IUC Subjective Incidence: Arbitral Decision on Legal Presumptions for Vehicle Tax Liability (Case 21/2016-T)

ARBITRAL DECISION

1 REPORT

1.1

A..., S.A.; with Company Tax Identification Number: ... (duly identified in the respective case file), Claimant in the tax proceedings, above and otherwise referenced, hereinafter, designated as "Applicant", came, invoking the provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (hereinafter RJAT) and, in article 99 of the Tax Procedure and Process Code (CPPT) and in items 1 and 2, paragraph d) of article 95 of the General Tax Law (LGT), to request the constitution of a Singular Arbitral Tribunal, with a view to:

• The annulment of the assessment acts related to the Single Motor Vehicle Tax (hereinafter designated as IUC), referring to the year 2015 concerning vehicles listed in copies of documents attached to the Request for Arbitral Opinion, the contents of which are hereby reproduced for all legal purposes;

• The reimbursement of the total amount of € 15,636.64, plus the respective compensatory interest provided for in articles 43 of the LGT and article 61 of the CPPT.

1.2

Pursuant to the provisions of paragraph a) of item 2 of article 6 and paragraph b) of item 1 of article 11 of Decree-Law no. 10/2011, of 20 January, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated as singular arbitrator Maria de Fátima Alves, who communicated acceptance of the appointment, within the applicable timeframe:

• On 15-03-2016 the parties were duly notified of this appointment, and did not manifest any intention to refuse the appointment of the arbitrator, pursuant to the combined provisions of article 11, item 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code;

• Whereby the arbitral tribunal was constituted on 01-04-2016, as provided in paragraph c) of item 1 of article 11 of Decree-Law no. 10/2011, of 20 January, in the wording introduced by article 228 of Law 66-B/2012, of 31 December;

• Upon the Response of the Respondent (AT), on 02-05-2016, the same requested exemption from the hearing, under article 18 of the RJAT;

• Consequently, the rendition of the Arbitral Decision was determined for the date of 23-05-2016.

1.3

The Applicant "is a Credit Financial Institution, subject to supervision by the Bank of Portugal, conducting business in the area of automobile financing, namely, in the form of granting loans for the acquisition of vehicles or entering into financial leasing contracts", whereby, in the substantiation of its request for arbitral opinion, it states, in summary, the following:

• The Applicant "received 87 assessment notices for IUC on vehicles related to the above-mentioned activity (cf., assessment notices attached to the case file and which are hereby fully reproduced for all due and legal purposes)"; and, as can be verified in the Table itself, attached to the case file, each assessment act (by year, registration number of each vehicle and respective amount) is paid;

• That in all cases covered by this Request for Arbitral Opinion, the respective IUC corresponds to vehicles already sold by the Applicant;

• It also corresponds to vehicles whose leasing contract was in force at the date of assessment of said tax;

• That the tax is prior to the date on which the Applicant acquired the vehicle as a trade-in;

• And that the tax relates to situations in which the Leasing contract was in default;

• Whereby, in all these cases, they correspond to grounds for exclusion of the subjective scope of the tax, cf., as verified in detail in the annexes to the case file;

• It follows from the foregoing that the vehicles, to which the single motor vehicle tax assessed relates, were not, at the date of the tax facts, property of the Applicant, and the same is not the passive subject of the tax, a fact that prevents it from any subjective responsibility for its payment;

• The Applicant bases its position on the fact that the taxed motor vehicles have already been sold to third parties, cf., as described in the sales invoices, leasing contracts and leasing agreements, seizure documents and debt contracts, all attached to the Request for Opinion and which are hereby fully reproduced for all legal purposes;

• Given the facts presented, property of the said vehicles cannot be imputed to the Applicant, and it cannot be the passive subject of the tax, in view of the letter and spirit of article 3 of the Single Motor Vehicle Tax Code (hereinafter designated as CIUC);

• It is a fact that item 1 of article 3 of the CIUC considers ownership of the motor vehicle to be the person in whose name the same is registered, however, item 2 of the same article emphasizes that: financial lessees are equated to owners, as well as acquirers with reservation of title, as well as other holders of purchase option rights by virtue of the LEASING CONTRACT;

• However, the registration of vehicles in the competent Motor Vehicle Registry Office is not a condition for the transmission of ownership, since such registration aims only to give publicity to the legal situation of the assets, as results, in particular, from the provision in article no. 1 of Decree-Law no. 54/75, of 12 February;

• Whereby the taxation relating to the CIUC cannot only fall upon those registered as owners of the vehicles; it must consider their actual owners.

