CAAD Arbitration 243/2016-T: IUC Vehicle Tax Objective Incidence and Discrimination in Used Vehicle Admission

ARBITRAL DECISION

I – REPORT

1. A…, taxpayer no. …, domiciled at Rua … no. … – …, …-… Parede, and B…, taxpayer no. … domiciled at Rua … no.…, …, … …-… Estoril, hereinafter First and Second Claimants, respectively, filed jointly, on 28.04.2016, a request for the constitution of a Tribunal and arbitral decision, pursuant to article 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters, hereinafter "RJAT", and article 99, paragraphs a) and following of the Code of Tax Procedure and Process (CPPT), for the examination of challenges to assessments of the Single Circulation Tax (IUC) levied by the Tax and Customs Authority (AT), hereinafter Respondent, on motor vehicles of which they are owners.

In the aforesaid petition, it is requested that the challenges be granted, declaring annulled all the IUC assessments placed in issue, with restitution of the amount paid and respective compensation interest, and condemning the Respondent in costs.

1. Pursuant to the provisions of articles 6, no. 1 and 11, no. 1, paragraph a) of the RJAT, the Deontological Council of the Administrative Arbitration Centre (CAAD) designated the undersigned as sole arbitrator on 29.06.2016, having the same communicated acceptance of such assignment.

2. Having notified the Parties of such designation, pursuant to the combined provisions of article 11, no. 1, paragraph b) of the RJAT, with articles 6 and 7 of the CAAD Deontological Code, the parties did not manifest the intention to refuse the designation of the arbitrator.

In these circumstances, in conformity with the provisions of article 11, no. 1, paragraph c) of the RJAT, in the wording introduced by Law no. 66-B/2012, of 31 December, the sole arbitral tribunal was constituted on 14.07.2016.

1. Pursuant to article 17, nos. 1 and 2 of the RJAT, the Respondent was notified to present a reply within the period of 30 days and, should it so wish, request the production of additional evidence, and within the same period a copy of the administrative file was to be sent.

2. The reply was given on 30.09.2016, the sending of the administrative files in question being fractionated, on 06.10.2016 and 17.11.2016, with an additional clarification provided by the competent technical normative service of the Respondent, on 16.12.2016.

In that reply, the Respondent invoked the merits of a dilatory exception that would justify the dismissal of the instance and, should the same not be recognized, sustained the legality of the assessments made, concluding that the request for arbitral decision should be judged without merit, with the consequent maintenance in the legal order of the contested taxation acts, and absolved of the claims, all with the due legal consequences. It further requested waiver of the holding of the meeting referred to in article 18 of the RJAT, as well as waiver of the production of arguments.

1. In the subsequent proceedings, the Claimants were notified on 03.10.2016 to pronounce themselves on the invoked exception and on the waiver of the meeting and production of arguments, which they did on 14.10.2016, denying the exception and objecting to the waiver of the meeting and production of arguments.

2. The meeting referred to in article 18 of the RJAT took place on 24.10.2016, and minutes were drawn up, which were attached to the file.

At such meeting, the full substantiation of the lack of merit of the illegal joinder of claimants, a dilatory exception raised by the respondent, was deferred to the final arbitral decision, and the arbitral tribunal requested various clarifications from the Parties, which agreed to send documentation respecting the said clarifications, and a deadline was set for the presentation of written arguments.

1. On 16.12.2016, during the period in which the deadline for presentation of final arguments was running, the Claimants presented a supplementary pleading in which, on the basis of article 63 of the Code of Administrative Procedure and Process (CPTA), they requested the expansion of the arbitral decision, so as to also cover the official IUC assessments of the vehicles sub judice of the year 2016, made pending the arbitral process, and whose amounts they proved to have paid, with the consequent alteration of the value of the case.

2. On 04.01.2017, the Respondent replied to the request for expansion, opposing the same request, and on 05.01.2017 filed arguments, reiterating, in essence, the reply to the initial petition.

3. On 04.01.2017, the Claimants presented written arguments, in which they reaffirmed and developed the argument already set out in the arbitral request, having requested the attachment of a set of documents deemed necessary by reason of the Respondent's reply to the initial petition.

4. Given some difficulties related to delays in the submission of the administrative files, with repercussions on the presentation of arguments, the final deadline initially set for the delivery of the arbitral decision, of 09.12.2016, came to be altered to 06.01.2017, and later to 13.01.2017.

II – THE REQUEST FOR ARBITRAL DECISION AND THE RESPECTIVE REPLY

1. To substantiate the request for arbitral decision, the Claimants, in the initial petition, in essence, alleged the following:

A - Material facts relating to the First Claimant:

a) Is the owner of a vehicle manufactured in 1990, admitted within the scope of a transfer of residence from the United Kingdom to Portugal, to which on 26.06.2012 was assigned the national registration …-… -…;

b) Was notified by the AT, in prior hearing proceedings, to pronounce on the official IUC assessments for the years 2014 and 2015, which were based on the year of registration of 2012, the month of registration 06, cylinder capacity 3600 cm3, carbon dioxide emissions (CO2) 273 g/Km, with petrol as the fuel, and the IUC rates in force in the respective years;

c) For both prior hearings he presented developed legal argument, having argued that the vehicle should have been classified in category A for having had an initial registration before 1990, that is prior to the date of entry into force of the IUC, and consequently the proposed official assessments should be annulled;

d) The Respondent sustained the legality of the projected official assessments, sustaining that IUC is a tax of an environmental nature, intended to burden taxpayers in the measure of the environmental and road costs they cause, obeying the principle of equivalence, entered into force for category B vehicles on 01.07.2007, pursuant to paragraph a) of no. 2 of article 14 of the said CIUC, and in that the vehicle was registered in Portugal on 26.06.2012, that is on a date after the entry into force of the code, it is duly integrated in the said category.

It is in keeping with the understanding disclosed in IUC Instruction no. …/2008, with the clarifications provided on 20.02.2015, there being no incompatibility with Community law, which is why the European Commission (EC) itself withdrew the infringement procedure it had raised against Portugal;

e) Faced with the rejection, the First Claimant proceeded to payment of the IUC for the years 2014 and 2015, in the amounts of 874.03 € and 841.45 €, respectively.

B - Material facts relating to the Second Claimant:

a) On 10.02.2016 was notified of the official IUC assessment for the year 2015 of the vehicle of the brand «… »…, powered by diesel, with registration …-… -…, in the amount of 649.22 €, without the tax services having carried out a prior hearing;

b) Regarding the years 2012, 2013 and 2014 had paid the respective IUC of the vehicle, but subsequently requested the official revision of his tax situation on the grounds of an error by the services;

c) With effect, he had ascertained that the vehicle was wrongly classified by the tax services, which had inserted it in category B, considering the date of the current Portuguese registration as the relevant date for the purposes of objective incidence of IUC, an element that was used in the said assessments, when they should have inserted it in category A, given that the first registration of the vehicle, before it had been admitted in national territory, had been on 01.08.1997;

d) The correct understanding applicable to the said assessments, in accordance with article no. 68-A, no. 1 of the LGT which regulates generic guidance, is that which is contained in the dispatch of the Director General of Taxes of 14.01.2008 and as is set out in points 2 and 3 of paragraph B of IUC Instruction no. …/2008, of the Sub-Director General …, in which, for the purposes of incidence of IUC, it was understood that the date of registration or initial records should be considered, if the necessary proof is made through the corresponding logbook or single circulation document, or the date of its registration in Portugal, if nothing is stated in the logbook or single circulation document as to the registration or initial record;

e) This same understanding had been adopted in an opinion of the tax service of ...…, which, however, found itself unable to assess the taxes owed by the vehicle in class A, given that the same was inserted in the computer system as belonging to category B, there being no way to alter the said classification, which is why the procedure had been sent to the central services;

f) At the level of the central services, a dispatch was to be issued rejecting the request for official revision, as per the dispatch issued by subdelegation of powers by the Director of Services (in substitution).

