Summary
Full Decision
ARBITRAL DECISION (consult full version in PDF)
I – REPORT
1. A..., S.A., with the NIPC..., with registered office at ..., no...., ..., ...-... Porto, hereinafter designated as "Claimant", filed a request for constitution of an Arbitral Tribunal, pursuant to the provisions of article 2, no. 1, paragraph a) and article 10, of Decree-Law no. 10/2011, of 20 January (RJAT), to challenge the assessment notices issued within the scope of a tax procedure for official assessment of the Single Vehicle Circulation Tax (IUC), relating to IUC for 2014, 2015, 2016, 2017 and 2018, initiated by the Tax Service Porto ..., concerning a recreational vessel owned by it, registered in the Autonomous Region of Madeira (MAR), detailed as follows:
- Assessment no. 2014..., in the amount of €3,162.39, plus interest assessment no..., in the amount of €540.99;
- Assessment no. 2015..., in the amount of €3,162.39, plus interest assessment no..., in the amount of €413.80;
- Assessment no. 2016..., in the amount of €3,211.23, plus interest assessment no..., in the amount of €292.09;
- Assessment no. 2017..., in the amount of €3,235.65, plus interest assessment no..., in the amount of €164.89; all dated 2018-05-11
- Case no. ...2018... – Infraction – in the amount of €1,131.09;
- Case no. ...2018... - IUC 2018,
Total global amount of €19,141.09.
2. The request for constitution of the Arbitral Tribunal was filed by the Claimant on 15-08-2018, was accepted by the Honorable President of CAAD and notified to AT on 16-08-2018, in the terms and for the legally foreseen purposes. The Claimant chose not to appoint an arbitrator, and therefore, pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed, on 01-10-2018, the undersigned as arbitrator of the arbitral tribunal to be constituted, who communicated her acceptance within the applicable deadline.
3. The singular arbitral tribunal was constituted on 22-10-2018. On 23/10/2018, the claimant filed a request for extension of the claim, in order to include the amounts corresponding to the penalties subsequently assessed against the Claimant. Thus, in this request the Claimant came to correct a clerical error in her Claim and extend the claim, considering the infraction proceedings subsequently initiated and the respective amounts of the penalties imposed.
4. On 29-10-2018, an arbitral order was issued, pursuant to the provisions of article 17 of RJAT, for notification of the Defendant AT and setting of the deadline for filing a response. The Defendant filed its response and the respective Administrative File (PA) on 03-12-2018, whose content is hereby fully reproduced.
5. In light of the positions of the parties evidenced in the pleadings, considering the absence of witness testimony to be examined and the nature of the disputed question, which appears as a question exclusively of law, including the exception raised by AT, an arbitral order was issued on 23/10/2018 to notify the Defendant to pronounce on the Claimant's request and for both to pronounce on the possible waiver of the meeting provided for in article 18 of RJAT.
6. On 23-01-2019 the Claimant came to pronounce declaring expressly to accept the waiver of meeting and its substitution by written pleadings. The Defendant said nothing, whereby its agreement is to be extracted. Accordingly, on 08-02-2018 an arbitral order was issued to waive the holding of the meeting provided for in article 18 of RJAT, setting a deadline of 15 days, equal and successive, for the parties to file their pleadings. The date of 22/04/2019 was set for issuing the arbitral decision.
B) OF THE CLAIM FILED AND OF THE CLAIMANT'S POSITION:
7. In summary, the Claimant sustains its request for annulment of the IUC assessments identified above, alleging that it is the owner of a recreational vessel designated by "...", with the permanent registration number R-..., of 20 September 2000, of the International Register of Ships of Madeira – MAR (RINM-MAR), and therefore benefits from IUC exemption. In the Claimant's understanding, pursuant to article 2 of the IUC Code the vessel it owns is subject to that tax, but, pursuant to article 7, paragraph d) of Decree-Law 165/86 of 26 June, combined with article 24, no. 2 of Decree-Law 96/89 of 28 March, there is an equivalence between ships registered in RINM-MAR and companies established in the Free Zone of Madeira, granting them the same benefits.
The Claimant invokes the nullity of the notification for payment, for having been sent to the Claimant's agent and not to the Claimant's own registered office.