1.4

The Respondent, Tax and Customs Authority (hereinafter designated as AT), proceeded with the attachment of the Tax Administrative Process and presented a Response, from which it is clear that the tax acts in question do not suffer from any defect of violation of Law, pronouncing itself in favour of the inadmissibility of the request and the maintenance of the contested assessment acts, defending, summarily, the following:

• The passive subjects of the single motor vehicle tax are the persons listed in the registration as owners of the vehicles, as provided in item 1 of article 3 of the CIUC, which in the case sub judice applies to the Applicant;

• Verifying that the registration of the vehicles is in the name of a certain person so that the same embodies the position of passive subject of the tax obligation of IUC;

• That notoriously the interpretation that the Applicant makes of the provision of article 3 of the CIUC is erroneous, insofar as it incurs in a "biased interpretation of the letter of the law" and in the adoption "of an interpretation that does not regard the systematic element, violating the unity of the regime established throughout the CIUC and, more broadly, throughout the entire legal-tax system", following, also, the Applicant, an "interpretation that ignores the ratio of the regime established in the article in question and, as well as throughout the CIUC".

2 ISSUES TO BE DECIDED

2.1

Given the foregoing in the previous items, relative to the written exposure of the parties and, to the arguments presented, the main issues to be decided are the following:

• The challenge made by the Applicant relative to the substantive assessment of the assessment acts, relative to the year 2015, referring to the IUC on the vehicles above-mentioned in the Request for Opinion;

• The erroneous interpretation and application of the rules of subjective scope of the single motor vehicle tax assessed and collected, which constitutes the central issue to be decided in this proceeding;

• The legal value of the registration of motor vehicles.

3 FACTUAL GROUNDS

3.1

On matters of fact, relevant for the decision to be rendered, this Tribunal finds established, based on the elements existing in the case file, the following facts:

• The Applicant presented probative elements of the motor vehicles in question, corresponding to the moment prior to the taxation period – cf. copies of invoices for the sale of vehicles to lessees, copies of financial leasing contracts and copies of accounting statements, attached in the administrative requests for reconsideration (contained in the PA, docs nos. 461 to 693) which are hereby fully reproduced for all legal purposes.

3.1.1 SUBSTANTIATION OF THE PROVEN FACTS

• The facts found as proven are based on invoices, issued at the date of sale of vehicles to third parties;

• Accounting statements of the Applicant to the clients in question;

• Accounting entries of the Applicant, in the SNC account "Banks", relating to the amounts received from the sale of motor vehicles, attached to the case file and which are hereby fully reproduced for all legal purposes;

• Contracts, statements; debt contracts and Seizure documents and judgments.

3.1.2 FACTS NOT PROVEN

• There are no facts found as not proven, given that all facts deemed relevant for the assessment of the request were proven.

4 LEGAL GROUNDS

3.2

The Tribunal is materially competent and is regularly constituted, pursuant to articles 2, item 1, paragraph a), 5, item 2, paragraph a), 6, item 1, 10, item 1, paragraph a) and item 2 of the RJAT:

• The parties enjoy legal personality and capacity and are legitimate, ex vi, articles 4 and 10, item 2, of the RJAT and article no. 1 of Ordinance no. 112-A/2011, of 22 March;

• The proceeding does not suffer from any defects of nullity;

• There being no preliminary question on which the Tribunal should pronounce itself.

• The Request, subject of this proceeding, is the declaration of annulment of the IUC assessment acts relating to the motor vehicles better identified in the case file.

3.2.1

Condemnation of the AT to reimburse the amount of tax relative to such assessments in the amount of € 15,636.64;

3.2.2

Condemnation of the AT to payment of compensatory interest on the same amount.

