IUC Vehicle Tax Subjective Incidence: Legal Presumptions and Registered Owner Liability (CAAD 429/2015-T)

ARBITRAL TAX DECISION

Arbitral Tax Decision

CAAD – Administrative Arbitration Center

Case No. 429/2015-T

Claimant – A, with Tax Identification Number: ...

Respondent - Tax and Customs Authority (AT)

Subject - Assessment of the Unique Road Tax (IUC)

Arbitrator designated - Maria de Fátima Alves

1 STATEMENT OF FACTS

1.1

A, with Tax Identification Number: ... (in the capacity of head of household and further identified in the case file) Claimant in the tax dispute, referenced above and hereinafter referred to as "Claimant," has come forward, invoking the provisions of articles 2º, no. 1, subsection a) and 10º of Decree-Law no. 10/2011, of 20 January (hereinafter RJAT) and article 99º of the Code of Tax Procedure and Process (CPPT) and numbers 1 and 2, subsection d) of article 95º of the General Tax Law (LGT), requesting the establishment of a Single Arbitral Court, with a view to:

• The annulment of assessment acts relating to the Unique Road Tax (hereinafter referred to as IUC), for the years 2009, 2010 and 2011, concerning the motor vehicle with registration: ...-...-... (see documents nos. 1 to 8, annexed to the Initial Petition and which are hereby deemed fully reproduced for all legal purposes).

• The refund of the total amount of €63.71, plus the respective indemnity interest provided for in articles 43º of the LGT and article 61º of the CPPT.

1.2

Pursuant to the provisions of subsection a) of no. 2 of article 6º and subsection b) of no. 1 of article 11º of Decree-Law no. 10/2011, of 20 January, as amended by article 228º of Law no. 66-B/2012, of 31 December, the Ethics Council appointed as sole arbitrator Maria de Fátima Alves, who communicated acceptance of the assignment within the applicable deadline:

• On 18-08-2015, the parties were duly notified of such appointment and did not manifest any intention to refuse the arbitrator's appointment, in accordance with the combined provisions of article 11º no. 1, subsections a) and b) of the RJAT and articles 6º and 7º of the Code of Ethics;

• Therefore, the arbitral tribunal was constituted on 15-09-2015, as provided in subsection c) of no. 1 of article 11º of Decree-Law no. 10/2011, of 20 January, as amended by article 228º of Law 66-B/2012, of 31 December;

• In the context of the Respondent's (AT) Response, on 21-10-2015, the AT requested dispensation from the hearing pursuant to article 18º of the RJAT;

• Within the scope of the Request, the Arbitral Tribunal issued an Order on 23-10-2015, granting the requested dispensation, with the consent of the parties involved in the Case "sub judice";

• Consequently, it was determined that the Arbitral Decision would be rendered on 09-11-2015.

1.3

The Claimant, in support of its request for arbitral pronouncement, asserts, in summary, the following:

• The motor vehicle to which the assessed unique road tax relates was not, at the date of the taxable facts, the property of the Deceased (..., with Tax Identification Number: ..., who died on 17-06-2002), as they had sold said vehicle before their death, see docs. 7 and 8, annexed to the present Initial Petition (Copy of the Purchase Order and Credit Note, which records the return of said vehicle); therefore, the heirs of the deceased could not assume any subjective responsibility for payment of the road tax (IUC);

• The Claimant bases its position on the fact that since 28-11-2003 there has been a request for vehicle seizure with the DGV (now IMTT), see doc. 1;

• That the "DGV" communicated to the GNR and PSP the request for seizure of the vehicle with registration ...-...-..., due to failure to regularize the property registration – see docs. 2 and 3 (normal and legally foreseen procedures in the face of the situation of failure to regularize motor vehicle registration, as of 2003);

• It is worth noting that the Claimant, on 19-11-2003, ordered the vehicle to be seized, due to failure to regularize the Property Registration, as they already knew that said vehicle had been acquired by a third party and was "insured" by "..., S.A";

