IUC Tax on Leased Vehicles: Subjective Incidence and Financial Leasing Liability (CAAD 373/2017-T)

ARBITRAL DECISION

The Arbitrator Marisa Almeida Araújo, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to constitute this Singular Arbitral Tribunal, hereby renders the following:

ARBITRAL DECISION

Report

A..., S.A., legal entity no. ..., with registered office at Rua..., ..., ...-... Lisbon (hereinafter referred to as "Claimant"), submitted a request for arbitral ruling and constitution of a singular arbitral tribunal on 14 June 2017, pursuant to the provisions of Article 4 and Article 10, no. 2 of Decree-Law no. 10/2011 of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as "LFATM"), in which the Tax and Customs Authority (hereinafter referred to as "Respondent" or "TA") is the respondent.

In the said request for arbitral ruling, the Claimant seeks that the Arbitral Tribunal recognize:

• The declaration of illegality and consequent annulment of 6 tax assessment acts relating to the IUC regarding the 6 vehicles identified in the proceedings;

• The reimbursement of the amount of €768.29, relating to the tax and compensatory interest unduly paid by the Claimant; and

• The payment of indemnity interest, for the deprivation of the said amount of €768.29, pursuant to Article 43 of the General Tax Law (GTL).

The request for constitution of the Singular Arbitral Tribunal was accepted by the President of CAAD and notified to the Respondent on 14 June 2017.

The Claimant did not proceed with the appointment of an arbitrator, wherefore, pursuant to the provisions of Article 6, no. 2(a) and Article 11, no. 1(b) of the LFATM, the President of the Deontological Council of CAAD appointed the undersigned as arbitrator of the Singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable timeframe and the parties did not manifest refusal of the appointment, pursuant to Article 11, no. 1(a) and (b) of the LFATM and Article 7 of the Deontological Code.

On 25 August 2017, the arbitral tribunal was constituted.

Notified for such purpose on 28 August 2017, the Respondent submitted its Reply on 12 September 2017, without attaching a copy of the administrative proceedings file.

On 27 September 2017, an order was issued designating 23 October for the holding of the meeting referred to in Article 18 of the LFATM, with the Respondent manifesting opposition to witness testimony, alleging violation of Article 395 of the Civil Code.

By order of 11 October 2017, notification of the Claimant of the Respondent's application was ordered and the scheduled date was set aside until the matter was decided.

On 3 November 2017, an order was issued deciding that the scheduling of the meeting falls within the principle of the tribunal's autonomy in conducting the proceedings and the application was admitted as not manifestly dilatory, considering that there was no violation of the right to be heard, and that, with regard to the matter raised by the TA, the same would be decided following its production at the final decision stage, thus being a matter to be decided.

In the order of 3 November 2017, the meeting referred to in Article 18 of the LFATM was rescheduled for 11 December 2017 at 14:00 for witness examination and oral submissions.

The meeting was held, at which the distinguished representative of the TA was absent, with the examination of the witness who had been summoned.

Considering the absence, it was decided that submissions would be presented in writing.

On 4 January 2018, the Claimant and Respondent each presented their written submissions, and essentially maintained the positions already taken.

The Claimant's Position

The Claimant sustains its request, in summary, in the following manner:

The Claimant is a credit institution with a strong presence in the national market and, among its areas of activity, automobile financing assumes special relevance.

The financial leasing contracts that it concludes are intended for the acquisition, by companies and individuals, of motor vehicles and comply, in essence, with a common script, typical of this type of financing: the Claimant, after being contacted by the customer, acquires the vehicle from the supplier indicated by the customer, and subsequently proceeds with its delivery to said customer – who thus assumes the quality of lessee.

During the period that is to be stipulated in the contract, this lessee maintains the temporary enjoyment of the vehicle – which remains the property of the Claimant – through remuneration to be paid to the Claimant in the form of rent; being able to acquire the vehicle at the end of the contract, through the payment of a residual value.

The vehicle subject to the contract remains at all times, during the validity of the contract, in the exclusive enjoyment of the customer/lessee.

The motor vehicles identified in the proceedings were subject to Financial Leasing Contracts.

Said leasing was, according to the Claimant, in force in the year (or, more specifically, in the relevant month of the year) in which the obligation to pay the IUC associated with the respective vehicle became due.

On that date and, moreover, during the entire period in which the aforementioned Contracts were in force – as occurs in any contract of this nature – the use of the respective motor vehicles was always exclusively the responsibility of the lessee.

Its (legal) ownership belonged to the Claimant, as the lessor entity; however, this entity never enjoyed, as it alleges, the vehicles, which have been, from the moment of their acquisition, being used (only and solely) by the lessees.

The Claimant was notified to proceed with the payment of the IUC to which the additional assessment acts identified in the proceedings relate, which it proceeded to pay.

Through the aforementioned additional assessment acts, the Tax and Customs Authority (hereinafter "TA") came to demand the payment of the missing IUC from the Claimant here, even knowing – or should knowing, according to the Claimant, because financial leasing is subject to registration with the Commercial Registration Office – that these particular motor vehicles were subject to financial leasing contracts, and even knowing the identity of the lessees.

For all vehicles identified in the proceedings, in the month of registration, the aforementioned leasing contract was in force.

The Claimant could not therefore be considered the respective taxpayer thereof.

In demanding the missing tax from the now Claimant, the TA acts on the basis of a ground that appears to the Claimant to be wrong: that the entity leasing a particular automobile is, in light of the Unique Circulation Tax Code (UCTC), responsible for its payment, that is, it is the taxpayer of this tax.

