IUC Subjective Incidence and Legal Presumptions: Car Importer Challenges Vehicle Tax Assessments (CAAD 374/2015-T)

TAX ARBITRATION DECISION

1 REPORT

1.1

A..., S.A.; with the NIP: ... (duly identified in the respective case files), Claimant in the tax procedure, above and marginally referenced, hereinafter referred to as the "Petitioner", came forth, invoking the provisions of articles 2 and 10 of Decree-Law No. 10/2011, of January 20 (hereinafter RJAT) and article 99 of the Code of Tax Procedure and Process (CPPT) and numbers 1 and 2 paragraph d) of article 95 of the General Tax Law (LGT), requesting the constitution of a Singular Arbitral Tribunal, with a view to:

• The annulment of the assessment acts relating to the Unique Circulation Tax (hereinafter referred to as IUC), for the years: 2013 and 2014 concerning vehicles listed in the files of Gracious Claims, attached to the Request for Arbitral Pronouncement, cf. copies of documents nos. 461 to 693, whose content is hereby reproduced in full for all legal purposes;

• The reimbursement of the total amount of €26,268.41, plus the respective compensatory interest provided for in article 43 of the LGT and article 61 of the CPPT.

1.2

Pursuant to the provisions of paragraph a) of number 2 of article 6 and paragraph b) of number 1 of article 11 of Decree-Law No. 10/2011, of January 20, in the version introduced by article 228 of Law No. 66-B/2012, of December 31, the Ethics Board designated as sole arbitrator Maria de Fátima Alves, who communicated acceptance of the office within the applicable time period:

• On 07-08-2015 the parties were duly notified of such designation, and neither manifested the will to refuse the arbitrator's designation, pursuant to the combined provisions of article 11 number 1 paragraphs a) and b) of the RJAT and articles 6 and 7 of the Code of Ethics;

• Therefore, the arbitral tribunal was constituted on 31-08-2015, as prescribed in paragraph c) of number 1 of article 11 of Decree-Law No. 10/2011, of January 20, in the version introduced by article 228 of Law 66-B/2012, of December 31;

• Upon the Response of the Respondent (AT), on 19-10-2015, the latter requested waiver of the hearing, under article 18 of the RJAT;

• The request was granted and communicated to the Petitioner;

• Consequently, the Arbitral Decision was scheduled for pronouncement on 30-11-2015.

1.3

The Petitioner's corporate purpose is the trade in automobiles, their respective parts and accessories (cf. document no. 696, attached to the case files), and thus, in substantiating its request for arbitral pronouncement, it affirms, in summary, the following:

• The Petitioner "is the company that exclusively imports all motor vehicles of brand ... for the national market and, once the vehicles are imported they are immediately sold to the brand's dealerships, some of which are part of the same economic group, which in turn sell them to end customers, who will be the users of the vehicles and in whose interest they enter road circulation";

• it being verified, thus, "that the vehicles did not enter the road traffic circuit in the interest, on behalf of or by virtue of the detention, possession or ownership of the Petitioner;

• That when entering national territory they are immediately invoiced to the dealerships and deposited in their facilities, which after applying their respective commercial margin sell them to end customers;

• Only after invoicing sales to the dealerships were the vehicles "registered";

• Therefore "for the purposes of IUC, given that the vehicles in question were sold by the Petitioner prior to their respective registration, it is evident that the Petitioner was not the owner of them on the dates of registration;

• It following from the above that the vehicles, to which the unique circulation tax assessed relates, were not, at the date of the taxable events, property of the Petitioner, the latter not being a taxpayer of the tax, a fact that precludes any subjective responsibility for its payment;

• The Petitioner bases its position on the fact that the taxed motor vehicles have already been sold to third parties, cf. as described in the sales invoices, attached to the Gracious Claims, contained in the PA, which are hereby reproduced in full for all legal purposes;

• Given the facts presented, property of the said vehicles cannot be imputed to the Petitioner, nor can it be a taxpayer of the tax, given the letter and spirit of article 3 of the Unique Circulation Tax Code (hereinafter referred to as CIUC);

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

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

• Therefore, taxation relating to IUC cannot be based solely on whoever appears in the registry as owner of the vehicles; the actual owners must be considered.

