IUC Subjective Incidence: Vehicle Registration Presumption Does Not Prove Ownership for Tax Liability (CAAD 217/2015-T)

ARBITRAL DECISION

CAAD: Tax Arbitration

Process No. 217/2015-T

I. Report

1. A… - …, Ltd., legal entity no. …, represented by managing partner B…, resident at Rua …, Lot …, … …, requested the establishment of an arbitral tribunal in tax matters by raising a request for an arbitral decision against the tacit dismissal of a hierarchical appeal filed against the express refusal of a gracious claim and, consequently, against the acts of assessment of Single Circulation Tax (IUC), increased by compensatory interest, relating to the years 2009 to 2012 and motor vehicles which, in the petition, it identifies by their respective registration numbers.

2. As the basis for its request, the Claimant alleges, in summary, that, although the vehicles in question were registered in its name as of the date to which the taxable facts that gave rise to the questioned assessments relate, they were property of third parties to whom they had been transferred by sales contracts.

3. In response to the request, the Tax and Customs Authority (AT) ruled in favor of the inadmissibility of the present request for an arbitral decision, maintaining in the legal order the disputed tax acts and, accordingly, by absolution of the defendant entity.

4. The request for the establishment of the arbitral tribunal was accepted and automatically notified to the Tax and Customs Authority.

5. Under the terms provided in letter a) of no. 2 of article 6 and letter b) of no. 1 of article 11 of Decree-Law no. 10/2011, of January 20, with the wording introduced by article 228 of Law no. 66-B/2012, of December 31, the Deontological Council appointed the signatory as arbitrator of the single arbitral tribunal, who communicated acceptance of the assignment within the applicable period.

6. Duly notified of this appointment, the parties did not express their intention to refuse the appointment of the arbitrator, in accordance with the combined terms of article 11, no. 1, letters a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

7. Regularly constituted, the arbitral tribunal is materially competent, in light of what is prescribed in articles 2, no. 1, letter a), of RJAT.

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

9. Given the knowledge derived from the procedural documents, considered sufficient, the meeting alluded to in article 18 of RJAT was waived, with the parties' consent, as well as the submission of arguments.

II. Preliminary Issues

1. The Tax and Customs Authority (AT), in its response, raises preliminary issues relating to the Claimant's failure to present documents evidencing payment of the tax, which in the part where it acknowledges the tax to be due, with reference to one of the vehicles and periods identified in the gracious claim and subsequent hierarchical appeal. It further maintains that the Claimant has not presented "the assessment acts that it now disputes, thereby making it impossible to verify the economic value that it disputes."

2. Given the preliminary issues raised by the Respondent, the Tribunal decided to address them immediately, before proceeding with any evidentiary measures.

3. It is evident from both the petition and the other documents that compose the present proceeding, in particular the administrative file, that the Claimant precisely identifies the tax acts that constitute the mediate object of its request, making clear that it concerns IUC relating to various years, which it specifies, and vehicles which it identifies by indicating their respective registration numbers.

4. The Claimant further specifies that, with respect to one of the vehicles it identifies and with reference to tax periods, equally specified, whose assessment it had previously contested in administrative claim proceedings and hierarchical appeal, it had acknowledged being responsible for payment of the tax, having already proceeded with the respective payment.

5. From the foregoing, it follows that the preliminary issues raised by the Respondent should be considered inconsistent, it being recognized that the tax acts disputed are identified with precision and, by resort to the elements of the proceedings, in particular the administrative file, the economic value disputed is easily quantifiable.

6. Therefore, the tribunal considers the preliminary issues raised by the Respondent inadmissible.

III. Factual Matters

1. With relevance to the appreciation of the issues raised, the following factual elements are highlighted, which, based on the documentary evidence attached to the record, are considered proven:

16.1. The Claimant was notified of acts of official assessment of IUC and respective compensatory interest relating to the tax periods, vehicles and amounts, identified as follows:

Note: The assessments relating to the vehicle with registration number …-…-… and the periods 2009 and 2010 are not considered here, which the Claimant acknowledges to be due and has already opportunely paid, excluded by it from the scope of the present request for an arbitral decision.

