Summary
Full Decision
ARBITRAL DECISION
REPORT
Constitution of the Tribunal
A..., NIF..., with address at Rua ..., n.º..., ...-... Ovar (hereinafter, the "Claimant"), came, pursuant to the terms and for the purposes of articles 2.º, n.º 1, subparagraph a) and 10.º, n.º 1, subparagraph a) of Decree-Law n.º 10/2011, of 20 January, which approved the Legal Regime of Arbitration in Tax Matters (hereinafter, "LRATM"), to request the constitution of an Arbitral Tribunal, with the intervention of a sole arbitrator, in which the Tax and Customs Authority (hereinafter, the "Respondent" or "TCA") is the defendant, with a view to the declaration of illegality and consequent annulment of the ex officio assessment of the Single Circulation Tax (hereinafter, "SCT"), on the Leisure Vessel with registration number ..., effected through Official Letter n.º..., of 15 December 2017, relating to the years 2015, 2016 and 2017, corresponding, respectively, to document n.º 2015... (payment reference n.º...), in the amount of €2,998.74, including compensatory interest in the amount of €294.84, document n.º 2016... (payment reference n.º...), in the amount of €2,952.98, including compensatory interest in the amount of €207.32, and, finally, document n.º 2017... (payment reference n.º...), in the amount of €2,864.77, including compensatory interest in the amount of €98.23, as well as in the condemnation to reimbursement of the amounts unduly paid plus indemnity interest.
The Claimant opted not to appoint an arbitrator and, pursuant to the provisions of subparagraph a) n.º 2 of article 6.º of the LRATM, the Ethics Committee of CAAD appointed as sole arbitrator the Undersigned Leonardo Marques dos Santos, who accepted the said appointment within the legal deadline.
The arbitral tribunal was regularly constituted at CAAD, on 05-03-2018, pursuant to n.º 8 of article 11.º of the LRATM, to consider and decide on the matters that are the object of the present proceedings.
The Tribunal, in view of the complexity of the issues raised in the proceedings, extended the deadline for the arbitral decision by two successive periods of two months, in accordance with the provisions of n.º 2 of article 21.º of the LRATM.
Sanitation
The Tribunal is competent.
The proceedings are not affected by vices that invalidate them in their entirety.
The parties have legal personality and capacity and are legitimate.
The Claimant alleges, in summary, that:
He is the owner of a leisure vessel called "..." (hull n.º IT-..., hereinafter, "vessel").
At the end of 2014, he contacted the International Ship Register of Madeira (hereinafter, "ISRM-MAR") to inquire about its operation and the benefits that would be granted to him if he registered his vessel in the ISRM-MAR.
In accordance with the opinion of the Regional Directorate of Tax Affairs of the Autonomous Region of Madeira, vessels registered in the ISRM-MAR enjoyed an exemption from SCT which implied the payment of a fee of €500.00 per year to the SDM – Society for the Development of Madeira, the entity that manages the ISRM-MAR.
Since he sought more favorable taxation for the SCT of his vessel, the Claimant registered his vessel in the ISRM-MAR in 2014, to which was assigned the registration ....
Consequently, the ISRM-MAR issued a statement exempting the vessel from "payment of the Single Circulation Tax, by virtue of being an automatic fiscal benefit of leisure vessels registered in this Register as established in specific legislation (art. 1º D.L. 192/2003, of 22 August, combined with n.º 2 of art. 24º D.L. 96/89, of 28 March and subparagraph a) of art. 7º of D.L. 165/86, of 26 June)."
On 13 October 2017, the Claimant was notified by the Tax Services of ... that they would assess SCT in relation to the vessel and that he had a deadline to exercise his right to prior hearing.
Accordingly, on 25 October 2017, he exercised his right to a hearing, and was notified of the final decision on 6 November 2017, in which the TCA argued that "the tax regime of the Free Zone of Madeira does not contemplate any tax benefit regarding SCT" and that "the SCT Code provides tax benefits for other categories of vehicles related to the Free Zone of Madeira, without including category F".
On 15 December 2017, the Claimant was notified of the assessment note and made timely payment of €8,816.49.
From the combination of article 7.º, subparagraph d) of Decree-Law n.º 165/86, of 26 June, and article 24.º, n.º 2 of Decree-Law n.º 96/89, of 28 March, results a legal assimilation between vessels registered in the ISRM-MAR and companies established in the Free Zone of Madeira.
SCT is a local tax given that the revenue belongs to a local authority, i.e., the municipalities.
To leisure vessels registered in the ISRM-MAR applies, pursuant to Decree-Law n.º 192/2003, of 22 August, the regime of the Free Zone of Madeira (article 6.º, n.º 1 of Decree-Law n.º 96/89, of 28 March, by virtue of the reference in article 1.º of Decree-Law n.º 192/2003, of 22 August).
The TCA assessed SCT for the years 2015, 2016 and 2017 despite the applicable exemption, whereby there is a right to indemnity interest.