The Claimant further alleges that IUC assumes the nature of a municipal tax, and therefore recreational vessels registered in MAR are subject, pursuant to Decree-Law 192/2003, of 22 August, to the regime of the Madeira Free Zone. Therefore, being IUC a local tax, the owners of recreational vessels for private use registered in MAR are exempt from its payment, whether they are residents in Portugal or in another territory. The Claimant concludes that all tax assessments are voidable and, consequently petitions for their annulment, as well as the respective fiscal infraction proceedings initiated and the penalties imposed.
C – OF THE DEFENDANT'S RESPONSE
8. The Defendant responded sustaining the total lack of merit of the request for arbitral pronouncement. It begins by invoking the exception of incompetence of the Arbitral Tribunal to know of the legality of the penalties applied within the scope of the infraction proceedings initiated. In summary, the Defendant alleges that, in the concrete case, there is no IUC exemption given that the Claimant has its registered office in Porto, thus fulfilling the requirement of "company established in the Autonomous Region of Madeira". Furthermore, it is its understanding that IUC is levied on vehicles registered or matriculated in Portugal, including "recreational vessels for private use with power equal to or greater than 20kW, registered since 1986", constituting category F of vehicles, pursuant to article 2, no. 1, paragraph f) of the IUC Code. Thus, the vessel in question is subject to IUC, by verification of the scope of application rule contained in paragraph f) of no. 1 of article 2 of the IUC Code.
The Defendant further alleges that, pursuant to Decree-Law no. 165/86 of 26/06, namely its article 7, only companies established in the Madeira Free Zone are exempt from IUC, which is not the case of the Claimant.
The Defendant further understands that, pursuant to article 3, no. 1 of the IUC Code, the taxpayers of the tax are the owners of vehicles registered as such, and that, although no. 1 of article 2 of Law no. 22-A/2007, of 29/06, determines that IUC is administered by the current Tax and Customs Authority, no. 1 of article 3 of the same Law states that the IUC revenue relating, among others, to category F vehicles, is owned by the municipality of residence of the taxpayer, that is, by the owner of the vessel. Thus, IUC is a tax of state nature, with the State being the active subject of the tax legal relationship and only the revenue reverts in favor of the Municipality.
The AT concludes, therefore, by the total lack of merit of the arbitral claim.
II - PROCEDURAL REQUIREMENTS
9. The Arbitral Tribunal is regularly constituted. The Parties enjoy legal personality and capacity, are legitimate and are legally represented (cfr. articles 4 and 10, no. 2 of RJAT and art. 1 of Ordinance no. 112/2011, of 22 March).
- The proceedings do not suffer from defects that would invalidate them.
It falls to decide.
III – Decision on the Facts
Proven Facts
10. With interest for the decision of the present proceedings, the following facts are considered proven:
a) The Claimant is the owner and legitimate possessor of the Recreational Vessel, with the name of "...", with permanent registration number R-..., of 20 September 2000, of the International Register of Ships of Madeira – MAR (hereinafter designated RINM-MAR - (Cfr.: Doc. no. 7, attached to the Claim and PA attached to the file);
b) The Claimant has its Vessel registered in RINM-MAR (Cfr.: Doc. 6 attached to the Claim);
c) The Claimant has its registered office and tax residence at ..., no..., ..., ...-... Porto, belonging to the competence area of the Tax Service of Porto-...;
d) By office no. 2018..., of 22-02-2018, the Honorable Deputy Head of Finance of SF Porto ..., issued the following order:
e) The Claimant was notified by that tax service of the assessment notices of the Single Vehicle Circulation Tax, referring to the years 2014 to 2017, namely:
- Assessment no. 2014..., in the amount of €3,162.39, plus interest assessment no..., in the amount of €540.99;
- Assessment no. 2015..., in the amount of €3,162.39, plus interest assessment no..., in the amount of €413.80;
- Assessment no. 2016..., in the amount of €3,211.23, plus interest assessment no..., in the amount of €292.09;
- Assessment no. 2017..., in the amount of €3,235.65, plus interest assessment no..., in the amount of €164.89, all dated 2018-05-11;
f) After filing the arbitral request, the Claimant was further notified of the assessment notices for penalties resulting from non-payment of IUC for the years 2014, 2015, 2016 and 2017, namely, of the following assessment notices:
- Case no. ...2018..., relating to the application and assessment of penalty for non-payment of IUC for 2014, in the amount of €1,082.13;
- Case no. ...2018..., relating to the application and assessment of penalty for non-payment of IUC for 2015, in the amount of €1,082.13;
- Case no. ...2018..., relating to the application and assessment of penalty for non-payment of IUC for 2016, in the amount of €1,097.66;
- Case no. ...2018..., relating to the application and assessment of penalty for non-payment of IUC for 2017, in the amount of €1,047.19; (Docs. nos. 1 to 4 attached to the request for extension of the claim)
g) On 07-03-2012 an opinion was issued by DRAF – Regional Directorate of Tax Affairs, with the scope of non-binding information, which pronounced in favor of the exemption of IUC for recreational vessels registered in MAR.