1.4

The Respondent, the Tax and Customs Authority (hereinafter referred to as AT), proceeded to attach the Tax Administrative File and submitted a Response, from which it is understood that the tax acts at issue do not suffer from any defect of violation of Law, ruling for the inadmissibility of the claim and the maintenance of the disputed assessment acts, defending, in summary, the following:

• The taxpayers of the unique circulation tax are the persons who appear in the registry as owners of the vehicles, as provided in number 1 of article 3 of the CIUC, which in the case sub judice is verified regarding the Petitioner;

• For this to occur, the registration of the vehicles must be in the name of a certain person in order for that person to embody the position of taxpayer of the IUC tax obligation;

• That notoriously the interpretation that the Petitioner makes of the provision in article 3 of the CIUC is wrong, in that it incurs in a "biased interpretation of the letter of the law" and in the adoption "of an interpretation that does not heed the systematic element, violating the unity of the regime established throughout the CIUC and, more broadly, throughout the entire legal-tax system", the Petitioner further following an "interpretation that ignores the ratio of the regime established in the article in question and, likewise, throughout the CIUC".

2 QUESTIONS TO BE DECIDED

2.1

Given the foregoing in the preceding numbers, relative to the written exposure of the parties and to the arguments presented, the main questions to be decided are the following:

• The challenge made by the Petitioner relative to the material assessment of the assessment acts, for the years 2013 and 2014, relating to IUC on the vehicles aforementioned in the PA;

• The incorrect interpretation and application of the rules of subjective incidence of the unique circulation tax assessed and collected, which constitutes the central question to be decided in the present process;

• The legal value of the registration of motor vehicles.

3 FACTS

3.1

In matter of fact, relevant to the decision to be rendered, this Tribunal finds as established, given the elements existing in the case files, the following facts:

• The Petitioner presented evidentiary elements of the motor vehicles in question, corresponding to the moment prior to the taxation period – cf. copies of invoices for the sale of vehicles to lessees, copies of financial lease contracts and copies of accounting statements, attached in the gracious claims (contained in the PA, documents nos. 461 to 693) which are hereby fully reproduced for all legal purposes.

3.1.1 SUBSTANTIATION OF PROVEN FACTS

• The facts taken as proven are based on the sales invoices to third parties, attached in the gracious claims (contained in the PA, documents nos. 461 to 693), which are hereby fully reproduced for all legal purposes.

3.1.2 UNPROVEN FACTS

• There are no facts taken as unproven, given that all facts considered relevant to the assessment of the claim were proven.

4 GROUNDS OF LAW

3.2

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

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

• The process does not suffer from nullities;

• There is no prior question on which the Tribunal must pronounce itself.

• The claim, object of the present process, is the declaration of annulment of the IUC assessment acts relating to the motor vehicles better identified in the case files.

3.2.1

Condemnation of the AT to reimburse the amount of the tax relating to such assessments in the amount of €26,268.41;

3.2.2

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

3.3

According to the AT's understanding, it is sufficient that in the registry the vehicle appears as property of a certain person, for that person to be the taxpayer of the tax obligation.

3.4

The matter of fact is fixed, as appears from number 3.1 above, and it is now important to determine the applicable law to the underlying facts, in accordance with the questions to be decided, identified in number 2.1 above, it being certain that the central question at issue in the present case, relative to which there are absolutely opposite understandings between the Petitioner and the AT, consists in knowing whether number 1 of article 3 of the CIUC establishes or not a rebuttable presumption.

3.5

Everything analyzed and, taking into account, on the one hand, the positions of the parties in confrontation, mentioned in points 1.3 and 1.4 above and, considering, on the other hand, that the central question to be decided is whether number 1 of article 3 of the CIUC establishes or not a legal presumption of tax incidence, it is necessary, in this context, to appreciate and render a decision.