C – Of the arbitral claim

a) The Claimants, in joinder of claimants and joinder of claims, request the annulment of the IUC assessments that fell on the vehicles with registrations …-… -… and …-… -…, having been based on an incorrect classification of the category of the vehicles, having been classified in class B, on the basis of the date of national registration, when they should have been classified in class A, by reason of having had a first registration prior to the date of entry into force of Law no. 22-A/2007, of 29 June, as stated in the logbooks issued in the countries of origin;

b) Had relied on the understanding disclosed by the DGCI, in its IUC Instruction …/2008, which had been approved by dispatch of the Director General of Taxes, on 14.01.2008, on the "Date to be considered for the purposes of payment of IUC of vehicles initially registered or recorded abroad", being indicated in no. 2 that "For the purposes of incidence of IUC the following is considered:

• The date of registration or initial records, if the necessary proof is made through the corresponding logbook or single circulation document;

• The date of its registration in Portugal, if nothing is stated in the logbook or single circulation document as to the registration or initial record";

c) The content of the said instruction had nothing doubtful that would require clarification so that the "clarification" dated 20.02.2015 is nothing more than the revocation by the AT of its previous understanding, for from this new understanding, it is concluded in the opposite sense to the previous understanding, thus it is not a clarification, being silent as to the doubts it intended to clarify;

d) One of the principles of administrative and tax action is that of good faith, by way of articles 266, no. 2 of the Constitution of the Portuguese Republic (CRP) and 55, 59 no. 1 and 68-A of the General Tax Law (LGT) and 10 of the Code of Administrative Procedure (CPA);

e) The fact that the AT intends to apply this new orientation to the present case, regarding tax facts prior to its communication is a breach of law (article 163, no. 1 of the CPA) generating voidability, a defect which is hereby invoked, these acts should be annulled with retroactive effect;

f) All decisions and the 2015 IUC assessment of the vehicle …-…-… did not comply with the right to prior hearing provided in the case of a draft rejection and before an official assessment, under article 60, no. 1 paragraph b) of the LGT, it being certain that in the case of the 1st Claimant no ground was invoked, and that, in the case of the 2nd Claimant, it was written «… with waiver of the exercise of the right to hearing provided for in article 60 of the LGT, since the decision is based on the interpretation of the legal norms applicable to the facts and arguments raised by the Appellant»;

g) Such lack of hearing is a defect in the tax procedure that reverberates in the final decision, for the same, in some cases, was based on a draft unfavorable decision that was unknown, based on a dispatch of 20.02.2015, which gave a new wording to IUC Instruction …/2008, which for not having been subject to mandatory publicity within the 30-day period provided for in article 59, no. 3 paragraph b) of the LGT was unknown to the appellants, these being unable to pronounce themselves on the same new position, which is an omission, including of a right with constitutional consecration in articles 267, no. 5 and 103, no. 3 of the Constitution of the Portuguese Republic (CRP) and article 60 of the LGT, which implies the voidability of the procedures and of the subsequent decision acts and of the IUC assessments in question, all for breach of law;

h) Even if that were not understood, in all assessments prior or subsequent to the dispatch that altered the initial interpretation, contained in the IUC/2008 instruction, nevertheless, these assessments should be annulled, for the previous interpretation is the only legal one, that is it is that and not the one resulting from the alteration of 20.02.2015 that is the only legally possible interpretation of article 2, no. 1 a) of the CIUC, that is in the case of the vehicles previously registered, for the purposes of objective incidence of IUC, the relevant registration date is that of the first registration, if this is not stated in the documents, thus the said norm refers that in category A shall be placed the vehicles … registered from 1981, until the entry into force of the present code, and in paragraph b) refers that in category B shall be placed the vehicles … registered on a date after the date of entry into force of this code;

i) The text of the norm does not indicate that the expression, registered, refers only to the current Portuguese registration of the vehicle, it being certain that, in certain situations, the vehicle may have had another registration, namely of other countries or even of former Portuguese colonies, or even another Portuguese registration, later cancelled;

j) IUC also applies to vehicles not registered in Portugal, as follows from the provisions of article 6, no. 2 and article 16, no. 3 paragraph a) of the CIUC, whereby in such cases the date of registration, for determining the category, in light of article 2 no. 1 of the CIUC could certainly not be that of national registration, whereby once it has been shown that it cannot be only that of the date of national registration, to be used, for the purposes of article 2 no. 1 of the CIUC, then recourse must be had to the legal criteria for interpreting the law, to ascertain the correct interpretation of the same norm;

l) In accordance with the historical element, a correct interpretation of article 2, no. 1 paragraphs a) and b) of the CIUC leads to the date of registration for the purposes of determining objective incidence under IUC being the date of the first registration of the vehicle, in accordance with the rule that was in force in the regulation of the Municipal Tax on Vehicles (IMV).

1. In reply to the request for arbitral decision, the Respondent comes to state the following:

As a preliminary matter, it raises the exception of illegal joinder of claimants.

In its understanding, article 3, no. 1 of the RJAT requires two cumulative requirements: the first, that the merits of the claims essentially depend on the examination of the same circumstances of fact; and the second, that the merits of the claims essentially depend on the interpretation and application of the same principles or rules of law;

In the present case the requirement of coincidence as to the circumstances of fact is not met, whereby the joinder of claimants is illegal, should not be admitted by the Singular Arbitral Tribunal, which should notify the Claimants, pursuant to the terms and for the purposes of article 12, no. 3 of the CPTA, under pain of dismissal of the instance.

The illegal joinder of claimants, embodies a dilatory exception provided for in article 89, paragraph f) of the CPTA, applicable ex vi of article 29, no l, paragraph c) of the RJAT, which prevents knowledge of the merits of the case (article 576, no 2 of the Civil Procedure Code, applicable ex vi of article 29, no l paragraph e) of the RJAT) and leads to the dismissal of the Respondent.

Without waiving, on the question of substance, it states:

a) Category A includes light passenger vehicles and light commercial vehicles with a gross weight not exceeding 2,500 kg, registered between 1981 and the date of entry into force of the CIUC (1 July 2007), the aim being to safeguard with the individualization of these vehicles in a category the "legitimate expectations" of taxpayers who, before the motor vehicle taxation reform, had borne the cost of the Motor Vehicle Tax (IA) and were subject to IMV;

b) The need to safeguard these taxpayers is based on the circumstance that, at the time of the motor vehicle taxation reform, part of the tax burden that weighed on vehicles at the moment of acquisition was shifted to the circulation phase.

In effect, before the reform, motor vehicle taxation was strongly concentrated at the acquisition phase, whereby vehicles making up the then "circulating fleet" had been subjected to a stronger tax burden at the moment of purchase, finding themselves in return subject to a mitigated tax burden during the circulation period.

Thus, after the entry into force of the CIUC, subjecting these vehicles to taxation for category B vehicles would subject them to strong taxation in the circulation phase, which would undermine the balance pursued by the motor vehicle taxation reform, between the taxation of vehicles at the acquisition phase and at the circulation phase.

For this reason, for vehicles of this category, a taxable base equal to that of the IMV was maintained and, compared with category B vehicles, a lighter level of taxation;

c) It happens, however, that the taxation of vehicles under IMV was determined as a function of the date of the first registration (as per article 8, no. 3 of the IMV Regulation), whereby, bearing in mind the purpose underlying the "creation" of category A, for vehicles of this category, the date of the first registration is taken into account, whereby, for the purposes of incidence of IUC on vehicles of category A, the following registration date is considered:

• The date of the initial registration or record of the vehicle, if the necessary proof is made through the corresponding logbook or single circulation document.

• The date of the vehicle's registration in Portugal, if nothing is stated in the logbook or single circulation document as to the initial registration or record.

As for vehicles of category B, bearing in mind what is stated in paragraph b), light passenger vehicles and light commercial vehicles with a gross weight not exceeding 2,500 kg, registered on a date after the date of entry into force of the CIUC (1 July 2007), are included in category B.