h) On 12-06-2018 a notification was sent to Attorney B..., agent of the Claimant, to pronounce in prior hearing on the procedure for official assessment of IUC relating to the year 2018;
i) The Claimant, through its agent referred to in the preceding paragraph, filed a response to office no. 2017..., of 12-10-2017, sent by the Tax Service of Porto..., in which it exposes and requests that the IUC exemption of the vessel "..." be recognized. (Pages 55 to 58 of the PA).
j) The Claimant filed the present request for arbitral pronouncement on 28-05-2018.
B) UNPROVEN FACTS
11. There are no other facts relevant to the decision that should be considered as unproven.
C) GROUNDS FOR THE PROVEN UNPROVEN FACTS
12. It falls to the tribunal to select the facts that matter for the decision of the case and to distinguish proven from unproven matters (as per article 123, no. 2, of CPPT and article 607, no. 3 of CPC, applicable ex vi article 29, no. 1, paragraphs a) and e), of RJAT).
Thus, the facts pertinent to the judgment of the case are chosen and delineated according to their legal relevance, which is established in attention to the various plausible solutions of the question(s) of law (as per previous article 511, no. 1, of CPC, corresponding to current article 596, applicable ex vi article 29, no. 1, paragraph e), of RJAT).
13. The conviction about the facts resulted from the pleadings of the parties and respective documentary support in the proceedings. Thus, taking into account the positions assumed by the parties, the documentary evidence and the elements contained in the Administrative File attached to the record, the above-listed facts were considered proven, with relevance to the decision.
The Tribunal does not have to pronounce on all the details of the facts that were alleged by the parties, it being its duty to select the facts that interest the decision and distinguish the matters that it judges proven and declare those it considers unproven (cfr. article 123, no. 2, of CPPT and article 607, no. 3 of CPC, applicable ex vi article 29, no. 1, paragraphs a) and e), of RJAT).
IV – Decision on the Matter of Law
Regarding the question of the alleged incompetence of the Arbitral Tribunal in infraction matters and penalties
14. In the present proceedings AT came to allege the material incompetence of the Arbitral Tribunal, as to the requests for annulment of penalties resulting from the infraction proceedings initiated. This question is restricted to the part of the original and additional claim that refers to the penalties applied for non-payment of IUC due by the Vessel, with reference to the years 2014 to 2018. The AT alleges that, as to the challenge made to the infraction proceedings and the penalties applied therein, because it is evident the existence of the dilatory exceptions of absolute incompetence of the Tribunal, by reason of the subject matter, and the impropriety of the procedural means. It further alleges that the legal reaction to a decision of penalty application is the appeal provided for in article 80 of RGIT, and therefore, "immediately and expressly, results the impropriety of the means used here for that request, which constitutes a dilatory exception, pursuant to article 577 of CPC, which entails the dismissal of the instance, in compliance with no. 2 of article 576 of the same statute."
It invokes in this regard the jurisprudence of arbitral case no. 111/2013 T, which states: "It is verified that the regime of tax infractions and tax infraction matters are omitted from the closed list of subjects capable of appreciation by arbitral tribunals, the legislator visibly privileging their vocation (of these arbitral tribunals) for the judgment of cases which in administrative and tax courts take the form of judicial challenge (cfr. article 101, paragraph a) of LGT and article 97, no. 1, paragraphs a) to f) of CPPT), and not even all of those as is extracted from the exclusion of the Ordinance (binding) no. 112-A/2011, of 22.03, in particular its article 2. It results, therefore, from the reading of the rules attributive of competence to arbitral tribunals, that the request for annulment of penalty deduced by the Claimant (...) is not included in the exhaustive list of arbitrable claims, whereby this tribunal cannot know of it. In light of the above, it is concluded by the merit of the exception raised by the Defendant, this Arbitral Tribunal being unable to know (ratione materiae) of the question relating to the invalidity of the penalty application decision".