3.3

According to the AT's understanding, it is sufficient that in the registration the vehicle is listed as property of a certain person, for that person to be the passive subject of the tax obligation.

3.4

The matter of fact is fixed, as stated in item 3.1 above, and it is now important to determine the applicable Law to the underlying facts, in accordance with the issues to be decided, identified in item 2.1 above, and it is certain that the central issue in the present case, relative to which there are absolutely opposed understandings between the Applicant and the AT, consists in knowing whether item 1 of article 3 of the CIUC establishes or does not establish a rebuttable presumption.

3.5

All analyzed and, taking into account, on the one hand, the positions of the parties in confrontation, mentioned in items 1.3 and 1.4 above and, considering, on the other hand that the central issue to be decided is whether item 1 of article 3 of the CIUC establishes or does not establish a legal presumption of tax scope, it is incumbent, in this context, to assess and render a decision.

4 ISSUE OF ERRONEOUS INTERPRETATION AND APPLICATION OF THE RULE OF SUBJECTIVE SCOPE OF THE IUC

4.1

Considering it to be accepted understanding, in doctrine, that in the interpretation of tax laws the general principles of interpretation apply fully, which will be, only and naturally, limited by the exceptions and particularities dictated by the Law itself, object of interpretation. This is an understanding that has come to merit acceptance in the General Tax Laws of other countries and which also came to be seated in article 11 of our General Tax Law, which has, moreover, been frequently underlined by jurisprudence.

It is consensually accepted that having in view the apprehension of the meaning of the law, interpretation resorts, a priori, to reconstructing legislative thought through the words of the law, which means seeking its literal meaning, valuing it and measuring it in light of other criteria, with the intervention of the so-called elements of a logical, rational or teleological nature and of a systematic order:

• With regard to the interpretation of tax law, there is to be considered the jurisprudence, namely, the Judgments of the Superior Administrative Court of 05-09-2012, case no. 0314/12 and of 06-02-2013, case 01000/12, available at www.dgsi.pt, the importance of the provision of article 9 of the Civil Code (CC), as a fundamental element of legal hermeneutics;

• Item 1 of article 3 of the CIUC provides that "The passive subjects 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";

• The formulation used in the aforementioned article resorts to the expression "being considered" which raises the question of whether such expression can be attributed a presumptive meaning, equating it to the expression "being presumed", these are expressions frequently used with equivalent meanings;

• As teaches Jorge Lopes de Sousa, in Tax Procedure and Process Code, Annotated and Commented, volume I, 6th Edition, Área Editora, SA, Lisbon 2011, p. 589, that in matters of tax scope, presumptions may be revealed by the expression "it is presumed" or by similar expression, mentioning therein various examples of such presumptions, referring to that contained in article 40, item 1 of the Corporate Income Tax Code, in which the expression "it is presumed" is used and that contained in article 46, item 2, of the same Code, in which use is made of the expression "is considered", as an expression with an effect similar to that and also embodying a presumption;

• In the legal formulation set out in item 1 of article 3 of the CIUC, in which a presumption was established, revealed by the expression "being considered", of meaning similar and equivalent value to the expression "being presumed", in use since the creation of the tax in question;

• The use of the expression "being considered" aimed at nothing more than the establishment of a more marked and clear approximation between the passive subject of the IUC and the actual owner of the vehicle, which is in line with the strengthening conferred to the ownership of the vehicle, which became the tax-generating fact, pursuant to article 6 of the CIUC;

• The relevance and interest of the presumption in question, which historically was revealed through the expression "being presumed" and which now resorts to the expression "being considered", resides in the truth and justice that, by this means, is conferred to tax relations and which embody fundamental fiscal values, allowing for the taxation of the real and actual owner and not one who, by circumstances of a different nature, is sometimes nothing more than an apparent and false owner. If the case were not thus considered, not admitting and revealing the presentation of probative elements intended to demonstrate that the actual owner is, after all, a person different from the one listed in the registration and who, initially, and in principle, was supposed to be the true owner, those values would be objectively disregarded.

