CAAD Arbitration on IUC Vehicle Tax Annulment for Multiple Years (2009-2012) – Process 248/2014-T

ARBITRAL AWARD

Claimant: A..., S.A.

Respondent: Tax and Customs Authority.

I - REPORT

1. On 10 March 2014, the company A..., S.A., holder of the NIPC …, with registered office in …, Paço de Arcos (hereinafter referred to as the "Claimant") requested the constitution of an arbitral tribunal, pursuant to the provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as "LRAT").

2. The request for constitution of the arbitral tribunal was accepted by the Honourable President of the CAAD on 12 March 2014, and notified on 14 March 2014 to the Tax and Customs Authority (hereinafter referred to as "TA" or the "Respondent").

3. The Claimant seeks a pronouncement from the Arbitral Tribunal with a view to declaring the illegality and consequent annulment of a set of collection acts for Unique Circulation Tax (UCT) for the years 2009, 2010, 2011 and 2012 concerning a set of vehicles identified in the Table attached as Annex I to the request for arbitral pronouncement, in the total amount of €27,912.27 (twenty-seven thousand nine hundred and twelve euros and twenty-seven cents) and reimbursement of that amount.

4. In the request for arbitral pronouncement, the Claimant opted not to appoint an arbitrator. Pursuant to subparagraph (a) of paragraph 2 of article 6 and subparagraph (b) of paragraph 1 of article 11 of the LRAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council of the CAAD appointed as arbitrator of the singular arbitral tribunal the Honourable Dr. Olívio Mota Amador who, within the applicable period, communicated acceptance of the appointment.

5. The parties were notified on 30 April 2014 of the appointment of the arbitrator, and did not express any intention to challenge the appointment of the arbitrator, in accordance with the combined provisions of article 11, paragraph 1, subparagraphs (a) and (b) of the LRAT and articles 6 and 7 of the Deontological Code.

6. In accordance with the provisions of subparagraph (c) of paragraph 1 of article 11 of the LRAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 16 May 2014.

7. On 18 June 2014, the Respondent, duly notified for this purpose through the order of 18 May 2014, submitted its Reply.

8. On 14 July 2014, at 11:30 a.m., at the premises of the CAAD, the meeting provided for in article 18 of the LRAT took place, with the attendance of the appointed Arbitrator and the representatives of the Claimant and the Respondent. The representative of the Claimant declared the intention to produce written arguments. The representative of the Respondent declared no opposition thereto. Thus, the Arbitral Tribunal immediately notified the Claimant and the Respondent to, in that order and successively, submit written arguments within a period of 10 (ten) days.

9. The Claimant and the Respondent submitted their written arguments respectively on 9 and 17 September 2014.

10. From the present proceedings, despite the respect owed to the argumentative effort shown by the Respondent and the existence of the arbitral awards issued in cases No. 150/2014-T and No. 220/2014-T, attached to the present proceedings by the Respondent, no elements emerge that justify the alteration of the position that I subscribed to in the arbitral awards issued in the cases identified in the previous paragraph.

II – SETTLEMENT OF JURISDICTIONAL ISSUES

1. The arbitral tribunal is materially competent and is regularly constituted, in accordance with articles 2, paragraph 1, subparagraph (a), 5, paragraph 2, and 6, paragraph 1 of the LRAT. The parties have legal personality and capacity, are legitimate and are duly represented, in accordance with articles 4 and 10 of the LRAT and article 1 of Ordinance No. 112-A/2011 of 22 March. The proceedings do not suffer from any defects that would invalidate them. In these terms, there is no obstacle to the examination of the merits of the case. Considering the identity of the tax facts and the factual and legal grounds invoked, nothing precludes, in light of the provisions of articles 104 of the CPTX and 3 of the LRAT, the joinder of claims verified in the present case.

III – FACTUAL MATTERS

1. Established Facts

Based on the documentary evidence attached to the proceedings, the following facts are considered established:

A) The Claimant is a financial credit institution which, within the scope of its activity, proceeds to celebrate financial leasing contracts and long-term rental contracts having as their object motor vehicles.

B) Due to the fact referred to in the previous subparagraph, the Claimant celebrated long-term rental contracts concerning the vehicles whose UCT is under discussion in the present proceedings.