Therefore, from the point of view of the Claimant, there is verified the dilatory exception of absolute incompetence of the tribunal, exception provided for in paragraph a) of article 577 of CPC, which entails the consequence of dismissal of the Defendant from the instance, in obedience to no. 2 of article 576 of CPC. It concludes, as to the infraction proceedings and the penalties applied therein, it results clear from the Law that the Defendant should be dismissed from the instance.
15. Confronted with the alleged exception of material incompetence of the arbitral tribunal, the Claimant in response and in its written pleadings clarifies the following:
"The Claimant brought the present action petitioning that the IUC assessments relating to the years 2014, 2015, 2016, 2017 and 2018 be declared illegal and, in consequence, all the infractions arising therefrom.
(...) For its part, no. 1 of article 2 of the cited Law establishes that the Arbitral Tribunal has competence for: the declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account; the declaration of illegality of acts of determination of the taxable base when it does not give rise to assessment of any tax, of acts of determination of the collective taxable base and of acts of determination of patrimonial values.
(...) Furthermore, no. 1 of article 3 of RJAT provides for the situation of cumulation of claims, as was done in these proceedings, and the claim deduced in these proceedings is the declaration of illegality of the tax assessed, the IUC, relating to the years 2014, 2015, 2016, 2017 and 2018. (underlined in original)
Now, the declaration of illegality of tax assessment has consequences, such as the illegality of all acts performed by public administration by virtue of those of the illegal assessment.
In reality, the infractions were only applied to the Claimant by means of the illegal assessment of taxes, for if it were not for that illegal assessment, the Claimant would never have IUC to pay in the Continent and, as such, would not be in default of payment thereof (cfr. article 114 of RGIT).
Given this, the Claimant only requested from the Arbitral Tribunal that it draw consequences from the declaration of illegality of the assessed tax." (underlined in original)
It concludes that the Tribunal should judge the exception of absolute incompetence invoked by the Claimant to be without merit, with the other legal consequences.
16. In light of the above, and despite what comes alleged by the Claimant, there is no doubt that, in light of the content of the arbitral claim and the requests for extension of the claim deduced by the Claimant, the object of the present arbitral proceedings, as defined by the Claimant itself, encompasses infraction matters and penalty amounts, which are by Law removed from the competence of this arbitral tribunal.
However, using the Claimant's own expression, what it truly intends is the annulment of the IUC assessments relating to the years 2014 to 2018, and therefore, should this claim come to have merit, by consequence, all subsequent acts must be annulled, that is, all those that have origin in the tax assessments that come to be annulled by this tribunal.
17. Still, this Tribunal cannot fail to carry out its appreciation, not only because it was invoked by AT, but also because it is an exception of ex officio knowledge. The determination of the scope of material competence of tribunals is a matter of public policy and its (ex officio) knowledge precedes that of any other matter, as is well extracted from the provisions of articles 16 of the Code of Tax Procedure and Process (CPPT), 13 of the Code of Process in Administrative Courts (CPTA) and 96 and 98 of the Code of Civil Procedure (CPC), subsidiarily applicable by referral of article 29, no. 1, paragraphs a), c) and e) of RJAT).
18. To this purpose we endorse the jurisprudence contained in arbitral case no. 111/2013-T, to which we fully adhere. In this decision the following jurisprudence was established: "The scope of tax arbitral jurisdiction, drawn as an alternative means of jurisdictional resolution of conflicts in tax matters, is delimited by the provisions of the aforementioned article 2 of RJAT, under the heading 'Competence of arbitral tribunals and applicable law'. The said norm enumerates, in its no. 1, the criteria of material distribution, being the competence of these tribunals the appreciation (only) of the following claims:
'a) The declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payment on account;
b) The declaration of illegality of acts of determination of the taxable base when it does not give rise to assessment of any tax, of acts of determination of the collective taxable base and of acts of determination of patrimonial values;
c) Repealed (by article 160 of Law no. 64-B/2011, of 30 December, which approved the State Budget for 2012).'
It is verified that the regime of tax infractions and tax infraction matters are omitted from the closed list of subjects capable of appreciation by arbitral tribunals, the legislator visibly privileging their vocation (of these arbitral tribunals) for the judgment of cases which in administrative and tax courts take the form of judicial challenge (cfr. article 101, paragraph a) of LGT and article 97, no. 1, paragraphs a) to f) of CPPT), and not even all of those as is extracted from the exclusion of the (binding) Ordinance no. 112-A/2011, of 22.03, in particular its article 2. It is emphasized that the own initial provision contained in the Legislative Authorization Law relating to the action for recognition of a right did not reach express consecration in RJAT, of more restrictive intent."