Inciding on vehicles registered in Portugal (as per no. 1 of article 2 of the CIUC), it is considered that the date relevant for the purposes of incidence of IUC on vehicles of category B, is the date of the vehicle's registration in Portugal;

d) This was the understanding disclosed in Instruction no. …/2008, with the clarifications provided in 2015, in which the following is read:

B - Date to be considered for the purposes of payment of IUC of vehicles initially registered or recorded abroad.

1 - (...)

2 - For the purposes of incidence of IUC, the following is considered:

a) As for vehicles of categories A, C, D and E:

1. The date of the initial registration or records of the vehicle, if the necessary proof is made

through the corresponding logbook or single circulation document.

1. The date of the vehicle's registration in Portugal, if nothing is stated in the logbook or single circulation document as to the registration or initial record.

b) As for vehicles of category B, the date of the vehicle's registration in Portugal.

Thus, the vehicle was duly integrated into category B, meriting no censure the rejection dispatches placed in issue here and consequently the IUC assessment acts sub judice.

In that sense, entirely lack the reasons and arguments expounded by the Claimants in pursuit of, by them, aspired annulment of the tax acts;

e) The Tax Administration is bound to comply with the principle of legality enunciated in article 266, no. 2 of the CRP and concretized in articles 55 of the LGT and in article 3 of the CPA whereby it can only act on the basis of the law and respecting its limits, being bound to strict compliance with the applicable legal precepts in the matter, which occurred in the present case, having decided in accordance with what is legally provided, whereby, it will necessarily have to be concluded that the tax acts in question did not violate any principle of EU Law or constitutional, and should thus be maintained;

f) The impugned acts do not suffer from any illegality whereby it contests, as unfounded, all that is alleged in the learned petition that contradicts the above stated, as well as the documents attached by the now claimant, for not corresponding to the truth or the legal effects sought by her not being able to be derived from them, the claim should be considered without merit and the respondent absolved of all claims;

g) Regarding compensation interest it cites articles 43 of the LGT and 61 of the CPPT, defending that such right, derived from the judicial annulment of an assessment act, depends on having been demonstrated in the proceedings that that act is affected by error attributable to the services from which resulted payment of a tax debt in an amount greater than that legally due;

h) Given that the assessment was made on the basis of the applicable law, to which the Administration is bound, the tax administration being, pursuant to article 55 of the LGT and following the principle set out in article 266 no. 1 and 2 of the CRP, «... the pursuit of the public interest, in respect for the rights and legally protected interests of citizens» and being its «...organs and administrative agents ...subordinated to the Constitution and the law ...» and having to «...act, in the exercise of their functions, with respect for the principles of equality, proportionality, justice, impartiality and good faith», being bound by the principle of legality, cannot fail to give full compliance to the norms that the ordinary legislator created and that are in force in the legal order and also by virtue of the provisions of article 55 of the LGT;

i) The error that supports the right to compensation interest is not any defect or illegality but that which is concretized in defective appraisal of relevant factuality or in erroneous application of legal norms, whereby once that, at the date of the facts, the tax administration made the application of the law, bindingly, in the terms in which as an executive body it is constitutionally bound, one cannot speak of error attributable to the services in accordance with the provisions of article 43 of the LGT, whereby the legal prerequisites granting the right to compensation interest are not met;

j) Finally, it requests the notification of the Claimants to pronounce themselves on the invoked exception, and asks that the same be considered well-founded with consequent dismissal of the instance, as well as, should that claim not be upheld, be waived, both the holding of the meeting referred to in article 18 of the RJAT, and the waiver of the presentation of arguments, since it is exclusively a question of law.

It concludes that, should it not be so understood, the request for arbitral decision should be judged without merit and, consequently, it should be absolved of all claims, all with the due legal consequences.

III - PROCEDURAL REQUIREMENTS

1. The Arbitral Tribunal is regularly constituted, is materially competent, pursuant to article 2, no. 1 paragraph a) of the RJAT and the Parties enjoy personality and procedural capacity, being legitimate, in light of articles 4 and 10, no. 2 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from defects that invalidate them and, having examined the preliminary matters, the Arbitral Tribunal is in a position to deliver the arbitral decision.

IV – OF THE FACTS AND THEIR SUBSTANTIATION

1. As to material facts with relevance for the decision to be delivered, the Arbitral Tribunal determines as proven the following facts:

Regarding the First Claimant:

a) Admitted the light passenger vehicle of the brand «… », model «… », with initial registration …, assigned by the authorities of the United Kingdom, on 01.01.1990.

b) The vehicle was admitted with exemption from ISV within the scope of a transfer of residence from the United Kingdom to Portugal, having obtained the national registration …-… -…, on 26.06.2012.

c) The vehicle has as relevant fiscal characteristics, being powered by petrol, having 3600 cubic centimeters of cylinder capacity and 273 g/Km of carbon dioxide emissions.

d) Proceeded to payment of the IUC assessments corresponding to the documents identified below, according to the rates, compensatory interest in force, for vehicles registered in national territory after the publication of the CIUC, that is after 1 July 2007:

• no. 2014…, of 2016.04.26, in the amount of 814.58 € of IUC and 59.45 € of compensatory interest, totaling 874.03 €, corresponding to the year 2014;

• no. 2015…, of 2016.04.26, in the amount of 814.58 € of IUC and 26.87 € of compensatory interest, totaling 841.45 €, corresponding to the year 2015;

• no. 2016…, of 2016.12.06, in the amount of 818.65 € of IUC and 14.26 € of compensatory interest, totaling 832.91 €, corresponding to the year 2016.

e) On 2014.07.28 and 2015.08.03, respectively, was notified in prior hearing proceedings of the official IUC assessments for the years 2014 and 2015, to which he replied on 2014.08.13 and 2015.08.19, respectively, the same having been maintained and the Claimant's requests rejected with the grounds proposed in the service information and for lack of legal support, as per dispatch of 2016.03.07 of the legal substitute of the head of the Tax Service of ... … (SF...…).

f) On 2014.08.25, he filed a request for official revision pursuant to article 78 of the LGT relating to the IUC for the years 2012, 2013 and 2014, the first two already paid and the last one in prior hearing proceedings, at SF...…, considered timely.

g) Sent to the Finance Directorate of Lisbon - Administrative Justice Division (DFL – DJA) for the purpose of decision, it was returned on 2014.12.22, on the grounds that the competence for the decision belonged to the local peripheral body.

h) By dispatch of the head of SF...…, of 2015.08.20, the remission of the proceedings to DFL-DJA was ordered, with a view to its subsequent remission to DSIMT, once that in accordance with Instruction no. …/DSJT/2015, disclosed by the services in an email dated 2015.06.24, was instituted as the competent Services Directorate for the taking of the decision.

i) On 2016.01.12 the request for official revision was sent by DFL-DJA to DSIMT.

j) DSIMT did not issue a final decision in the official revision procedure …2014… (DS …/2015) the proceedings having been sent in the state they were in to DSCJC (official letter no. …/2016, of 2016.09.28) in order to be integrated in the present proceedings.

l) On 2016.12.16 he requested the expansion of the arbitral claim to the IUC assessment for the year 2016.