The IUC is the tax that aims to burden taxpayers with the environmental and road cost associated with them, in a logic of equivalence and tax equality.

Thus, with regard to this tax, the legislator chose, according to the Claimant, to burden the taxpayer not in accordance with (and to the extent of) its wealth – setting aside the principle of tax capacity – but rather to the fair extent of the cost to the environment and road infrastructure that said taxpayer, through the use of motor vehicles, can generate.

Underlying this rule of incidence is the assumption of the potential use of motor vehicles: it is precisely because it has at its disposal the right to use a vehicle – which generates a certain level of pollution, road wear, etc. – that said taxpayer has an increased potential to cause damage to the environment and infrastructure, damage that justifies, from an economic-legal point of view, its taxation under IUC.

In truth, and as is well known, the weight of the environmental component in the tax under review is very significant.

The determining criterion of taxation is no longer (exclusively) engine displacement, and has come to be derived from "indicators of a vehicle's polluting capacity", and it is certain that "as the structuring and unifying element of these categories, the principle of equivalence is established".

The Claimant raises and transcribes an Opinion made at the request of "ALF – Portuguese Association of Leasing, Factoring and Renting", which it attaches to the proceedings, by Diogo Leite de Campos to support its position.

In financial leasing, purchase with retention of title, etc. – the legislator chose, thus, and (in the Claimant's opinion) rightly, to burden with the obligation of tax not the owners, but the individuals to whom exclusive enjoyment (potential use) of automobiles falls: the financial lessees, purchasers with retention of title or lessee with purchase option.

Something that, moreover, is in accordance with the assumption underlying this tax, to which reference was made above: the potential capacity for pollution associated with the use of the motor vehicle on which the taxation is levied.

Now, in a financial leasing contract, there is no doubt, according to the Claimant, that the right to use the asset is withdrawn from its respective owner – who, in this regard, is assumed as lessor – to be incorporated into the sphere of the lessee.

Indeed, in financial leasing contracts it is the lessee who has exclusive enjoyment of the leased asset.

The lessee has the economic ownership of the asset, so to speak, with the lessor having no more than its legal ownership.

In accordance with Article 3, no. 2 of the IUC Code, the rule is very simple according to the Claimant: with the lessees having exclusive enjoyment of the motor vehicle subject to the contract, they also have the obligation to pay the tax.

With respect to financial leasing, it is then evident, according to the Claimant: recognizing it the legislator itself as "user of the leased vehicle" (cf. Article 19), there is no doubt that the responsibility to indemnify the costs (environmental and road) associated with the potential use of the respective vehicle should belong to the lessee.

And this rule is, according to the Claimant, the one that appears most consistent, precisely from the point of view of the ratio of the law, to which reference was made above: knowing in advance that the IUC aims to impute to taxpayers the responsibility that is attributed to them by the potential use of motor vehicles – with respect to the environmental and road costs that such use entails – it cannot fail to consist of the burden of those who effectively cause such costs, which cannot fail to be the person to whom belongs the right to use the vehicle in question.

Thus, being subject to financial leasing contracts, the motor vehicles whose IUC assessment the Claimant contests were not, at any moment, used by the Claimant, but rather by their respective lessees.

Considering that, in all and each of the cases better identified in the list attached to the proceedings, this was the case – the motor vehicles were already in the possession of their respective lessees at the end of the month of registration or, being the year of vehicle registration, ninety days after the date of registration – without exception, it must necessarily be concluded, according to the Claimant, that the responsibility for the assessment of the tax belonged not to the lessor entity but to the lessees.

Lessees whose identity is known to the TA according to the Claimant; indeed, in compliance with the provisions of Article 19 of the IUC Code, the latter is appropriately and timely informed of the existence of said leasing contract, as well as of the identity (in particular, tax identification number) of the "user of the leased vehicle" (cf. Article 19), and, even if it were not so, the truth is that said lessee is also, moreover, perfectly identified with the Motor Vehicle Registration Office.

And there is not even, according to the Claimant, any indication that the legislator intended to burden the lessor entity with the responsibility – subsidiary, joint, solidary or any other – for payment of the tax, whenever a lessee exists.

If that were the legislative intent, there would have to be inserted into the legal text some expression that would indicate it – the hermeneutic rules in force, according to the Claimant, rule out any interpretation that does not have the minimum correspondence with the letter of the law.

It results for the Claimant that it is not a taxpayer of IUC with respect to the financial leasing contracts of which it is a party, and therefore the additional assessment acts of which it was the target are absolutely illegal, better identified in the list attached to the proceedings.

This has been consistently decided, the Claimant referring to various CAAD decisions on the subject matter in the proceedings, namely those of proceedings 170/2013-T, 256/2013-T, 286/2013-T, 45/2014-T, 60/2014-T, 129/2014-T, 136/2014-T, 221/2014-T, 222/2014-T, 225/2014-T, 228/2014-T, 229/2014-T, 230/2014-T, 232/2014-T, 235/2014-T, 645/2014-T, 655/2015-T, 371/2015-T, etc.

The mentioned assessments are the exclusive and sole responsibility of the TA, which thus cannot fail to be responsible for the payment of indemnity interest and for the assumption of arbitration costs.

The Respondent's Position

The Respondent replied by sustaining the lack of merit of the request for arbitral ruling and alleging, in summary, that:

The understanding advocated by the Claimant suffers not only from a biased reading of the letter of the law, but also from the adoption of an interpretation that does not take into account the systematic element, violating the unity of the regime enshrined throughout the UCTC and, more broadly, throughout the entire tax legal system and further results from an interpretation that ignores the ratio of the regime enshrined in the article in question, and likewise throughout the UCTC.

