IUC Tax on Leased Vehicles: Subjective Incidence and Lessee Liability in CAAD Case 655/2015-T

ARBITRAL DECISION

Applicant: A… SA

Respondent: AT - Tax and Customs Authority

I – REPORT

Request

A…. SA, legal entity no.…, with registered office at Street …, …, …-… …, hereinafter referred to as the Applicant, submitted on 27-10-2015, pursuant to the provisions of item a) of no. 1 of article 2º and article 10º of Decree-Law no. 10/2011, of 20 January, which approves the Legal Regime of Arbitration in Tax Matters (RJAT), a request for arbitral pronouncement, in which the Respondent is AT - Tax and Customs Authority, with a view to:

• The annulment of 31 (thirty-one) assessment acts of Single Tax on Vehicle Circulation relating to the years 2013, 2014 and 2015.

• The consequent condemnation of the Respondent to reimburse the amount paid relating to these tax assessments, increased by compensatory interest.

The Applicant alleges, in substance and with relevance to the resolution of the case, the following:

• The vehicles for which the assessment acts of Single Tax on Vehicle Circulation challenged were issued were provided on financial leasing by the Applicant;

• The financial leasing contracts were in force at the moment when the obligation to pay the tax relating to the respective vehicles became due, the Respondent knowing or being obliged to know this fact;

• According to no. 2 of article 3º of the Code of Single Tax on Vehicle Circulation, where a vehicle is the subject of a financial leasing contract, the tax payer is the lessee;

• Therefore, given that financial leasing contracts were in force for the 30 vehicles subject to the tax assessments challenged, at the time of the facts that gave rise to the tax, it was the respective lessees, not the Applicant, who were the tax payers.

Response of the Respondent

In response to the request for pronouncement presented by the Applicant, the Respondent AT - Tax and Customs Authority alleges, with relevant objections:

• Of the assessment acts challenged, the assessments with the numbers no. 2013-…, no. 2014-…, no. 2015-…, no. 2014-…, no. 2013-…, no. 2015-…, no. 2015-…, no. 2015-… and no. 2014-… have been revoked;

• In case of financial leasing, and for the purposes of exempting from article 3º of the CIUC, it is necessary that the financial lessors comply with the obligation established in article 19º of the same code to be exempted from the obligation to pay the tax;

• The Applicant did not provide evidence of compliance with this obligation;

• Not having complied with this obligation, the Applicant is the tax payer;

• Contrary to what the Applicant alleges, not all of the financial leasing contracts invoked were in force on the date of the tax event:

• With respect to the vehicle with registration …-… -…, the financial leasing contract was signed on 24-11-2003 and was in force for 84 months (i.e., seven years), so the contract term ended on 2010-11-25. Being the anniversary of the registration on 25 November of each year, and absent evidence to the contrary, it must be concluded that on that date the Applicant was the owner of the vehicle.

Subsequent Proceedings

By proposal and with the agreement of both Parties, the Tribunal decided to waive the holding of the meeting provided for in article 18º of the RJAT and to grant a period for the presentation by the Parties of successive written submissions.

Submissions

4.1. Submissions of the Applicant

In its submissions, the Applicant puts forward the following arguments:

• When a financial leasing contract affects a vehicle, the tax payer should always be that entity which is in possession of the leased vehicle, that is the lessee, and never the owner or lessor;

• All vehicles subject to the tax assessments challenged were, on the dates on which the IUC should have been assessed, the subject of financial leasing contracts;

• The Respondent never questioned or refuted the validity of said contracts;

• For the tax payer to be the lessee in a financial leasing contract, it cannot be required that the same contract be registered in the Motor Vehicle Registry, since said registry has only declarative force and not constitutive force;

• The Respondent had knowledge of the existence of these contracts and of the identity of the respective lessees;

• With respect to the vehicle with registration …-… -…, the date set for the termination of this contract is prior to that of the tax event, but nevertheless, the contract remained in force on that date;

• As for compliance by the Applicant with the obligation established in article 19º of the CIUC, this is not dependent on the question of the Applicant's liability for the tax;

• Article 19º establishes an ancillary obligation, whose eventual non-compliance could never prevent the Applicant from avoiding the subjective incidence of the tax;

• The Applicant is prevented from obtaining any document proving that it complied with the obligation established in article 19º, since such obligation is complied with by electronic means on the electronic services platform of the Tax and Customs Authority and the same does not allow the issuance of any proof of compliance with the obligation;

• Such proof could only be obtained through the administrative proceeding which the Respondent was obliged to submit to the process and did not submit;

• Having failed the Respondent to comply with the obligation incumbent upon it to attach to the present proceedings a copy of the administrative file relating to the assessment acts in question, and given that this is documentation that may be crucial to prove, by the Applicant, that it complied with the ancillary obligation contained in article 19º of the CIUC, the regime contained in article 344º, no. 2 of the Civil Code (applicable pursuant to articles 430º and 417º, no. 2 of the CP) should be applied to this fact, and the compliance, by the Applicant, with the obligation contained in article 19º of the CIUC should be considered as proven.