Regarding the Second Claimant

a) On 26.06.2012, he proceeded to admission under the general regime of ISV taxation of the vehicle of the brand «… », model…, Diesel, with the prior French registration …, assigned on 11 August 1997, to which was assigned the national registration …-… -... .

b) The vehicle has as relevant fiscal characteristics, being powered by diesel, having 2874 cubic centimeters of cylinder capacity and 190 g/Km of carbon dioxide emissions.

c) Proceeded to payment of the IUC assessments corresponding to the documents identified below, according to the rates, surcharge and compensatory interest in force, for vehicles registered in national territory after the publication of the CIUC, that is after 1 July 2007:

• no. 2012…, of 2013.07.12, in the amount of 516.92 € of IUC and 14.28 € of compensatory interest, totaling 531.20 €, corresponding to the year 2012;

• no. 2013…, of 2013.05.10, in the amount of 568.61 € of IUC, corresponding to the year 2013;

• no. 2014…, of 2014.10.09, in the amount of 574.30 € of IUC and 68.85 € of compensatory interest, totaling 643.15 €, corresponding to the year 2014;

• no. 2015…, of 2016.02.06, in the amount of 643.15 € of IUC and 6.77 € of compensatory interest, totaling 649.92 €, corresponding to the year 2015;

• no. 2016…, of 2016.12.06, in the amount of 577.17 € of IUC, 68.85 € of surcharge and 2.55 € of compensatory interest, totaling 648.57 €, corresponding to the year 2016.

d) In a letter dated 13.08.2014 he requested at SF...…, the official revision of the IUC for the years 2012 and 2013, alleging error attributable to the services, the said service having sent the examination of the request to the DFL – Division of Tax Assessment, Property, pursuant to official letter no.…, of 2014.08.28.

e) On 29.10.2014 he asked for the joinder to the previous request for revision, of the IUC for the year 2014, which was sent to the same service, pursuant to official letter no.…, of 2014.10.30.

f) The proceedings were returned by DFL-DJA to SF...…, on the grounds that competence for the decision belonged to the local peripheral body.

g) By dispatch of SF...…, of 2015.08.20, the request was sent to DFL-DJA, with a view to its sending to DSIMT, once that in accordance with Instruction no. …/DSJT/2015, disclosed by the services in an email dated 2015.06.24, was instituted as the competent services directorate for the taking of the decision.

g) On 2016.01.25, was notified of the dispatch rejecting the requests for official revision for the years 2012 and 2013, delivered by the Director of Services of DSIMT, on 2015.12.20.

h) On 2016.01.29, was notified of the dispatch rejecting the request for official revision for 2014, delivered by the Director of Services of DSIMT, on 2015.12.20.

i) On 2016.12.16 he requested the expansion of the arbitral claim to the IUC assessment for the year 2016.

1. The facts were determined as proven having regard to the documents brought to the proceedings by the Claimants, embodied in the initial petition and the annexes accompanying it, in the documents provided following the meeting referred to in article 18 of the RJAT and also in arguments, and in the copy of the administrative files sent by the Respondent.

2. In function of the evidence produced, it is not determined as proven that the Respondent has not effected administrative procedures concerning IUC of the First Claimant regarding the years 2014 and 2015, since it examined reasons presented by him and disregarded such reasons, rejecting the requests, as per dispatch of 2016.03.07.

V - PRELIMINARY MATTERS

1. In the course of the proceedings, the Parties raised matters which it is important to clarify beforehand, given that they may compromise the examination of the substantive question underlying the claim.

a) Exception for illegal joinder of claimants.

b) Expansion of the arbitral claim to the IUC assessed and paid in 2016.

c) Expansion of the claim made in the initial petition, to the effect that the Respondent must refrain from again assessing IUC, in subsequent fiscal years with the practice of the same illegalities.

d) Official revision procedure based on error by tax services, without a decision having been taken.

1. The Respondent in its reply to the initial petition raises the matter of the illegal joinder of claimants, which is susceptible of configuring a dilatory exception.

Article 3, no. 1 of the RJAT provides that «The joinder of claims, even if relating to different acts and the joinder of claimants are admissible when the merits of the claims essentially depend on the examination of the same circumstances of fact and on the interpretation and application of the same principles or rules of law.»

In turn, article 104 of the CPPT provides that the joinder of claims is admissible in case of identity of the nature of the taxes, of the factual and legal grounds invoked and of the tribunal competent to make the decision.

1. In the understanding of the Respondent, although in both claims there is at issue the interpretative sense and the application of the same principles or rules of law, such is not the case regarding the circumstances of fact, whereby the requirement of coincidence is not met.

2. In the course of the contradiction, the Claimants came to argue that the legal requirements on which the joinder of claims depends are met, having stressed that it has been understood by doctrine, that this identity of fact, need not be absolute, that is it is not required that there be exactly the same factual situations, but rather that the fiscal legal question, be essentially identical, and that the facts also be identical in the relevant part, in what is relevant for the decision, as is the case in the present file, for it is a matter of examining the illegality of IUC assessments, all on vehicles admitted in the state of used and originating from the EU, after the entry into force of the CIUC, and whose first registration, in both cases, is prior to such date, whereby being the facts relevant for the decision identical, the solution to be given to one case, will be the same to be given to the remaining cases, citing in support of their thesis extracts from texts by Jorge Lopes de Sousa in «Commentary on the Legal Regime of Tax Arbitration» in Tax Arbitration Guide 2013, Almedina, and Rogério Fernandes Ferreira in «Newsletter» CAAD no. 1/2013.

3. The Arbitral Tribunal recognizes that the circumstances of fact are not exactly the same, for there are at issue two vehicles of different brands, with different technical characteristics in terms of the elements usable for the assessments and of years of antiquity referred to the first registration likewise different.

Also the tax situations are not exactly the same for the First Claimant chose to pay the taxes corresponding to the assessments he submits for examination, which were also not rigorously equal, since two of them were submitted to revision processes not decided, while the Second Claimant, at the moment the petition was presented had not effected the respective payment, although he later came to the proceedings to prove that he effected it, in tax enforcement proceedings.

Nevertheless, in the understanding of the Arbitral Tribunal that recognition is not preventive of the acceptance of the joinder of claimants.

In effect, in all the situations invoked by the Claimants, the tax in question is IUC. The factual and legal grounds invoked by the Claimants are reducible to the objective incidence as to the classification of vehicles in categories.

The vehicles of each of the joined claimants were registered in national territory after the entry into force of the CIUC in a given category, notwithstanding having had an initial registration in the countries from which they were "imported" long before the entry into force of the said code, which is susceptible of reducing them to a classification in another category. The expression contained in the legal text «essentially depend on the examination of the same circumstances of fact and on the interpretation and application of the same principles or rules of law» is sufficiently broad, to accommodate similarities in the taxation of any of the claimants and does not require an absolute identity of circumstances.

The competence of this arbitral tribunal for making a decision is shown to be assured for the situations exposed by the Claimants, this tribunal being materially competent for the effect.

Underlying such a decision is the celerity and the application of the principles of simplification and procedural economy and, in this case, it seems evident for it is reducible to only two claimants in which the factual situations of each of the vehicles are delimited with some ease, it being certain that the claim that it is sought to have examined is the same.

In the understanding of the tribunal there is no sight of any serious inconvenience that prevents the joint examination of the claims of the two Claimants, since they lead to a decision on the same question of law.

Whereby it is to be concluded by the verification of the requirements on which the law makes depend the possibility of initial joinder of claimants.

1. The second matter concerns the fact that, on 16.12.2016, the Claimants further requested the expansion of the arbitral claim, invoking for the purpose article 63 of the CPTA, so as to also cover the official IUC assessments of the said vehicles of the year 2016, which had been assessed pending the arbitral process.

Although they understand that article 24, no.1, paragraphs c) and d) of the RJAT safeguards the situation concerning the same taxes that become due pending the action, it expressly invokes no. 2 "in fine" of article 63, that expansion is admissible, when subsequent administrative acts, whose effects oppose the utility sought in the proceedings, occur.

1. On 04.01.2017, the Respondent replied to the request for expansion, opposing the same request for expansion, countering that it was presented already after the closure of discussion of the case, furthermore that it is not the development or the consequence of the original claim, whereby its admissibility is contrary to the provisions of article 265, no. 2 of the Civil Procedure Code (CPC) applicable by virtue of article 29, no. 1 paragraph a) of the RJAT.