16.2. In a timely manner, the Claimant reacted against said assessment acts through a gracious claim in which, in essence, it alleges not to be the passive subject of the tax obligation inasmuch as, as of the date of occurrence of the respective taxable event, the vehicles to which these relate had already passed into the property of third parties, by sales contracts.

16.3. To substantiate the alleged facts, the claimant - now Claimant - attached to the claim authenticated copies of sales invoices, which identify, in addition to the date of sale, the vehicle transacted and the respective purchaser.

16.4. By order of August 13, 2014, the claim was entirely dismissed on the ground that, as of the date of tax exigibility, the vehicles to which it relates were registered in the name of the Claimant, whereby this constituted the passive subject of the tax, pursuant to article 3 of CIUC.

16.5. From said dismissal decision the Claimant, in a timely manner, filed a hierarchical appeal which, as of the date of filing of the present request, had not been subject to a decision, thus presuming its tacit dismissal.

16.6. In the present request for an arbitral decision, the Claimant expresses its disagreement regarding the mentioned assessment acts, with the grounds already exposed in the gracious claim proceeding, summarized above.

16.7. It excludes, however, from the scope of the request, the assessments relating to the years 2009 and 2010 and to the vehicle with registration number …-…-…, the payment of which, which it has already made, it considers to be its responsibility.

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

IV. Cumulation of Claims

1. The present request for an arbitral decision relates to various IUC assessments. However, given the identity of the taxable facts, of the tribunal competent to decide and of the factual and legal grounds invoked, the tribunal considers that, in light of what is provided in articles 3 of RJAT and 104 of CPPT, nothing prevents the cumulation of claims.

V. Legal Matters

1. In the request for an arbitral decision the Claimant submits to the appreciation of this tribunal the act of tacit dismissal of hierarchical appeal, timely filed following express dismissal of gracious claim and, consequently, the legality of IUC assessment acts, relating to the periods 2009 to 2012 and to the vehicles it identifies in the table above, invoking the circumstance that, as of the date to which the taxable facts that originated them relate, the same were already property of third parties and, consequently, not assuming the quality of passive subject of the tax that was assessed to it.

2. It is, therefore, a matter of determining whether the Claimant should or should not be considered the passive subject of IUC with respect to the vehicles and periods to which the tax relates, duly identified in the request, registered in its name in the Motor Vehicle Registry, but which, as of the date when the tax became due, did not constitute its property having already been subject to sale to third parties.

3. Thus, regarding the quality of passive subject of the tax obligation imputed to it, the Claimant alleges that, as of the date of occurrence of the taxable facts, it was not the owner of the vehicles to which the questioned assessments relate, since they had already been sold to third parties: on June 9, 2007, the vehicle with registration number …-…-…; and on July 13, 2011 the vehicle with registration number …-…-….

4. However, since the registration of said vehicles was not updated, the Claimant continued to appear therein as owner, a situation that would continue to exist until, at least, the date when the questioned assessments were issued.

5. According to the understanding of AT, expressed in the gracious claim filed by the Claimant, it is sufficient that the vehicle is registered in the name of a certain person for this person to qualify as the passive subject of the tax obligation of IUC.

6. The issue to be appreciated and decided in the present proceeding centers, therefore, on the interpretation of no. 1 of article 3 of CIUC, in order to determine whether the rule of subjective scope therein contained admits, or not, that the person in whose name the vehicle is registered in the Motor Vehicle Registry may demonstrate, through the means of proof allowed in law, that notwithstanding such fact, is not the owner of the vehicle in the period to which the tax relates and thus exclude the tax obligation that rests upon it.

7. In sum, it is a matter of knowing whether such rule establishes a legal presumption of tax scope, subject to rebuttal, as the Claimant contends, or if, differently, as AT understands, "the tax legislator wished expressly and intentionally that those be considered as owners the persons in whose names (the vehicles) are registered."

