IUC Tax on Imported Vehicles: CAAD Decision 507/2017-T and CJEU Preliminary Ruling on Article 110 TFEU

ARBITRAL DECISION

REPORT

A..., taxpayer no. ..., resident at Street..., no. ... -..., ...-... ... VNG, owner of the motor vehicle with registration ..., came, in accordance with Article 10, no. 2, of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), to request the establishment of a singular Arbitral Tribunal, in which the Tax and Customs Authority is required, hereinafter AT or Respondent, with a view to declaring illegal the dismissal of the hierarchical appeal presented and the consequent annulment of the Single Vehicle Circulation Tax (IUC) assessments identified in the case file, relating to the years 2016 and 2017, in the amount of €418.90.

The request for establishment of the Arbitral Tribunal was accepted by His Excellency the President of CAAD and automatically notified to the AT on 14 September 2017.

In accordance with Article 11, no. 1, of the RJAT, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the singular Arbitral Tribunal was constituted on 6 December 2017.

The AT responded by exception and contending that the claim should be judged unfounded.

Given the nature of the matter contained in the case file, the meeting referred to in Article 18 of the RJAT and the holding of final arguments were dispensed with.

The parties possess legal standing and capacity, are legitimate and are represented (Article 4, and no. 2 of Article 10 of the RJAT and Article 1 of Ordinance no. 112/2011, of 22 March).

By decision of 5 February 2018, it was decided to make a preliminary reference to the CJEU on the following question:

Does European Union law, in particular Article 110 of the TFEU, preclude a tax provision, such as Article 2, no. 1 a) and b) of the IUC Code, from taxing more heavily vehicles of the same make, model, mode of combustion and age, by reason of having been registered in other Member States?

The CJEU ruled on this question in its judgment of 17 April 2018, delivered in case no. C-640/17, in the following terms:

"Article 110 of the TFEU must be interpreted as precluding the legislation of a Member State by virtue of which the Single Vehicle Circulation Tax which it establishes is charged on light passenger motor vehicles registered or recorded in that Member State without taking into account the date of first registration of a vehicle, when that registration took place in another Member State, with the result that taxation of vehicles imported from another Member State is higher than that of similar non-imported vehicles."

Considering that the AT raised the exception of lack of passive capacity and lack of jurisdiction of the Tribunal as to subject-matter, the aforementioned preliminary issues will be previously analysed.

PRELIMINARY ISSUES

A – LACK OF PASSIVE CAPACITY OF THE AT

The AT argues that the Claimant seeks the condemnation of the AT to annul the Single Vehicle Circulation Tax assessments for the years 2016 and 2017, basing the said claim on the fact that the vehicle was incorrectly classified in category B, which is equivalent to payment of a higher amount than its classification in category A. From this results the existence of a pressing interest in acting – to challenge the Institute for Mobility and Transport, I.P. (IMT), in the present case, since only the IMT can dispose of knowledge of the facts relating to the integration of vehicles in different categories.

Concluding, therefore, that the AT should consider the exception raised as well-founded and absolve the public entity defendant from the case, under Articles 89, no. 1, subparagraph d) of the Code of Procedure in Administrative Courts and Article 576, no. 2 of the Code of Civil Procedure.

However, in accordance with the arbitral petition presented, the Claimant requests the annulment of the IUC assessment acts identified in the case file and sustains such claim on the fact that the vehicle with registration ... is not classified in the correct IUC bracket.

Thus, we are faced with a claim proper to the procedural means used and which consists of the annulment of the assessment acts underlying the decision to dismiss impugned, the cause of the claim being identified by the Claimant – an error of law – that is, the incorrect classification of the vehicle sub judice contained in the assessment acts issued by the AT and notified to the Claimant.

It is understood, therefore, that the exception of lack of passive capacity raised by the AT is not verified.

B – ABSOLUTE LACK OF JURISDICTION AS TO SUBJECT-MATTER

The AT argues in its response that the act which is the subject of the dispute cannot be qualified as an act of determination of the taxable matter which gives rise to the assessment of a tax for the purposes of subparagraph b), no. 1 of Article 2 of the RJAT, understanding that what is at issue here is the classification in category A and not category B of the motor vehicle.

It concludes, therefore, that the proper means to challenge these acts, which do not involve the review of the legality of assessment acts and which are also not acts of determination of the taxable matter or the collectible matter, is not judicial review but rather special administrative action, and therefore the exception of absolute lack of jurisdiction of the arbitral forum should be judged well-founded.

Now, in accordance with Articles 16 of the Tax Procedure and Process Code ("CPPT"), 13 of the Code of Procedure in Administrative Courts ("CPTA") and 101 of the Civil Procedure Code ("CPC"), subsidiarily applicable by virtue of no. 1 of Article 29 of the RJAT, the determination of the material jurisdiction of courts is a matter of public order and its cognisance precedes that of any other matter.

In consequence, taking into account that the procedence of the exception raised by the AT, were it to be verified, would bar the cognisance of the other matters raised, it is important to delimit the scope of jurisdiction of the tax arbitral jurisdiction and ascertain whether the tribunal's jurisdiction covers or does not cover the act of classification of the motor vehicle.

Thus, first and foremost, it is important to attend to the provisions of no. 1 of Article 124 of Law no. 3-B/2010, of 28 April, according to which the Government was authorized "to legislate in the sense of instituting arbitration as an alternative form of jurisdictional resolution of disputes in tax matters", and which should, according to its no. 2, "constitute an alternative procedural means to the process of judicial review and to the action for recognition of a right or legitimate interest in tax matters."

Implementing the said legislative authorization, Decree-Law no. 10/2011, of 20 January, "instituted tax arbitration limited to certain matters, listed in its Article 2", making "the binding of the tax administration depend on an ordinance of the members of the Government responsible for the areas of finance and justice" (See the reasoning of the arbitral award issued in Case no. 76/2012).

The scope of tax arbitral jurisdiction was thus delimited, in the first place, by the provisions of Article 2 of the RJAT which sets out, in its no. 1, the criteria for material division, encompassing the review of claims directed to the declaration of illegality of tax assessment acts (subparagraph a)).

Through the Binding Ordinance (Ordinance no. 112-A/2011, of 20 April), the Government, by the Ministers of State and of Finance and Justice, bound the services of the General Directorate of Taxes and the General Directorate of Customs and Excise Duties to the jurisdiction of the arbitral tribunals functioning at CAAD, and these services now correspond to the Tax and Customs Authority, in accordance with Decree-Law no. 118/2011, of 15 December, which approves the organic structure of this Authority, resulting from the merger of various bodies.

In this Ordinance, additional conditions and binding limits are established taking into account the specificity of the matters and the value at stake.