• But only in 2013 did the Claimant become aware that the competent institutions had not completed the process of canceling the registration – see doc. no. 4;

• Although IMTT could have regularized it pursuant to article 5º of Decree Law no. 78/2008;

• Furthermore, the IUC is a road tax with the presumption of the equivalence principle, provided for in no. 1 of the same Decree (IUC);

• Considering, further, that the Claimant cannot be charged with ownership of said vehicle, since with the act of sale (still during the lifetime of the author of the estate), the transmission of said property to another owner occurred, see docs. 7 and 8, annexed to the present Initial Petition;

• It notes that, upon transmission of the vehicle transfer, before the death of the testator, that same fact prevented the Claimant from being able to circulate with said vehicle, which removes from them the figure of the "polluter/payer," corollary to the equivalence principle (from 2007 onwards), obviously;

• It is a fact that article 3º of the IUC considers the owner of the motor vehicle to be the person in whose name it is registered;

• However, no. 1 of article 3º of the same legal provision establishes a legal presumption, which in light of the provision in art. 73º of the LGT, the rules on tax incidence, always admit proof to the contrary, being necessarily refutable;

• Nevertheless, the registration of vehicles in the competent Motor Vehicle Registry Office does not constitute a condition for transmission of property, since such registration aims only to publicize the legal situation of the goods, as follows, in particular, from the provision in article no. 1 of Decree-Law no. 54/75, of 12 February;

• Therefore, tax taxation relating to the IUC cannot only apply to whoever is registered as the owner of the vehicles; the actual owners must be considered, by means of a refutable presumption.

1.4

The Respondent, Tax and Customs Authority (hereinafter referred to as AT), proceeded to attach the Tax Administrative File and submitted a Response, from which it emerges that the tax acts in question do not suffer from any defect of violation of Law, pronouncing itself in favor of the rejection of the claim and the maintenance of the questioned assessment acts, defending, in summary, the following:

• The passive subjects of the unique road tax are persons who appear in the registry as owners of the vehicles, as provided in no. 1 of article 3º of the IUC, which in the case sub judice is verified with respect to the Claimant (as head of household);

• Verifying that the registration of the vehicle is in the name of a given person so that such person embodies the position of passive subject of the IUC tax obligation;

• That it is notoriously incorrect the interpretation that the Claimant makes of the provision in article 3º of the IUC, insofar as it incurs in a "skewed interpretation of the letter of the law" and in the adoption "of an interpretation that does not heed the systematic element, aiming at the unity of the regime enshrined in the entire IUC and, more broadly, in the entire legal-tax system," also following, the Respondent, an "interpretation that ignores the ratio of the regime enshrined in the article in question and, likewise in the entire IUC."

2 ISSUES TO BE DECIDED

2.1

Given the above, relative to the written submissions of the parties and the arguments presented, the main issues to be decided are as follows:

• The challenge made by the Claimant regarding the material assessment of the assessment act, for the years 2009, 2010 and 2011, concerning the IUC on the vehicle aforementioned in the Initial Petition;

• The erroneous interpretation and application of the rules on subjective tax incidence of the unique road tax assessed and collected, which constitutes the central issue to be decided in the present case;

• The legal value of motor vehicle registration.

3 FINDINGS OF FACT

3.1

As a matter of fact, relevant to the decision to be rendered, this Court finds established, based on the elements in the case file, the following facts:

• The Claimant presented evidentiary elements of the motor vehicle in question, corresponding to the periods prior to the taxation period – see Copy of the Purchase Order and Credit Note, which records the Return of said vehicle, docs. nos. 7 and 8, as well as docs. nos. 1 to 6, all annexed to the case file and which are hereby deemed fully reproduced for all legal purposes.

3.1.1 BASIS FOR THE PROVEN FACTS

• The facts found as proven are based on the Copy of the Purchase Order and Credit Note, which records the Return of said vehicle, as well as all documents referenced in the case file of 1 to 8, which are hereby deemed fully reproduced for all legal purposes.

