IUC Subjective Incidence on Vehicle Rental Companies: CAAD Arbitral Decision 579/2015-T

ARBITRAL DECISION

Arbitrator Raquel Franco, appointed by the Ethics Council of the Administrative Arbitration Center (CAAD) to form the sole arbitral tribunal constituted on 17 November 2015, decides as follows:

I. REPORT

1. On 02.09.2015, the company "A..., LDA", NIPC..., filed an application for constitution of a sole arbitral tribunal, pursuant to and for the purposes of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter, "RJAT"), with the Tax and Customs Authority (AT) being the respondent authority.

2. The application for constitution of the Arbitral Tribunal was accepted by the President of CAAD and automatically notified to the AT on 21.09.2015.

3. Pursuant to the provisions of subsection (a) of Article 6, paragraph 2, and subsection (b) of Article 11, paragraph 1, of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council appointed as arbitrator of the sole arbitral tribunal the present signatory, who communicated acceptance of the respective appointment within the applicable time period.

4. On 04.11.2015, the parties were duly notified of this appointment and did not manifest any intention to refuse the appointment of the arbitrator pursuant to the combined provisions of Article 11, paragraph 1, subsections (a) and (b) of the RJAT and Articles 6 and 7 of the Code of Ethics.

5. Thus, pursuant to the provisions of subsection (c) of Article 11, paragraph 1 of Decree-Law No. 10/2011, of 20 January, as amended by Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 17.11.2015.

6. In the present arbitral proceedings, the Claimant seeks to have the Arbitral Tribunal declare the illegality of the acts of official assessment of the Single Motor Tax (IUC) for the tax year 2013 (attached as document 1 to the request for arbitral decision), the total amount of which amounts to €159.43 and, consequently, to order the restitution of the total amount of tax paid together with compensatory interest.

7. The Claimant bases its request, in summary, on the following terms:

• The Claimant is a commercial company engaged in the business of renting motor vehicles and providing related services.

• In the course of its business, the Claimant enters into vehicle rental contracts and, upon termination of the contract, proceeds on several occasions to sell the vehicles to customers.

• The following vehicles were subject to sale:

• Whenever it was within its reach, the Claimant delivered to the new owners the motor registration forms duly signed so that they could proceed to register the ownership in their name with the Motor Vehicle Registration Authority.

• The sales in question occurred before the date of the taxable event of the Single Motor Tax.

• As regards the vehicle ...-...-... with registration of December 2007 and in relation to which assessment No. 2013... was issued in the amount of €53.68, the same was subject to an accident during the term of the vehicle rental contract, having been deemed by the insurance company as a "total loss" and the respective "salvage" was transferred to it.

• Subsequently, the Claimant proceeded to deliver all the legal documentation necessary for cancellation of the vehicle registration with the competent road authorities, pursuant to the provisions of Article 41, paragraph 5, of Decree-Law No. 291/2007, of 21 August and Article 119, paragraph 8, of the Road Code.

• This situation also occurred on a date prior to the taxable event of the IUC for the year 2013.

• In 2015, the Claimant was notified of the IUC assessments identified above, in the total amount of €159.43.

• The Claimant proceeded to pay the assessed tax and respective compensatory interest.

• The Claimant understands that it is not a liable person for IUC in relation to the vehicles with the registration plates in question in any of the fiscal years in which the official assessments that are subject of the request for arbitral decision were incurred, notwithstanding appearing in the respective motor registration as such. In short, it bases this understanding on the fact that Article 3 of the CIUC establishes a rebuttable presumption that liable persons are the owners of the vehicles, considered as such those in whose names the vehicles are registered, and that this presumption can be rebutted through evidence intended to demonstrate that such ownership is transferred to the legal sphere of another person, to whom ownership was transferred, or the sale of the "salvage," or the "total loss" of the vehicle.

• In this regard, it invokes arbitral case law contained in the decisions rendered in arbitral proceedings Nos. 141/2014-T, 170/2013-T, 265/2013-T, 446/2014-T and 680/2014-T and case law of the judicial courts, highlighting the decision of the South Administrative Court of 19.03.2015, rendered in proceeding No. 08300/14.