Article 2 of the Binding Ordinance provides:

Article 2
Object of Binding

The services and bodies referred to in the preceding article bind themselves to the jurisdiction of the arbitral tribunals functioning at CAAD which have as their object the review of claims relating to taxes whose administration is entrusted to them referred to in no. 1 of Article 2 of Decree-Law no. 10/2011, of 20 January, with the exception of the following:

a) Claims relating to the declaration of illegality of self-assessment acts, withholding acts and payment on account acts which have not been preceded by recourse to the administrative procedure in accordance with Articles 131 to 133 of the Tax Procedure and Process Code;

b) Claims relating to acts of determination of the collectible matter and acts of determination of the taxable matter, both by indirect methods, including decision of the revision procedure;

c) Claims relating to customs duties on importation and other indirect taxes levied on goods subject to import duties; and

d) Claims relating to tariff classification, origin and customs value of goods and tariff quotas, or whose resolution depends on laboratory analysis or procedures to be carried out by another Member State in the context of administrative cooperation in customs matters."

From the analysis of the arbitral petition it is concluded that the claim presented by the Claimant does not concern the classification of the motor vehicle, nor the determination of the taxable matter, as the AT argues, but rather the declaration of illegality of the IUC assessment acts attached to the case file.

In view of the foregoing, since the principal claim submitted by the Claimant concerns the declaration of illegality of the dismissal of the hierarchical appeal presented and the consequent annulment of the underlying IUC assessment acts, it is concluded that the exception raised by the AT regarding the absolute lack of jurisdiction of this arbitral tribunal as to subject-matter is unfounded.

No nullities, exceptions or preliminary issues exist which would bar the immediate cognisance of the merits of the case.

FINDINGS OF FACT

Based on the elements contained in the proceedings and in the administrative file attached to the case, the following facts are considered established:

• On 14 September 2006, the Claimant purchased and registered a vehicle of make ..., model ..., to which was assigned registration ..., in Spain;

• In August 2016, the Claimant came to reside in Portugal, having proceeded to its legalization, with payment of all taxes, including Vehicle Tax (ISV), for the vehicle acquired in Spain identified above;

• In Portugal, the vehicle with registration ... was assigned registration ...;

• The Claimant self-assessed IUC no. 2016 ... and no. 2017 ..., relating to his vehicle with registration ..., to which was assigned bracket B, for a total of €418.90, relating to the years 2016 and 2017;

• On 9 March 2017, the Claimant presented a gracious claim to the Head of the Finance Service regarding the assessment acts identified above;

• On 21 March 2017, the gracious claim presented was dismissed;

• On 8 June 2017, the Claimant presented a hierarchical appeal of the decision dismissing the gracious claim.

Taking into consideration the positions taken by the parties, in light of Article 110, no. 7 of the CPPT and the documentary evidence attached to the case file, the facts listed above are considered established as being relevant to the decision.

MATTERS OF LAW

In view of the facts established, to determine the legality of the IUC assessment acts sub judice, it is relevant to answer the following questions of law:

• As regards objective scope, relating to used light passenger motor vehicles from other Member States (MS), which had an initial registration given by those States before, what is the date of registration that should be considered relevant for the purposes of inclusion in categories A or B, as referred to in subparagraphs a) and b) of Article 2 of the IUC Code;

• Is it compatible with the Treaty on the Functioning of the European Union (TFEU), in particular Article 110, the provision of Article 2, no. 1 a) of the IUC Code, interpreted as meaning that vehicles of the same make, model, mode of combustion and age are taxed differently, depending on whether they are already registered in national territory, or are only to be registered for the first time in Portugal, after the entry into force of the IUC Code.

To this end the Respondent contends, in summary, the following:

• In accordance with no. 1 of Article 6 of the IUC Code "the taxable event of the tax is constituted by ownership of the vehicle."

• The vehicle, which is the object of taxation, has been the property of the Claimant since 14-09-2006, and, with all due respect, it is completely perverse to transform a vehicle with about ten years of age into a new vehicle, in this case allegedly from 2016, for the purposes of assessment of the Single Vehicle Circulation Tax;

• Other taxpayer citizens who have a vehicle of the same make, model, engine capacity, and from the same year, month and day, and have always had the same national registration, are correctly classified in Category A of IUC, because they have registration prior to 1 July 2007, and therefore a serious violation of the principle of tax equality;

• The vehicle in question was effectively registered for the first time in the year 2006, which is what is relevant in light of the law in force (registered before or after 1 July 2007 and depending on this integrate categories A or B of IUC, respectively);

• It results from the law that the tax applies to vehicles registered or recorded in Portugal (being excluded those registered or recorded for example in Spain), but contrary to what is stated by the Public Treasury and the decision now in question, the Law no longer states in subparagraphs a) and b) of no. 1 of Article 2 of the IUC Code that the year of registration refers by reference to the Portuguese State and quite right, in the view of the Learned Jurisprudence that has been practiced by the Courts, in particular the Administrative and Tax Courts of Braga and Porto, in the context of their respective Judgments, final and conclusive, delivered in analogous situations and the same question of law;

• It makes perfect sense that the rule of objective scope refers to vehicles registered in Portugal, as it would always be possible to consider all vehicles circulating in Portugal (regardless of whether they were registered in Portugal or not) to be within the scope of the rule of objective scope — this clearly not being the will of the legislator;

• It would be a violation of the law to accept the understanding of the Finance Service that what counts is the date of registration in the Portuguese State, because if this were the case, the Portuguese State would be treating two vehicles that are exactly the same differently but distinguishing them on the basis of the nationality of the first date of registration;

• Accordingly, the vehicle in question is not included in the rule of objective scope of subparagraph b) of no. 1 of Article 2 of the IUC Code, but rather in the elements of exclusion of the rule of objective scope - of subparagraph a), that is, the vehicle in question in the present proceedings, is not subject to the rule of objective scope as stated in the assessment impugned, since the vehicle was registered for the first time in the year 2006, well before 1 July 2007, and therefore is in category A of IUC;

• There subsists, in this manner, an incorrect application of the Law, since the vehicle with registration ..., should have been taxed on the basis of subparagraph a), of no. 1 of Article 2 - and not on subparagraph b), of no. 1 of Article 2 -, by reference to no. 1 of Article 6 of the IUC Code;

• The interpretation given to the rule in question here, and which in essence decided that to the vehicle ... category B should be applied, is incompatible with European law, specifically with Article 110 of the TFEU, in that it imposes a tax increase in the context of IUC on residents outside national territory – with the aggravation that the author has Portuguese nationality and at the date of legalization also has Portuguese residence – when legalizing the vehicle in this country, despite the same being already registered in a country member of the EU, well before the legislation applied to the concrete case came into force and burdening exponentially, on the basis of nationality, a good similar to another national one, the latter excepted, and therefore relieved, by the same legislation;