4 QUESTION OF THE INCORRECT INTERPRETATION AND APPLICATION OF THE RULE OF SUBJECTIVE INCIDENCE OF IUC

4.1

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

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

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

• Number 1 of article 3 of the CIUC provides that "The taxpayers of the tax are the owners of the vehicles, these being understood as the natural or legal persons, of public or private law, in whose name the same are registered";

• The formulation used in the said article resorts to the expression "considering as" which raises the question of whether to such expression can be attributed a presumptive sense, equating it to the expression "presuming", these are expressions frequently used with equivalent senses;

• As teaches Jorge Lopes de Sousa, in Code of Tax Procedure and Process, Annotated and Commented, volume I, 6th Edition, Área Editora, SA, Lisbon 2011, p. 589, that in the matter of tax incidence, presumptions may be revealed by the expression "presumes" or by similar expression, mentioning various examples of such presumptions, referring to the one in article 40, number 1 of the CIRS, in which the expression "presumes" is used and the one in article 46 number 2, of the same Code, in which use is made of the expression "considers", as an expression with an effect similar to that one and also constituting a presumption;

• In the legal formulation set forth in number 1 of article 3 of the CIUC, in which a presumption was established, revealed by the expression "considering as", of similar significance and of equivalent value to the expression "presuming", in use since the creation of the tax in question;

• The use of the expression "considering as" aimed at nothing other than the establishment of a more marked and clear approximation between the taxpayer of IUC and the actual owner of the vehicle, which is in tune with the reinforcement given to the ownership of the vehicle, which came to constitute the taxable event, pursuant to article 6 of the CIUC;

• The relevance and interest of the presumption in question, which historically was revealed through the expression "presuming" and which now makes use of the expression "considering as", resides in the truth and justice which, by this means, are conferred on tax relations and which embody fundamental tax values, allowing the actual and effective owner to be taxed and not the one who, by circumstances of a different nature, sometimes passes for merely an apparent and false owner. If the case were not thus considered, not admitting and noting the presentation of evidentiary elements intended to demonstrate that the actual owner is, after all, a person different from the one in the registry and who initially, and in principle, was supposed to be the true owner, those values would be objectively sidelined.

4.2

The principle of equivalence, inscribed in article 1 of the CIUC, must also be considered, which underlies the polluter-pays principle and concretizes the idea therein inscribed that whoever pollutes must, therefore, pay. The said principle has constitutional grounding, in that it represents a corollary of the provision in paragraph h) of number 2 of article 66 of the Constitution, and also has grounding in community law, whether at the level of original law, article 130-R, of the Maastricht Treaty (Treaty of the European Union, of 07-02-1992), where the aforementioned principle came to be included as a support of Community Policy in the environmental field and which aims to hold responsible whoever contributes to the damages that arise to the community, resulting from the use of motor vehicles, being assumed by their owner-users, as costs that only they should bear.

4.3

Given the facts described above, it is important to emphasize that the aforementioned interpretation elements, whether those related to literal interpretation, supported by the legally used words, or those concerning logical interpretation elements, of a historical or rational nature, all point to the sense that the expression "considering as" has a sense equivalent to the expression "presuming", and should thus be understood that the provision in number 1 of article 3 of the CIUC establishes a legal presumption which, given article 73 of the LGT, which establishes that "Presumptions established in the rules of tax incidence always admit evidence to the contrary", will necessarily be rebuttable, which means that the taxpayers are, in principle, the persons in whose name such vehicles are registered. These shall therefore be the persons, identified in such conditions to whom the AT must necessarily address itself;

• But it shall be, in principle, given that within the framework of prior hearing, of a mandatory character, given the provision in paragraph a) of number 1 of article 60 of the LGT, the tax relationship may be reconfigured, validating the initially identified taxpayer or redirecting the procedure towards the one who is, after all, the true and actual taxpayer of the tax in question.

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

• The prior hearing, which naturally must take place at a moment immediately prior to the tax assessment procedure, corresponds to the proper place and time to, with certainty and security, identify the taxpayer of the IUC.