The list of arbitral decisions organized by the Claimant does not constitute a set of decisions rendered by a higher ranking court.

The tax legislator, in establishing in Article 3, no. 1, who are the taxpayers of the IUC, expressly and intentionally established that these are the owners (or in the situations provided for in no. 2, the persons listed therein), being considered as such the persons in whose name they are registered.

The tax regulation is full of provisions analogous to that enshrined in the final part of no. 1 of Article 3, in which the tax legislator, within its freedom of legislative shaping, expressly and intentionally, establishes what should be considered legal, for purposes of incidence, of income, of exemption, of determination and of periodization of taxable profit, for purposes of residence, of location, among many others.

It provides examples for this interpretation, with Articles 2 of the Code of Municipal Tax on Onerous Transfers of Immovable Property (CMTOTI), 2, 3 and 4 of the Code of Tax on Income of Natural Persons (CTINP) and 4, 17, 18 and 20 of the Code of Tax on Income of Legal Persons (CTILP).

Concluding that the TA, in the case of the present arbitral ruling proceedings, the legislator expressly and intentionally established that such [as owners or in the situations provided for in no. 2, the persons listed therein] are considered the persons in whose name they [the vehicles] are registered, because this is the interpretation that preserves the unity of the tax legal system.

To understand that the legislator established here a presumption would be unequivocally an interpretation contra legem.

Position of the Respondent supported in the context of proceedings no. 210/13.0BEPNF, the Administrative and Tax Court of Penafiel, which it attaches.

Also, the Respondent invokes the systematic element of interpretation of the law to demonstrate that the solution advocated by the Claimant is intolerable, the understanding supported by the latter finding no support in the law.

From the articulation between the scope of the subjective incidence of the IUC and the constitutive fact of the corresponding tax obligation follows unequivocally that only legal situations subject to registration (notwithstanding the permanence of a vehicle in national territory for a period exceeding 183 days, provided for in Article 6, no. 2) generate the birth of the tax obligation.

The moment from which the tax obligation is constituted has a direct relationship with the issuance of the registration certificate, in which the facts subject to registration must appear (Cf. Articles 4/2 and 6/3 of the UCTC, Article 10/1 of Decree-Law 54/75 of 12 February, and Article 42 of the Motor Vehicle Registration Regulations).

In the same sense operates the legislative solution adopted by the tax legislator in Article 3/2 of the UCTC in making the equipment established therein coincide with the situations in which vehicle registration obliges for the respective registration.

With a view to the assessment of the IUC, the Respondent proceeds to consult the databases, both of the Institute of Land Transport Mobility (IMTT) and of the Registration and Notary Institute/Motor Vehicle Registration Office (IRN), as a way to determine the owners or financial lessees, purchasers with retention of title or holders of the right of purchase option, taxpayers of the IUC in light of the provisions of Article 3 of the UCTC, combined with Article 6 of the same code.

Having determined the taxpayer of IUC based on the persons in whose name the vehicle in question is registered with the Motor Vehicle Registration Office, the Respondent proceeds to assess the IUC with respect to these.

After assessing the IUC, the taxpayer in question comes to invoke, on the basis of the conclusion of a contract (which, note, can even be of a merely verbal nature), that it is no longer the owner of the vehicle or that it gave the vehicle on financial lease, but did not proceed with the registration, and that the taxpayer is another.

If one were to accept the position defended by the Claimant (that Article 3 of the UCTC can never be interpreted in the sense of intending to tax only those appearing in the registration as owner, because the registration is mere appearance of reality), the Respondent would have to proceed to assess IUC with respect to that other identified by the person appearing in the motor vehicle registration to whom it had first assessed the IUC (or not, once to the latter it would suffice to set aside its quality as taxpayer at the date of the taxable event).

In turn, after assessing the IUC with respect to that other, this one could also allege and prove that in the meantime it had already entered into a purchase and sale contract, financial lease, long-term rental, or other with another third party, but that this one also did not register.

The Respondent would then have to reassess the IUC against that other (presumed) taxpayer and so on successively...and indefinitely...

Putting, moreover, in question the tax statute of limitations.

And putting in question, unequivocally, the security and legal certainty.

It is further important to demonstrate that in light of a teleological interpretation of the regime established throughout the UCTC, the interpretation advocated by the Claimant in the sense that the taxpayer of the tax is the effective owner, independently of not appearing in the motor vehicle registration that quality of registration, is manifestly wrong.

And it is a wrong interpretation insofar as it is the very ratio of the regime enshrined in the UCTC that constitutes clear proof that what the tax legislator intended was to create a tax based on the taxation of the owner of the vehicle as it appears in the motor vehicle registration.

Indeed, the UCTC carried out a reform of the regime of taxation of vehicles in Portugal, substantially altering the system of motor vehicle taxation, with the taxpayers of the tax becoming the owners listed in the property register, independently of the circulation of vehicles on the public road.

That is, the IUC became due by the persons who appear in the registration as owners of the vehicles.

Concluding thus that the Respondent the tax acts in question are not affected by any defect of violation of law, insofar as in light of the provisions of Article 3 of the UCTC and Article 6 of the same code, it was the Claimant, in its capacity as owner, the taxpayer of the IUC.

Being, according to the Respondent, by virtue of the provisions of Article 3 of the UCTC and Article 6 of the same code, the Claimant, in its capacity as owner listed in the Motor Vehicle Registration Office, the taxpayer of the IUC.