2. Faced with this position, in exercise of the contradiction, the Claimants on 12.01.2017 came to request the disregard of the alleged opposition to the expansion on the basis that the arguments (oral) integrate acts to be practiced in the course of the final hearing, pursuant to article 604, no. 5 of the CPC, invoking doctrinal opinion and transcribing extracts from the judgment of the Supreme Administrative Court, of 20.11.2002, delivered in appeal 1207/02, that «the broad inquisitorial powers attributed to the judge, reflection of the principle of material truth cause that, by initiative thereof, new elements of proof may be brought to the proceedings, at any time, until the judgment. And that principle advises against rejecting new evidentiary elements, perhaps capable of contributing to achieving that truth, for mere reasons of procedural discipline.»

3. Article 63 of the CPTA provides as follows:

«1. Until the closure of discussion in first instance, the object of the proceedings may be expanded to the impugnation of acts that come to arise in the scope or as a consequence of the procedure in which the impugned act is inserted, as well as to the formulation of new claims that may be joined with such.

2 – The provision in the previous number is extended to the case where the impugned act relates to the formation of a contract and this comes to be celebrated pending the proceedings, as well as to situations where subsequent administrative acts arise whose validity depends on the existence or validity of the impugned act, or whose effects oppose the utility sought in the proceedings.»

1. The proceedings that run their course at CAAD are characterized by the celerity of the respective decision, which, in principle, should be taken within the period of six months, as follows from article 21, no. 1 of the RJAT. For this purpose it is necessary to take into account a stability of the claim and of the instance, so that the proceedings do not come to suffer disturbances derived from the consideration of different factual matter or of different rules of law that may come to be applied.

In the present case, it is ascertained that between the constitution of the arbitral tribunal and the present request there elapsed about five months, the object of the request relating to the impugnation of the tax assessments that, in seat of IUC, in the year 2016, fell on the vehicles that are «sub judice», which it was proven were paid on 06.12.2016.

1. In terms of law, the new assessment acts for which coverage is sought were practiced within the domain of the same legislation, the rates applied not representing any legislative alteration of relevance regarding what had been previously fixed by Law no. 83-C/2013, of 31 December, being merely an updating in function of inflation.

Were acts that were not practiced as a consequence of the procedure, given that it is not by reason of a judicial or arbitral procedure having been triggered that the same were practiced, they would always be practiced, should the same have existed or not, since there is at issue a tax of a periodic nature. Nevertheless, the examination of a material tax legal relationship is pending, embodied in successive tax assessments to the Claimants in a determined period, creating a certain scope, whereby, if pending such examination another assessment occurs, there are no obstacles to that scope being enlarged, beyond what had been considered in the initial claim.

Insofar as there are at issue, the same factual situations and the same rules of law, a decision on the merits concerning the claim of the Claimants can be reached, without such compromising the principle of celerity, meeting the principles of simplification and procedural economy, for, in this way, it is avoidable that a new judicial or arbitral procedure be constituted exclusively to examine the impugnation of the IUC assessments of the year 2016.

1. The third matter concerns the fact that in arguments, the Claimants came to expand the claim made in the initial petition, to the effect that the Respondent must refrain from again assessing IUC, in subsequent fiscal years with the practice of the same illegalities.

Pursuant to article 2 of the RJAT the competence of arbitral tribunals is limited to the examination of the following claims:

a) The declaration of illegality of tax assessment acts, self-assessment acts, withholding at source acts and payment on account acts;

b) The declaration of illegality of taxable matter determination acts when they do not give rise to the assessment of any tax, of actions for determination of collective taxable matter and of acts for fixing patrimonial values.

1. The Arbitral Tribunal judges in function of concrete acts of the tax administration, which are embodied in procedures tending towards the collection of taxes, within the scope of the powers with which it is vested.

What the Claimants seek is that the Arbitral Tribunal, in addition to judging the cases submitted to it, intimate the Respondent to refrain in the future from practicing new assessment acts, corresponding to IUC of subsequent years. The tax proceeding does contemplate this figure in fact in article 97, no. 1 paragraph m) of the CPPT, as well as the CPTA itself contemplates effective legal protection, of the conviction to adopt or refrain from certain behaviors, in the case the promotion of assessments to be made in the following years.

It is a matter for which, in function of article 2 above cited, it is considered that the Arbitral Tribunal has no competence, whereby, independently of the examination of the moment in which such expansion was presented, the said claim is rejected.

1. Still as a preliminary matter, it is important that the Arbitral Tribunal takes a position with respect to the official revision procedure no. …2014…, concerning the First Claimant and referring to IUC for the years 2012, 2013 and 2014 (in this latter case, although already in revision proceedings, the legal substitute of the head of the Tax Service of ... …(SF...…) had produced a dispatch on 2016.03.07).

The proceedings were sent by DFL-DJA to DSIMT under official letter no.…, of 2015.12.01, with a favorable opinion regarding the revision of the acts, DSIMT having sent the said proceedings for integration in the present proceedings in the state they were in to DSCJC (cf. official letter no. …/2016, of 2016.09.28).

1. The grounds of the arbitral claim are those provided for in article 99 of the CPPT, any illegality being able to be raised, designately erroneous qualification and quantification of tax facts.

The revision that is carried out by initiative of the tax administration implies its respective recognition duly substantiated, designately error attributable to the services. It is verified that the entity competent for the decision, DSIMT, regarding the procedure, limited itself to proceeding with its remission to this arbitral tribunal, without having taken any decision, designately recognizing the error as was suggested to it in an opinion, or rejecting that same error, as it has already done within the scope of this same proceedings, regarding IUC of other years. It is to be borne in mind that there was a rectification to a Service Instruction of the extinct General Directorate of Taxes, directly invoked in the request for official revision.

The Arbitral Tribunal has no competence to substitute or condemn the Respondent to the practice of an act or operation necessary for the taking of a decision, since it falls exclusively within its area of competence.

In these terms, as regards the Claimant and years in question, the merits of the claim are not known and the Respondent is absolved of the instance.

VI - LEGAL GROUNDS

1. In function of the factual matter established as certain, to examine the legality of the assessments made under IUC, it is considered that an answer should be found for the following disputed legal questions:

a) In the matter of objective incidence, regarding used light passenger vehicles originating from other Member States (MS), which had a previous initial registration given by those States, for taxation purposes, which is the relevant registration date for the purposes of inclusion in categories A or B, to which paragraphs a) and b) of article 2 of the CIUC refer;

b) In light of the current state of development of Community law, is compatible with the TFUE, designately article 110, a tax norm that, for environmental reasons, under IUC, taxes in a differentiated manner vehicles of the same brand, model, mode of combustion and antiquity, depending on whether they are already registered in national territory, or will only be admitted to registration after the entry into force of the CIUC;

c) Legal value of a service instruction issued by the extinct General Directorate of Taxes;

a) Relevant registration date for the purposes of inclusion in categories A or B, to which paragraphs a) and b) of article 2 of the CIUC refer

1. As regards light passenger vehicles, as are the subject of examination in the proceedings, the legal framework of reference is the CIUC, contained in Law no. 22-A/2007, of 29 June, which, insofar as it is relevant, states as follows:

Article 2 establishes objective incidence as follows:

«1 — The single circulation tax incides on vehicles of the following categories, registered or recorded in Portugal:

a) Category A: Light passenger vehicles and light commercial vehicles with a gross weight not exceeding 2,500 kg registered from 1981 until the date of entry into force of the present code;

b) Category B: Passenger vehicles referred to in paragraphs a) and d) of no. 1 of article 2 of the Motor Vehicle Tax Code and light commercial vehicles with a gross weight not exceeding 2,500 kg, registered on a date after the entry into force of the present code;

c) …. d) …. e) … f) …. g) …

2 — …….

3 — ……..

4 – ……… »

1. In the matter of temporal incidence, article 4, nos. 1 and 2, provides that the tax is of annual periodicity, being due in full in each year to which it relates, the taxation period corresponding to the year which begins on the date of registration or on each of its anniversaries, regarding vehicles of categories A, B, C, D and E, and to the calendar year, regarding vehicles of categories F and G.