• The tax administration, in the assessment impugned, interpreted this no. 2 as applying only to vehicles with Portuguese registration prior to 1 July 2007, understanding that, in relation to similar vehicles - make, model, engine capacity, pollution levels, etc - the date of first registration in a Member State of the EU, in the case Spain, even if prior to that date, was of no relevance to the decision whether it was to be classified in category A or B respectively, and, in an absolutely discriminatory manner, turns a "blind eye" and transforms a vehicle with more than 10 years of age into another absolutely new one, for the purposes of taxation in the context of IUC, burdening it substantially, as already mentioned about 6 times more;

• This understanding is embodied in differentiated tax treatment on the basis of the nationality of the good, which constitutes a violation of law;

• According to consistent jurisprudence of the Court of Justice, there is a violation of Article 110 of the TFEU whenever the taxation of imported automobiles and that which applies to similar national automobiles – as in the case under analysis - is calculated differently and on the basis of different criteria, leading to higher taxation of the imported product;

• This question is absolutely coincident with that brought to the arbitral tribunal, in that the calculation carried out for the taxation of the IUC of the vehicle ..., had as its basis different criteria, leading to much higher taxation of the vehicle in question, since they did not take into account its age - date of registration prior to the rule applied - in contrast with vehicles with Portuguese registration which, as already mentioned, were excepted from the rule because they have a date of first registration prior to 1 July 2007;

• What may and should all be corrected by way of the present arbitral intervention and in the interests of the desired Justice, by assigning the appropriate Category A in the context of Single Vehicle Circulation Tax to the vehicle ....

For its part, the AT argues, in summary, the following:

• The AT contends that the IUC assessments which the Claimant seeks to challenge do not constitute any violation of the principle of equality, and there is no discrimination in the taxation of the motor vehicle, now in question;

• That the principle of equality does not preclude distinction, but must have the concern that the provision, being diverse, is not discriminatory, and that IUC is applied in an indistinct manner to all cases in which the factual and legal requirements are met;

• That the decisive element in assessing violation of the principle of equality when distinctions are made is the ratio of the rule, as on this will be founded, or not, the reasonableness of the differentiation of treatment;

• In this manner, the Claimant is not right as to the alleged negative discrimination between vehicles registered in another Member State and those registered in national territory;

• That the TFEU, in its Article 110, constitutes a complement to the provisions relating to the abolition of customs duties and charges of equivalent effect;

• That in the 2011 State Budget, the legislation relating to the calculation of Motor Vehicle Tax to be applied to imported vehicles was amended (law no. 55-A/2020 of 31/12), whereby the reduction which used imported vehicles had depending on age with respect to engine capacity also began to apply to the environmental component, with no violation of the TFEU or other European Union rule;

• That the IUC assessments in question result from the application of the rules of the IUC Code, in equal manner, to all vehicles registered in Portugal.

• That from the provisions of Article 2, no. 1 and Article 3 of the IUC Code it results that, in the situation in question, both in terms of objective scope and in terms of subjective scope, the motor vehicle ..., property of the Claimant, met the requirements for taxation in the context of IUC, and therefore, there being no cause for exclusion of taxation in the context of IUC, the AT issued, and correctly, assessments no. 2016 ... and 2017 ..., which are now being challenged.

Let us see what should be understood.

Of the Interpretation of no. 1 of Article 2 of the IUC Code

It results from Article 11 of the General Tax Law (LGT) that the interpretation of tax law should be carried out attending to the general principles of interpretation.

The general principles of interpretation are established in Article 9 of the Civil Code (CC), in the following terms:

"1. Interpretation should not be confined to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was elaborated and the specific conditions of the time in which it is applied.

1. However, the interpreter cannot consider the legislative intent that does not have in the letter of the law a minimum of verbal correspondence, even if imperfectly expressed.

2. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and knew how to express his intent in adequate terms."

It is thus established that there are three elements of interpretation of the Law, namely: the literal element, the historical and rational element and the systematic element.

Attending first and foremost to the letter of the Law it is important to know that Article 2, no. 1 of the IUC Code provides as follows:

"Article 2
Objective Scope

1 - The Single Vehicle Circulation Tax applies to vehicles of the following categories, registered or recorded in Portugal:

a) Category A: Light passenger motor vehicles and light motor vehicles for mixed purposes with gross weight not exceeding 2,500 kg registered from 1981 until the date of entry into force of this Code;

b) Category B: Passenger motor vehicles referred to in subparagraphs a) and d) of no. 1 of Article 2 of the Motor Vehicle Tax Code and light motor vehicles for mixed purposes with gross weight not exceeding 2,500 kg, registered on a date later than the date of entry into force of this Code;

c) Category C: Goods motor vehicles and motor vehicles for mixed purposes with gross weight exceeding 2,500 kg, dedicated to the private transport of goods, to transport on own account, or to rental without driver that has those purposes;

d) Category D: Goods motor vehicles and motor vehicles for mixed purposes with gross weight exceeding 2,500 kg, dedicated to public transport of goods, to transport on behalf of others, or to rental without driver that has those purposes;

e) Category E: Motorcycles, mopeds, tricycles and quadricycles, as these vehicles are defined by the Road Code, registered from 1992; (Amended by Article 68 of Law no. 67-A/2007 of 31 December)

f) Category F: Pleasure vessels for private use with engine power equal to or exceeding 20 kW, registered from 1986;

g) Category G: Aircraft for private use."

With respect to the taxable base, Article 7 of the IUC Code provides as follows:

"1 — The Single Vehicle Circulation Tax has a specific nature, being its taxable base constituted by the following elements:

a) As regards vehicles of categories A, engine capacity, voltage, age of registration and fuel;

b) As regards vehicles of category B, engine capacity and the level of carbon dioxide (CO2) emission relating to the combined test cycle shown in the certificate of conformity or, if this does not exist, from actual measurement carried out in an authorized technical center in accordance with the provisions for the calculation of motor vehicle tax;

c) … d) … e) … f) … g)…"

In terms of rates, Article 9 establishes the rates to be applied to vehicles of category A, while Article 10 fixes the rates to be applied to vehicles of category B.

With respect to the rates applicable to category A, they are structured by engine capacity brackets, also differentiated by brackets depending on whether the vehicles are powered by petrol or diesel.

In addition to engine capacity, the tax also takes into account the age of the vehicle, on the basis of the registration year, structured in three brackets, that is, vehicles from 1981 to 1989, from 1990 to 1995 and after 1995.

Article 10 of the IUC Code establishes the rates to be applied to vehicles of category B having as reference four brackets of engine capacity and four brackets of CO2, applied indiscriminately depending on the fuel used, in parameters that have remained constant throughout the respective period of application.