5 ON THE LEGAL VALUE OF REGISTRATION

5.1

Regarding the legal value of registration, it is important to note what is established in number 1 of article 1 of Decree-Law No. 54/75, of February 12 (variously amended, the last time by Law No. 39/2008, of August 11), when it provides that "the registration of motor vehicles has essentially the purpose of giving publicity to the legal situation of motor vehicles and their respective trailers, with a view to the security of legal transactions":

• Article 7 of the Code of Land Registration (CRP), applicable, supplementarily, to the registration of automobiles, by force of article 29 of the CRA, provides that "Definitive registration constitutes a presumption that the right exists and belongs to the registered holder, in the precise terms in which the registration defines it";

• Definitive registration constitutes nothing more than a rebuttable presumption, admitting, therefore, contrary evidence, as follows from the law and case law has been noting, and may be seen, among others, in the Judgments of the Supreme Court of Justice no. 03B4369 of 19-02-2004 and no. 07B4528, of 29-01-2008, available at: www.dgsi.pt;

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

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

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

• Given the foregoing, it becomes clear that the legislative intent points to the sense that the provision in number 1 of article 3 of the CIUC establishes a presumption "juris tantum", consequently rebuttable, thus allowing the person who, in the registry, is inscribed as owner of the vehicle, to present evidentiary elements intended to demonstrate that such ownership is inserted in the legal sphere of another person, to whom ownership was transferred.

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

6.1 THE PRESUMPTION OF ARTICLE 3 OF THE CIUC

• The AT considers that the presumption existing in number 1 of article 3 of the CIUC is the result of an interpretation against the law, resulting from a biased reading of the letter of the law and, therefore, violating the unity of the legal system; however, and with all due respect, the understanding of case law points to the sense that the existence of a legally rebuttable presumption should be considered, and therefore consequently serves the values and interests questioned, both at the level of material tax justice and at the level of the environmental purposes aimed at by IUC;

• Regarding the unity of the legal system, it is important to note everything mentioned above, namely, regarding the ratio of article 1 of the CIUC; regarding the norms and principles of the LGT; regarding the pertinent and applicable norms to the registration of motor vehicles, regarding the interpretation that best serves and achieves the mentioned unity and ensures the connection of those same norms, considering the legal presumption that is prescribed in article 3 of the CIUC.

6.2 DATE ON WHICH IUC IS DUE

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

• It is due as provided in number 3 of article 6 of the said Code;

• It is to be noted that, regarding the assessment of IUC taxed to the Petitioner on the vehicles aforementioned, in the year 2014, these are not to be considered, because at the moment of the taxable events the vehicles no longer belonged to it, as the said vehicles were sold to third parties, prior to the years 2013 and 2014, and it is also to be considered those that were governed under the financial lease contract cf. the evidentiary documents, already mentioned above and attached to the gracious claims (contained in the PA, documents nos. 461 to 693) which are hereby fully reproduced for all legal purposes.

6.2.1

In relevance regarding the burden of proof, article 342 number 1 of the CC stipulates "he who invokes a right must prove the constitutive facts of the alleged right";

6.2.2

Also article 346 of the CC (counter-evidence) determines that "the party against whom the burden of proof lies may the opposing party oppose counter-evidence with respect to the same facts, intended to render them doubtful; if it succeeds, the question is decided against the party burdened with proof." (As affirms Anselmo de Castro, A., 1982, ED. Almedina Coimbra, "Civil Declaratory Procedural Law", III, p. 163, "when a burden of proof falls on one of the parties, it is sufficient for the opposing party to oppose counter-evidence, this being evidence intended to render doubtful the facts alleged by the first").

Thus, in the case of the files, what the Petitioner must prove, in order to rebut the presumption that flows both from article 3 of the CIUC and from the Motor Vehicle Registry itself, is that it, the Petitioner, was not the owner of the vehicles in question in the period to which the disputed assessments relate. It proposes to prove, as results from the files, that the ownership of the vehicles did not belong to it in the periods to which the assessments relate, cf. documents attached to the Gracious Claims, contained in the PA (documents nos. 461 to 693), which are hereby fully reproduced for all legal purposes.