19. In light of the above, it is inevitable the merit of the invoked exception of incompetence as to the claim deduced by the Claimant as regards the annulment of penalties resulting from the infraction proceedings mentioned in the record, this Arbitral Tribunal being unable to know "ratione materiae" of the question relating to the invalidity of the penalty application decisions.
That said, it is important to note that, as the Claimant well points out, if the impugned IUC assessments come to be annulled, the consequence of that annulment would always determine the annulment of all subsequent acts. It is important, therefore, to decide the substantive question, that is, the alleged illegality of the assessments at issue in the present proceedings.
B) From the Lack of Notification of IUC Assessment for the Year 2018
20. But the Claimant also invokes the question of nullity of the notification of the IUC assessment for the year 2018. Let us see if it is correct.
It is settled and unequivocal jurisprudence that notification is not an end in itself, but a means of bringing an act to someone's knowledge. In this regard, as the Defendant well alleges, among others, the decision of the South Administrative Court of Appeal, dated 2/10/2012, issued in case no. 05673/12, determined that:
"1. The receptive nature of the tax act, as an administrative act, must today be regarded as a perspective properly established by doctrine and jurisprudence, configuring notification as a requirement of perfection of the tax act of assessment; However, notification is not an intrinsic element of the tax act and, therefore, is not a requirement of its validity, but merely a condition of its efficacy, moreover, capable of being waived by other forms of knowledge (cfr. art. 67, no. 1, of C.P.A.)".
21. Now, the Claimant demonstrates having perfect knowledge of the content of the notification, as clearly results from article 6 of the arbitral pronouncement request. On the other hand, it results from the evidence above established that, within the scope of the official assessment procedure carried out by the Tax Service, there were various notifications directed through the agent constituted in the record, which appears to be common practice. Therefore, the lack of notification now invoked does not appear compatible with the processing of the proceedings itself. Moreover, the Claimant demonstrates perfect knowledge of its content.
To which it must be added that in office 2018..., of 22-02-2018, the Tax Service refers that the assessments are available in the system, and the Claimant, if it wishes, can extract the same to proceed to its payment or, naturally, exercise the respective means of defense.
22. As well notes Jorge Lopes de Sousa, "in relation to the notifications of periodic taxes mentioned in no. 4 of art. 38 of CPPT, 'although (...) the designation of "notifications" is attributed (...), these are not acts with the nature of notifications provided for in art. 36 of CPPT, since they do not have underlying any procedural decision of the Tax Administration, any tax act, but are issued mechanically by the services". (cfr. Code of Tax Procedure and Process, Áreas Editora, 6th edition, Vol. I, p. 376);
Thus, the notification sent to the Claimant is nothing more than the respective collection document.
Therefore, the alleged lack of notification of the IUC assessment for the year 2018, invoked by the Claimant, lacks merit.
Arrived at this point, it remains, finally, to address the central question of the present proceedings, that is, the exemption of IUC, in the terms in which it is invoked by the Claimant.
C) From the Illegality of the Impugned IUC Assessments in the Present Proceedings
23. Given this, it is now important to know of the claim relating to the illegality of the IUC assessments, owed by the Vessel "...", relating to the years 2014 to 2018. In this connection, the disputed question rests, exclusively, on knowing whether the Claimant's recreational vessel, registered in MAR, is or is not exempt from IUC.
Thus, it is necessary to decide now the question of IUC exemption, in the terms alleged by the Claimant.
24. In accordance with the provisions of article 2, no. 1, paragraph f) of the IUC Code, the tax is levied on recreational vessels for private use with power equal to or greater than 20kW, registered since 1986 or registered in Portuguese territory.
It further adds, in no. 4 of the same article that "private use is understood to be the use of a vessel or an aircraft by its owner (...)".
As regards subjective incidence, article 3, no. 1 of the IUC Code provides that the taxpayers of the tax are "natural or legal persons, of public or private law, in whose name the property of the vehicles is registered."
25. For its part, as to the competence for the administration of the tax, article 2, no. 1 of Law no. 22-A/2007, of 29 June provides that "the competence relating to the administration of the tax on vehicles, briefly designated ISV and the Single Vehicle Circulation Tax, briefly designated IUC, falls to the General Directorate of Customs and Excise Taxes and the General Directorate of Taxes, respectively."