3.1.2 FACTS NOT PROVEN

• There are no facts found as not proven, given that all facts deemed relevant to the assessment of the claim have been proven.

4 LEGAL GROUNDS

4.1

The Court is materially competent and is regularly constituted, pursuant to articles 2º no. 1, subsection a), 5º no. 2, subsection a), 6º no. 1, 10º no. 1, subsection a) and no. 2 of the RJAT:

• The parties have legal personality and capacity and are legitimate, ex vi, articles 4º and 10º, no. 2, of the RJAT and article no. 1 of Ordinance no. 112-A/2011, of 22 March;

• The case does not suffer from nullities;

• There being no prior issue on which the Court must rule.

4.2

The subject matter of the present case is the declaration of annulment of the IUC assessment acts relating to the motor vehicle further identified in the case.

4.2.1

Condemnation of the AT to refund the amount of tax relating to such assessment in the amount of €63.71;

4.2.2

Condemnation of the AT to payment of indemnity interest on the same amount.

4.3

According to the AT's understanding, it is sufficient that in the registry, the vehicle is listed as the property of a given person, for that person to be the passive subject of the tax obligation.

4.4

The matter of fact is established, as provided in no. 3.1 above, and it is now necessary to determine the Law applicable to the underlying facts, in accordance with the issues to be decided, identified in no. 2.1 above, it being clear that the central issue in the present case, regarding which there are absolutely opposing views between the Claimant and the AT, consists in knowing whether no. 1 of article 3º of the IUC regarding the subjective incidence of the unique road tax establishes or not a refutable presumption.

4.5

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 issue to be decided is whether no. 1 of article 3º of the IUC establishes or not a legal presumption of tax incidence, it is necessary, in this context, to assess and render a decision.

5 ISSUE OF ERRONEOUS INTERPRETATION AND APPLICATION OF THE RULE ON SUBJECTIVE TAX INCIDENCE OF THE IUC

5.1

Considering it to be well-established understanding, in legal doctrine, that in the interpretation of tax laws the general principles of interpretation fully apply, which will be, merely and naturally, limited by the exceptions and particularities dictated by the Law itself, object of interpretation. This is an understanding that has come to receive acceptance in the General Tax Laws of other countries and which has also been enshrined in article 11º of our General Tax Law, which, furthermore, is frequently emphasized by case law.

It is consensually accepted that in view of apprehending the meaning of the law, interpretation resorts, a priori, to reconstructing legislative intent through the words of the law, which means seeking its literal meaning, evaluating it and assessing it in light of other criteria, involving the so-called elements of a logical, rational or teleological nature and of a systematic order:

• With respect to the interpretation of tax law, jurisprudence must be considered, namely, the Judgments of the Supreme Tax 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 9º of the Civil Code (CC), as a fundamental element of legal hermeneutics;

• No. 1 of article 3º of the IUC provides that "The passive subjects of the tax are the owners of the vehicles, considering as such the natural or legal persons, of public or private law, in whose name the same are registered";

• The formulation used in the aforementioned article employs the expression "considering as" which raises the question of whether such expression can be given a presumptive meaning, being equated with the expression "presuming," these are expressions frequently used with equivalent meanings;

• As Jorge Lopes de Sousa teaches, in Tax Code of Procedure and Process, Annotated and Commented, Volume I, 6th Edition, Área Editora, SA, Lisbon 2011, p. 589, that in matters of tax incidence, presumptions may be revealed by the expression "presume" or by similar expression, mentioning various examples of such presumptions, referring to that contained in article 40º, no. 1 of the IRS Code, where the expression "presume" is used and that contained in article 46º no. 2 of the same Code, where use is made of the expression "consider," as an expression with an effect similar to that and also embodying a presumption;

• In the legal formulation set forth in no. 1 of article 3º of the IUC, in which a presumption was established, revealed by the expression "considering," of meaning similar and equivalent value to the expression "presuming," in use since the creation of the tax in question;