In determining the total value of IUC, coefficients to be fixed annually should be multiplied to the amount collected from the table mentioned in Article 10, depending on the year of registration of the vehicle in national territory, as amended by Law no. 7-A/2016, of 30 March.

In CAAD Decision no. 243/2016-T, of 12 January 2017, which we followed in part, the legal basis under discussion is interpreted, attending to the various elements of interpretation, in the following terms:

"42. Law no. 22-A/2007, of 29 June, in approving the IUC Code simultaneously proceeded to the repeal, in addition to others, of Decree-Law no. 143/78, of 12 June, a decree which had created a new "Regulation of Motor Vehicle Tax", later Motor Municipal Vehicle Tax, applicable to light passenger motor vehicles and motorcycles.

This Decree-Law no. 143/78, provided in its respective Article 8 that "The age of vehicles, initially registered or recorded in Macao, in the former Portuguese colonies or abroad and which only subsequently receive registration or recording on the continent or in the Autonomous Regions of the Azores and Madeira, may be determined by the date of initial registration or recording provided the necessary proof is made through the corresponding registration document or registration title, or failing that, of a sufficient document", a provision which always remained in force over time.

1. It was a rule that had been carried over from Decree-Law no. 782/74, of 31 December, which to safeguard the question of counting the age of vehicles in the context of the application of what was then called motor vehicle tax, created by Decree-Law no. 599/72, of 30 December, provided in its respective Article 8 that "the age of used vehicles, initially registered or recorded overseas or abroad and which only subsequently receive registration or recording on the continent and adjacent islands, may be determined by the date of initial registration or recording if proof of this formality is made through the corresponding registration document or registration title, or failing that another sufficient document".

2. The circumstances of its publication were related to decolonization.

In fact, thousands of people began to come to Portugal from the former colonies and, in many cases, in addition to their luggage, they brought with them the vehicles they owned in those territories, which had local registrations. Also citizens who in the years prior to 1974 had emigrated from Portugal to other countries, for reasons of improvement in living conditions or simply political reasons, saw an opportunity to come and establish themselves in Portugal and decided to return, bringing with them, in many cases, the vehicles they owned in the host countries.

It was necessary to regularize these vehicles, and therefore, for tax purposes, it was necessary that the age of the vehicles they already possessed in the countries from which they came be recognized, under penalty of being unjustly taxed as if they were new vehicles.

This was the purpose of the publication of the said rule which, however, would endure and have special applicability from the elimination of restrictions on the entry of used vehicles through adherence to the European Economic Community, placing in parity of situation with respect to counting of age, both vehicles admitted for the first time in Portugal and vehicles initially registered in another MS.

1. Before the publication of Law no. 22-A/2007, there was a process of maturation of automotive taxation quite broad.

In fact, there had previously been legislative attempts to carry out its reform, as it was recognized, both from the side of Motor Vehicle Tax (IA), as from the side of Motor Municipal Vehicle Tax (IMV), that there was an imbalance in tax burdens, aggravated by the fact that the foundations of each of the taxes were proving increasingly negative for the functioning of the economy, which, however, came to nothing. It so happened that in the years preceding the approval of the said law, there was strong awareness of environmental issues, not only at community level, but especially at national level.

Therefore, the reform undertaken in automotive taxation, by inserting environmental elements in the fixing of taxes, was practically a normal and unsurprising process, since, regardless of the governments, it had already been constituting a legislative priority, in which the systematic extensions of fiscal incentive for scrapping of end-of-life vehicles were included, in accordance with budgetary laws from 2001 to 2007.

1. The impetus for changes in automotive taxation was given by Joint Dispatch no. …/2006, of 27 March 2006, (2nd series), in which a Working Group (WG) was created for the reform of automotive taxation.

In the guidelines then defined, there was consideration of the replacement of the then IA by a taxation model that would transfer part of the tax burden to the circulation phase, based on two taxes, one with characteristics similar to the IA, and the other with the institution of transition periods that would minimize any tax revenue losses, and assurance of the maintenance of the level of tax revenues that were then generated from the IA, the incidence of VAT on the IA, as well as from the IMV.

With respect specifically to the circulation tax, which would come to be called IUC, the guidelines concerned the method of calculation of the circulation tax, which should take into account the category of the vehicle, engine capacity and specific emissions of CO2 or other pollutant emissions contained in the technical approval, and it was further determined "Provide that the new system be applicable only to vehicles that are introduced into consumption within the scope of its application." – no. 4.1, subparagraph e), of the said dispatch.

1. As Francesco Ferrara states, the preparatory works of the law can clarify for us the ideas and spirit of the proponents of the law and are valid as support, when it can be demonstrated that such ideas and principles were incorporated in the law, and should otherwise be considered moments foreign to the law and without legal influence.

Now, as seen above, the WG for reform of automotive taxation, which prepared the said legislation, acted in accordance with precise instructions from the members of the government directly responsible for these matters, covered by principles and guidelines, and therefore the appearance of these same principles and guidelines in the legislative text has a reinforced interpretative value, which is not confused with the "chaotic medley of opposing theories in which every interpreter can find comfortable confirmation for their opinions", which Ferrara himself points out to assert his position of reserve with respect to preparatory works, in which the legislative text often results from a negotiation process that contains conflicting interests.

(...)

1. In fact, the law does not even have a preamble, but the motivations of the legislator can be better understood through analysis of the statement of reasons that accompanied the sending of Bill no. 118/X to the National Assembly. In it, it is written that "the first step in implementing such a reform was materialized directly in the State Budget Law for the year 2006, through which motor vehicle tax, while maintaining its essential features, began to include in its taxable base a component of carbon dioxide that represents about 10% of the overall tax revenue…".

"The second underlying line in the reform of automobile taxation now being undertaken is the displacement of part of the tax burden from the moment of acquisition to the circulation phase. While the tax burden that lies in Portugal on the automobile is not exceptionally high when compared with that in other countries, it is exceptionally relevant the weight it assumes at the time of purchase, when compared with what it presents over the useful life of the taxed vehicles. As a result, there is an increase in the price of automobiles in the Portuguese market, the propensity for the purchase of vehicles partially exempt from tax or for the purchase of used vehicles originally registered in other Member States of the European Union, already at the end of life and with outdated environmental equipment.

As the tax burden is currently concentrated in the phase of introduction into consumption, its displacement to a new Single Vehicle Circulation Tax will allow a gradual reduction in retail prices, with the inherent renewal of the national vehicle fleet.".