With relevance for the decision of the present proceedings, article 3, no. 1 of the aforementioned Law no. 22-A/2007, of 29 June further provides that "the revenue generated by IUC relating to vehicles of categories A, E, F and G belongs to the municipality of residence of the taxpayer or equivalent, as well as 70% of the component relating to engine displacement relating to vehicles of category B, unless that revenue is relating to vehicles that are the object of long-term rental or operational leasing, in which case it must be allocated to the municipality of residence of the respective user".
26. Thus, in light of what is stated above, it results that the ownership of the IUC revenue belongs to the municipality of residence of the taxpayer and not the municipality or region where the vessel is registered. On this point the law is very clear and leaves no room for doubt.
Recall in this regard the jurisprudence contained in the arbitral decision issued in case no. 665/2017-T, to which we fully adhere on this point:
"In this sense, still, article 14, paragraph c) of Law no. 73/2013, of 3 September 2013, which establishes the Financial Regime of Local Authorities and Intermunicipal Entities, under the heading "municipal revenues" provides that "[c]onstitute municipal revenues: c) The portion of the product of the Single Vehicle Circulation Tax that falls to the municipalities, pursuant to article 3 of Law no. 22-A/2007, of 29 June".
5.7. In any case, pursuant to article 24, no. 1 of Decree-Law no. 96/89, of 28 March, "[t]he tax regime applicable to the entities referred to in article 8 is that provided for in the legislation relating to the Madeira free zone", with number 2 of the same article adding that "[t]he regime referred to in the preceding number also applies to ships registered in MAR".
5.8. Pursuant to article 7, paragraph d) of Decree-Law no. 165/86, of 26 June "[c]ompanies established in the Madeira free zone enjoy the following tax benefits: Exemption from local taxes and fees;"
5.9. Now, without prejudice to article 3, no. 1, paragraph b) of LGT distinguishing between taxes "of state, regional and local" nature, the said statute does not present a distinctive criterion that allows identification of each of the three."
Accordingly, doctrine has been working with the said concepts without, however, being unanimous as to the criterion that allows distinguishing, in particular, a state tax from a local tax. The most frequently pointed out criteria by doctrine are the criterion of tax administration and the criterion of revenue ownership.
In this sense, SUZANA TAVARES DA SILVA states that "[t]his distinction is grounded in the active ownership of the tax relationship and through it is intended to highlight that not all the revenue of taxes is destined to the 'general coffers of the State'. Indeed, alongside state taxes, those whose ownership of the tax credit belongs to the State, stand out, downstream of the State, regional and municipal taxes, and upstream of this, European and international taxes.
Doctrine is not unanimous as to the cut to be given to this classification. Some authors emphasize that the fact that the operations of assessment, taxation and collection of taxes are carried out by the services of the Tax Administration (ex. art. 113 of CIMI), notwithstanding the municipal ownership of the respective revenue (ex. art. 1 of CIMI), is not sufficient for one to speak of a municipal tax, which can only happen when the municipalities choose to promote the respective taxation and collection pursuant to the provisions of art. 13/2 of the Law of Local Finances (Casalta Nabais: 2012, pp. 78). Already other authors pay attention only to the active subject of the tax relationship, independently of who carries out the respective management, tending thus to classify the tax as municipal, as soon as the law establishes an entity different from the State as the active subject of the respective tax relationship." (SUZANA TAVARES DA SILVA, Tax Law – General Theory, Coimbra: Coimbra University Press, 2013, p. 43).
Certain it is that Portuguese legislation also seems to present some fluctuation as to the criteria used.
5.14. For example, while the Regional Legislative Decree no. 27/2008/M, of 3 July, which "[a]pproves the organic and functional adaptation of national tax legislation to the Autonomous Region of Madeira" only qualifies as "local taxes" the Municipal Real Estate Tax and the Municipal Tax on Costly Transfers of Real Estate (see Section II of the said Regional Legislative Decree), the State Budget includes IUC in the chapter of local taxes (cf. State Budget for 2019, approved by Law no. 71/2018, of 31 December).(…)
27. Returning to the case of the present proceedings, it is verified that, more than qualifying a tax as local or state, it is important to have well in mind the terms in which the alleged exemption is provided for in the law. Now, the exemption was not established for local taxes in the abstract, instead requiring a connection to a determined revenue of which one is the owner. And, in the concrete case, the owner of the revenue is the municipality of residence of the taxpayer, i.e., the municipality of Ovar, and not the municipality or region where the vessel is registered, and therefore the Claimant will not be able to benefit from the exemption.