Hence all the reasoning advocated by the Claimant is tainted with error, it not being possible to set aside the legal presumption established, in accordance with the position supported by the Respondent.

However, even if this is not the case – which the Respondent only admits by way of mere academic hypothesis – and accepting it is admissible to set aside the presumption in light of jurisprudence already established in this arbitration center, it will still be important to evaluate the documents attached by the Claimant and their probative value with a view to such rebuttal.

The Respondent questions whether financial leasing contracts would constitute sufficient proof to shake the (supposed) legal presumption established in Article 3 of the UCTC.

According to the Respondent, the answer is no, and it challenges for all legal purposes the Documents 7 to 12 attached to the initial petition.

The Respondent raises that the financial leasing contract relating to the vehicle with registration plate ...-... -... had its term on 2016-08-05.

This meaning, according to the Respondent, that on the date of one of the facts generating the IUC here in question (i.e., 2016-08-22, that is, on the date of the anniversary of the registration) the said financial leasing contract had already ended.

And the Claimant makes no proof of the actual exercise of the option to acquire the vehicle just listed at the end of the leasing contract, once it limited itself to attaching a copy of the financial leasing contract according to the Respondent.

Additionally, if it were to be concluded that we are dealing with a financial leasing contract granted by the Claimant, it would always be incumbent on the latter to demonstrate having complied with the ancillary obligation imposed by Article 19 of the UCTC.

According to the Respondent, the Claimant does not demonstrate that it complied with this obligation, and therefore the intended rebuttal of Article 3 here in question must necessarily fail.

Furthermore, the Respondent adds that if the interpretation put forth by the Claimant were accepted, then the same would be contrary to the Constitution, insofar as such interpretation translates into a violation of the principle of trust, the principle of legal certainty, the principle of efficiency of the tax system, and the principle of proportionality.

For in the view of the Respondent, the interpretation defended by the Claimant entails a violation of no less important principles of trust, legal certainty, efficiency of the tax system, and proportionality.

The interpretation proposed by the Claimant devalues, according to the Respondent, the registration reality to the detriment of an informal reality and insusceptible to minimal control on the part of the Respondent, being, in its perspective, offensive to the basic principle of trust and legal certainty that should inform any legal relationship, here including the tax relationship.

The position defended by the Claimant, according to the Respondent, is an understanding that is at the antipodes of that principle and of the very reform of motor vehicle taxation insofar as, in attempting to disregard the registration reality, a reality that constitutes the cornerstone on which the entire structure of the IUC rests, it generates for the Respondent, and ultimately for the Portuguese State, additional administrative costs, impairment of the performance of its services, lack of control of the tax, and uselessness of registration information systems.

The Respondent further adds that the argumentation put forth by the Claimant represents a violation of the principle of proportionality, insofar as it disregards it entirely in confrontation with the principle of tax capacity, when in reality the Claimant has the necessary and adequate legal mechanisms to safeguard that its capacity (e.g., motor vehicle registration, request for seizure of documents and request for cancellation of registrations), without, however, having exercised them in due time.

This means, therefore, that the IUC is assessed in accordance with the registration information duly transmitted by the Registry and Notary Institute.

Now, the Claimant not having taken care to update the motor vehicle registration, as indeed it could and was incumbent upon [Article 5/1-a) of Decree-Law 54/75 of 12 February, and Article 118/4 of the Road Code], and not having had the registrations of the vehicles here in question cancelled, it is inevitable to conclude that the Claimant did not proceed with the care that was required of it.

Hence, it was not the Respondent that gave cause to the filing of the request for arbitral ruling, but rather the Claimant itself.

The same reasoning applies with respect to the Claimant's request for condemnation to pay indemnity interest and costs.

Case Management

The Tribunal is competent and is regularly constituted, pursuant to Articles 2, no. 1(a), 5 and 6, all of the LFATM.

The parties have legal personality and capacity, are legitimate and are represented, pursuant to Articles 4 and 10 of the LFATM and 1 of Ordinance no. 112-A/2011 of 22 March.

There are no nullities that affect the entire proceedings, and therefore it is necessary to decide on the merits of the case.

The joinder of claims is admitted pursuant to Articles 3 of the LFATM and 104 of the Tax Procedure Code, taking into account the identity of tax facts, of the court competent for the decision, and of the grounds of fact and law.

As a preliminary matter, a position must be taken on the inadmissibility of witness testimony as alleged by the Respondent, which maintains that the matter only permits documentary evidence, and in that case, witness testimony is prohibited.

Ruling

By virtue of Articles 394 and 395 of the Civil Code, witness testimony will not be admissible to prove the performance or extinction of obligations. However, jurisprudence, based on the doctrine of Vaz Serra, has proceeded with a non-absolute interpretation of the rules, admitting that the party alleging the facts that benefit it – in this case the extinction of the obligation – may use witness testimony in certain situations.

This interpretation is supported by the jurisprudence of the higher courts, see, by way of example, the judgment of the Court of Appeal of Lisbon, within proceedings no. 5173/2006.2 of 02/11/2006, from which it is extracted that the "(...) rules of Articles 394 and 395 of the CC do not have absolute scope, with the need to except, in particular, the hypothesis in which there is a beginning of written proof that renders the alleged fact plausible, being then admissible proof by witnesses".

In the Judgment of the Court of Appeal of Porto, rendered within proceedings no. 383306/09.7YIPRT.P1 of 26/11/2013, it is added that "(...) it has long been understood, both in doctrine and in jurisprudence, that these rules relating to the limitation of proof must be applied in a mitigated manner, for reasons of substantive justice".