Further on, the said statement of reasons, in the introductory text of the IUC Code, clarifies: "In its current form, the Motor Municipal Vehicle Tax is a product of the 1970s, having been conceived at a time when the Portuguese vehicle fleet was still small and automobile ownership was seen still as an outward sign of wealth. In the Motor Municipal Vehicle Tax, concerns of a social nature stand out, to which time has robbed the foundation, while at the same time environmental and energy policy concerns that are today considered essential to these tax figures are absent. Examples of this are the reduced tax rates for automobiles powered by diesel or the progressive reduction of the tax according to the age of the taxable vehicles, solutions originally conceived as a form of protection for less well-off taxpayers, but which stimulate and prolong the use of less efficient and more polluting vehicles. Notwithstanding corrective measures which in recent years have been introduced in the Motor Municipal Vehicle Tax, it was important, with all urgency, to reformulate this tax subordinating it to the concerns proper to the times in which we live.

In substance, and for reasons that relate to its own characteristics, to the requirements of community law and to national priorities in the field of environmental, energy and transport policy, a differentiated discipline of different types of vehicles is maintained, and for this purpose categories are set that have their roots in the legislation hitherto in force. As a structuring and unifying element of these categories, the principle of equivalence is enshrined, thereby making clear that the tax, as a whole, is subordinated to the idea that taxpayers should be taxed in proportion to the cost they cause to the environment and the road network, this being the reason for the existence of this tax figure.".

And further on, it is written: "It is recognized, however, that the change in the taxable event in the new circulation tax, which becomes the ownership of the vehicle, is capable of, by itself, originating, in the short term, substantial difficulties in implementing the reform, resulting from the numerous failures and delays in regularizing records of acquisition or transmission of vehicles or in the cancellation of their respective registrations, in the event of scrapping that has meanwhile occurred.

Therefore, it was decided to defer the full production of the effects of the Code, with respect to the existing vehicle fleet, to the beginning of 2008, with the Government committing itself to advancing, by then, simplified and less burdensome mechanisms that allow regularization of vehicle ownership records and guarantee the reliability necessary for future assessment of the new tax.

The new model, however, is immediately applicable in relation to light passenger motor vehicles that are subject to first registration in national territory after the date of entry into force of the Code. For these, a taxable base of mixed nature is adopted, which reproduces that which now characterizes motor vehicle tax, while also integrating engine capacity and the level of carbon dioxide emission, with which EU proposals on the matter are anticipated. Environmental logic is thus infused into this tax from which it had been lacking, putting an end to a taxation system that fed the maintenance in circulation of end-of-life vehicles and the conversion to diesel of the national vehicle fleet, with serious harm to our environment and energy policy.

With respect to the vehicle fleet in circulation hitherto subject to Motor Municipal Vehicle Tax, and for substantial reasons of practicability and rationality, it is defined that, from January 2008 onwards, the taxable base will be reduced, by the exclusion of older vehicles, that is, registered until 1980, but taxation will increase, by the observance of the user-pays principle, for older and more polluting vehicles, being maintained, at current levels, for the remaining vehicles, so as to ensure that all of these support taxation lower in relation to that which will be imposed on vehicles registered from 1 July 2007, resulting in a slight increase in this revenue exclusively belonging to the municipalities." (underlined in original).

1. The Arbitral Tribunal considers that the legislator, in approving Law no. 22-A/2007, intended to create a break with the automobile taxation systems that had existed until then, and intended to create tax bases founded on innovative principles which, without affecting the overall revenue normally received by the State, would embody the environmental concerns that had been imposed since the approval of the Kyoto Protocol, of which the principle of equivalence was the catalyst.

2. However, with respect to the circulation tax, it intended to safeguard the essential part of the tax regime that had previously been in force, given the situation of relative injustice that would be generated by an equivalence of taxation with vehicles registered from the application of the new tax.

3. Equally, practical reasons related to the information contained in the certificates of conformity issued by vehicle manufacturers regarding CO2 emissions will also have advised the legislator to take the position of leaving the previous regime untouched, since a very substantial part of the vehicle fleet was not prepared to be evaluated in terms of pollutant emissions. Indeed, only from January 1998 onwards were series-produced passenger motor vehicles obligatorily subject to EC approval, a situation only later extended to motorcycles, in June 2003.

4. It was unthinkable to order measurements on such vehicles in inspection centers, not only because of the lack of accuracy that could accompany them, since they would not be carried out under conditions of absolute protection, but also because of the costs they would entail for the owners, in vehicles, sometimes already of reduced value.

5. In light of the dispatch that instituted the WG that elaborated the legislative projects, the reference that the new system be applicable only to vehicles that are introduced into consumption within the scope of its application, seems clarifying, given that the concept of introduction into consumption for individuals, as is the case with the Claimants, is considered verified at the time of presentation of the customs declaration for vehicles, as it results from Article 6, no. 1, subparagraph b) of the Motor Vehicle Tax Code.

6. On the other hand, the statement of reasons itself reveals the reasons why it was decided to defer the full production of the effects of the Code, with respect to the existing vehicle fleet, to the beginning of 2008, which were related to the obsolescence of vehicle ownership records.

The new model was, however, immediately applicable in relation to light passenger motor vehicles that were subject to first registration in national territory after the date of entry into force of the Code, adopting for these vehicles a taxable base of mixed nature, which reproduced that which already characterized motor vehicle tax, in which engine capacity and the level of carbon dioxide emissions coexisted.

1. Thus, in addition to intending to accommodate the community proposals that were on the agenda in the matter, it intended to infuse the tax with environmental logic, putting an end to a taxation system that fed the maintenance in circulation of end-of-life vehicles and the conversion to diesel of the national vehicle fleet, with grave harm to our environment and energy policy.

2. Oliveira Ascensão states that the teleological element is one of the elements "to be considered in interpretation, what we can call the social justification of the law. The proposed purpose is taken into account so that the resulting rule be adapted to it. All law is purposeful. Every source exists to achieve social ends or objectives, hence, until the purpose of a law is not discovered, we are not in a position to proceed to its interpretation". The joint dispatch that created the WG expressed the objective that was intended, that is, "in essence, to counter the excessive taxation of motor vehicles at the moment of their sale and to promote, in the new taxation model, environmental protection and rationalization of energy consumption."

3. The diagnosis of the excessive taxation of vehicles at the time of sale was sufficiently clear.

In a report drawn up by the EC, on 24.03.97, entitled "Vehicle Taxation in the European Union 1997", and which updated another drawn up in 1995, in Annex D, a table was presented which revealed that registration rates in 1995, thus being referred to as IA, represented in Portugal 0.87% of Gross Domestic Product (GDP), surpassed only by Denmark with 1.54%.