C) The Claimant was notified of a set of official collection acts for UCT concerning the tax periods 2009, 2010, 2011 and 2012 relating to a set of motor vehicles identified in the Table attached as Annex I to the request for arbitral pronouncement and in accordance with the collection notes contained in documents No. 1 to 436 attached to the request for arbitral pronouncement, which are hereby considered fully reproduced herein.

D) The Claimant attached copies of the respective financial leasing contracts in force at the date of the occurrence of the respective taxable events which appear in Annex II attached to the request for arbitral pronouncement and which are hereby considered fully reproduced herein.

E) As of the date of the tax facts, the Claimant continued to appear as the owner of the said vehicles in the database held at the Motor Vehicle Registry Office.

1. Unestablished Facts

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

IV – LEGAL MATTERS

1. In light of the matters contained in the present proceedings, the central issue to be examined is whether, on the date of the occurrence of the taxable event, when a financial leasing contract is in force, the taxpayer of the UCT, for the purposes of the provision in article 3 of the CITC, is the lessee or the leasing entity, owner of the vehicle, in whose name the registration of the right of property is made.

2. The factual matters are established (see supra paragraph 12) and we shall now determine the Law applicable to the underlying facts in accordance with the issue already set out (see supra paragraph 14).

3. In the present proceedings, it is verified that there are financial leasing contracts in force as of the date of the occurrence of the taxable events for the motor vehicles concerning which the payment of UCT was pending, as results from documents No. 1 to 436 and Annexes I and II attached to the request for arbitral pronouncement.

4. The Legal Regime of the Financial Leasing Contract, approved by Decree-Law No. 149/95, of 24 June, with the amendments introduced therein, establishes in article 1 the notion of financial leasing as being "(…) the contract by which one of the parties undertakes, in exchange for remuneration, to grant to the other the temporary use of a thing, movable or immovable, acquired or constructed by indication of the latter, and which the lessee may purchase, after the agreed period, at a price determined therein or determinable by simple application of the criteria fixed therein."

Pursuant to article 9 of the above-mentioned statute:

"1 - The obligations of the lessor are, in particular:

a) To acquire or cause to be constructed the thing to be leased;

b) To grant the use of the thing for the purposes for which it is intended;

c) To sell the thing to the lessee, should the latter wish, upon termination of the contract;

2 - In addition to the general rights and duties provided for in the leasing regime which are not incompatible with the present statute, the financial lessor shall have, in particular and in addition to those established in the previous paragraph, the following rights:

a) To protect the integrity of the thing, in accordance with general principles of law;

b) To examine the thing, without prejudice to the normal activity of the lessee;

c) To make theirs, without compensation, the parts or other accessory elements incorporated in the thing by the lessee."

The legal position of the lessee is defined in article 10 of the same statute, as follows:

"1 - The obligations of the lessee are, in particular:

a) To pay the rents;

b) To pay, in the case of leasing of an autonomous fraction, the current expenses necessary for the enjoyment of the common parts of the building and services of common interest;

c) To allow the lessor to examine the leased thing;

d) Not to apply the thing for a purpose other than that for which it is intended or to move it to a place different from that contractually provided, except with the authorization of the lessor;

e) To ensure the preservation of the thing and not to make an imprudent use thereof;

f) To carry out repairs, urgent or necessary, as well as any works ordered by public authority;

g) Not to provide to another the total or partial enjoyment of the thing by means of assignment of title, whether onerous or gratuitous, subletting or commodatum, except if the law permits it or the lessor authorizes it;

h) To communicate to the lessor, within 15 days, the assignment of the enjoyment of the thing, when permitted or authorized in accordance with the previous subparagraph;

i) To warn immediately the lessor, whenever aware of defects in the thing or if it is threatened by any danger or if third parties claim rights in relation to it, insofar as the fact is unknown to the lessor;

j) To effect insurance of the leased thing, against the risk of its loss or deterioration and of damages caused thereby;

k) To return the leased thing, upon termination of the contract, in good condition, save for deterioration inherent to normal use, should the lessee not opt for its acquisition.

2 - In addition to the general rights and duties provided for in the leasing regime which are not incompatible with the present statute, the financial lessee shall have, in particular, the following rights:

a) To use and enjoy the leased thing;

b) To protect the integrity of the thing and its enjoyment, in accordance with its rights;

c) To use possessory actions, even against the lessor;

d) To encumber, wholly or partially, its right, with express authorization of the lessor;

e) To exercise, in the leasing of an autonomous fraction, the rights proper to the lessor, with the exception of those which, by their nature, can only be exercised by the latter;

f) To acquire the leased thing, upon termination of the contract, at the stipulated price."