For this reason, even if it were considered that the matter in question only permitted documentary evidence, it is certain that, considering the jurisprudence and the understanding that is supported, witness testimony would still always be admissible in the terms referred to and advocated by the aforesaid decisions, considering the existence of the leasing contracts attached to the proceedings, which, despite being challenged by the Respondent, their authenticity was not put into question.

With respect to the document attached by the Claimant in its submissions, with respect to which the Respondent was notified to pronounce itself, it is also necessary to decide on its admissibility.

The attachment of documents outside the legally provided cases (with the respective pleadings by application of Article 423 of the Code of Civil Procedure) constitutes secondary nullity, pursuant to Article 195 of the same statute (ex vi Article 29 of the LFATM).

As its attachment is not shown to be admissible, the content of the document attached is not considered, in particular considering that in this case it is irrelevant to the decision on the merits of the case.

Object of Arbitral Ruling

The following questions are placed before the Tribunal, in addition to the preliminary questions referred to in the previous section and decided in the terms described above:

• Must the 6 tax assessment acts relating to the IUC regarding the 6 vehicles identified in the proceedings be declared illegal and consequently annulled, with the amounts paid being returned to the Claimant?

• Does the Claimant have the right to indemnity interest?

• Can the Respondent be exempted from the payment of arbitration costs, with responsibility in these cases being solely that of the Claimant?

Proven Facts

• The Claimant is a credit institution with a strong presence in the national market and, among its areas of activity, automobile financing assumes special relevance.

• The IUC assessments notified to the Claimant and which it paid, including compensatory interest, referred to vehicles whose ownership was registered in the name of the Claimant at the date of the tax facts – Docs. Nos. 1 to 6 attached with the initial petition by the Claimant.

• The Claimant concluded, in its capacity as lessor, financial leasing contracts for all the vehicles subject to the assessments challenged, as per copies of the contracts attached as Docs. Nos. 7 to 12.

• The financial leasing contracts were in force at the date of the facts generating the tax with respect to all the assessments challenged, with the exception of the assessment no. 2016..., relating to the vehicle with registration plate ...-... -... – In accordance with Docs. Nos. 2 and 8 attached with the initial petition.

• The financial leasing contract of the vehicle with registration plate ...-... -... terminated its validity on 2016-08-05, in accordance with Docs. Nos. 2 and 8 attached with the initial petition.

• The IUC assessment relating to this vehicle with registration plate ...-... with no. 2016..., refers to the year 2016, with the fact generating IUC corresponding to the date of the anniversary of the registration of 2016-08-22, in accordance with Docs. Nos. 2 and 8 attached with the initial petition and Doc. No. 2 attached with the response of the Respondent.

• The financial leasing contracts were communicated to the TA through its electronic platform.

The proven facts result from the documentary elements attached to the proceedings.

The witness summoned by the Claimant provided supplementary clarifications of the facts in question in the proceedings, in a clear, free, enlightened manner and without reservations, explaining the procedure for communication to the TA of the respective financial leasing contracts through its electronic platform.

However, the witness's testimony was not sufficient with respect to the leasing contract, the final term of which is 05-08-2016, and therefore prior to the taxable fact in question relating to that vehicle, and with respect to which there are no elements or documentary support that permit concluding whether or not the purchase option was exercised by the lessee.

There are no unproven facts of interest for the decision of the case, considering the possible legal solutions.

On the Law

The question underlying this request for arbitral ruling takes into account the IUC assessments that the Claimant paid, plus the respective compensatory interest, as per the attached list and assessments attached to the proceedings, in a total of 6, invoking the circumstance that, at the date to which the tax facts giving rise to them refer, the same were delivered to the respective lessees in the context of financial leasing contracts, and consequently, the Claimant does not assume the quality of the taxpayer of the tax that was assessed to it.

For this purpose, it will be necessary to determine the subjective incidence of the Unique Circulation Tax, i.e., to determine whether the Claimant should or should not be considered a taxpayer of IUC with respect to the vehicles and periods to which the tax relates, duly identified in the annex to the request, for, at the date the tax became exigible, being leased under financial leasing contracts.

With respect to this specific question, Article 3 of the IUC Code establishes:

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

1. Financial lessees, purchasers with retention of title, as well as other holders of purchase option rights by virtue of a leasing contract are assimilated to owners".

Subjective Incidence of IUC after the End of the Financial Leasing Contract

The financial leasing contract of the vehicle with registration plate ...-... -... terminated its validity on 2016-08-05, as results from the document (Doc. No. 8) attached to the proceedings by the Claimant, and the IUC assessment relating to this vehicle, with no. 2016..., refers to the year 2016, and the fact generating IUC corresponding to the date of the anniversary of the registration of 2016-08-22, in accordance with Doc. No. 2 attached with the response of the Respondent.

The Claimant alleges in its pleading that all the contracts in question, without exception, were in force, but, and even considering the explanations of the witness summoned, the truth is that it is unknown – with no element, in particular documentary, that permits framing the witness's testimony – what the destination of this contract was or what ground justifies that the contract was in force or whether the purchase option was exercised.

Thus, the fact generating the tax in question refers to the year 2016, the date on which the contract was no longer in force, considering the documentary content itself, and therefore Article 3, no. 2 of the UCTC does not apply, with the general rule of no. 1 applying, i.e., the taxpayer of the tax is the Claimant, aligning with the position of the Respondent on this aspect.