In this regard, NUNO SÁ GOMES states, giving as an example the tax benefits granted to the Free Zones of Madeira and Santa Maria Island, that: "in harmony with the territorial scope of application of the taxes in which they are inscribed, tax benefits have, in parallel, national, continental, regional or local scope." [1]
28. Given this, considered the provisions of article 7, paragraph d) of Decree-Law no. 165/86, of 26 June, and its interpretation in accordance with the principle of standardization of the national tax legal system, this is the most adequate understanding.
But, there is still another relevant argument, which relates to the meaning and scope of Decree-Law no. 165/86, of 26 June.
Indeed, it follows, from the outset, from the preamble of the statute that "the Government proposed and obtained from the Parliament legislative authorization to review the tax benefits to be granted to companies that establish themselves in the free zones already created, which is now done, in conjunction with other benefits whose attribution aims at the same purposes. (underlined in original)
(...)
In the conception of the scheme of incentives now established, already taken into consideration was the economic backwardness of aid to the establishment of companies defined in terms compatible with the provisions of no. 3 of article 92 of the Treaty of Rome and aimed at regional development and for improvement of the conditions of competition by companies that establish themselves in the Madeira free zone (...)" (underlined and bold in original),
Now, in light of the scope defined by the legislator, set out clearly and without room for doubt in the excerpt above transcribed, it would be poorly understood that the exemption of UC would cover Recreational Vessels owned by companies not established in the Madeira Free Zone. And, the truth is that, in the concrete case under consideration, the Claimant does not fulfill one of the essential requirements to be able to benefit from the alleged exemption, since it is not established in the Autonomous Region of Madeira.
Furthermore, note that the objective set out in the said legal statute is clear in stating, in its article 1, that for "promotion and attraction of investments in the Madeira free zone tax and financial benefits of regional scope may be granted, (...)" (underlined in original)
Also pursuant to article 2 of the said statute "the incentives to be granted to promote and attract investments in the Madeira free zone will be defined by the Regional Government, taking into account, notably, its contribution to the economic and social development of the Region and the resources available to the Regional Government for that purpose"
29. On the other hand, article 7 itself of Decree-Law no. 165/86, of 26 June, applies to "companies established in the Madeira free zone (...)", which confirms the territoriality of the exemption and leads us to conclude, without need for further development, that the Claimant does not fulfill this legal requirement, and therefore does not benefit from the exemption that it alleges as the ground for the present arbitral request.
30. Finally, it should be noted that, from the preamble of Decree-Law no. 96/89, of 28 March, it results that RINM-MAR was created having in view the "international competition in the merchant marine sector" seeking to "stem the processes of withdrawal of ships from the main register to convenience registers, as well as attract some new shipowners and ships to the new registers, offering them cost conditions similar to those of the most competitive registers", taking into account that "merchant marine, by its true and entirely international character, has very special characteristics, given that the essential of the activity normally develops in international waters or in countries different from those of registration".
31. Now, in light of the declaration of objectives above transcribed, it is not seen that Recreational Vessels can be encompassed by the scope of the established exemption, except if assigned to the economic activity of the company owner, when this is established in the Autonomous Region. It further adds that the limitation of the exemption (which does not cover recreational vessels owned by residents in the continent) follows, from the outset, from the express reference to merchant marine and to the exercise of this activity, quite distinct from the use of recreational vessels. The reality and activity of merchant marine is, as follows from the preamble, above transcribed, endowed with some specificities.
32. In this regard, part of the decision issued in arbitral case no. 665/2017-T, already cited above, is transcribed, to which we fully adhere:
"(...) even if the exemption regime provided for in RINM-MAR is deemed applicable to recreational vessels, by force of Decree-Law no. 92/2003, of 22 August, the application of the said regime must be made with particular caution, since the regime provided for in Decree-Law no. 96/89, of 28 March, assures that the beneficiary of the exemption has permanent representation in the Autonomous Region of Madeira.
(...) In truth, it results from article 17, no. 3 of Decree-Law no. 96/89, of 28 March: '[i]n cases in which the domicile or registered office of the entities referred to in the preceding number is situated outside the Autonomous Region of Madeira and which have as their object the maritime transport industry or recreational marine industry, the requirements alluded to in nos. 2 and 3 of article 11 must be complied with.'