8. In response to what the Claimant alleges, AT responds in the sense that such allegations cannot at all proceed, and that no. 1 of article 3 of CIUC establishes 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 names the same are registered."

9. Developing its position, the Respondent states, in summary, that "The tax legislator in establishing in article 3, no. 1, who are the passive subjects of IUC, determined expressly and intentionally that these are the owners (...) considered as such the persons in whose names the same are registered."

10. In defense of this point of view, the Respondent emphasizes that "the legislator did not use the expression 'presumed' as it could have done." It further notes the circumstance that "the tax rule is full of provisions analogous to that enshrined in the final part of no. 1 of article 3, in which the tax legislator, within its freedom of legislative choice, expressly and intentionally, establishes what should be considered legally for purposes of scope, of income, of exemption, of determination and of periodization of taxable profit, of residence and of location, among many others."

11. After citing various examples of what it affirms, the Respondent concludes it to be "imperative to conclude that, in the case of the present arbitral decision proceedings, the legislator established expressly and intentionally that those be considered as such (as owners...) the persons in whose names the same (the vehicles) are registered, inasmuch as it is this interpretation that preserves the unity of the fiscal legal system. Whereby, 'to understand that the legislator enshrined here a presumption would unequivocally be to effect an interpretation against law.'"

12. Exposing, in summary and with partial transcription, the positions of the Claimant and the Respondent, they will be clearly defined:

• for the Claimant, the subjective scope of IUC rests on a presumption of ownership, derived from motor vehicle registration, subject to rebuttal under legal terms; and

• for the Respondent, the rule of CIUC does not establish any presumption, expressing understanding in the sense that the legislator defined as the passive subject of this tax, expressly and intentionally, the owner of the vehicle identified in the respective registration.

On the Subjective Scope of IUC.

1. With reservation of what is provided in no. 2, with respect to situations of sale with retention of ownership and leases that assume the nature of financing, article 3 of CIUC establishes that the passive subjects of this tax are the owners of the vehicles, being considered as such the persons in whose names the vehicles are registered.

2. The resort to motor vehicle registration as a structuring element of the system of assessment of this tax is evidenced throughout the respective Code. Specifically, its article 6 relating to the definition of the taxable event of the tax obligation, the no. 1 of which provides that it is constituted by ownership of the vehicle, as attested by the registration number or registration in national territory. From this provision it follows that motor vehicles which are not, nor should be, registered in Portuguese territory are only covered by the objective scope of this tax if they remain therein for a period exceeding 183 days, as provided in no. 2 of the same article. It is, therefore, a rule which, resorting to the registration element, establishes, simultaneously, the taxable event of the tax and the respective fiscal connection. It is also from the elements of motor vehicle registration that the beginning of the tax period and constitution of the tax obligation are extracted and, in general, all elements necessary for the assessment of the tax in question, as has, moreover, been well emphasized in the response prepared by AT.

3. However, from the dependence of the IUC taxation regime on motor vehicle registration it cannot be immediately concluded that the rule of subjective scope, in the segment in which it considers as owner the person in whose name the vehicle is registered, does not constitute a presumption of tax scope. Thus, it will be necessary to resort to other interpretative elements, with special relevance of the legal notion of presumption set out in article 349 of the Civil Code.

Explicit and Implicit Presumptions.

1. The Respondent sustains that the tax legislator, "within its freedom of legislative choice" expressly and intentionally determines that those be considered as owners the persons in whose names the vehicles are registered, not using the expression "presumed" as such, as it could have done.

2. In fact, in the definition of the subjective scope of ICI, ICA and IMV, taxes which the current IUC came to replace, it was that expression that was used by the legislator. Within the scope of the abolished taxes, it is established that "the tax is due by the owners of the vehicles, presumed as such, unless proven otherwise, the persons in whose name the same are registered or matriculated."

