1 of the General Tax Law, we conclude that it constitutes sufficient means of proof to rebut the presumption that flows from article 3, no. 1 of the IUC Code, since it proves that the Claimant was not the owner of the vehicle at the time to which the IUC assessment relates.

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

In the Request for Arbitral Pronouncement, the Claimant also alleges that, on the date on which the tax events occurred that gave rise to the IUC assessments, it was the lessor of the vehicles it identifies, since the same had been the subject of financial leasing contracts, which were in effect and, consequently, was not the liable person for the tax that was assessed against it, constituting this the second issue to be decided.

The Respondent Tax Authority assumes an opposite position regarding this question of subjective incidence of IUC, defending that:

In accordance with article 3, no. 1 of the IUC Code, the liable person for IUC is the person in whose name the vehicle is found registered in the Vehicle Registration Office, a fact which occurred with the Claimant in the period in question.

And, furthermore, even if this were not so understood, the application of the provision of no. 2 of article 3 of the IUC Code, which equates financial lessees to owners for purposes of subjection to IUC, depends on compliance with that established in article 19 of the IUC Code.

Article 3 of the IUC Code establishes, under the heading "Subjective incidence", in its number 1: Liable persons for the tax are the owners of vehicles, being considered as such natural and legal persons, of public or private law, in whose name the same are registered.

For its part, number 2 of the same provision provides: Persons equivalent to owners are the financial lessees, acquirers with reservation of ownership, as well as other holders of purchase option rights under the leasing contract.

From the positions assumed by the Parties in the present proceeding, it is clear that, in essence, the issue reduces to knowing whether on the date of occurrence of the tax event of IUC a financial leasing contract is in effect, having as its object an automobile, the liable person for IUC is the lessor, its owner, or, by virtue of the provision of no. 2 of article 3 of the IUC Code, is the lessee, even in the case of non-compliance with the obligation imposed by article 19 of the IUC Code, that is, the owner-lessor not having provided to the Tax Administration the fiscal identification of the lessee.

The positions arrogated by the Claimant and by the Respondent regarding this matter and its substantiation are also set out, in summary, or with partial transcription, in E. and F. of the Report of this Decision.

It thus falls to decide on this issue:

For a correct and rigorous interpretation of the provisions at issue, it becomes necessary to inquire about the principles informing the institutes disciplined by the same.

As for IUC, it is appropriate to note that, currently, its structuring principle is the principle of equivalence, in its sense of compensation for the harmful effects in the environmental and energy areas caused by the circulation of motor vehicles.

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

Indeed, the current and new framework of automobile taxation establishes this principle, aimed at subjecting the owners of vehicles, in principle, its users, to bearing the costs resulting from damage to roads and the environment caused by these, as is ascertained from the tenor of article 1 of the IUC Code.

In this way, its incidence should be on whoever uses the motor vehicle, that is, who causes the aforementioned damage, which completely rules out an interpretation that sought to prevent taxation of others, other than those who enjoy the use of motor vehicles.

As a rule, the legislator assigned this situation to the owner, which is understandable because that is the most common, in which the owner is simultaneously the user of the vehicle.

However, when the situations to which no. 2, of article 3, of the IUC Code refers occur, in which the owner, although maintaining that quality, cedes the exclusive use of the vehicle to a third party, the law equated that situation to that of the owner, for purposes of subjective incidence of IUC, because this is the potential "polluter".

This is what occurs during the validity of financial leasing contracts in which, although the lessor remains owner of the leased property, it is the lessee who has the exclusive use thereof, using it in exactly the same terms in which the owner would use it, had the aforementioned contract not been executed.

Indeed, from the Legal Regime of the Financial Leasing Contract (approved by Decree-Law no. 149/95, of 24 July, with subsequent amendments), it follows, namely from the combined provisions of articles 9 and 10, that the use of the leased vehicle is assigned exclusively to the lessee, with a view to its use and enjoyment, as if it were the owner.