4.2. Submissions of the Respondent

For its part, the Respondent alleged, succinctly, the following:

• Article 3º of the CIUC does not contain any presumption;

• However, there is a presumption as to the ownership of the vehicle that derives from the motor vehicle registry, a presumption whose rebuttal must be directed against what is in the registry;

• This not having been done, the Applicant was, in its capacity as owner appearing in the Motor Vehicle Registry, the tax payer of the IUC;

• As for the vehicle with registration …-…-…, the financial leasing contract was not in force on the date of the tax event, since the contract had its term of validity on 25.11.2010 and the tax fact occurred, with respect to the assessment in question, on 25.11.2014;

• Following the thesis propounded by the Applicant, then one would have to conclude in the first place by the total futility of the registry information systems and by an absence of control of the tax in question here, resulting in a flagrant violation of the constitutional principles of trust and legal certainty, seconded by the principles of proportionality and the efficiency of the tax system;

• The Applicant did not comply with the communication obligation provided for in article 19º of the CIUC.

II – CASE MANAGEMENT

The singular Arbitral Tribunal was duly constituted on 13-01-2016, with the arbitrator being appointed by the Deontological Council of the CAAD, with the respective legal and regulatory formalities complied with (articles 11º, no. 1, items a) and b) of the RJAT and 6º and 7º of the Deontological Code of the CAAD), and is competent in terms of subject-matter, in accordance with article 2º of the RJAT.

The parties have legal personality and capacity, are legitimate and are duly represented, in accordance with articles 4º and 10º of the RJAT and article 1º of Ordinance no. 112-A/2011, of 22 March.

No procedural defects were identified.

It is sought to jointly assess the legality of 31 IUC assessments, relating to the years 2013 to 2015, so this is a case of joinder of claims.

The requirements set out in no. 1 of article 3º of the RJAT and in article 104º of the CPPT are verified in the present case, and joinder is admissible by virtue of the identity of the tax and the circumstance that the analysis of the tax acts in question depends on the assessment of the same factual circumstances and the application of the same rules of law.

Nothing therefore prevents the assessment of the merits of the case.

III – QUESTIONS TO BE DECIDED

The following are the questions to be decided by the Tribunal:

A) Preliminary Question

Existence of grounds for termination of the proceedings as to the assessments allegedly revoked.

B) Questions on the Merits

• Regarding who bears the subjective incidence of the Single Tax on Vehicle Circulation after the termination of a financial leasing contract;

• Whether the subjective incidence of the IUC in case of the validity of a financial leasing contract that has as its object the vehicle on which the taxation falls, falls on the owner-lessor of the vehicle or on the lessee of the same;

• Concluding in favor of the second alternative – the subjective incidence of the tax falls on the lessee of the vehicle – whether the legal and factual conditions are met for this incidence to be considered as produced.

IV – PROVEN AND UNPROVEN FACTS

The following are the facts proven considered relevant to the decision:

1st: The Applicant was notified of the IUC assessments indicated below:

2nd: The IUC assessments referred to vehicles whose ownership was registered in the name of the Applicant on the dates of the tax events;

3rd: The Applicant, in its capacity as lessor, entered into financial leasing contracts for all the vehicles on which the assessments challenged fall;

4th: The financial leasing contracts were in force on the dates of the facts that gave rise to the tax for all the assessments challenged, with the exception of assessment no. 2014…, relating to the vehicle with registration …-… -…;

5th: The financial leasing contract of the vehicle with registration …-…-… ended its validity on 24.11.2010;

6th: The IUC assessment relating to this vehicle, with no. 2014 …, refers to the year 2014;

7th: The financial leasing contracts were communicated to the AT – Tax and Customs Authority through this entity's electronic platform;

The facts considered proven were so on the basis of the documents attached to the proceeding and on the basis of the free assessment of the failure to contest the facts invoked by the Applicant as the basis of its claim, in accordance with article 110º, no. 7 of the Code of Tax Procedure and Process (CPPT), applicable pursuant to article 29º, no. 1, item a) of the RJAT.