4.2

There is also to be considered the principle of equivalence, inscribed in article 1 of the CIUC, which underlies the polluter-pays principle and concretizes the idea inscribed therein that whoever pollutes must, therefore, pay. The said principle has constitutional seat, insofar as it represents a corollary of the provision in paragraph h) of item 2 of article 66 of the Constitution, having, also, seat in Community law, whether at the level of original law, article 130-R, of the Treaty of Maastricht (Treaty on European Union, of 07-02-1992), where the aforementioned principle came to be included as the basis of Community Policy, in the environmental field and which aims to make responsible those who contribute with the damages that accrue to the community, resulting from the use of motor vehicles, are assumed by their owner-users, as costs that only they must bear.

4.3

Having regard to the facts above described, it is important to note that the aforementioned elements of interpretation, whether those related to literal interpretation, supported by the words legally used, or those relating to logical elements of interpretation, of a historical nature or of a rational order, all point in the direction that the expression "being considered" has a meaning equivalent to the expression "being presumed", and it should thus be understood that the provision of item 1 of article 3 of the CIUC establishes a legal presumption which, in view of article 73 of the LGT, where it is established that "The presumptions established in the rules of tax scope always admit proof to the contrary", will necessarily be rebuttable, which means that the passive subjects are, in principle, the persons in whose name such vehicles are registered. These shall be, then, those persons, identified in these conditions to whom the AT must necessarily direct itself;

• But it will be, in principle, given that in the framework of prior hearing, of a mandatory character, in view of the provision in paragraph a) of item 1 of article 60 of the LGT, the tax relationship may be reconfigured, validating the passive subject initially identified or redirecting the proceeding towards that which is, after all, the true and actual passive subject of the tax in question.

• The taxpayer has the right to be heard, through prior hearing (José Manuel Santos Botelho, Américo Pires Esteves and José Cândido de Pinho, in Tax Procedure Code, Annotated and Commented, 4th edition, Almedina, 2000, annotation 8 of article 100).

• The prior hearing which, naturally, must be carried out at the moment immediately prior to the assessment procedure, corresponds to the proper seat and time to, with certainty and security, identify the passive subject of the IUC.

5 ON THE LEGAL VALUE OF REGISTRATION

5.1

Regarding the legal value of registration, it is important to note what is established in item 1 of article 1 of Decree-Law no. 54/75, of 12 February (amended several times, the last being by virtue of Law no. 39/2008, of 11 August), when it establishes that "the registration of vehicles has essentially as its purpose to give publicity to the legal situation of motor vehicles and their trailers, with a view to the security of legal commerce":

• Article 7 of the Land Registry Code (CRP), applicable, supplementarily, to motor vehicle registration, by force of article 29 of the Motor Vehicle Registry Code (CRA), provides that "The definitive registration constitutes a presumption that the right exists and belongs to the registered holder, in the precise terms in which the registration defines it";

• Definitive registration is nothing more than a rebuttable presumption, admitting, therefore, countervailing proof, as follows from the law and jurisprudence has been signaling, and can be seen, among others, the Judgments of the Supreme Court of Justice no. 03B4369 of 19-02-2004 and no. 07B4528, of 29-01-2008, available at: www.dgsi.pt;

• Therefore, the function legally reserved for registration is, on the one hand, to give publicity to the legal situation of the assets, in the case at hand, of the vehicles and, on the other hand, allows us to presume that the right exists over those vehicles and that the same belongs to the holder, as thus registered in the registration, does not have a constitutive nature of the right of ownership, but only a declarative one, hence registration does not constitute a condition of validity of the transmission of the vehicle from the seller to the buyer;

• The acquirers of the vehicles become owners of those same vehicles by way of the execution of the corresponding purchase and sale contracts, with registration or without it;

• In this context it is worth recalling that, in view of the provision in item 1 of article 408 of the CC, the transfer of real rights over things, in the case sub judice, motor vehicles, is determined by mere effect of the contract, and whereas pursuant to the provision in paragraph a) of article 879 of the CC, among the essential effects of the purchase and sale contract, the transmission of the thing stands out;

• Given the foregoing, it becomes clear that the legislative thought points in the direction that the provision of item 1 of article 3 of the CIUC establishes a presumption "juris tantum", consequently rebuttable, thus allowing the person who, in the registration, is registered as owner of the vehicle, to be able to present probative elements intended to demonstrate that such ownership is inserted in the legal sphere of another person, to whom ownership was transferred.