In a Europe of 15 countries, 9 of them had percentages below 0.20% of GDP. By contrast, in terms of circulation tax, Portugal had one of the lowest percentages, of 0.12% of GDP, only surpassed by Luxembourg with 0.07% and by Italy with 0.08%. Eleven of the countries considered had percentages exceeding 0.20%. In terms of percentage of total revenues collected in each country, in terms of registration tax, Portugal was also the second country with the highest percentage of revenues, of 2.40%, immediately after Denmark with 3.01%, with nine countries having percentages below 1.00, while in circulation tax the revenue from the IMV was the third lowest, of 0.34%, only surpassed by Luxembourg with 0.16% and by Italy with 0.19%.

Another EC study, covering 25 countries, for the period 1995 to 2002, confirmed this reality, both in terms of the percentage weight of registration taxes in the total taxation of countries and of annual circulation taxes. These data are revealing of the manner in which automotive taxation was imbalanced, which subsisted, in a purely financial logic, due to the simple manner and without major costs in which the IA was collected and contributed to State Budget revenues.

1. One of the consequences of this situation was the fact that motor vehicles, by virtue of bearing a high tax burden already at the moment of introduction into consumption, were marketed at high prices, which ended up limiting demand in the sense of acquiring low engine capacity vehicles and lower ranges, since they bore a lower IA.

In the European context, the domestic market for new vehicles thus appeared distorted, as it suffered near-direct competition from vehicles from other countries which, despite already having some years of use, presented themselves as highly competitive, given that in their sale price as new they had not borne such high tax burdens.

On the other hand, in terms of circulation tax, in addition to low annual tax rates, with the passage of time, and without any change in the bases on which the tax was grounded, it increasingly favored diesel vehicles to the detriment of petrol vehicles, and encouraged the retention of older vehicles, by nature more polluting, given the minimal level of tax to which they were subject.

1. In about ten years, the diesel vehicle market had grown, from about 25% of total vehicles marketed to practically 70%, without any corrective measures being adopted for the rates, as they were very favorable when compared with those applied to petrol vehicles. The reason that had justified the benefit of rates for diesel-powered vehicles, of being vehicles essentially used in commercial activity, and thus a reduction in tax would allow vehicles dedicated to the distribution of foodstuffs and other goods not to burden sale prices to the consumer so much, no longer made sense, given the generalization that had occurred among motorists, who came to acquire vehicles with such characteristics for use in their daily trips, with no commercial purpose whatsoever.

Moreover, at that time, the situation of energy supply advised against the maintenance of such situations, since Portugal had surpluses of petrol but in terms of diesel was an importing country, and therefore the balance of trade suffered negatively from such situation.

1. The IMV itself was an anachronistic and obsolete tax, in need of profound reform.

In 2002, a reference author such as Dr. Sérgio Vasques, portrayed the IMV in the following terms: "From a formal point of view, the regime of the Motor Municipal Vehicle Tax and of the Circulation and Heavy Vehicle Tax also appears complex, incoherent, making use of poor and imprecise legislative technique, populated by overlapping and contradictory provisions.

In the case of the Motor Municipal Vehicle Tax, once the 1978 Regulation was approved, the legislator slowly abandoned it, allowing the passage of time and sporadic amendments to rob it of the little coherence and sense it had. False cross-references, outdated concepts and terminology, extravagant penalty technique – all of them are witnesses to the legislative fate that generally befalls poor taxes".

1. During this period, a concern and a culture based on environmental values began to develop at the level of the EU, focused on the concern of meeting obligations under the Kyoto Protocol and implementing the community strategy defined in 1996 for the reduction of CO2 emissions for passenger vehicles and the lowering of average fuel consumption.

Thus, one of the lines of force of a draft directive submitted by the EC to the Council, in July 2005, on taxation of passenger vehicles, was precisely to consider in annual circulation taxes, the criterion of CO2 emissions based on grams per kilometer. In the said proposal it was even pointed out that by the end of 2008, 25% of revenue should come from the application of the said criterion, which should be increased to 50% by the end of 2010.

1. It is in these circumstances that the national legislator projects and begins to implement reform of automotive taxation.

To counter the excessive taxation of motor vehicles at the moment of their sale and to promote, in the new taxation model, environmental protection and rationalization of energy consumption, the legislator in the 2008 Budget, with effect from 1 July, proceeded to a reduction of the ISV that was usually paid at the moment of introduction into consumption, of about 10% and which, with the publication of Law no. 67/A/2007, of 31 December, which approved the budget for 2008, was increased by another 10%, and on the other hand, proceeded to increase the rates applicable in the context of IUC, having established an increase of 5% for 2008, 10% for 2009, 15% for 2010, having in subsequent years maintained taxation unchanged.

Together with these increases, the legislator established in Article 8, no. 3 of the IUC Code, as a general rule for rates, that "The rates contained in this Code must be updated every year according to the consumer price index", a provision relatively innocuous since future legislator is always sovereign and will not let itself be conditioned by mere "wishes", such a provision not functioning by mere automatism.

1. The reform of automotive taxation was thus based on a kind of system of communicating vessels, in which the amounts corresponding to reductions in tax in the context of ISV were being successively transferred to an increase in taxation in the context of IUC, according to criteria that took into account only the engine capacity of the vehicles and the CO2 emissions of each vehicle, scaled in terms of taxing more heavily vehicles recognizedly of greater engine capacity and with greater polluting capacity.

One of the principles that should guide it was fiscal neutrality, in the sense that its implementation should result in neither an increase nor a reduction in revenue normally collected, without prejudice to the same being able to increase or be reduced as a result of the functioning of the economy, that is, more or fewer vehicle sales will always represent variations that should not be considered as putting into question the neutrality of the tax.

1. This trend, of adoption of CO2 and other pollutants in the structuring of the rates of the respective registration tax, became consolidated, and the vast majority of countries now has at the levels of carbon dioxide emissions of vehicles one of the differentiating elements of taxation, penalizing more heavily vehicles with higher levels of emissions, and it should be noted that in the case of Ireland, Spain, France and Latvia this element is even unique and exclusive.

Engine capacity, to which Portugal continues to resort, has lost much of its importance, although it continues to be applied in countries such as Belgium, Hungary, Poland, Romania and Cyprus, alongside other factors.

With respect to circulation tax, Luxembourg is governed exclusively by CO2 emissions; already in countries such as Greece, Ireland, Cyprus and the United Kingdom, similar to Portugal, CO2 emissions combine with engine capacity.

In Finland there is the particularity of CO2 combining with vehicle weight, but the tax being fixed according to the days of potential use, while in Austria, Bulgaria, Hungary and Italy the unit of taxation is the Kilowatt.

1. The cornerstone of the IUC was the adoption of the polluter-pays principle, expressed in the principle of equivalence, interpreted in the sense of taxing contributors in proportion to the cost to the environment and road network that they cause, in implementation of a general rule of tax equality.