• The use of the expression "considering" was intended only to establish a more pronounced and clear approximation between the passive subject of the IUC and the actual owner of the vehicle, which is in harmony with the strengthening conferred on vehicle ownership, which became the taxable event, pursuant to article 6º of the IUC;

• 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," resides in the truth and justice that, by this means, is conferred on tax relations and which embody fundamental tax values, allowing the taxation of the real and actual owner and not one who, by circumstances of various nature, is often merely an apparent and false owner. If the case were not considered this way, not admitting and acknowledging the presentation of evidentiary elements intended to demonstrate that the actual owner is, after all, a person different from the one listed in the registry and who initially, and in principle, was presumed to be the true owner, those values would be, objectively, disregarded.

5.2

Also to be considered is the principle of equivalence, inscribed in article 1º of the IUC, which is based on the polluter-payer principle and, concretizes the idea inscribed therein that whoever pollutes must, therefore, pay. Said principle has constitutional basis, insofar as it represents a corollary to the provision in subsection h) of no. 2 of article 66º of the Constitution, also having basis in Community law, either at the level of primary law, article 130º-R of the Maastricht Treaty (Treaty on European Union, of 07-02-1992), where the aforementioned principle came to be included as a support for Community Policy in the environmental field and which aims to hold responsible those who contribute to the harm that comes to the community, arising from the use of motor vehicles, to be assumed by their owners-users, as costs that only they should bear.

5.3

Considering the facts described above, it is important to note that the aforementioned elements of interpretation, whether those related to literal interpretation, supported by the words legally used, whether those relating to logical elements of interpretation, of a historical nature or of a rational order, all point to the fact that the expression "considering" has a meaning equivalent to the expression "presuming," and should therefore be understood that the provision in no. 1 of article 3º of the IUC establishes a legal presumption which, in light of article 73º of the LGT, where it is established that "Presumptions established in rules of tax incidence always admit proof to the contrary," will necessarily be refutable, which means that the passive subjects are, in principle, the persons in whose name such vehicles are registered. They will, therefore, be such persons, identified in such conditions, to whom the AT must necessarily direct itself;

• But it will be, in principle, given that in the context of prior hearing, which is mandatory, in light of the provision in subsection a) of no. 1 of article 60º of the LGT, the tax relationship may be reconfigured, validating the passive subject initially identified or redirecting the proceeding towards the one who is, after all, the true and actual passive subject of the tax in question.

• The taxpayer has the right to be heard, through 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 100º).

• The prior hearing, which naturally must be carried out at a moment immediately prior to the assessment proceeding, corresponds to the proper seat and time to, with certainty and security, identify the passive subject of the IUC.

6 ON THE LEGAL VALUE OF REGISTRATION

6.1

With respect to the legal value of registration, it is important to note what is established in no. 1 of article 1º of Decree-Law no. 54/75, of 12 February (variously amended, most recently by Law no. 39/2008, of 11 August), when it provides that "vehicle registration has essentially as its purpose to publicize the legal situation of motor vehicles and their respective trailers, with a view to the security of legal commerce":

• Article 7º of the Code of Land Registry (CRP), applicable, suppletively, to motor vehicle registration, by virtue of article 29º 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 registry defines it";

• Definitive registration constitutes nothing more than a refutable presumption, admitting, therefore, countervailing proof, as follows from the law and jurisprudence has been signaling, and can 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 goods, in the case in question, of vehicles and, on the other hand, allows us to presume that there exists the right over such vehicles and that it belongs to the holder, as such registered in the registry, does not have a constitutive nature of the property right, but only declarative, hence the registration does not constitute a condition of validity for the transmission of the vehicle from seller to buyer;

• Acquirers of vehicles become owners of such vehicles through the execution of the corresponding contracts of purchase and sale, with or without registration;

• In this context it is worth recalling that, in light of the provision in no. 1 of article 408º of the CC, the transfer of real property rights over things, in the case sub judice, motor vehicle, is determined by mere effect of the contract, and that pursuant to the provision in subsection a) of article 879º of the CC, among the essential effects of the contract of purchase and sale, the transmission of the thing stands out;

• Based on the above, it becomes clear that the legislative intent points in the direction that the provision in no. 1 of article 3º of the IUC establishes a presumption "juris tantum," consequently refutable, thereby allowing the person who is registered in the registry as the owner of the vehicle to present evidentiary elements intended to demonstrate that such property is inserted in the legal sphere of another person, to whom the property was transferred.