6.3 REBUTTAL OF THE PRESUMPTION

• The Petitioner, as mentioned in 3.1., regarding the proven facts, alleged, with the purpose of overcoming the presumption, not to be the owner of the vehicles, at the time of the occurrence of the taxable events, offering for this purpose the following documents:

• Copies of sales invoices to third parties

• Copies of sales invoices to lessees;

• copies of financial lease contracts;

• and copies of accounting statement excerpts;

• In this way, the ownership of the said vehicles no longer belonged to it, and therefore it could not enjoy their use, from a date prior to that on which IUC was due, thus embodying means of proof with sufficient force and adequacy to rebut the presumption founded on the registry, as prescribed in number 1 of article 3 of the CIUC, documents which enjoy the presumption of truthfulness provided for in number 1 of article 75 of the LGT. From this it follows that on the date on which IUC was due, the one who held the ownership of the motor vehicles was not the Petitioner.

7 OTHER QUESTIONS RELATING TO THE LEGALITY OF THE ASSESSMENT ACTS

• Regarding the existence of other questions pertaining to the legality of the assessment acts, taking into account that it is inherent in the establishment of an order of knowledge of defects, as provided for in article 124 of the CPPT, that proceeding from the request for arbitral pronouncement based on defects that prevent the renewal of the disputed assessments, it becomes moot, because useless, the knowledge of other defects, it does not appear necessary to address the other questions raised.

8 REIMBURSEMENT OF THE TOTAL AMOUNT PAID

• Pursuant to the provision in paragraph b) of number 1 of article 24 of the RJAT and, in conformity with what is established therein, the arbitral decision on the merits of the claim from which no appeal or challenge may be taken, binds the tax administration from the end of the period provided for appeal or challenge, and it must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of sentences from tax courts "Restore the situation that would exist if the tax act, object of the arbitral decision, had not been carried out, adopting the acts and operations necessary for such purpose"

• These are legal commands that are in full harmony with the provision in article 100 of the LGT, applicable to the case, ex vi, the provision in paragraph a) of number 1 of article 29 of the RJAT, in which it is established that "The tax administration is obliged, in case of total or partial success of complaints or administrative appeals or of court process in favor of the taxpayer, to the immediate and full reconstitution of the situation that would exist if the illegality had not been committed, corresponding the payment of compensatory interest, according to the terms and conditions provided for by law".

• The case contained in the present files raises the manifest application of the mentioned norms, given that, as a consequence of the illegality of the assessment acts, referenced in this process, there must necessarily be reimbursement of the amounts paid, whether on account of the tax paid, or of the corresponding compensatory interest, as a means of achieving the reconstitution of the situation that would exist if the illegality had not been committed.

9 THE RIGHT TO COMPENSATORY INTEREST

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

• Within the scope of the assessment of the tax, its annulment confers on the taxpayer the right to the restitution of the tax paid and, as a rule the right to compensatory interest, pursuant to number 1 of article 43 of the LGT and article 61 of the CPPT.

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

10 DECISION

Given the foregoing, this Arbitral Tribunal decides:

• To declare well-founded the request for declaration of illegality of the IUC assessment, concerning the year 2014, relating to the motor vehicles identified in the present process, thereby annulling the corresponding tax acts;

• To declare well-founded the request for condemnation of the Tax Administration to reimburse the amount unduly paid, in the amount of 26,268.41 Euros, plus the respective compensatory interest, legally due, condemning the Tax and Customs Authority to effectuate these payments.

VALUE OF THE PROCESS:

• In conformity with the provisions of articles 306 number 2 of the CPC and 97-A, number 1 of the CPPT and article 3, number 2 of the Rules of Costs in Tax Arbitration Processes, the process is valued at €26,268.41 (twenty-six thousand, two hundred and sixty-eight euros and forty-one cents).

COSTS:

• In accordance with number 4 of article 22 of the RJAT, the amount of costs is set at €1,530.00, according to Table I, attached to the Rules of Costs in Tax Arbitration Processes, to be borne by the Tax and Customs Authority.

Let the parties be notified.

Lisbon, 30-11-2015

The Arbitrator

Maria de Fátima Alves

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