The Claimant's claim for the annulment of assessment no. 2016... relating to the vehicle with registration plate ...-... -... thus fails.

Subjective Incidence of IUC during the Validity of Financial Leasing Contracts

This matter has been the subject of decision within the scope of the arbitral courts functioning at CAAD[1] generally in the sense of the merit of the respective requests, on the ground that the rule in question, in the wording in force at the date of the facts to which this request refers, contains a legal presumption that admits contrary proof.

The same understanding results from the Judgment of the Central Administrative Court South, rendered on 19-03-2015, Proceedings 08300/14, available at: www.dgsi.pt, which supports said jurisprudence, when it is expressly stated therein that Article 3, no. 1 of the UCTC "[…] establishes a legal presumption that the holder of motor vehicle registration is its owner, and that such presumption is rebuttable by virtue of Article 73 of the GTL".

This is also our position.

Following what was stated in decision 43/2014-T, which we follow closely here, "it is verified, by way of example, that in Articles 243, no. 3, of the Civil Code and 45, no. 6, and 89-A, no. 4, of the General Tax Law, the expression "is considered" is also used, and yet we are dealing with legal presumptions, so, in accordance with the general rules of interpretation provided for in Article 9, no. 2 of the Civil Code, it is considered that the minimum of verbal correspondence is assured, for purposes of determining the legislative thought that is objectified in the rule in question – literal element".

That is, both expressions have been used by the legislator without it being possible to conclude that the latter did not want to establish, in fact, a legal presumption, nor can it be inferred that the alteration of the expression could lead to a different interpretive sense.

On the other hand, as extracted from the aforementioned decision 43/2014-T, "still within the framework of the elements of interpretation in accordance with Article 9 of the Civil Code, it is important to pay attention to the historical element. Thus, recalling Decree-Law no. 599/72 of 30 December and Decree-Law no. 116/94 of 3 May, with respect to subjective incidence, a presumption was provided for that the taxpayers of IUC are the persons in whose names the vehicles were registered at the date of assessment".

On the other hand, considering the rational and teleological element, the IUC has as its underlying assumption the environmental and road cost of the effective use of the automobile. The IUC has, therefore, underlying it the principle of equivalence provided for in Article 1 of the UCTC, with a view to "burdening taxpayers to the extent of the environmental and road cost that they cause, in implementation of a general rule of tax equality".

Thus complying with the constitutional command, provided for in Article 66, in which sustainable development requires that the State ensure "that fiscal policy is compatible with development with the protection of the environment and quality of life" (sub-no. h) of no. 2).

Promoting a principle of "polluter-pays", complying with the premise of material equality among all citizens who cause environmental cost, thus embodying the IUC the environmental concerns that fiscal policy imposes.

Thus being, also according to this element, Article 3, no. 1 of the IUC Code should be interpreted in the sense that a true presumption is in question.

With respect to the matter of registration.

Pursuant to Article 7 of the Code of Land Registration, applicable ex vi Article 29 of Decree-Law no. 54/75 (Motor Vehicle Registration), which "definitive registration constitutes a presumption that the right exists and belongs to the registered titleholder in the precise terms in which the registration defines it".

It means that the registration of the right of ownership of the vehicle has a merely declarative effect and is not constitutive of any registered right, and therefore it is configured as a presumption of the existence of the right, in the terms in which it is registered, that can be rebutted, that is, it admits contrary proof.

Definitive registration is no more than a presumption that the right exists and belongs to the registered titleholder, in the exact terms of the registration, but a rebuttable presumption, thus admitting counter-proof, as flows from the law and jurisprudence exemplarily pointing to the Judgments of the Supreme Court of Justice nos. 03B4369 and 07B4528, respectively of 19/02/2004 and 29/01/2008, available at www.dgsi.pt.

For this reason, and following the arbitral decision within proceedings no. 145/2017-T, "the function legally reserved for registration is, thus, on the one hand, to publicize the legal situation of assets, in this case vehicles, and on the other, to permit us to presume that the right exists over those vehicles and that the same belongs to the titleholder as such registered in the registration, which means that registration does not have a constitutive nature of the right of ownership, but only declarative, and that such presumptions are rebuttable, whether by virtue of the established in no. 2 of Article 350 of the CC, or in light of the provisions of Article 73 of the GTL. Hence, from the moment that the presumptions in question are set aside, by means of adequate proof, the TA cannot persist in considering as taxpayer of the IUC the person in whose name the vehicle remains registered".

There being, in particular with respect to the UCTC, no legal provision that attributes to vehicle registration any legal effect, including as a condition of validity or efficacy of the causal transaction.

In this way, and following the decision rendered within proceedings no. 145/2017-T, "The interpretation of no. 1 of Article 3 of the UCTC, (...), taking into account, in particular, the legal relevance conferred on the principle of equivalence, does not entail the taxation, in IUC, of the lessor who, as the formal owner of the vehicle, does not have, consequently, any polluting potential, which means that the damages arising to the community, arising from the use of motor vehicles, must be assumed by their actual users, as costs that only they should bear. The lessee, on the other hand, has the full use and enjoyment of the vehicle, as legally established, being its true user and effective generator of environmental damages, and should thus respond for the corresponding tax, and this is the understanding that, in light of the ratio legis of the UCTC, should be gathered from the provisions of no. 2 of Article 3 of that same Code".