7.B. In its Response, the AT invoked, briefly, the following:

• The legislator expressly and intentionally established that considered as such [as owners or in the situations provided for in paragraph 2, the persons enumerated therein] are the persons in whose names the same [the vehicles] are registered, inasmuch as this is the interpretation that preserves the unity of the legal-fiscal system.

• To understand that the legislator established here a presumption would unequivocally be to perform an interpretation against the law; it is, rather, a clear choice of legislative policy whose intention was that, for the purposes of IUC, those registered as such in the motor registry be considered owners.

• In the course of proceeding No. 210/13.0BEPNF, the Administrative and Fiscal Court of Penafiel accepted the position supported by the Respondent as explicitly set forth above.

• The presumption of motor vehicle ownership arises solely, directly and exclusively from the motor registry system itself, and not from tax legislation on motor vehicles which constitutes a collateral aspect of that system.

• Therefore, the rebuttal of the presumption of motor vehicle ownership necessarily must be directed to, or rather, against what appears in the motor registry itself, and not against the mere fiscal effect that derives from the motor registry information as, in the end, the Claimant seeks to do.

• The failure to update the registry, pursuant to the provisions of Article 42 of the Motor Vehicle Registry Regulation, shall be imputable to the legal sphere of the liable person of the IUC and not to the Portuguese State, as the active subject of this tax.

• The interpretation given by the Claimant translates into an obstruction and increase in the costs of the competencies assigned to the Respondent, with obvious prejudice to the interests of the Portuguese State.

• The argument presented by the Claimant that the liable person of the tax is the effective owner, independent of not appearing in the motor registry in that capacity, is wrong in light of a teleological interpretation of the regime established in the CIUC insofar as the legislator intended to create a tax based on taxation of the owner of the vehicle as it appears in the motor registry.

• As to the documents attached by the Claimant to rebut the presumption established in Article 3 of the CIUC, the AT understands that, as to document 3, it is an internal document that proves nothing regarding the non-ownership of the vehicles.

• As to document 2, the AT understands that this too is insufficient to prove the transfer of ownership alleged by the Claimant, citing in that regard recent case law emanating from CAAD (proceedings Nos. 63/2014-T, No. 150/2014-T and No. 220/2014-T).

• To that end, the AT understands that the unequivocal transfer of ownership both to the alleged buyers and to the insurance companies could have been evidenced by attaching a copy of the said official form for registration of motor vehicle ownership, as it is a document signed by the intervening parties.

• However, the Claimant did not attach copies of the said official form for registration of motor vehicle ownership when it could and should have done so, that is, in the application for the request for arbitral decision, and is now precluded from doing so at a later time.

• The AT further understands that it could have taken care of updating the motor registry pursuant to Article 5/1-a) of Decree-Law 54/75, of 12 February, and Article 118/4 of the Road Code, and that, having not ordered the cancellation of the registration plates of the vehicles in question here, it must be concluded that the Claimant did not proceed with the diligence required of it.

• Consequently, the Claimant should be condemned to pay the arbitral costs arising from the present request for arbitral decision, pursuant to Article 527/1 of the CPC ex vi Article 29/1-e) of the RJAT. Equally, the AT should not be held responsible for the payment of compensatory interest insofar as the legal requirements for its award are not satisfied.

III. PRELIMINARY DETERMINATION

1. The Tribunal is competent and is regularly constituted, pursuant to Articles 2, paragraph 1, subsection (a), 5 and 6, all of the RJAT.

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

3. The proceedings are not affected by defects that would invalidate it.

4. It is sought to jointly examine the legality of 114 IUC assessments, relating to the years 2009 to 2012. Thus, the requirements provided for in paragraph 1 of Article 3 of the RJAT and Article 104 of the CPPT are met, and joinder is permissible by virtue of the identity of the tax and the circumstance that the analysis of the tax acts in question depends on the examination of the same factual circumstances and the application of the same rules of law.