Accordingly, there is no doubt that it follows from the letter of article 3 of the IUC Code, namely from its no. 2, and also from its rationale, that it is the lessee who is responsible for payment of IUC, given that it is equated with the owner by having the exclusive use of the motor vehicle and, for that reason, causing the environmental and road damage that the tax seeks to compensate.

It results from the case file that the Claimant may not have complied with the provision of article 19 of the IUC Code, which establishes that: For purposes of the provision of article 3 of this code, as well as in no. 1 of article 3 of the law of its approval, entities proceeding to financial leasing, operational leasing or long-term rental of vehicles are obliged to provide to the Tax Administration the data relating to the fiscal identification of users of the leased vehicles.

Indeed, the lessors, in accordance with this provision, are subject to the obligation to provide to the Tax Authority, the elements relating to the fiscal identity of users of the leased vehicles, for purposes of the provision of article 3 of the IUC Code.

This does not mean, however, that the subjective incidence of IUC, prescribed in accordance with the terms already referred to in article 3, no. 2 of the IUC Code, depends on such communication.

Indeed, it is this provision (article 3 of the IUC Code) that establishes the rules of subjective incidence of IUC, with the obligation to communicate the fiscal identification of the lessee (article 19 of the IUC Code) being of merely complementary and ancillary nature.

In truth, if on the date of occurrence of the tax event the tax is in effect a financial leasing contract, having as its object a motor vehicle, the liable person for the tax is the lessee, irrespective of whether its fiscal identification has been communicated to the Tax Authority.

The argument of the Respondent does not thus hold, to the effect that the owner only exonerates itself from its obligation to pay IUC, in the situations in which financial leasing contracts are in effect, if it proceeds to the communication referred to in article 19.

Indeed, the provision of article 3, no. 2 of the IUC Code is very clear regarding the subjective incidence of IUC, during the validity of financial leasing contracts, subjecting the lessee to this obligation, when it equates it with the owner for this purpose.

Thus, not assigning the law this obligation to the owner-lessor, there will be no place for any exoneration on the part of the latter, with the communication provided for in article 19 of the IUC Code, for the simple reason that it was never subject to payment of the tax.

The subjective incidence of IUC is established, in all its elements, in article 3 of the IUC Code, and it will be through the application of this provision that the liable person will be determined, being irrelevant for purposes of the incidence of the tax the failure to comply with the aforementioned ancillary obligation.

Accordingly, we are in a position to conclude that, the situations being verified, as was proven, that, on the dates of occurrence of the tax events to which the assessments at issue relate, financial leasing contracts were in effect, it was the lessees who were the liable persons for the same.

Whereby the aforementioned assessments should be annulled and, consequently, restituted to the Claimant by the Tax Authority the tax that was improperly charged.

The same is said regarding the legal situation in which the vehicle with registration plate … found itself, at the time to which the official IUC assessment corresponding to the year 2011 relates, regarding which the Respondent does not pronounce.

Indeed, it is proven in the case file that the Claimant, despite the leasing registration having been cancelled, did not enjoy the vehicle at the time the IUC corresponding to the year 2011 became due, for this was only returned to it, in execution of judicial judgment, on 16/09/2011, that is, already after the IUC corresponding to that year had become due, which occurred on the anniversary of the registration, that is, on 27/06/2011.

Thus, the considerations set out above apply here, namely, the reference to the principles informing IUC, with special emphasis on its structuring principle, enshrined in article 1 of the IUC Code, which is the principle of equivalence.

Indeed, it is clear from the case file that the liable person for IUC should be whoever uses the motor vehicle, that is, who causes the road and environmental damage, most notably in the situation at hand in which the cancellation of the financial leasing registration occurred as a presupposition of recourse to the instrument provided for in article 21 of Decree-Law no. 149/95, of 24 June (Legal Regime of the Financial Leasing Contract), which the Claimant used in the event of failure to comply with contractual obligations.