"Thus, the interpretation of no. 2 of Article 3 of the UCTC will only permit viewing the lessee as responsible for the payment of the IUC, and it is important to note in this regard the provisions of Article 19 of the UCTC, when, precisely, for purposes of the provisions of Article 3 of the said Code, that is, for purposes of subjective incidence, it imposes on entities that proceed with financial leasing the obligation to provide the TA with data relating to the tax identification of users of leased vehicles, which reveals, in particular, that, for purposes of the said incidence, it was intended to know who were, ultimately, the actual users of the leased vehicles, so that they, and not others, would bear the unique circulation tax, which, moreover, is shown to be in complete harmony with the principle of equivalence, as a structuring principle of the UCTC".

Now, for each of the automobiles in question in the proceedings, the Claimant attached the respective leasing contracts that were in force, with the exception of the contract referred to in point 5.1 above, and therefore, and regardless of what appeared in the registration, the Claimant demonstrates that it is the lessor of each of the automobiles (subject to the exception referred to) and the same were delivered to third parties under leasing contracts.

This is what we understand based on the evidence presented by the Claimant.

The means of proof presented are embodied in the financial leasing contracts that were valid at the date the IUC became exigible, as shown to be proven in the proceedings.

Such contracts are suitable means of proving the quality of lessor and lessee, for purposes of the provisions of no. 2 of Article 3 of the UCTC, that is, for purposes of its assimilation to the owner of the vehicle and of its, consequent, binding to the payment of the tax in question. There are no elements that permit understanding that the data inscribed in that contract do not correspond to the contractual truth, and this Tribunal sees no reasons to put them in question, and it is also certain that the law, in this case, no. 1 of Article 75 of the GTL, attributes to that document a presumption of veracity that was not set aside.

Thus, as results from decision 179/2016-T, from the provision of no. 2 of Article 3 of the UCTC, combined with the cited Article 19 of the same Code, there remain no doubts that, with the vehicles ceded to third parties under financial leasing or other leasing contracts with purchase option, the taxpayer of this tax will be the lessee and not the respective owner, thus being set aside the rule of subjective incidence of no. 1 of that article, provided that sufficient proof is made to rebut the presumption that the same contains.

Furthermore, it is now necessary to verify whether the circumstance provided for in no. 2 of Article 3 of the UCTC sets aside or not the rule of incidence enshrined in no. 1 of the same article, in the case of non-compliance with the provisions of Article 19 of the UCTC.

Until its revocation by sub-no. f) of no. 1 of Article 215 of Law no. 7-A/2016 of 30 March, Article 19 of the UCTC imposed on the financial lessor of vehicles the obligation to provide the Directorate-General of Taxes (today, the TA – Tax and Customs Authority) with data relating to the tax identification of users of leased vehicles.

It is emphasized that the relevance of non-compliance with such obligation with respect to the incidence of the tax in question has been the subject of various arbitral decisions, and it is recalled in this regard the Arbitral Decision rendered within Proc. 136/2014-T:

"Indeed, the provision of Article 3, no. 2 of the UCTC is very clear with respect to the subjective incidence of the IUC, during the validity of financial leasing contracts, subjecting the lessee to that obligation, when it assimilates the lessee to the owner for this purpose.

Thus, not attributing the law such obligation to the owner-lessor, there will be no ground for any relief on the part of the latter, with the communication provided for in said Article 19 of the UCTC, for the simple reason that it was never subject to the payment of the tax.

The subjective incidence of the IUC is established in all of its elements in Article 3 of the UCTC, and it will be through the application of this provision that the taxpayer will be determined, with non-compliance with the mentioned ancillary obligation being irrelevant for purposes of the incidence of the tax."

It is, therefore, to this jurisprudential orientation that we adhere.

As concluded before, in situations in which the vehicles, at the date of the occurrence of the taxable event, are ceded to the lessees under financial leasing contracts or other leases involving purchase option, the taxpayer of the tax obligation is not the lessor owner but, pursuant to no. 2 of Article 3 of the UCTC, the respective lessee, by being the one who has the enjoyment of the vehicle. And this is verified independently of the fact of whether or not the provisions of Article 19 of that Code were complied with and of the circumstance that the property registration remains in the name of the lessor, without the leasing contract having been registered therein.

As to this aspect, and considering the electronic communication – which the witness summoned clarified in a comprehensive manner the respective communication procedure – and basing ourselves on the fact, of general knowledge, that it is frequent for taxpayers not to be provided with evidence of the acts they perform through the TA's electronic communication platform, we understand that we should consider proven that the Claimant actually complied with the duty incumbent on it by virtue of Article 19 of the UCTC.

But even if this were not the case, that is, even if that obligation had not been complied with, we follow, with respect to this aspect, the decision rendered in proceedings no. 191/2015-T, from which it is extracted that "for these cases, the legislator instituted an explicit rule, in no. 2 of Article 3 of the UCTC, according to which, during the validity of the leasing contract, the lessees are the taxpayers of the tax. (…) it will also be asked: and what about the communication provided for in Article 19 of the UCTC? Does its non-compliance contend with the conclusion in the preceding paragraph as to the party responsible for payment of the tax? The answer is, in our view, no. Indeed, the consequence that flows from non-compliance with that ancillary obligation is the one we witness: the TA issues the assessment notices in the name of the owner of the vehicle, by being unaware that the financial leasing contract was concluded. However, this does not prevent that same owner / lessor from proving the conclusion of the contract and the period for which it was concluded, and thus, from preventing payment of the tax."