Article 11, no. 2 of Decree-Law no. 96/89, of 28 March further provides that '[i]n cases in which the registered office is situated outside the Autonomous Region of Madeira, those entities must have locally a branch, delegation, agency or any other form of representation, endowed with all the powers necessary to, before the authorities of the State or the Autonomous Region of Madeira and before third parties, assure full representation, with choice of particular domicile for that purpose.'
(...)
It is further highlighted that the connection of the exemption to a determined territorial area is reinforced by article 15 itself of the said regime which traces that connection (between tax power and territory): 'The municipalities have tax powers relating to taxes and other tributes to whose revenue they have a right, namely:
(...)
b) Possibility of taxation and collection of taxes and other tributes to whose revenue they have a right, pursuant to terms to be defined by own statute;
c) Possibility of coercive collection of taxes and other tributes to whose revenue they have a right, pursuant to terms to be defined by own statute;
d) Granting of exemptions and tax benefits, pursuant to no. 2 of the following article;
e) Compensation for the granting of tax benefits relating to taxes and other tributes to whose revenue they have a right, by the Government, pursuant to no. 4 of the following article;
f) Other powers provided for in tax legislation.' (underlined and bold in original).
(...)
Furthermore, pursuant to article 16, no. 2 of the same regime, '[t]he municipal assembly, at the proposal of the municipal chamber, approves regulation containing the criteria and conditions for the recognition of total or partial, objective or subjective exemptions, relating to taxes and other tributes of their own.'
Paragraph b) itself of no. 8 of article 5 of the IUC Code makes a connection between exemption and territory, referring that: '[a]re exempt from 50% of the tax the following vehicles: vehicles of categories C and D that effect transport exclusively in the territorial area of an autonomous region.'
Thus, without prejudice to neither article 24, no. 1 of Decree-Law no. 96/89, of 28 March, nor paragraph d) of article 7 of Decree-Law no. 165/86, of 26 June, making restrictions as to the territorial scope of application, from the joint reading of the said Decrees-Law, as well as of the IUC Code and the Financial Regime of Local Authorities and Intermunicipal Entities, it results that local taxes of the ownership of municipalities in the continent will not be exempt."
33. For all that is stated above, the answer to the question of whether the Claimant's Vessel is or is not exempt from IUC can only be negative. That is, it is considered that the exemption provided for in article 7, paragraph d) of Decree-Law no. 165/86, of 26 June, is not applicable in the concrete case, since we are not dealing with a company established in the Autonomous Region of Madeira, and the official IUC assessments impugned in the present proceedings must be maintained.
In other words, the Claimant does not meet one of the legal requirements for the exemption, and therefore the request for declaration of illegality of the IUC assessments here impugned must fail, which must remain in the legal order, for not suffering from any illegality, pursuant to the terms and with the grounds set out above.
V. DECISION
In accordance with the above, this Arbitral Tribunal decides:
a) To consider the exception of incompetence of the arbitral tribunal as to the challenge of the penalties applied, to be well-founded;
b) To consider the claims deduced by the Claimant to be totally without merit, maintaining the impugned IUC assessments;
c) To condemn the Claimant to payment of the arbitral costs owed.
VI. VALUE OF THE CASE
The value of the case is set at €19,141.09 pursuant to article 97-A, no. 1, a), of CPPT, applicable by force of paragraphs a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.
VII. COSTS
Pursuant to article 527, no. 1 of the Code of Civil Procedure, ex vi 29, no. 1, e) of RJAT, it is established that the party that gave cause to costs shall be condemned, or, if there is no prevailing party in the action, whoever drew profit from the proceedings.
In light of the above, the Claimant must be condemned to costs.
The arbitration fee is set at €1,224.00, pursuant to Table II of the Regulation of Costs in Tax Arbitration Proceedings, pursuant to articles 12, no. 2, and 22, no. 4, both of RJAT, and article 5 of the said Regulation, to be paid by the losing party.
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Lisbon, 20 - 04 - 2019
The Singular Arbitral Tribunal,
(Maria do Rosário Anjos)
[1] In this sense, cfr.: NUNO SÁ GOMES, General Theory of Tax Benefits, Tax Science and Technique Notebooks, 165, Lisbon: Center for Tax Studies, 1991, p. 140.
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