IV. FACTS

IV.1. Facts Established

Before proceeding to examine the issues, it is necessary to present the factual matters relevant to their understanding and decision, which, having examined the documentary evidence and the administrative file (PA) attached to the record and also taking into account the facts alleged, is established as follows:

1. The Claimant is a commercial company engaged in the business of renting motor vehicles and providing related services.

2. In the course of its business, the Claimant enters into vehicle rental contracts and, upon termination of the contract, proceeds on several occasions to sell the vehicles to customers.

3. The Claimant issued invoices for the sale of the following vehicles:

   I. On 17.04.2009, of the vehicle with registration plate ...-...-...;

   II. On 01.02.2007, of the vehicle with registration plate ...-...-... 2003;

   III. On 07.12.2009, of the vehicle with registration plate ...-...-....

4. The month and year of registration of vehicle ...-...-... are, respectively, December 2004.

5. The month and year of registration of vehicle ...-...-... are, respectively, December 2003.

6. The month and year of registration of vehicle ...-...-... are, respectively, December 2004.

7. The taxable event underlying assessment No. 2013..., relating to the vehicle with registration plate ...-...-..., occurred in the month of December 2013.

8. The taxable event of the tax underlying assessment No. 2013..., relating to the vehicle with registration plate ...-...-..., occurred in the month of December 2013.

9. The taxable event of the tax underlying assessment No. 2013..., relating to the vehicle with registration plate ...-...-..., occurred in the month of December 2013.

10. The vehicle with registration plate ...-...-... has registration of December 2007.

11. The taxable event of the tax underlying assessment No. 2013..., occurred in the month of December 2007.

12. On 29.05.2009, B... – Insurance Company, S.A., sent a communication to the Motor Vehicle Registration Authority regarding the vehicle with registration plate ...-...-..., pursuant to Article 14 of Decree-Law No. 44/2005, of 23 February.

13. On 29.05.2009, B... – Insurance Company, S.A., sent a communication to the Institute for Mobility and Land Transportation, I.P., regarding the vehicle with registration plate ...-...-..., pursuant to Article 14 of Decree-Law No. 44/2005, of 23 February.

14. In the communications referred to in the previous points, it was communicated that the vehicle in question had suffered an accident on 07.10.2008, that the cost of repair was more than 70% of the fair market value of the vehicle at the time of the loss, and that the indemnification was not intended for the actual repair of the vehicle.

15. Through the communications referred to in the previous points, their recipients were informed that the purchaser of the vehicle was C... Sole Proprietorship, Ltd., with the respective address and Tax ID number indicated.

16. In 2015, the Claimant was notified of the IUC assessments identified above, in the total amount of €159.43.

17. The Claimant proceeded to pay the assessed tax and respective compensatory interest.

IV.2. Facts Not Established

There are no facts with relevance to the decision that have been considered as not established.

V. THEMA DECIDENDUM

The substantive issue at issue in the present proceedings consists in determining whether the facts alleged by the Claimant constitute reasons for exclusion of subjective scope of tax and whether, as a consequence, it should be considered that the challenged acts are affected by error regarding the requirements of the taxable event, which would constitute a defect of violation of law that would warrant their annulment, with the corresponding legal consequences.

VI. LEGAL REASONING

The Claimant bases its request on facts from which it draws the conclusion that it was no longer the owner of the vehicles in question at the date when the taxable events giving rise to the challenged assessments occurred, thus seeking to prove that it is not a liable person for this tax.

1. As to the first set of situations:

The Claimant invokes the provisions of Article 3 of the CIUC, which, in its view, establishes an implicit presumption of vehicle ownership in favor of those in whose name the same are registered, a presumption that, by virtue of the application of the general rule provided for in Article 73 of the General Tax Law, is rebuttable through proof to the contrary. For the Respondent, on the other hand, Article 3 of the CIUC does not establish any implicit presumption, but a true irrebuttable legal fiction.