However, and also having as a backdrop a general rule of tax equality, in the sense of generically the tax burdens that fell on vehicles before and after the publication of Law no. 22-A/2007 being substantially equivalent, with application of the said principle only for the future, that is for all vehicles that would come to be introduced into consumption, read registered from 1 July 2007.

This was a legislative option, based on the intention to carry out an effective reform of automotive taxation, grounded in environmental and road policy motivations.

1. Since 2001, through successive measures to support the scrapping of end-of-life vehicles, the Portuguese authorities had been proceeding to the cleansing of the vehicle fleet, promoting the elimination of the oldest and most polluting automobiles, an objective that would be frustrated if it continued to offer automobiles coming from the other 26 MS generous taxation in terms of circulation tax, combined with a reduction in registration tax that was not offered to the remainder of the national vehicle fleet. Grounded in the said reform in the polluter-pays principle, it was understood by the legislator that it would be incomprehensible that, for the future, such vehicles benefit from privileged taxation, and therefore it was deemed necessary, even to affirm marked progressivity of the tax for the most polluting and oldest vehicles, by way of more heavily taxed brackets.

2. All taxpayers who introduced vehicles into consumption before 1 July 2007 had been subject to high IA taxation which, however, was subsequently compensated by the application of rules of taxation in IMV quite low.

With the adoption of the new rules, in which taxation in registration/recording tax was reduced, it was intended that taxation in circulation tax be increased substantially in the same proportion as the reduction in tax, so as to maintain a certain fiscal neutrality.

Underlying these changes was the concern of the legislator not to make the reform an instrument of collecting greater revenue for the State but also should the same not represent a diminution of the revenues normally collected.

These changes were effected by way of the rates and the criteria that came to be adopted, in which carbon dioxide assumed particular prominence, giving expression in both taxes to the programmatic principle of equivalence.

1. However, intending to maintain a certain global fiscal justice, the legislator had the need to make some choices.

One of them was that with respect to the existing vehicle fleet not to proceed to any change of the legal framework that had always been in force. For this, it will have considered that over the years, the taxpayers subject to the IMV had been generically overburdened in terms of IA at the moment of introduction into consumption, and therefore it would not seem fair that, in addition to the overburden to which they had been subject, they should have to bear the increases that would result from the adoption of the new rules for calculating circulation tax.

Without deviating from a notion of balance, the legislator will have intended to place on the same plane of equality of effort of overall tax capacity, both the owners of vehicles that registered them before 1 July 2007 and those who registered them after the said date.

Therefore, it maintained with respect to those taxpayers the same taxation criteria, based on engine capacity and the age of the vehicles, with the maintenance of the same brackets and tax rates.

1. Although the IUC remained subordinated to the principle of equivalence, seeking to tax contributors in proportion to the cost to the environment and road network that they cause, in implementation of a general rule of tax equality, its reception in the economy of the decree only projected its effects for the future, given that it ignored the environmental and road costs of the existing vehicle fleet, having, in line with the understanding that had already prevailed, gone so far as to maintain the exclusion of taxation of vehicles before 1981. In fact, the vast majority of these last vehicles, will be those which in their conception and manufacture least took into account environmental concerns, as this was a matter that at the time had no currency whatsoever, in a questionable choice of application of the principle of equality, but what happened is that the legislator intended to keep untouched the entire regime that had previously prevailed.

2. If it is true that on an ideal level this will have been achieved, given that to the reductions of rates in the context of ISV corresponded increases substantially similar in the context of IUC, the truth is, that, with the introduction of new criteria and with the focus on taxing in a more heavily manner the more polluting and oldest vehicles, the tax effort for this global equality was not uniformly distributed, that is, on the individual level there is an objective inequality in the taxation of vehicles, resulting from marked progressivity in relation to the average pattern of vehicle taxation.

There was a clear intention of the legislator, on the one hand, to penalize fiscally vehicles admitted with greater age, and consequently closer to the end of useful life, and on the other to give strong expression to the polluter-pays principle in terms of, by way of an increase in taxation, restricting the entry of vehicles whose CO2 emissions exceed in a meaningful manner the levels considered reasonable, in light of the continuous technical progress that continues to be recorded.

(...)

1. Therefore, and giving answer to the question raised in subparagraph a), of no. 33, taking into account the logical-historical and systematic elements, as well as the ratio of the provision, it is the conviction of the Arbitral Tribunal that the legislator in the matter of objective scope of the IUC, intended to make an absolute distinction between the existing vehicle fleet and the vehicle fleet to be formed from the entry into force of the Code, subjecting them to different tax rules.

The legislator, in classifying in category B vehicles registered on a date later than the date of entry into force of the Code, was referring exclusively to the date of first registration in national territory, of any and all vehicles, new or used, disregarding and ignoring the fact that, in some cases, vehicles had already had a prior registration given in the countries of origin.

In category A were classified vehicles registered from 1981 until the date of entry into force of the IUC Code, which refer to the existing vehicle fleet in Portugal, on this last date, 1 July 2007, and which remained relatively untouched with respect to the taxation to which they had hitherto been subject.

1. This distinction was based on the broad margin of freedom of the legislator in the exercise of its normative activity, in light of a convincing motivation, and therefore it is not recognized that there exists a defect of violation of law, embodied in an incorrect interpretation of Article 2, no. 1 of the IUC Code by the Respondent, nor does it understand that, given the reasons that motivated it, the constitutional principle of equality is violated."

In sum: based on Article 9 of the CC, it is considered that all elements of interpretation (literal, historical and systematic) point to the fact that Article 2, no. 1, of the IUC Code, in the wording applicable as at the date of the taxable events, in classifying in category B vehicles registered on a date later than the date of entry into force of the Code, was referring exclusively to the date of first registration in national territory, of any and all vehicles, new or used, not taking into consideration the situation of vehicles that may have already had a prior registration given in other countries of the European Union.

Compatibility with Community Law of Article 2, no. 1 of the IUC Code

The Claimant contends that the interpretation given to the rule in question here, and which in essence decided that the vehicle ... should be taxed as a category B vehicle, is incompatible with community law, specifically with Article 110 of the Treaty on the Functioning of the European Union (TFEU), in that it imposes a tax increase in the context of IUC on residents outside national territory, when legalizing the vehicle in this country, despite the same being already registered in a Member State of the EU, well before the legislation applied to the concrete case came into force, and burdening exponentially, on the basis of nationality, a good similar to another national one, the latter excepted, and therefore relieved, by the same legislation. Consequently, the Claimant contends that this understanding constitutes differentiated tax treatment on the basis of the nationality of the good, which constitutes a violation of law.