As for compensatory interest, this matter is regulated in article 24 of the RJAT, which expressly determines in its no. 1, paragraph b) that the arbitral decision binds the tax administration, in the cases indicated therein, to "Restore the situation that would have existed if the tax act which is the subject of the arbitral decision had not been undertaken, by adopting the necessary acts and operations, for that purpose", and further prescribes, in its no. 5, that "Payment of interest is due, irrespective of its nature in accordance with the terms provided for in the general tax law and in the Code of Tax Procedure and Process".

Also article 100 of the General Tax Law, the application of which is authorized by the provision of article 29, no. 1, paragraph a) of the RJAT, prescribes in like manner, toward the immediate restoration of legality, comprising the same the payment of compensatory interest, if it be the case.

For its part, article 43, no. 1 of the General Tax Law conditions the right to compensatory interest to cases in which "there was error attributable to the services from which results payment of tax debt in an amount greater than that legally due".

Accordingly, the issue arises of, given the tenor of the provision of article 3, nos. 1 and 2 of the IUC Code, whether it can be considered to have been, or not, an error attributable to the services in the situation at hand.

Analyzing the situation, it is verified that the Tax Authority, in assessing IUC in the manner it did, complied with the legal dictate established in the aforementioned provision, since this attributes the quality of owner, for the aforementioned purposes, to the taxpayer in whose name the vehicle is found registered in the Vehicle Registration Office, without need of any proof.

Only after recognition by this arbitral tribunal that the provision at issue has the nature of a presumption juris tantum, is the Claimant in a position to rebut the aforementioned presumption, which it came to do and prove, ceasing from now on to be the liable person for the tax obligation under analysis, the same being said regarding the situation of financial leasing, since the owner-lessor may not have complied with the provision of article 19 of the IUC Code.

Whereby it is concluded by the non-existence of error attributable to the services, for the Tax Authority had the right to assess the tax in the manner it did, given that it would be in ignorance of the transfers of ownership of the vehicles, or of the existence of financial leasing contracts, which were not communicated to it, namely for purposes of identification of the lessees, as required by article 19 of the IUC Code.

As for responsibility for arbitral costs, the Respondent alleges that it is not responsible for its payment, because it was unaware of the fiscal identification of the lessees, as a consequence of the Claimant not having complied with the provision of article 19 of the IUC Code, which is why it proceeded to assessment of the tax with the elements it had available, and cannot be held responsible for what it terms the "lack of diligence" of the Claimant.

This argument cannot, however, proceed, inasmuch as the law is exhaustive in the attribution of responsibility for payment of costs to the party that is condemned, given the provision of nos. 1 and 2, of article 527 of the Code of Civil Procedure, applicable by virtue of article 29, no. 1, paragraph e) of the RJAT.

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

L. – DECISION

Given the foregoing, the present Arbitral Tribunal decides:

a) Judge the claim well-founded, on the ground of violation of law, the request for declaration of illegality of the IUC assessment, regarding all the vehicles whose registration plates are identified in the case file, relating to the years referred to therein, and, consequently,

b) Annul the corresponding tax acts of assessment.

c) Judge the request for recognition of the right to compensatory interest in favor of the Claimant not well-founded.

d) Condemn the Respondent to pay the costs of the present proceeding (article 527, nos. 1 and 2 of the Code of Civil Procedure, under article 29, no. 1, paragraph e) of the RJAT).

Process value: In accordance with the provision of articles 306, no. 2 of the Code of Civil Procedure (now 315, no. 2) and 97-A, no. 1 of the Code of Tax Procedure and Process and in article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings the process value is fixed at 4,079.33 euros.

Costs: In accordance with no. 4 of article 22 of the RJAT, the amount of costs is fixed at 612.00 euros, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.

Notify the parties.

Lisbon, 22 September 2014

The Arbitrator

José Nunes Barata