3. In the same sense, article 3, no. 1, of the Regulation of Circulation and Haulage Taxes, approved by DL no. 116/94, of May 3, establishes that the passive subjects of these taxes are "the owners of the vehicles presumed as such, unless proven otherwise, the natural or legal persons in whose names the same are registered."

4. With regard to IUC, the legislator opted to use a different formulation of the rule of subjective scope. As in the abolished taxes, it continues to attribute to the owners of the vehicles the quality of passive subjects. However, it abandons the expression "presumed as such, unless proven otherwise, the persons in whose name the same are registered" in favor of "considered as such the persons (...) in whose names the same are registered."

5. Differently from the position expressed by AT, we understand that we are before a mere semantic question, which does not alter in the slightest the content of the rule in question and for two orders of reasons: In order for us to be before a legal presumption, it is necessary that the rule that establishes it conforms to its respective legal concept, set out in article 349 of the Civil Code, being for such purpose irrelevant whether the same is explicit, revealed by the use of the expression "presumed" or only implicit; on the other hand, the freedom of choice of the legislator is limited by fundamental principles enshrined in the Constitution of the Republic, of which, with relevance for the present case, the principle of equality stands out. In the tax field, this principle translates into the generality and abstraction of the rule that creates the essential elements of the tax, in accordance with the contributive capacity of each one. As is extracted from the judgment of TC no. 343/97, of April 29, 1997, "Taxation in accordance with the principle of contributive capacity will imply the existence and maintenance of an effective connection between the tax payment and the economic assumption selected as the object of the tax, requiring, therefore, a minimum of logical coherence of the various concrete hypotheses of tax provided in law with the corresponding object thereof."

6. It is in the sense of the legal concept of presumption and in respect of the constitutional principles of equality and contributive capacity that the legislator attributes full effect to the presumption derived from motor vehicle registration by accepting it, as such, in the definition of the subjective scope of this tax established in no. 1 of article 3 of CIUC.

7. It is further the case that Decree-Law no. 54/75, of February 12, which regulates motor vehicle registration, not providing any rule regarding the constitutive character of motor vehicle property registration, establishes, in no. 1 of its article 1, that motor vehicle registration aims only to give publicity to the legal situation of the goods. In accordance with article 7 of the Land Registry Code, supplementarily applicable to motor vehicle registration, by referral of article 29 of that instrument, it determines that registration only "(...) constitutes a presumption that the right exists and belongs to the registered holder, in the precise terms in which the registration defines it."

8. Pronouncing itself on this matter, the Supreme Court of Justice, in judgment of February 19, 2004, delivered in proceeding no. 3B4369, concludes that "(...) registration does not have constitutive effect, since it is intended to give publicity to the registered act, functioning (only) as a mere presumption, rebuttable (presumption 'juris tantum') of the existence of the right as well as of the respective ownership, in the terms thereof contained (...)."

9. Thus, accompanying the reiterated arbitral jurisprudence relating to identical situations, it cannot fail to be understood that the expression "considered as such" contained in the aforesaid rule, configures a legal presumption, and that this is rebuttable, under general terms, and, in particular, by virtue of what is provided in article 73 of LGT which determines that the presumptions enshrined in the rules of tax scope always admit proof to the contrary.

Rebuttal of Presumptions

1. The presumptions of tax scope may be rebutted through the contradictory procedure proper provided in article 64 of CPPT or, alternatively, by way of gracious claim or judicial impugnation of the tax acts based thereon.

2. In the present case, the Claimant did not use that proper procedure, having instead opted for the way of gracious claim and, subsequently, for the present request for an arbitral decision which, thus, constitutes a proper means for rebutting the presumption of subjective scope of IUC on which the tax assessments whose annulment constitutes its object are based, since it is a matter that falls within the scope of material competence of this arbitral tribunal (arts. 2 and 4 of DL 10/2011).

3. In order to rebut the presumption derived from the entry in motor vehicle registration, the Claimant offers, as a means of proof, copies of the invoices issued with reference to the transfer of the vehicles to which the questioned assessments relate (Docs. 3 and 4).