This issue has been abundantly addressed by arbitral case law over recent years (cf. the decisions rendered in proceedings 286/2013-T, of 2 May 2014, 293/2013-T, of 9 June 2014, 46/2014-T of 5 September, 246 and 247/2014 T, of 10 October, among others), and has also been the subject of the judgment of the Central Administrative Court of the South rendered on 19-03-2015, proceeding No. 08300/14. Following this court closely in the line of case law delineated in the proceedings indicated above, only its most significant features will be indicated here.

Thus, paragraph 1 of Article 3 of the CIUC establishes that:

"The liable persons for the tax are the owners of the vehicles, considered as such the natural or legal persons, of public or private law, in whose names the same are registered."

The question that is discussed with regard to this provision is the following: should it be understood that the legislator used the word "considered" as it could have used the word "presumed" or, on the contrary, that the legislator intended to establish a legal fiction, prohibiting the possibility of proving to the contrary?

Pursuant to the provisions of Article 349 of the Civil Code, "presumptions are the inferences that the law or the judge draws from a known fact to establish an unknown fact." On the other hand, paragraph 2 of Article 350 of the Civil Code clarifies that legal presumptions may be rebutted through proof to the contrary, except in cases where the law prohibits it.

With regard to presumptions of tax scope, Article 73 of the General Tax Law provides that these always admit proof to the contrary.

"Legal fictions" consist, differently, "in a legal process that considers a situation or a fact as distinct from reality in order to attribute legal consequences to it"[1].

Now, contrary to what the Respondent defends and as has already been recognized in the arbitral and judicial decisions referred to, the analysis of the literal element, as well as the historical and teleological elements present in the provision in question lead to the conclusion that the legislator did not intend to establish any legal fiction but only and solely a presumption, rebuttable through proof to the contrary pursuant to and for the purposes of the provisions of Article 73 of the General Tax Law. Being the provision of scope provided for in paragraph 1 of Article 3 of the CIUC a provision of tax scope, any other understanding would be clearly contrary to the principles governing the tax legal relationship.

As to the historical element, it is important to note that the CIUC had its genesis in the creation, through Decree-Law 599/72, of 30 December, of the tax on vehicles, which already expressly established that the tax was due by the owners of the vehicles, being presumed as such the persons in whose names the same are registered or matriculated[2]. On the other hand, Article 2 of the Regulation of Circulation and Road Haulage Taxes (approved by Decree-Law No. 116/94) established that: "the liable persons for the circulation tax and the road haulage tax are the owners of the vehicles, being presumed as such, unless proven otherwise, the natural or legal persons in whose names the same are registered."

It is true that, in the CIUC, the legislator replaced the expression "being presumed" with the expression "being considered," which, in the perspective of the Respondent, translated the establishment of a legal fiction, irrebuttable. We do not, however, consider this to be the case. The change of verb does not constitute a substantive alteration in the provision of scope, which, in our view, continues to establish a rebuttable presumption through proof to the contrary – in conformity, moreover, with the provisions of Article 73 of the General Tax Law.

As stated by Diogo Leite Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, in the annotation to paragraph 3 of Article 73 of the General Tax Law, "presumptions in matters of tax scope may be explicit, revealed by the use of the expression 'presumed' or similar (…). However, presumptions may also be implicit in provisions of scope, namely of objective scope, when certain values of movable or immovable property are considered as constituting taxable matter, in situations in which it is not impossible to ascertain the actual value"[3].

In sum, in matters of tax scope, presumptions may be revealed by the expression "presumed" or by a similar expression[4]. By way of example, Jorge Lopes de Sousa notes that in Article 40, paragraph 1, of the CIRS, the expression "presumed" is used, whereas in Article 46, paragraph 2 of the same Code the expression "considered" is used, there being no difference whatsoever between one and the other expression, both meaning, after all, the same thing: a legal presumption[5].

As to the teleological element, it is important to note that the structuring principle of the motor vehicle taxation reform is precisely that of the incidence of taxation on the true user of the vehicle, and this principle does not accord with a "blind" reading of the letter of the law, which could, after all, lead to taxing those who were not owners and, in that way, those who were not the subject causing the "environmental and road cost" caused by the vehicle, to which Article 1 of the CIUC alludes.