6 THE PRESUMPTION OF ARTICLE 3 OF THE CIUC AND THE DATE ON WHICH THE IUC IS EXIGIBLE

6.1 THE PRESUMPTION OF ARTICLE 3 OF THE CIUC

• The AT considers that the presumption existing in item 1 of article 3 of the CIUC is resulting from an interpretation against the law, resulting from a biased reading of the letter of the law and, therefore, violating the unity of the legal system, however, and with all due respect, the understanding of jurisprudence goes in the direction that the existence of a legally rebuttable presumption should be considered, whereby, consequently, it serves the values and interests questioned, both at the level of material fiscal justice and at the level of the environmental purposes intended by the IUC;

• Regarding the unity of the legal system, it is important to highlight all that has been mentioned above, namely, regarding the ratio of article 1 of the CIUC; regarding the norms and principles of the LGT; regarding the relevant and applicable norms to motor vehicle registration, regarding the interpretation that best serves and achieves the said unity and ensures the connection of those same norms, considering the legal presumption that is provided for in article 3 of the CIUC.

6.2 DATE ON WHICH THE IUC IS EXIGIBLE

• The IUC is a tax of periodic taxation, whose periodicity corresponds to the year that begins at the time of registration or on each of its anniversaries, as provided in items 1 and 2 of article 4 of the CIUC;

• It is exigible pursuant to item 3 of article 6 of the said Code;

• It is to be noted that, as to the assessment of the IUC taxed to the Applicant on the vehicles above-mentioned, in the year 2015, they are not to be considered, because at the moment of the tax facts the vehicles no longer belonged to it, since the said vehicles were sold to third parties before the year 2015 and are to be considered also those which were governed under the financial leasing contract, cf. the probative documents, already above cited and attached to the Request for Opinion, which are hereby fully reproduced for all legal purposes.

6.2.1

In relevance regarding the burden of proof, article 342, item 1 of the CC stipulates "to those who invoke a right falls the burden of proving the facts constitutive of the right alleged";

6.2.2

Also article 346 of the CC (countervailing proof) provides that "to the proof that is produced by the party on whom the burden of proof falls, the opposing party may oppose countervailing proof as to the same facts, intended to render them doubtful; if it succeeds, the matter is decided against the party burdened with proof." (As stated by Anselmo de Castro, A., 1982, ED. Almedina Coimbra, "Declaratory Civil Procedure Law", III, p. 163, "falling on one of the parties the burden of proof, to the opposing party it suffices to oppose countervailing proof, being this a proof intended to render doubtful the facts alleged by the first".

Thus, in the case at hand, what the Applicant has to prove, in order to rebut the presumption that flows both from article 3 of the CIUC and from Motor Vehicle Registration itself, is that it, the Applicant, was not the owner of the vehicles in question in the period to which the contested assessments refer. It proposes to prove, as follows from the case file, that the ownership of the vehicles did not belong to it in the periods to which the assessments refer, cf., documents attached to the Request for Opinion and which are hereby fully reproduced for all legal purposes.

6.3 REBUTTAL OF THE PRESUMPTION

• The Applicant, as referred to in 3.1., regarding the facts proven, alleged, with the purpose of dispelling the presumption, not to be owner of the vehicles, at the time of the occurrence of the tax facts, offering for that purpose the following documents:

• Copies of invoices issued at the date of sale of the vehicles;

• Accounting statements relative to the clients in question;

• Accounting entries of the Applicant, in the SNC account (Banks) relating to the amounts received from the sale of motor vehicles;

• In this manner, the ownership of the said vehicles no longer belonged to it, and therefore it could not enjoy their use, from a date prior to that on which the IUC was exigible, thus embodying means of proof with sufficient strength and adequacy to rebut the presumption based on registration, as provided in item 1 of article 3 of the CIUC, documents that enjoy the presumption of truthfulness provided for in item 1 of article 75 of the LGT.