It is considered as not proven that the following assessments have been revoked:

Indeed, the only evidence available to the Tribunal regarding the revocation of the assessments indicated is a request filed by the Respondent with the case on 10-12-2015, which reads:

"The Respondent will proceed to revoke the following IUC assessments, as well as their respective interest, in the total amount of € 1,314.48:

• No. 2013-…;
• No. 2014-…;
• No. 2015-…;
• No. 2014-…;
• No. 2013-…;
• No. 2015-…;
• No. 2015-…;
• No. 2015-…; and
• No. 2014-…"

This document, which contains only a statement of intention, cannot be considered proof that said acts were revoked.

No other facts are given as unproven with relevance to the resolution of the case.

V – GROUNDS

A) Preliminary Question

Existence of grounds for termination of the proceedings as to the assessments in respect of which the intention to revoke was communicated to the Tribunal

The Respondent AT – Tax and Customs Authority submitted to the Tribunal a request, attached to the case on 10-12-2015, which reads:

"The Respondent will proceed to revoke the following IUC assessments, as well as their respective interest, in the total amount of € 1,314.48:

• No. 2013-…;
• No. 2014-…;
• No. 2015-…;
• No. 2014-…;
• No. 2013-…;
• No. 2015-…;
• No. 2015-…;
• No. 2015-…; and
• No. 2014-…"

Notified to attach evidence of the revocation of the acts indicated, the Respondent chose not to do so, as per request of 30-08-2016.

In accordance with article 13º, no. 1 of the RJAT, "In requests for arbitral pronouncement that have as their object the assessment of the legality of the tax acts provided for in article 2º, the head of the tax administration service may, within 30 days from becoming aware of the request for constitution of the arbitral tribunal, proceed to the revocation, ratification, amendment or conversion of the tax act whose illegality has been raised, practicing, when necessary, a substitute tax act, and must notify the president of the Administrative Arbitration Center (CAAD) of his decision, with the count of the period referred to in item c) of no. 1 of article 11º then beginning."

As the Tribunal has not obtained knowledge that the revocations referred to have been notified to the President of the CAAD, the Tribunal cannot consider it proven that the same occurred.

There is therefore lacking the grounds for termination of the proceedings as to the respective claims.

B) Merits Questions

Subjective incidence of the IUC after the termination of a financial leasing contract

As to the merits of the case, the first question to be clarified concerns the determination of the subjective incidence of the Single Tax on Vehicle Circulation after the termination of a financial leasing contract.

In the case of assessment no. 2014 …, which relates to the vehicle with registration …-… -…, a financial leasing contract was entered into which began on 24 November 2003.

Given that this contract provided that the lessee was obliged to pay 84 monthly installments, it is concluded that the contract had a duration of 84 months, and therefore ended its validity on 24 November 2010.

Although the Claimant alleges that, despite the contract term having been exceeded, it was still in force at the time the arbitral claim was presented, the truth is that it presents no grounds that could justify this conclusion. It merely states that the lessee continues in possession of the vehicle, which does not lead to the conclusion that the contract was in force.

The tax event in question refers to the year 2014. Consequently, the financial leasing contract was not in force on the date of the tax event.

As the financial leasing contract was not in force on the date of the tax event, no. 2 of article 3º of the CIUC does not apply, and the general rule of no. 1 of this same provision applies. In this way, the tax payer of the IUC with respect to the vehicle in question in 2014 can only be the owner, that is, the Claimant.

The Claimant's claim for the annulment of assessment no. 2014 … is therefore entirely without merit, on the basis of error as to the legal prerequisites relating to the subjective incidence of the tax.

Subjective incidence of the tax during the validity of a financial leasing contract

The second question to be clarified is that concerning the determination of the subjective incidence of the Single Tax on Vehicle Circulation in case of validity of a financial leasing contract of the vehicle on which the taxation falls.

On this point, the Respondent maintains that it is always the person registered as owner in the motor vehicle registry who is the tax payer.

On this matter there is already considerable arbitral jurisprudence that unanimously considers that, when on the date of the occurrence of the tax event a financial leasing contract is in force, the tax payer is not the owner but rather, in light of no. 2 of article 3º of the CIUC, the lessee (See the arbitral decisions rendered in proceedings no. 14/2013-T, of 15-10-2013; no. 294/2013-T, of 2014-06-06; no. 775/2014-T of 26-11-2015; no. 136/2014-T, of 14-07-2014; no. 137/2014-T, of 2014-10-21; no. 232/2014-T, of 09-12-2014; no. 191/2015-T of 26-10-2015; and no. 169/2015-T of 30-09-2015).