4. Pronouncing itself on the documentary proof presented, the Respondent alleges that the invoices "...(by themselves) do not constitute an appropriate document to prove the sale of the vehicle in question, since the same are nothing more than a document unilaterally issued by the owner of the vehicle, whereby "...(by themselves) are not apt to prove the execution of a synallagmatic contract as is the sale and purchase, since that document does not reveal by itself an indispensable and unequivocal declaration of will (i.e., acceptance) on the part of the purported purchaser."

5. It further alleges the Respondent that "Indeed, there is no lack of cases of issuance of invoices relating to transfers of goods and/or of provisions of services that never came to fruition... The rules of motor vehicle registration (still) have not reached the point of an invoice unilaterally issued by the Claimant being able to replace the Motor Vehicle Registration Request, moreover a document approved by official form."

6. If one may extract from the position of the Respondent as to the proof produced, this would be insufficient to exclude the tax scope defined on the basis of ownership, as appears from the registration which, in coherence with the substantive position assumed by it, would only be excluded as a function of timely updating of the registration itself.

7. That not being the understanding of the tribunal, it is important to evaluate the proof produced by the Claimant in order to determine whether it is sufficient to rebut the presumption derived from motor vehicle registration which, in the plane of subjective scope, is accepted for purposes of IUC.

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

9. Being contracts which involve the transfer of ownership of movable goods, through the payment of a price, they have, as essential effects, among others, that of delivering the thing (Civil Code, arts. 874 and 879).

10. However, when it comes to a sales contract which has as its object a motor vehicle, in which registration is mandatory, its punctual performance presupposes the issuance of the declaration of sale necessary for the entry in the registration of the corresponding acquisition in favor of the purchaser, as has been understood by the jurisprudence of the superior courts. Such declaration, relevant for registration purposes, may constitute proof of the transaction, but does not constitute the only or exclusive means of proof of the transaction.

11. For registration purposes, no special formalism is required either, being sufficient the presentation to the competent entity of a request subscribed by the purchaser and confirmed by the vendor, which, through a declaration of sale confirms that the ownership of the vehicle was acquired by the latter by verbal contract of sale (see Motor Vehicle Registration Regulation, art. 25, no. 1, letter a).

12. Notwithstanding that these are the rules derived from the provisions of civil law, relating to the informality of the transfer of movable property and, being the case, of the respective registration, it cannot fail to be taken into account that, in the situation under analysis, we are before commercial transactions, carried out by a business entity subject, in tax matters, to certain obligations.

13. In that sphere, the enterprise is bound by the observance of specific accounting and fiscal norms, in which invoicing assumes special relevance.

14. First of all, by virtue of tax rules, the entity transmitting the goods is obliged to issue an invoice relating to each transfer of goods, whatever the quality of the respective purchaser (VAT Code, art. 29, no. 1, letter b).

15. Also in accordance with what is provided in tax rules, the invoice must comply with a certain form, detailed in articles 36 of the VAT Code and article 5 of Decree-Law no. 198/90, of June 19.

16. Since they are issued in legal form and constitute supporting elements of accounting entries in accounts organized in accordance with commercial and fiscal legislation, the data they contain are covered by the presumption of truthfulness to which article 75, no. 1, of LGT refers.

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

18. The presumption of truthfulness of commercial invoices issued in accordance with legal terms may, however, be excluded whenever the operations to which they refer do not correspond to reality, sufficing, for that, that the Tax Administration collects and demonstrates founded indications of that fact (LGT, art. 75, no. 2, al. a).

19. In the present case, although the Respondent affirms, generalizing, that there is no lack of cases of invoices relating to operations that never occurred, it does not raise any doubt as to the operations titled by the invoices presented by the Claimant, limiting itself to the assertion that "... the documents to which we have been referring are copies of invoices, in which the copy that constitutes Doc. 3 is completely illegible, not even showing the VAT charged and the copy that constitutes Doc. 4 mentions only 'Scania Truck 48-53-FL'."