7 THE PRESUMPTION OF ARTICLE 3º OF THE IUC AND THE DATE ON WHICH THE IUC IS EXIGIBLE

7.1 THE PRESUMPTION OF ARTICLE 3º OF THE IUC

• The AT considers that the presumption which exists in no. 1 of article 3º of the IUC is derived from an interpretation contra legem, arising from a skewed 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 jurisprudence is that a legal presumption should be considered to exist that is refutable, and therefore, consequently, serves the values and interests in question, both at the level of material fiscal justice and at the level of the environmental purposes sought by the IUC;

• Regarding the unity of the legal system, it is important to note everything aforementioned, namely, on the ratio of article 1º of the IUC; on the norms and principles of the LGT; on the pertinent and applicable rules relative to motor vehicle registration, on the interpretation that best serves and achieves the aforementioned unity and ensures the connection of such norms, considering the legal presumption that is provided in article 3º of the IUC.

7.2 DATE ON WHICH THE IUC IS EXIGIBLE

• The IUC is a periodic taxation tax, whose periodicity corresponds to the year that begins at the time of registration or on each of its anniversaries, as provided in nos. 1 and 2 of article 4º of the IUC;

• It is exigible pursuant to no. 3 of article 6º of said Code;

• It being important to note that, as for the assessment of the IUC taxed to the Claimant on the vehicle aforementioned, corresponding to the years 2013 and 2014, it is not to be considered, because at the time of the taxable event the vehicle no longer belonged to them, as said vehicle was sold to a third party on 02-09-2004, see the evidentiary document already aforementioned and annexed to the administrative complaints (contained in the Administrative File and the Initial Petition) which is hereby deemed fully reproduced for all legal purposes.

7.2.1

With respect to the burden of proof, article 342º no. 1 of the CC provides: "it is incumbent upon the one who invokes a right to prove the facts constitutive of the right alleged";

7.2.2

Also article 346º of the CC (countervailing proof) determines that "against the proof produced by the party on whom the burden of proof falls, the other party may present countervailing proof with respect to the same facts, intended to make them doubtful; if it succeeds, the matter is decided against the party burdened with the proof." (As states Anselmo de Castro, A., 1982, ED. Almedina Coimbra, "Declaratory Civil Procedural Law," III, p. 163, "when one of the parties bears the burden of proof, the other party needs only to present countervailing proof, this being a proof intended to make the facts alleged by the first doubtful."

Thus, in the case at hand, what the Claimant has to prove, in order to rebut the presumption arising both from article 3º of the IUC and from the Motor Vehicle Register itself, is that the Claimant was not the owner of the vehicle in question, during the period to which the challenged assessment relates. What they propose to prove, according to what emerges from the case file, is that the ownership of the vehicle did not belong to them during the period to which the assessment relates (2009, 2010 and 2011, see docs. 1 to 8, contained in the Administrative File and the Initial Petition, which are hereby deemed fully reproduced for all legal purposes.