1. Having regard to the foregoing in paragraph 17, we conclude that during the term of a financial leasing contract, the lessor remains the owner of the thing, but it is the lessee who has the exclusive use of the leased thing.

2. Article 3 of the CITC states as follows:

"Article 3

Subjective Scope

1 - The taxpayers of the tax are the owners of the vehicles, being understood as such the natural or legal persons, of public or private law, in whose name the same are registered.

2 - Equated to owners are financial lessees, acquirers with retention of title, as well as other holders of rights of purchase option by force of the leasing contract".

In accordance with paragraph 2 of article 3 of the CITC, the financial lessee is equated to the owner. Considering that the lessee has the exclusive use of the motor vehicle, the ratio legis of the CITC imposes that, pursuant to paragraph 2 of article 3 of the CITC, it is the lessee who is responsible for the payment of the tax, because it is the lessee who has the potential for use of the vehicle.

1. The understanding contained in the previous paragraph is reinforced by the fact that article 19 of the CITC determines that entities which proceed, in particular, to financial leasing of vehicles shall be obligated to provide to the TA the tax identification of the users of the leased vehicles for the purposes of the provision in article 3 of the CITC. Furthermore, article 3, paragraph 1 of Law No. 22-A/2007, of 29 June which approved the CITC determines that if the revenue generated by the UCT is incident upon vehicles subject to long-term rental or operational leasing, it must be allocated to the municipality of residence of the respective user.

2. If on the date of the occurrence of the taxable event a financial leasing contract is in force having as its object a motor vehicle, the taxpayer of the tax is not the lessor but rather, in accordance with paragraph 2 of article 3 of the CITC, the lessee, which makes perfect sense, given that it is the lessee who has the use of the vehicle, regardless of whether the registration of the right of property remains in the name of the lessor.

3. The means of proof presented by the Claimant, consisting of copies of financial leasing contracts in force (see subparagraph D) of paragraph 12), enjoy the presumption of truthfulness conferred upon them in accordance with paragraph 1 of article 75 of the LGT. Thus, these documents appear to be suitable and have sufficient force to rebut the presumption on which those collection acts are based. Moreover, the Respondent has not argued facts that, if they fall within the subparagraphs of paragraph 2 of article 75 of the LGT, would remove the presumption of truthfulness concerning the said documents.

4. In consequence of the foregoing, the collection acts subject to the present arbitral proceedings must be annulled.

5. The Respondent in its reply considers that, anticipating the hypothesis that the Claimant's claim be judged well-founded, it should not be condemned in costs, because it did not give rise to the litigation. Article 527 (General rule on costs) of the Code of Civil Procedure (CCP) provides as follows:

"1 - The decision which judges the action or any of its incidents or appeals condemns in costs the party which gave rise to them or, in the absence of success in the action, whoever obtained benefit from the proceedings.

2 - It is understood that a party gives rise to the costs of the proceedings, the losing party, in proportion to the extent that it lost.

3 - In the case of condemnation for joint and several obligation, joint and several liability extends to costs."

The Arbitral Tribunal, in accordance with the foregoing, judged the Claimant's claim to be well-founded and, therefore, in accordance with paragraphs 1 and 2 of article 527 of the CCP, applicable by virtue of subparagraph (e) of paragraph 1 of article 29 of the LRAT, the responsibility for payment of the arbitration fee is unequivocally that of the Respondent.

V – DECISION

In light of the foregoing, it is decided:

a) To judge the request for arbitral pronouncement to be well-founded and consequently to annul the UCT collection acts to which the collection documents attached to the request for arbitral pronouncement submitted by the Claimant refer.

b) To condemn the Respondent to pay the costs of the present proceedings.

The value of the case is set at €27,912.27 (twenty-seven thousand nine hundred and twelve euros and twenty-seven cents), in accordance with the provision in article 97-A, paragraph 1, subparagraph (a), of the CPTX, applicable by virtue of subparagraphs (a) and (b) of paragraph 1 of article 29 of the LRAT and paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The arbitration fee is set at €1,530.00 (one thousand five hundred and thirty euros), in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), to be paid in full by the Claimant, in accordance with article 22, paragraph 4, of the LRAT.

Let notification be made.

Lisbon, Administrative Arbitration Centre, 27 September 2014

The Arbitrator

Olívio Mota Amador