For our part, this is also the position we subscribe to.

Article 3º of the Code of the CIUC reads as follows:

Article 3º

Subjective incidence

1 - The tax payers of the tax are the owners of the vehicles, considered as such the natural or legal persons, of public or private law, in whose name the same are registered.

2 - Financial lessees, purchasers with reservation of ownership, as well as other holders of purchase option rights by virtue of the leasing contract are treated as owners.

3 – (…)

For the question now before us, the interpretation of no. 2 of the provision is relevant, namely the determination of the sense of the equation made by the legislator there. Given the systematic insertion of the provision, it seems to us beyond any doubt that the same refers to the subjective incidence of the tax. And being so, the sense of the norm is that "financial lessees, purchasers with reservation of ownership, as well as other holders of purchase option rights by virtue of the leasing contract" are treated as owners for purposes of subjective incidence of the tax, that is for purposes of determining who is the tax payer.

Subjective subjection to tax occurs in the capacity of direct taxpayer, substitute or responsible party for the tax debt of a third party, in accordance with article 18º, no. 3 of the General Tax Law (LGT).

In the case of no. 2 of article 3º, given that there is nothing in the law that allows us to speak of a situation of tax substitution or responsibility for the debt of a third party, it must be concluded that financial lessees, purchasers with reservation of ownership, and other holders of purchase option rights by virtue of the leasing contract are tax payers in the capacity of direct taxpayers. This is clearly the direction that the very wording of the norm points to, when it treats these holders as equivalent to the owner.

And in the same direction tends also the ratio of the provision, since the situations of financial lessee, purchaser with reservation of ownership and holder of purchase option right by virtue of the leasing contract are legal situations whose substantial content, namely in terms of the powers that belong to the holders, approximates much to that of ownership.

One could finally question whether the legislator wished to establish joint and several tax liability, in accordance with article 21º of the LGT.

As to this aspect we agree with the decision rendered in proceeding 232/2014-T, of 09-12-2014: "Given that it is not a matter of linear solution, capable of being elaborated arguments in either or both of the possible directions of response, it is understood that the response to be given should be affirmative, that is, that in the case of the existence of someone "treated as" an owner, the subjection of the latter (of the owner) will be removed, with only the "treated as" owner being the tax payer."

And we opt for this interpretation because, as no element is found in the provisions in question indicating otherwise, and as tax joint and several liability is an exceptional situation, we do not see that there is in the situations in question any reason for the legislator to have wished to establish it. More specifically, we believe, for the reasons already mentioned above, that, being the position of the financial lessee substantially equivalent to that of the owner, and this being deprived of all the powers that make up ownership, only with respect to the lessee do the prerequisites of taxation substantially verify themselves.

Being so, we conclude that, during the validity of a financial leasing contract, the sole tax payer of the tax is the lessee, and not the owner.

The question of compliance or non-compliance with the communication obligation established in article 19º of the CIUC and its relationship with the question of subjective incidence

Until its revocation by item f) of no. 1 of article 215º of Law no. 7-A/2016, of 30 March, article 19º of the CIUC imposed on the financial lessor of vehicles the obligation to provide to the Directorate-General of Taxes (today, to the AT – Tax and Customs Authority) the data relating to the tax identification of the users of the leased vehicles.

In the cases at hand, the Respondent counter-alleges that the Claimant tax payer did not comply with this obligation, which would prevent it from invoking no. 2 of article 3º of the CIUC. In turn, the Claimant maintains that it made this communication through the Respondent's electronic platform, obtaining no proof.

Even before addressing the question – which would be prejudicial in relation to this first one - of whether this communication was effectively a legal condition for the shifting of the subjective incidence of the tax to the lessee's sphere, we consider it convenient to set out our position regarding the factual question stated.

It is a general rule and a guarantee of those administered that whoever complies with an obligation, in the context of administrative procedure, has the right to receive proof of such compliance. In the new model of interaction between taxpayers and the Tax Administration, based on electronic communication, this cannot fail to also be the rule. However, it is of general knowledge that indeed, often, this does not happen.