7.3 REBUTTAL OF THE PRESUMPTION

• The Claimant, as referred to in 3.1., with respect to the facts proven, alleged, with the purpose of overcoming the presumption, not to be the owner of the vehicle, at the time of the occurrence of the taxable event, offering for this purpose the following documents:

• Copy of the Purchase Order and Credit Note, which records the Return of said vehicle, from the year 2002;

• In this way, the ownership of said vehicle no longer belonged to them, and therefore could not enjoy its use, from a date prior to that on which the IUC was exigible, embodying, thus, means of proof with sufficient force and adequacy to rebut the presumption based on the registry, as provided in no. 1 of article 3º of the IUC, documents which enjoy the presumption of veracity provided for in no. 1 of article 75º of the LGT. It follows from this that at the time when the IUC was exigible, the one who held the ownership of the motor vehicle was not the Claimant.

8 OTHER ISSUES RELATING TO THE LEGALITY OF THE ASSESSMENT ACTS

• With respect to the existence of other issues relating to the legality of the assessment acts, taking into account that it is implicit in the establishment of an order of knowledge of defects, as provided in article 124º of the CPPT, that proceeding on the request for arbitral pronouncement based on defects that prevent the renewal of the challenged assessments, the knowledge of other defects is precluded, because it is useless, it does not appear necessary to rule on the other issues raised.

9 REFUND OF TOTAL AMOUNT PAID

• Pursuant to the provision in subsection b) of no. 1 of article 24º of the RJAT and, in accordance with what is established therein, the arbitral decision on the merits of the claim to which no appeal or challenge applies, binds the tax administration from the end of the period provided for appeal or challenge, and it must, in the exact terms of the finding of the arbitral decision in favor of the taxpayer and until the end of the period provided for the spontaneous execution of sentences by tax courts "Restore the situation that would exist if the tax act, which is the object of the arbitral decision, had not been performed, adopting the acts and operations necessary to that effect"

• These are legal directives that are in complete harmony with the provision in article 100º of the LGT, applicable to the case, ex vi, of the provision in subsection a) of no. 1 of article 29º of the RJAT, in which it is established that "The tax administration is obligated, in case of total or partial finding of merit of claims or administrative appeals or of judicial proceedings in favor of the taxpayer, to the immediate and full restoration of the situation that would exist if the illegality had not been committed, corresponding to the payment of indemnity interest, pursuant to the terms and conditions provided by law."

• The case contained in the present proceedings raises the manifest application of the aforementioned rules, since as a consequence of the illegality of the assessment acts referenced in this case, there must, by force of these rules, be a refund of the amounts paid, whether as title of the tax paid, or of the corresponding compensatory interest, as a way of achieving the restoration of the situation that would exist if the illegality had not been committed.

10 RIGHT TO INDEMNITY INTEREST

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

• In the context of tax assessment, its annulment confers on the taxpayer the right to the return of the tax paid and, as a rule, the right to indemnity interest, pursuant to no. 1 of article 43º of the LGT and article 61º of the CPPT.

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

11 DECISION

Given the foregoing, this Arbitral Court decides:

• To find the claim for declaration of illegality of the IUC assessment, relating to the years 2009, 2010 and 2011, concerning the motor vehicle identified in the present case, well-founded, and accordingly to annul the corresponding tax acts;

• To find the claim for condemnation of the Tax Administration to refund the amount wrongfully paid, in the amount of 63.71 Euros, plus the respective legally due indemnity interest, well-founded, condemning the Tax and Customs Authority to effect these payments.

VALUE OF THE CASE:

• In accordance with the provisions of articles 306º no. 2 of the Code of Civil Procedure and 97º-A, no. 1 of the CPPT and article 3º, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case value is set at 63.71 Euros.

COSTS:

• In accordance with no. 4 of article 22º of the RJAT, the amount of costs is set at €306.00, pursuant to Table I, annexed to the Regulation of Costs in Tax Arbitration Proceedings,

• to be borne by the Tax and Customs Authority.

Let the parties be notified.

Lisbon, 08-11-2015

The Arbitrator

Maria de Fátima Alves

(the text of the present decision was prepared by computer, pursuant to article 131, no. 5 of the Code of Civil Procedure, applicable by referral of article 29º, no. 1, subsection e) of Decree-Law 10/2011, of 20 January (RJAT), governed in its drafting by current orthography)