Thus, as to the subjective scope of the tax, it is to be concluded that there are no changes from the situation previously in effect within the framework of the Municipal Tax on Vehicles, Circulation Tax and Road Haulage Tax, as is, moreover, widely recognized by legal scholars, continuing to apply a rebuttable presumption in this matter. This understanding is, furthermore, the only one that appears adequate and consistent with the principle of material truth and justice, underlying tax relationships, with the objective of taxing the real and effective owner and not one who, by circumstances of a different nature, is sometimes nothing more than an apparent and false owner by virtue of appearing in the motor registry.

In this conformity, considering the elements of interpretation of the law referred to, we are led to the conclusion that the expression "being considered" has exactly the same meaning as the expression "being presumed," and it should, therefore, be understood that Article 3, paragraph 1, of the CIUC, establishes a true presumption of ownership and not any fiction, and, therefore, such presumption is rebuttable. By being so, the party inscribed in the motor registry must be allowed the possibility of presenting probative elements sufficient to demonstrate that the effective owner is, after all, a person different from the one appearing in the registry.

Finally, it is necessary to attend, in the present analysis, to the legal value of the motor registry. Thus, pursuant to the provisions of paragraph 1 of Article 1 of Decree-Law 54/75, of 12 February, which established the Motor Vehicle Ownership Registry, "the registry of motor vehicles has essentially the purpose of publicizing the legal situation of motor vehicles and their respective trailers, with a view to ensuring the security of legal transactions." Article 7 of the Property Registry Code further adds that "the definitive registration constitutes a presumption that the right exists and belongs to the registered holder, in the precise terms in which the registration defines it." The motor vehicle ownership registry, therefore, does not have constitutive nature, but merely declarative, allowing only the registration in the registry to presume the existence of the right and its ownership. Therefore, the presumption resulting from the registry may be rebutted through proof to the contrary. And this is so precisely because, pursuant to the provisions of Article 408 of the Civil Code, except for the exceptions provided for in the law, the constitution or transfer of real rights over a determined thing is given by the mere effect of the contract, with its validity not depending on the inscription in the registry[6]. In sum, the motor registry, in the economy of the CIUC, represents mere rebuttable presumption of the liable persons for the tax. In the case of a contract for the purchase and sale of a motor vehicle, with the law providing no exception for the same, the contract has real effect, the purchaser becoming its owner, regardless of the registry; in the same way, the party registered in the registry will cease to be the owner, notwithstanding that it may appear, for some time or even for a very long time, in the registry as such.

It should further be noted that the transfers effected are enforceable against the Respondent, notwithstanding the provisions of paragraph 1 of Article 5 of the Property Registry Code, which provides: "the facts subject to registration only produce effects against third parties when registered." The notion of third parties for purposes of registration is established in paragraph 4 of the same Article 5: third parties, for purposes of registration, are those who have acquired from a common author rights that are incompatible with each other, which is manifestly not the case with the AT. Thus, the AT is not a third party for purposes of registration.

As a consequence of the foregoing, the registered owner of a motor vehicle may prove, for the purposes of taxation under IUC, that it is no longer the effective owner of the vehicle in question, namely by having proceeded with its sale. And the proof of the existence of a contract of purchase and sale may be effected by any means, with an invoice being an accounting document suitable for this purpose, as for many others, namely tax purposes. Invoices evidence sales, transactions or provisions of services that are presumed true by force of the presumption of truthfulness established in Article 75 of the General Tax Law. In this regard, it is not accepted that its probative force be questioned solely for the purpose of proving the transfer of ownership of the vehicle, under penalty of falling into the legal absurdity of, from the same document, recognizing that the transaction existed for purposes of income tax scope, but did not exist for purposes of IUC. But, being a presumption, nothing prevents the demonstration of its falsity or inadequacy in face of the legal requirements established in Article 36 of the CIVA. This too is a case of a rebuttable presumption, with the burden of proof falling on the AT.