Now, having had the Tax Administration the possibility of contradicting the Claimant on what concerns the fact alleged by it, of not being able to obtain proof of the communication provided for in the meanwhile revoked article 19º, it did not do so. Under article 110º, no. 7 of the CPPT, and based on the fact, of general knowledge, that it is frequent for the non-availability of proofs of the acts that taxpayers practice through the AT's electronic communication platform – Tax and Customs Authority, we understand that we should consider as proven that the Claimant indeed complied with the duty incumbent upon it by virtue of article 19º of the CIUC.

But even if this were not so, we consider that, as subjective incidence is an element of the tax obligation that cannot fail to be perfectly delimited by law (principle of tax legality, in accordance with article 103º no. 2 of the Constitution of the Portuguese Republic), and no element being found in the law that unequivocally leads us to conclude that the legislator wished to make dependent on compliance with the obligation provided for in the meanwhile revoked article 19º the shifting of subjective incidence from the owner to the lessee, and given that this obligation is configured as an ancillary obligation, it is not legitimate to consider that compliance or non-compliance with this ancillary obligation was determinative of the subjective incidence of the tax.

We agree, as to this aspect, with the doctrine already followed in various arbitral decisions, such as the one rendered in proceeding no. 191/2015-T of 26-10-2015, in which it is stated:

"For these cases, the legislator instituted an explicit rule, in no. 2 of article 3º of the CIUC, according to which, during the validity of the leasing contract, it is the lessees who are the tax payers. (…) The question will still arise: what about the communication provided for in article 19º of the CIUC? Does its non-compliance contend with the conclusion of the preceding paragraph as to who is responsible for payment of the tax? The answer is, in our view, negative. Indeed, the consequence that flows from non-compliance with this ancillary obligation is the one we are witnessing: the AT issues the assessment notes in the name of the owner of the vehicle, by not knowing that the financial leasing contract was entered into. However, this does not prevent this same owner / lessor from providing proof of the celebration of the contract and the period for which it was entered into and, thus, prevent the payment of the tax."

And a little further on, the same decision continues:

"It is important not to forget that the Applicant's failure is subject to administrative fine liability in light of article 117º, combined with article 26º no. 4, both of the General Regime of Tax Violations, punishable with a fine of € 300.00 to € 7,500.00 for each of the financial leasing contracts. That is the form found by the legislator to penalize whoever fails to comply with the informative duty towards the AT."

In the same sense, the decision rendered in proceeding no. 232/2014-T, of 09-12-2014, in which it is written:

"What has just been concluded is not prevented by the circumstance that the Applicant may not have duly complied with the provisions of the aforementioned article 19º of the CIUC. Indeed – and as is clear – the sanction for non-compliance with any obligation that in that respect may fall or fell to the applicant would always have to be sought under the Regime of Tax Violations, and not, of course, in subjection to a tax".

In the same sense also the arbitral tribunal pronounced itself in proceeding no. 136/2014-T of 14-07-2014, in which it reads:

"The subjective incidence of the IUC is established, in all its elements, in art. 3º of the CIUC, and it is through the application of this normative provision that the tax payer will be determined, the failure to comply with the mentioned ancillary obligation being irrelevant for purposes of the incidence of the tax."[1]

This is the position we also defend. The non-compliance with an ancillary obligation cannot determine the subjective incidence of the tax, strictly subject as it is to the principle of tax legality, unless this is clearly determined in law.

Therefore, even had we not considered it proven, as we did, that the Claimant complied with the obligation established in article 19º of the CIUC (meanwhile revoked), this would not prejudice the conclusion that it is the lessee, and not the owner, who is the tax payer.

VI. DECISION

For the grounds set out, it is judged:

I. The claim for annulment of assessment no. 2014… is without merit, as none of the alleged errors as to the prerequisites and fact or law are verified;

II. All other claims for annulment of the assessments challenged are well-founded.

Consequently:

III. The Respondent is condemned to reimburse the amount paid relating to the assessments annulled, increased by the respective compensatory interest, in accordance with article 43º of the General Tax Law.

Economic value of the matter in dispute: The economic value of the matter in dispute is fixed at 4,663.40 euros.

Costs: In accordance with article 22º, no. 4, of the RJAT, the amount of costs is fixed at 612.00 euros, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Applicant in the amount of 30.45 euros and by the Respondent in the amount of 581.55 euros.

Let this arbitral decision be recorded and notified to the parties.

Lisbon, Administrative Arbitration Center, 19 September 2016

The Arbitrator

(Nina Aguiar)

[1] In the same sense the decision rendered in Proc no. 169/2015-T of 30-09-2015 also pronounced itself.