For all this, it will be said, in consonance with what has been set out above, that the assessment acts relating to the vehicles identified in the proceedings are considered illegal, with the exception of the vehicle referred to in point 5.1 above, insofar as, at the date the IUC became exigible, the financial leasing contracts were in force, and the taxpayer of the tax is the respective lessee, and not the Claimant, in light of the provisions of no. 2 of Article 3 of the UCTC.

In light of the foregoing, it is concluded that there is no legal ground for the acts assessing IUC and compensatory interest with respect to the vehicles and periods identified in the annex to the request for arbitral ruling, with the exception of the above-referred with respect to the IUC assessment relating to the vehicle identified in point 5.1, which, at the date the tax became exigible, were ceded to the respective lessees under leasing contracts with purchase option.

The Claimant's claim for the annulment of the assessments in question in the proceedings thus succeeds, with the exception of the assessment no. 2016... relating to the vehicle with registration plate ...-... -... .

On the Right to Indemnity Interest

Along with the annulment of the assessments and consequent reimbursement of the amounts unduly paid, the Claimant further requests that it be recognized as having the right to indemnity interest, pursuant to Article 43 of the GTL.

Pursuant to the provision in Article 100 of the GTL, applicable to the case by virtue of the provisions of sub-no. a) of no. 1 of Article 29 of the LFATM, in which it is established that "The tax administration is obliged, in the event of full or partial merit of complaints or administrative appeals, or of court proceedings in favor of the taxpayer, to the immediate and complete reconstitution of the situation that would have existed if the illegality had not been committed, including the payment of indemnity interest, in the terms and conditions provided for by law."

The case contained in the present proceedings raises the application of the mentioned provisions, given that as a consequence of the illegality of the assessment acts, referenced in this proceedings, there must, by virtue of those provisions, be reimbursement of the amounts paid, whether as tax or as compensatory interest, as a way of achieving the reconstitution of the situation that would have existed if the illegality had not been committed.

Thus, in light of what is established in Article 61 of the Tax Procedure Code and provided that the requirements for the right to indemnity interest are met, that is, verified the existence of error attributable to the services from which results payment of the tax debt in an amount superior to the legally due, as provided for in no. 1 of Article 43 of the GTL, the Claimant has the right to indemnity interest at the legal rate, counted from the date of payment relating to each of the annulled assessments.

On Responsibility for the Payment of Arbitration Costs

Pursuant to Article 527, no. 1 of the Code of Civil Procedure, ex vi 29, no. 1(e) of the LFATM, it is established that the party that caused them or, absent success of the action, the party that derived benefit from the proceedings will be condemned to pay costs.

No. 2 of the said article specifies the expression "caused them" by understanding that it is the unsuccessful party, in the proportion in which it is unsuccessful.

Considering that the request for arbitral ruling was partially successful, it is understood that the parties should bear the costs in the proportion of their respective loss.

Thus, being the total value of the request €768.29, and considering that the request for arbitral ruling did not succeed with respect to the assessment act above-referred to in point 5.1 with no. 2016... relating to the vehicle with registration plate ...-... -... , in the total value of €52.89, the Respondent should be condemned to pay arbitration costs in the proportion in which it lost, that is, corresponding to 93%, with the remaining 7% being borne by the Claimant.

Decision

In these terms, and with the grounds set out, the present Arbitral Tribunal decides:

• To judge inadmissible the annulment of the IUC assessment no. 2016... relating to the vehicle with registration plate ...-... -... .

• To judge successful, as proven, on the ground of violation of law, the request for arbitral ruling, annulling 5 IUC assessment acts, relating to the vehicles identified in the proceedings, with the exception of that referred to in the previous item;

• To condemn the TA to reimburse the amounts paid as IUC and compensatory interest, relating to the annulled assessment acts, and, for these, to the payment of indemnity interest at the legal rate counted from the date of payment of said amount, until full reimbursement thereof;

• To condemn the TA and the Claimant to pay the costs of the present proceedings in the proportion of 93% and 7%, respectively.

Value of the Case

In conformity with the provisions of Articles 306, no. 2 of the Code of Civil Procedure and 97-A, no. 1 of the Tax Procedure Code and 3, no. 2 of the Regulation of Costs in Arbitration Proceedings in Tax Matters, the value of the case is fixed at €768.29.

Arbitration Fee

The value of the arbitration fee is fixed at €306.00, in accordance with Table I annexed to the Regulation of Costs in Arbitration Proceedings in Tax Matters.

Notify.

Lisbon, 21 February 2018

The Arbitrator

(Marisa Almeida Araújo)

[1] By way of example, cf. Procs. 14/2013-T, 26/2013-T, 27/2013-T, 73/2013-T, 170/2013-T, 217/2013-T, 256/2013-T, 289/2013-T, 294/2013-T, 21/2014-T, 42/2014-T, 43/2014-T, 50/2014-T, 52/2014-T, 67/2014-T, 68/2014-T, 77/2014-T, 108/2014-T, 115/2014-T, 117/2014-T, 118/2014-T, 120/2014-T, 121/2014-T, 128/2014-T, 140/2014-T, 141/2014-T, 152/2014-T, 154/2014-T, 173/2014-T, 174/2014-T, 175/2014-T, 182/2014-T, 191/2014-T, 214/2014-T, 219/2014-T, 221/2014-T, 222/2014-T, 227/2014-T, 228/2014-T, 229/2014-T, 230/2014-T, 233/2014-T, 246/2014-T, 247/2014-T, 250/2014-T, 262/2014-T, 302/2014-T, 333/2014-T, 414/2014-T, 646/2014-T, 69/2015-T, 191/2015-T and no. 202/2015-T, all available at www.caad.org.pt.