2. As regards the taxable base, article 7 states as follows:

«1 — The single circulation tax is of a specific nature, being its taxable base constituted by the following elements:

a) As for vehicles of categories A, the cylinder capacity, the voltage, the antiquity of registration and the fuel;

b) As for vehicles of category B, the cylinder capacity and the level of carbon dioxide (CO2) emission relative to the combined test cycle contained in the certificate of conformity or, if not existing, of the actual measurement made in a technically authorized centre in accordance with the terms provided for the calculation of the motor vehicle tax;

c) … d) … e) … f) … g) …

2 — …

3 — a) … b) … c) …

4 — …

5 — …

6 — … »

1. In the matter of rates, article 9 establishes the rates applicable to vehicles of category A, while article 10 fixes the rates applicable to vehicles of category B.

As regards the rates applicable to category A the same are structured by cylinder capacity brackets, differentiated equally by brackets depending on whether it is vehicles powered by petrol or diesel.

Alongside cylinder capacity, the tax also takes into account the antiquity of the vehicle, on the basis of the year of registration, structured by three brackets, that is, vehicles from 1981 to 1989, from 1990 to 1995 and after 1995.

1. In turn, article 10 establishes the rates applicable to vehicles of category B having as reference four cylinder capacity brackets and four CO2 brackets, applied indistinctly of the fuel used, in parameters that have remained constant throughout its period of applicability.

In the determination of the total value of IUC, coefficients fixed annually must be multiplied by the collection, obtained from the table mentioned in article 10, in function of the year of registration of the vehicle in national territory, in accordance with the wording given by Law no. 7-A/2016, of 30 March.

1. In the understanding of the Claimants, the fact that article 2 no. 1, paragraphs a) and b) of the CIUC, state that IUC incides on vehicles of categories A and B, registered or recorded in Portugal, those of category A being registered from 1981 until the date of entry into force of the code, and those of category B registered on a date after its entry into force, and not expressly take into account the dates on which vehicles admitted from other EU countries were initially registered in those countries, implies that the interpreter must develop an activity with a view to determining the relevant registration date for the objective incidence of the tax.

2. The Respondent considers that the individualization of vehicles in category A intended to safeguard the legitimate expectations of taxpayers who before the motor vehicle taxation reform, had been subjected to taxation strongly concentrated at the registration phase, finding themselves in return subjected to a mitigated tax burden during the circulation period.

In effect, at the time of the reform, part of the tax burden that weighed on vehicles at the moment of acquisition was shifted to the circulation phase, whereby subjecting these vehicles to taxation for category B vehicles would undermine the balance pursued by the motor vehicle taxation reform.

1. For the analysis of this matter, it is important to take into account the provisions of article 9 of the Civil Code (CC) according to which, for the purposes of interpretation of the law, the interpreter must not confine himself to the letter of the law, but reconstruct from the texts the legislative thought, having especially in account the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied.

Nevertheless, it also requires that the legislative thought that is not had in the law a minimum of verbal correspondence, albeit imperfectly expressed, cannot be considered by the interpreter, and in the fixing of the sense and scope of the law it should be presumed that the legislator enshrined the most correct solutions and knew how to express his thought in adequate terms.

The recourse to this article 9 of the CC is a requirement of article 11, no. 1 of the LGT, according to which, in the determination of the sense of tax norms and in the qualification of the facts to which they apply, the general rules and principles of interpretation and application of laws are observed.

1. Law no. 22-A/2007, of 29 June, when approving the CIUC simultaneously proceeded to the revocation, among others, of Decree-Law no. 143/78, of 12 June, a diploma that had created a new «Motor Vehicle Tax Regulation», later Municipal Tax on Vehicles, applicable to light passenger vehicles and motorcycles.

This Decree-Law no. 143/78, provided in its article 8 that «The antiquity of vehicles, initially registered in Macau, in the former Portuguese colonies or abroad and which only subsequently receive registration in the mainland or in the Autonomous Regions of the Azores and Madeira, may be determined by the date of the initial registration or records provided that the necessary proof is made through the corresponding logbook or registration title, or failing that a sufficient document», a provision that was always maintained over time.

1. It was a provision that had transitioned from Decree-Law no. 782/74, of 31 December, which to safeguard the matter of counting the antiquity of vehicles in the context of the application of the then called motor vehicle tax, created by Decree-Law no. 599/72, of 30 December, provided in its article 8 that «the antiquity of used vehicles, initially registered or recorded overseas or abroad and which only subsequently receive registration in the mainland and adjacent islands, may be determined by the date of initial registration or records if proof of such formality is made through the corresponding logbook or registration title, or failing that another sufficient document».

2. The circumstantialism of its publication had to do with decolonization.

In effect, thousands of people began to flock to Portugal coming from the former colonies and, in many cases, in addition to their baggage, they brought with them the vehicles of which they were holders in those territories, which had local registrations. Also citizens who in the years prior to 1974 had emigrated from Portugal to other countries, for reasons of improvement of living conditions or simply political, saw an opportunity to come to settle in Portugal and decided to return, bringing with them, in many cases, the vehicles of which they were owners in the host countries.

The regularization of these vehicles was necessary, whereby, for the purposes of taxation, it was necessary that the antiquity of vehicles they already possessed in the countries from which they originated be recognized, under penalty of being unjustly taxed as if they were new vehicles.

This was the purpose of the publication of the said provision which, nevertheless, would come to endure and have particular applicability from the elimination of restrictions on the entry of used vehicles by means of accession to the European Economic Community, placing on equal footing in the matter of counting antiquity, both vehicles admitted for the first time in Portugal and vehicles initially registered in another MS.

1. Preceding the publication of Law no. 22-A/2007, there was a fairly extensive process of maturation of motor vehicle taxation.

In effect, there had already been earlier legislative attempts to carry out its reform, since it was recognized, both on the side of the Motor Vehicle Tax (IA), and on the side of the IMV, that there was an imbalanced distribution of tax burdens, aggravated by the fact that the grounds of each of the taxes proved increasingly negative for the functioning of the economy, which, however, came to naught.

It happens that in the years preceding the approval of the said law, there was strong awareness of environmental matters, not only at Community level, but especially at the national level.

For this reason, the reform undertaken at the level of motor vehicle taxation, when inserting environmental elements in the fixing of taxes, was practically a normal process and without surprises, since, regardless of the governments, it was already constituting a legislative priority, in which systematic postponements of tax incentives for the scrapping of end-of-life vehicles were inserted, pursuant to budget laws from the year 2001 to 2007.

1. The impetus for changes at the level of motor vehicle taxation was given by the Joint Dispatch no. …/2006, of 27 March 2006, (2nd series), when a Working Group (WG) was created for the reform of motor vehicle taxation.

In the guidance that was then defined, there was consideration of the replacement of the then IA by a taxation model that transferred part of the tax burden to the circulation phase, based on two taxes, one with characteristics similar to IA, and the other with the institution of transition periods that would minimize any fiscal losses, the maintenance of the level of tax revenues that were then generated from the IA, the incidence of VAT on IA, as well as the IMV being assured.

As regards specifically the circulation tax, which would come to be designated as IUC, the guidance concerned the manner of calculation of the circulation tax, which should take into account the vehicle category, cylinder capacity and specific emissions of CO2 or other pollutants contained in the technical homologation, it being further determined «Provide that the new system applies only to vehicles that are introduced into consumption within the scope of its applicability.» – no. 4.1, paragraph e), of the aforesaid dispatch.

1. As Francesco Ferrara refers, the preparatory works of the law can clarify us regarding the ideas and spirit of the proposers of the law and are worth as a subsidy, when it can be demonstrated that such ideas and principles were incorporated in the law, should otherwise be considered moments foreign to the law and without legal influence.

Now, as was seen above, the WG for reform of motor vehicle taxation, which prepared the said legislation, acted in accordance with precise instructions of government members directly responsible for these matters, covered by principles and guidance, whereby the appearance of these same principles and guidance in the legislative text, has a reinforced interpretative value, which is not confused with the «chaotic muddle of opposing theories in which every interpreter can find comfortable confirmation for his opinions», which Ferrara himself signals to assert his position of reserve regarding preparatory works, in which the legislative text, often, results from a negotiating process that encloses contradictory interests.