20. However, from the analysis of said copies it is verified that, although the digitization carried out is not perfect, from them - with some effort, it is certain - the relevant elements can be extracted for the purpose that they aim to achieve. In fact, the date of issuance of each invoice is perfectly legible, the identification of the seller and the purchaser and the registration number of each of the vehicles that constitute the object of the transaction to which they refer.

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

22. Considering, thus, documentarily proven the transfer of the right of ownership of the vehicles in question, there is only to determine, case by case, the date in which, according to the respective invoice, the same shall have been verified, taking into account that tax exigibility occurs on each anniversary of the registration date, as provided in article 6, no. 3, of CIUC, this being the moment in which the tax legal relationship is defined.

23. Based on the documents that make up the present proceeding - in particular the respective administrative file and invoicing issued by the Claimant - it is verified that, as of the date of tax exigibility relating to the periods 2009 to 2012, the vehicle with registration number …-…-… had already been subject to sale. As to the vehicle with registration number …-…-…, registered on July 3, 1995, it is verified that, having been the same subject to sale on July 13, 2011, it was the property of the Claimant at the moment in which, according to article 6, no. 3, of CIUC, the exigibility of IUC with reference to the period 2011 was verified.

24. In these terms, it is considered that the presumption of ownership derived from motor vehicle registration accepted in no. 1 of article 3 of CIUC has been rebutted, with respect to the vehicle with registration number …-…-… and periods to which the questioned assessments relate and with reference to the vehicle with registration number …-…-…, with respect to the period of 2012, dispensing with, as unnecessary, testimonial proof.

VI. Decision

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

a) To uphold the request for an arbitral decision, insofar as it concerns the rebuttal of the presumption of subjective scope of IUC, with respect to the vehicle with registration number …-…-… and periods 2009 to 2012, and with respect to the vehicle with registration number …-…-… and period 2012, to which the assessments of tax and compensatory interest identified in the table inserted in point 16.1 of the present decision refer, determining their annulment with the legal consequences;

b) To dismiss the request for an arbitral decision, insofar as it concerns the rebuttal of the presumption of subjective scope of IUC, with respect to the vehicle with registration number …-…-… and the period of 2011.

Value of the Proceedings

The value of the proceedings is set at €3,252.33, in accordance with article 97-A, no. 1, letter a), of CPPT, applicable by referral of article 29, no. 1, letters a) and b), of RJAT and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings.

Costs

Under article 22, no. 4, of RJAT, and in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, I set the amount of costs at €612.00, to be borne by the Claimant and the Respondent (AT), in proportion to their respective success.

Lisbon, October 26, 2015

The Arbitrator, Álvaro Caneira.

[1] See Jorge de Sousa, CPPT, 6th Edition, Áreas Editora. Lisbon, 2011, pages 586 and STA, Judgments of February 29, 2012 and May 2, 2012, Processes 441/11 and 381/12.

[2] See, in particular, Arbitral Decisions of July 19, 2013, September 10, 2013, October 15, 2013, December 5, 2013 and February 14, 2014, delivered, respectively, in Processes 26/2013-T, 27/2013-T, 14/2013-T, 73/2013-T and 170/2013-T. In the same sense, TCAS, Judgment of March 19, 2015 - Process 08300/14.

[3] See STJ, Judgments of March 23, 2006 and October 12, 2006, Processes 06B722 and 06B2620.

[4] See Opinion of the Center for Tax Studies, approved by order of the Director-General of Taxes, of January 2, 1992, published in Science and Tax Technique no. 365.

[5] See STA, Judgment of October 27, 2004, Process 0810/04, TCAS, Judgment of June 4, 2013, Process 6478/13 and TCAN, Judgment of November 15, 2013, Process 00201/06.8BEPNF, among others.

[6] See STA, Judgments of April 24, 2002, Process 102/02, of October 23, 2002, Process 1152/02, of October 9, 2002, Process 871/02, of November 20, 2002, Process 1428/02, of January 14, 2004, Process 1480/03, among many others.