• It follows from this that at the date on which the IUC was exigible, those who held ownership of the motor vehicles was not the Applicant

7 OTHER ISSUES RELATING TO THE LEGALITY OF THE ASSESSMENT ACTS

• Regarding the existence of other issues relating to the legality of the assessment acts, taking into account that it is inherent in the establishment of an order of knowledge of the defects, as provided in article 124 of the CPPT, that proceeding the request for arbitral opinion based on defects that prevent the renewal of the contested assessments, is prejudiced, because useless, the knowledge of other defects, it does not appear necessary to know of the other issues raised.

8 REIMBURSEMENT OF THE TOTAL AMOUNT PAID

• Pursuant to the provision in paragraph b) of item 1 of article 24 of the RJAT and, in accordance with what is established there, the arbitral decision on the merits of the claim for which there is no appeal or challenge, binds the tax administration from the end of the deadline provided for appeal or challenge, and this, in the exact terms of the merits of the arbitral decision in favor of the passive subject and until the end of the deadline provided for the voluntary execution of the sentences of the tax court judges "Restore the situation that would exist if the tax act, subject of the arbitral decision, had not been undertaken, adopting the acts and operations necessary for that purpose"

• These are legal commands that are in full harmony with the provision of article 100 of the LGT, applicable to the case, ex vi, of the provision in paragraph a) of item 1 of article 29 of the RJAT, in which it is established that "The tax administration is obliged, in case of total or partial merits of claims or administrative appeals or judicial proceedings in favor of the passive subject, to the immediate and complete restoration of the situation that would exist if the illegality had not been committed, corresponding the payment of compensatory interest, in the terms and conditions provided for in the law".

• The case contained in the present file raises the manifest application of the mentioned rules, since, as a result of the illegality of the assessment acts, referenced in this proceeding, there must, by force of such rules, be place for the reimbursement of the amounts paid, whether as title of the tax paid, whether of the corresponding compensatory interest, as a way to achieve the restoration of the situation that would exist if the illegality had not been committed.

9 THE RIGHT TO COMPENSATORY INTEREST

• The declaration of illegality and consequent annulment of an administrative act confers on the recipient of the act the right to the restoration of the situation in which the same would have found itself before the execution of the annulled act.

• In the context of the assessment of the tax, its annulment confers on the passive subject the right to the restitution of the tax paid and, as a rule, the right to compensatory interest, pursuant to item 1 of article 43 of the LGT and article 61 of the CPPT.

• Whereby the Applicant has the right to compensatory interest on the amount of tax paid, relating to the annulled assessment.

10 DECISION

Given the foregoing, this Arbitral Tribunal decides:

• To find the request for declaration of the illegality of the assessment of the IUC, concerning the year 2015, relative to the motor vehicles identified in this proceeding, well-founded, and consequently annuls the corresponding tax acts;

• To find the request for condemnation of the Tax Administration for reimbursement of the undue amount paid, in the sum of € 15,636.64 (fifteen thousand, six hundred and thirty-six euros and sixty-four cents), plus the respective compensatory interest, legally owed, well-founded, condemning the Tax and Customs Authority to effect these payments.

VALUE OF THE PROCEEDING:

• In accordance with the provisions of articles 306, item 2 of the Civil Procedure Code and 97-A, item 1 of the CPPT and article 3, item 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at € 15,636.64 (fifteen thousand, six hundred and thirty-six euros and sixty-four cents).

COSTS:

• In accordance with item 4 of article 22 of the RJAT, the amount of costs is fixed at € 918.00, pursuant to Table I, attached to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Tax and Customs Authority.

Notify the parties.

Lisbon, 23-05-2016

The Arbitrator

Maria de Fátima Alves

(the text of this decision was prepared on computer, pursuant to article 131, item 5 of the Civil Procedure Code, applicable by reference of article 29, item 1, paragraph e) of Decree-Law 10/2011, of 20 January (RJAT), being governed in its writing by current orthography)