1. The Claimants within the scope of a prior hearing lament the fact that, being a law approved by the National Assembly, the preamble is too succinct for the motivations of the legislator in this matter to be understood.

2. In fact, the law does not even have a preamble, but the legislations of the legislator can be better understood through the analysis of the statement of grounds that accompanied the sending of the Bill no. 118/X to the National Assembly.

In it is written that «the first step in the implementation of a reform of this nature materialized immediately in the State Budget Law for the year 2006, by means of which the motor vehicle tax, while maintaining its essential form, came to integrate in its taxable base a component of carbon dioxide that represents about 10% of the overall revenue of the tax…».

«The second line of force in the motor vehicle taxation reform that is now being carried out is the shift of part of the tax burden from the moment of acquisition to the circulation phase. The overall tax burden weighing in Portugal on the automobile not being exceptionally high, when compared with that which exists in other countries, is exceptionally relevant the weight it assumes at the moment of purchase, when confronted with what it presents throughout the useful life of the taxed vehicles. As a result, motor vehicles are made more expensive in the Portuguese market, propensity for the purchase of vehicles partially exempt from tax or for the purchase of used vehicles originally registered in other Member States of the European Union, already at the end of life and with outdated environmental equipment.

With the tax burden currently concentrated in the phase of introduction to consumption, its shift to a new single circulation tax will allow a gradual reduction in retail prices, with the inherent renewal of the national motor vehicle fleet.»

Further on, the aforesaid statement of grounds, in the introductory text of the CIUC, explains: «In its present form, the municipal tax on vehicles is a product of the 70s, having been conceived at a time when the Portuguese motor vehicle fleet was still diminutive and vehicle ownership seen still as an outward sign of wealth. In the municipal tax on vehicles stand out, for this reason, concerns of a social nature to which time has robbed the foundation, at the same time that absent are the concerns of environmental and energy policy which are now considered essential to these tax figures. An example is the reduced tax rates for vehicles powered by diesel or the progressive reduction of the tax in function of the age which the taxed vehicles present, solutions originally conceived as a form of protection of taxpayers of lesser means, but which stimulate and prolong the use of less efficient vehicles and which pollute more. Notwithstanding the corrective measures that have been introduced in recent years in the municipal tax on vehicles, it was important, with all urgency, to reformulate this tax subordinating it to the concerns proper to the times in which we live.

In substance, and for reasons that are connected with its own characteristics, with the requirements of Community law and with national priorities in the field of environmental policy, energy and transport, a differentiated discipline of different types of vehicles is maintained, fixing for this purpose categories that have root in the legislation so far in force. As a structuring and unifying element of these categories, the principle of equivalence is enshrined, thus making it clear that the tax, as a whole, is subordinated to the idea that taxpayers should be burdened in the measure of the cost they cause to the environment and the road network, this being the raison d'être of this tax figure.»

And further on, it is written: «It is recognized, however, that the alteration of the taxable event in the new circulation tax, which passes to be the ownership of the vehicle, is susceptible of, by itself, giving rise, in the short term, substantial difficulties in the implementation of the reform, as a result of the numerous faults and delays in the regularization of records of acquisition or transmission of vehicles or in the cancellations of the respective registrations, in case of scrapping that has meanwhile occurred.

That is why it was decided to defer the full production of the effects of the Code, as regards the existing motor vehicle fleet, to the beginning of the year 2008, the Government committing to advance, until then, with simplified and less onerous mechanisms that allow a regularization of the property records of the vehicles and guarantee the reliability necessary for the future assessment of the new tax.

The new model is, however, immediately applicable in relation to light passenger vehicles which are the subject of a first registration in national territory after the date of entry into force of the Code. For these, a taxable base of a mixed nature is adopted, which reproduces that which now characterizes the motor vehicle tax, at the same time integrating cylinder capacity and the level of carbon dioxide emission, with which the Community proposals in the matter are anticipated. It infuses, thus, in this tax the environmental logic of which it had been lacking, putting an end to a system of taxation that nourished the maintenance in circulation of vehicles at the end of life and the conversion to diesel of the national motor vehicle fleet, with grave prejudice to our environment and energy policy.

Regarding the circulating fleet so far subject to the municipal tax on vehicles, and for substantial reasons of practicability and rationality, it is defined that, from January 2008, the taxable base will diminish, by the exclusion of older vehicles, that is, registered until 1980, but taxation will increase, by observance of the user-pays principle, for older and polluting vehicles, being maintained, at current levels, for the remaining vehicles, in order to ensure that all of these support a taxation lower in relation to that which will be imposed on vehicles registered from 1 July 2007, resulting from this a slight increase in this revenue of the exclusive domain of the municipalities.» (underlining ours).

1. The Arbitral Tribunal considers that the legislator when approving Law no. 22-A/2007, intended to create a break with the systems of motor vehicle taxation that had been occurring up to then, and intended to create taxable bases founded on innovative principles which, without affecting the overall revenue that was customarily received by the State, embodied the environmental concerns that had been imposing themselves since the approval of the Kyoto Protocol, of which the principle of equivalence was the catalyst.

2. Nevertheless, as regards the circulation tax, it intended to safeguard the essentials of the tax regime that had been in force until then, given the situation of relative injustice that would be generated by an equivalence of taxation with vehicles registered from the application of the new tax.

3. Equally practical reasons related to the information contained in the certificates of conformity issued by vehicle manufacturers in the matter of CO2 emissions would also have advised the legislator to take the position of maintaining the previous regime untouched, since a very substantial part of the motor vehicle fleet was not prepared to be evaluated in terms of polluting emissions. In effect, only from January 1998 onwards did passenger vehicles built in series become obligatorily subject to EC homologation, a situation only later extended to motorcycles, in June 2003.

4. It would have been unthinkable to order measurements of such vehicles in inspection centers, not only for the lack of rigor that could accompany them, since they would not be carried out under conditions of absolute protection, but also for the costs they would imply for the owners, in vehicles, sometimes, already of reduced value.

5. In light of the dispatch that instituted the WG that drew up the legislative projects, the reference that the new system be applicable only to vehicles that be introduced into consumption within the scope of its applicability, seems elucidative, given that the concept of introduction into consumption regarding individuals, as is the case of the Claimants, is considered verified at the moment of presentation of the vehicle customs declaration, as follows from article 6, no. 1, paragraph b) of the Motor Vehicle Tax Code.

6. On the other hand, the statement of grounds itself reveals the reasons why it was decided to defer the full production of the effects of the Code, as regards the existing motor vehicle fleet, to the beginning of the year 2008, which were related to the updating of motor vehicle property records.

The new model was, however, immediately applicable in relation to light passenger vehicles which were the subject of a first registration in national territory after the date of entry into force of the Code, a mixed nature taxable base being adopted for these vehicles, which reproduced that which already characterized the motor vehicle tax, in which coexisted cylinder capacity and the level of carbon dioxide emissions.

1. Thus, in addition to seeking to accommodate the Community proposals that were contained in the matter, it was intended to infuse to the tax an environmental logic, putting an end to a system of taxation that nourished the maintenance in circulation of vehicles at the end of life and the conversion to diesel of the national motor vehicle fleet, with grave prejudice to our environment and energy policy.

2. Oliveira Ascensão states that the teleological element is one of the elements «to weigh in interpretation, what we can call the social justification of the law. The intended purpose is taken into account for the norm resulting to be adequate to it. All law is finalist. Every source exists to achieve ends or social objectives, whereby while the reason for a law is not discovered, one is not in a position to proceed with its interpretation.»

The dispatch that created the WG expressed the objective that was intended, that is, «in essence, to counteract the excessive burdening of motor vehicles at the moment of their sale and to enhance, in the new taxation model, environmental protection and the rationalization of energy consumption.»