Having analyzed the rules in question, in particular Article 2, no. 1 a) and b) of the IUC Code and Article 110 of the TFEU, this Tribunal had doubts as to the interpretation of the said provisions taken together. Bearing in mind that there rests upon the legislator, as creator of rules, but also upon the interpreter and upon the judge, as overseers of the proper application of the Law, the responsibility to scrutinize carefully the admissibility of national rules and, among them, tax rules, so that the Member States pursue the objectives listed in the TFEU, a request was made for a preliminary reference, and in the meantime the judgment of 17 April 2018, in case C-640/17, was delivered, which came to clarify the same question referred by this Tribunal, in the following terms:

"12. It must be recalled that Article 110 of the TFEU is aimed at ensuring the free movement of goods between Member States, in normal conditions of competition. This article seeks to eliminate any form of protection that may result from the application of internal tax provisions that discriminate against products from other Member States (Judgment of 9 June 2016, Budisan, C-586/14, EU:C2016, no. 19 and case-law cited).

1. For this purpose, the first paragraph of Article 110 of the TFEU prohibits Member States from imposing internal taxes on the products of other Member States that are higher than those imposed on similar national products (Judgment of 9 June 2016, Budisan, C-586/14, EU:C2016:421, no. 20).

2. In this regard, according to consistent case-law, a taxation system can only be considered compatible with Article 110 of the TFEU if it is demonstrated that it is organized in such a way as to exclude, in all instances, that imported products are taxed more heavily than national products, and therefore that it does not entail, in any case, discriminatory effects (Judgments of 19 March 2009, Commission/Finland, C-10/08, not reported, EU:C:2009:171, no. 24, and of 19 December 2013, X, C-437/12, EU:C:2013:857, no. 28).

3. On the other hand, the Court has stated that, in the matter of taxation of imported used motor vehicles, Article 110 of the TFEU seeks to ensure the perfect neutrality of internal tax provisions with respect to competition between products that are already in the national market and imported products (Judgments of 17 July 2008, Kraweczynski, C-426/07, EU:C:2008:434, no. 31, and of 3 June 2010, Kalinchev, C-2/09, EU:C2010:312, no. 31).

4. Now, motor vehicles present in the market of a Member State are national products of that Member State, within the meaning of Article 110 of the TFEU. When such products are sold in the market for used vehicles of that Member State, they must be considered as products analogous to imported used vehicles of the same type, with the same characteristics and with the same wear. In fact, used vehicles purchased in the market of the said Member State and those purchased, for import and entry into circulation in the same, in other Member States constitute competing products (Judgments of 7 April 2011, Tatu, C-402/09, EU:C:2011:219, no. 55, and of 7 July 2011, Nisipeanu, C-263/10, not reported, EU:C:2011:466, no. 24).

5. It follows that Article 110 of the TFEU obliges each Member State to choose and structure the taxes that apply to motor vehicles in such a way as not to have the effect of favoring the sale of domestic used vehicles and thus discouraging the importation of similar used vehicles (Judgments of 7 April 2011, Tatu, C-402/09, EU:C:2011:219, no. 56, and of 7 July 2011, Nisipeanu, C-263/10, not reported, EU:C:2011:466, no. 25).

6. In the case in point, it follows from the order for reference that the Single Vehicle Circulation Tax in question in the main proceedings is charged annually on, in particular, any light passenger motor vehicle registered or recorded in Portugal, with the amount varying, in particular, depending on the date of first registration of the vehicle in question in Portugal, as well as to vehicles already present in the national market.

7. However, light passenger motor vehicles, such as the imported vehicle in question in the main proceedings, are exempt from the Single Vehicle Circulation Tax if they were registered in Portugal before 1981, whereas similar vehicles registered in another Member State before 1981 are subject to the said tax, because they were registered for the first time in Portugal after that date.

8. On the other hand, those same vehicles are included in category A when they were registered for the first time in Portugal between 1981 and 1 July 2007, the date of entry into force of the IUC Code, and in category B when they were registered for the first time in Portugal after 1 July 2007. By contrast, similar vehicles that have been imported from another Member State and registered in Portugal after 1 July 2007 are included in category B, even where they were registered for the first time in another Member State before that date. Imported vehicles for Portugal after 1 July 2007 and registered for the first time in another Member State before 1 July 2007 are thus subject to taxation that is systematically higher than that to which similar non-imported vehicles registered for the first time in Portugal before that same date are subject.

9. Consequently, the national legislation in question in the main proceedings applies to used vehicles imported from other Member States after 1 July 2007 taxation that is systematically higher than that to which similar non-imported vehicles registered for the first time in Portugal before that same date are subject.

10. Having regard to the considerations set out above, the answer to the main question must be that Article 110 of the TFEU must be interpreted as precluding the legislation of a Member State by virtue of which the Single Vehicle Circulation Tax which it establishes is charged on light passenger motor vehicles registered or recorded in that Member State without taking into account the date of first registration of a vehicle, when that registration took place in another Member State, with the result that taxation of vehicles imported from another Member State is higher than that of similar non-imported vehicles."

From what was decided by the CJEU, it is concluded that the increased taxation of used vehicles imported from other Member States after 1 July 2007, resulting from the regulations provided for in Article 2, no. 1 a) and b) of the IUC Code, in that it does not take into account the date of first registration of imported vehicles in other Member States, has the effect of favoring the sale of used domestic vehicles and discouraging the importation of similar used vehicles.

Given the foregoing, in view of the supremacy of European Union law over internal national rules, when fundamental principles of a democratic rule of law are not at issue, it is considered that the IUC assessment acts impugned in the case file are illegal by virtue of violation of law. In consequence, the dismissal of the hierarchical appeal presented and the underlying IUC assessment acts must be annulled.

DECISION

By these terms, this Arbitral Tribunal decides:

• To judge the claim well-founded, as established, and consequently to declare illegal the dismissal of the hierarchical appeal presented and the Single Vehicle Circulation Tax assessment acts identified in the case file, relating to the years 2016 and 2017, in the total amount of €418.90;

• To condemn the Respondent in the costs of the present proceedings, as the unsuccessful party.

VALUE OF THE CASE

In accordance with the provisions of Article 306, no. 2 of the Civil Procedure Code, Article 97-A of the CPPT and Article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the claim is fixed at €418.90.

COSTS

In accordance with the provisions of Articles 12, no. 2 and 22, no. 4, both of the RJAT, and Article 4, no. 4 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the arbitration fee is fixed at €306, in accordance with Table I of the said Regulation, to be borne by the Respondent, given the full success of the claim.

Lisbon, 6 June 2018

The Arbitrator

Magda Feliciano

(The text of this decision was elaborated by computer, in accordance with Article 131, no. 5, of the Civil Procedure Code, applicable by reference from Article 29, no. 1, subparagraph e) of Decree-Law no. 10/2011, of 20 January (RJAT), being its drafting governed by the spelling prior to the 1990 Orthographic Agreement.)