The Claimant alleges that, at the date when the tax events occurred, it had already transferred the ownership of the vehicles to third-party purchasers. To prove this, it attaches copies of invoices, in which are mentioned, among other elements, the registration plate of the vehicle, the customer number, the identification of the recipient, the value, the description "vehicle sale price" and the indication that "the vehicle is sold in the condition and state in which it is."

The invoices presented by the Claimant benefit, as stated, from the presumption of truthfulness contained in Article 75 of the General Tax Law, provided that they meet the legal requirements and demonstrate correspondence to the factual reality that the Claimant intends to demonstrate in the proceedings: the transfer of ownership of the vehicles. In the present case, there are no reasons to call into question the presumption of truthfulness contained in Article 75 of the General Tax Law. Thus, the invoices attached as document 2 are considered idoneuous documents to prove the occurrence of a sale of the vehicle to which they refer.

As to the vehicle with registration plate ...-...-..., the communications attached by the Claimant also demonstrate the effective transfer of ownership of the same following the accident that occurred.

As to the request for compensatory interest formulated by the Claimant, it is understood that the same is not well-founded. Effectively, as has been decided in previous arbitral proceedings that took place at CAAD (cf. proceedings 26/2013-T and 243/2013-T): "The right to compensatory interest to which the aforementioned provision of the General Tax Law alludes presupposes that tax was paid in an amount greater than that due and that such derives from error, of fact or of law, attributable to the services of the AT. [...] even though it is recognized that tax paid by the claimant is not due, because it is not the liable person for the tax obligation, determining, as a consequence, its reimbursement, it is not seen that, at its origin, there is the error attributable to the services, which determines such right [to compensatory interest] in favor of the taxpayer. In effect, by promoting the official assessment of the IUC considering the claimant as the liable person for this tax, the AT limited itself to giving effect to the provision of paragraph 1 of art. 3 of the CIUC, which, as extensively referred to above, assigns such status to persons in whose names the vehicles are registered."

Attending to this justification, with which we agree, it is concluded, also in the present case, to the lack of merit of the aforementioned request for payment of compensatory interest.

VII. DECISION

In conformity with what is set forth above, it is decided:

(i) To find the request for arbitral decision well-founded and, as such, to declare the illegality of the challenged assessments, determining the restitution of the tax and compensatory interest paid;

(ii) To find the request for compensatory interest not well-founded.

Value: In conformity with the provisions of Article 97-A, paragraph 1, subsection (a), of the CPPT and Article 3, paragraph 2 of the Costs Regulation in Tax Arbitration Proceedings, the value of the case is fixed at €159.43.

Costs: Pursuant to the provisions of Article 22, paragraph 4, of the RJAT and in accordance with Table I attached to the Costs Regulation in Tax Arbitration Proceedings, the amount of costs is fixed at €306.00, to be borne by the Respondent.

Let it be registered and notified.

Lisbon, 10 March 2016

The Arbitrator,

Raquel Franco

[1] Cf. F. Rodrigues Pardal, "The use of presumptions in tax law," in Tax Science and Technique, No. 325-327, page 20 et seq..

[2] Cf. Article 3 of the Vehicle Tax Regulation, attached to the aforementioned Decree-Law 599/72, of 30 December.

[3] Cf. General Tax Law – Annotated and Commented, 4th ed., 2012, Encontro da Escrita Publisher, p. 651.

[4] Cf. Jorge Lopes de Sousa (2011), Code of Tax Procedure and Process Annotated and Commented. Volume I. 6th Edition. Áreas Publisher: Lisbon, pp. 589 et seq..

[5] Cf. Op. Cit., pp. 590 et seq..

[6] Cf., among others, the following Judgments of the Supreme Court of Justice: of 31.05.1966, Proc. No. 060727 (Rapporteur: Counselor Lopes Cardoso); of 05.05.2005 (Rapporteur: Counselor Araújo Barros) and of 14.11.2013, in Proc. No. 74/07.3TCGMR.G1.S1 (Rapporteur: Counselor Serra Baptista).