1. The diagnosis on the excessive burdening of vehicles at the moment of sale was sufficiently made.

In a report drawn up by the EC, on 24.03.97, entitled «Vehicle Taxation in the European Union 1997», and which updated another drawn up in 1995, in Annex D, a table was presented which revealed that registration rates in 1995, thus being referred to the IA, represented in Portugal 0.87% of Gross Domestic Product (GDP), only surpassed by Denmark with 1.54%.

In a Europe of 15 countries, 9 of them had percentages below 0.20% of GDP.

In turn, in terms of circulation tax, Portugal had one of the lowest percentages, of 0.12% of GDP, only surpassed by Luxembourg with 0.07% and by Italy with 0.08%. Eleven of the countries considered had percentages exceeding 0.20%.

In percentage of the total revenue collected in each country, in terms of registration tax, Portugal was equally the second country with the highest percentage of revenue, of 2.40%, right after Denmark with 3.01%, with nine countries having percentages below 1.00, while in circulation tax the IMV revenue was the third most reduced, of 0.34%, only surpassed by Luxembourg with 0.16% and by Italy with 0.19%.

Another EC study, covering already 25 countries, contemplating the period from 1995 to 2002 confirmed this reality, both in terms of the percentage weight of registration taxes in the total taxation of the countries, and of annual circulation taxes.

These data are revealing of the imbalanced manner in which motor vehicle taxation found itself, which persisted, in a merely financial logic, due to the simple way and without great costs how the IA was levied and contributed to the revenues of the State Budget.

1. One of the consequences of this situation was the fact that motor vehicles, by reason of immediately bearing a high tax burden at the moment of introduction to consumption, were commercialized at high prices, which ended up limiting the demand in the sense of acquiring vehicles of low cylinder capacity and of lower ranges, since they bore a reduced IA.

In the European context, the national market for new vehicles thus appeared distorted, given that it suffered almost direct competition from vehicles coming from other countries which, despite having already had some years of use, presented themselves as very competitive, given that in their retail price as new they had not borne such high tax burdens.

On the other hand, in terms of circulation tax, in addition to the low annual tax rates, with the passage of time, and without any alteration of the bases on which the tax was based, this increasingly favored diesel vehicles to the detriment of petrol vehicles, and encouraged the conservation of the oldest vehicles, by nature more polluting, given the paltry nature of the tax to which they were subjected.

1. Over about ten years, the market for diesel vehicles had grown, from about 25% of the total vehicles commercialized to practically 70%, without any corrective measures of the rates having been adopted, since they were very favorable when compared with those applied to petrol vehicles. The reason which had justified the benefit of rates for diesel-powered vehicles, of being vehicles essentially used in commercial activity, and, thus, a reduction of the tax would allow vehicles used in the distribution of foodstuffs and others not to burden so much the retail prices in the consumer, ceased to make sense, such was the vulgarization that was registered by motorists, who came to acquire vehicles with such characteristics to use in their daily commutes, without any commercial purpose.

Added to this that, at the time, the situation of energy supply advised against the maintenance of such situations, for Portugal had surpluses of petrol but in terms of diesel was an importing country, whereby the trade balance resented itself negatively of such situation.

1. The IMV itself, was in itself an anachronistic and outmoded tax, needing profound reform.

In 2002, an author of reference such as Dr. Sérgio Vasques, portrayed the IMV in the following terms:

«From a formal point of view, the regime of the Municipal Tax on Vehicles and of the Circulation and Haulage Tax also appears complex, incoherent, resorting to poor and imprecise legislative technique, populated by overlapping and contradictory norms.

In the case of the Municipal Tax on Vehicles, the 1978 Regulation being approved, the legislator left it slowly abandoned, that the passage of time and sporadic alterations would rob it of the little coherence and sense it had. The false references, the outdated concepts and terminology, the extravagant penal technique – all of them are testimonies to the legislative fortune that generally befalls poor taxes.»

1. In this period, a concern and a culture based on environmental values began to develop at the level of the EU, centered on the concern of complying with the obligations of the Kyoto Protocol and of implementing the Community strategy defined in 1996 for the reduction of CO2 emissions for passenger vehicles and the lowering of the average fuel consumption.

Thus, one of the lines of force of a draft directive submitted by the EC to the Council, in July 2005, on the taxation of passenger vehicles, was precisely to consider in annual circulation taxes, the criterion of CO2 emissions on the basis of grams per kilometer. In the said proposal it was even pointed out that by end of 2008, 25% of revenue should come from the application of the said criterion, which should be increased to 50% by end of 2010.

1. It is in this circumstantialism that the national legislator projects and begins to give body to the reform of motor vehicle taxation.

To counteract the excessive burdening of motor vehicles at the moment of their sale and to enhance, in the new taxation model, environmental protection and the rationalization of energy consumption, the legislator in the Budget for 2007, with production of effects from 1 July, proceeded, to a reduction of the ISV that was customarily paid at the moment of introduction to consumption, of about 10% and which, with the publication of Law no. 67/A/2007, of 31 December, which approved the budget for 2008, was increased by a further 10%, and on the other, proceeded to the increase of the rates applicable under IUC, having established a surcharge of 5% for the year 2008, 10% for the year 2009, 15% for the year 2010, having in the following years maintained taxation unchanged.

Alongside these surcharges, the legislator established in article 8, no. 3 of the CIUC, as general rules of rates, that «The rates contained in the present code must be updated every year in function of the consumer price index», a provision relatively innocuous since the future legislator is always sovereign and does not allow itself to be conditioned by mere «wishes», not functioning such provision by mere automatism.

1. The reform of motor vehicle taxation thus rested on a kind of communicating vessels system, in which the amounts corresponding to the reductions of the tax under ISV were successively transferred to an increase in taxation under IUC, according to criteria that took solely into account the cylinder capacity of vehicles and the CO2 emissions of each vehicle, graduated in terms of more gravely burdening vehicles recognized as higher cylinder capacity and with greater polluting capacity.

One of the principles that should guide it was fiscal neutrality, in the sense that from its implementation should not result neither an increase nor a reduction of revenue normally levied, without prejudice to the same being able to increase or be reduced in result of the functioning of the economy, that is, more or fewer vehicle sales will always represent variations that should not be considered as putting in question the neutrality of the tax.

1. This trend, of adoption of CO2 and other pollutants in the structuring of the rates of the respective registration tax, consolidated and the generality of countries now has at the levels of carbon dioxide emissions of vehicles one of the differentiating elements of taxation, penalizing in a more grave manner vehicles with greater level of emissions, being worth noting that in the case of Ireland, Spain, France and Latvia this element is already unique and exclusive.

Cylinder capacity, to which Portugal continues to resort, has lost much of its importance, although it continues to be applied in countries such as Belgium, Hungary, Poland, Romania and Cyprus, alongside other factors.

As regards circulation tax, Luxembourg is governed exclusively by CO2 emissions; already in countries such as Greece, Ireland, Cyprus and the United Kingdom, similarly to Portugal, CO2 emissions combine with cylinder capacity.

In Finland there is the particularity of CO2 combining with vehicle weight, but the tax being fixed in function of days of potential utilization, while in Austria, Bulgaria, Hungary and Italy the unit of taxation is the Kilowatt.

1. The touchstone of IUC was the adoption of the polluter/pays principle, expressed in the principle of equivalence, interpreted in the sense of burdening taxpayers in the measure of the environmental and road cost they cause, in implementation of a general rule of tax equality.

Nevertheless, and having also as background a general rule of tax equality, in the sense of generically the tax burdens that incided on vehicles before and after the publication of Law no. 22-A/2007 being substantially equivalent, with an application of the said principle solely for the future, that is for all vehicles that came to be introduced to consumption, read registered from 1 July 2007.

It was a legislative choice, founded on the intention to carry out an effective reform of motor vehicle taxation, based on environmental and road motivations.

1. Since 2001 that, through successive measures to support the scrapping of end-of-life vehicles, the Portuguese authorities have been proceeding with the purification of the vehicle fleet...

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