For its part, the TCA contends that:
The ISRM-MAR is a national register of vehicles, of a special character, island and ultraperipheral, whose vehicles registered there fly the Portuguese flag.
The register is special by virtue of its specific allocation to an area of national territory, as opposed to the ordinary register which refers to the entire national territory, and is island and ultraperipheral due to the particular characteristics of the territory in which it is located.
Vessels registered in the ISRM-MAR benefit from the tax regime of the Free Zone of Madeira, provided for companies established there.
Pursuant to Decree-Law n.º 165/86, of 26 June, companies installed in the Free Zone of Madeira are exempt from local taxes and duties, an exemption that extends to leisure vessels by the assimilation of vessels registered in the ISRM-MAR to companies established for tax purposes via articles 8.º and 26.º of Decree-Law n.º 96/89 of 28/03, by the assimilation of vessels registered in the ISRM-MAR to companies established for tax purposes.
Pursuant to article 3.º, n.º 1 of the SCT Code, the passive subjects of the tax are the owners of the vehicles registered as such, and although article 2.º, n.º 1 of Law n.º 22-A/2007, of 29 June, provides that SCT is administered by the TCA, article 3.º, n.º 1 of the same legal instrument provides that the revenue from SCT relating, among others, to vehicles of category F, belongs to the municipality of residence of the passive subject.
In the case of the vessel in question, even though it has been registered in the ISRM-MAR since 2014, the revenue from SCT resulting from its taxation belongs to the municipality of residence of its owner, namely, ....
The ownership to which article 3.º, n.º 1 of Law n.º 22-A/2007, of 29 June, refers is only the ownership of the revenue, and therefore SCT is a tax of a state nature and the State is the active subject of the tax law relationship.
Neither the Free Zone of Madeira nor any other municipality are the active subjects of the tax law relationship. Being the State the active subject, it has not relinquished the revenue from SCT relating to vessels in favor of the Free Zone of Madeira.
Article 7.º, subparagraph d) of Decree-Law n.º 165/86, of 26 June, when referring to "local taxes and duties", refers to taxes created under the General Regime of Local Authorities' Fees and taxes created under the tax competencies of municipalities provided for in article 15.º of the Financial Regime of Local Authorities and Intermunicipal Entities.
SCT does not fit within the concept of "local taxes and duties" pursuant to and for the purposes of the said Decree-Law n.º 165/86, of 26 June.
In summary, the tax regime of the Free Zone of Madeira does not provide for any exemption regarding SCT.
The SCT Code does not establish any tax exemption for vehicles of category F – leisure vessels for private use with engine power equal to or greater than 20 kW, registered since 1986.
The right to indemnity interest provided for in article 43.º, n.º 3 of the General Tax Law ("GTL"), derived from the judicial annulment of an assessment act, depends on having been demonstrated in the proceedings that this fact is affected by error regarding the facts or law attributable to the TCA.
The error that supports the right to indemnity interest is not any defect or illegality, but that which is concretized in defective assessment of relevant facts or in misapplication of legal norms.
Since, at the time of the facts, the TCA made the application of the law in the terms to which it is constitutionally bound as an executive body, one cannot speak of error by the services within the terms of article 43.º of the GTL.
DECISION
MATTER OF FACT
A.1. Facts taken as proven
The Claimant is the owner of the leisure vessel called "..." and with hull n.º ....
The Claimant resides in ....
In late 2014, the Claimant registered the vessel in the ISRM-MAR with a view to benefiting from a more favorable tax regime regarding SCT, i.e., tax exemption.
The Claimant was notified of the ex officio assessment of SCT, effected through Official Letter n.º..., of 15 December 2017, relating to the years 2015, 2016 and 2017, corresponding, respectively, to document n.º 2015... (payment reference n.º...), in the amount of €2,998.74, including compensatory interest in the amount of €294.84, document n.º 2016... (payment reference n.º...), in the amount of €2,952.98, including compensatory interest in the amount of €207.32, and, finally, document n.º 2017... (payment reference n.º...), in the amount of €2,864.77, including compensatory interest in the amount of €98.23.
Having proceeded to payment of the said amounts.
A.2. Facts taken as not proven
Relevant to the decision, there are no facts that should be considered as not proven.
A.3. Substantiation of the proven and not proven matter of fact
Regarding the matter of fact, the Tribunal is not required to rule on everything that was alleged by the parties; rather, it is its duty to select the facts that matter for the decision and to distinguish proven from unproven matters (Cfr. article 123.º, n.º 2, of the Tax Procedure Code and article 607.º, n.º 3 of the Civil Procedure Code (hereinafter, "CPC"), applicable ex vi article 29.º, n.º 1, subparagraphs a) and e) of the LRATM).
Thus, the facts relevant to the judgment of the case are chosen and selected according to their legal relevance, which is established in light of the various plausible solutions to the questions of Law.
Therefore, having regard to the positions assumed by the parties, in the light of article 110.º, n.º 7 of the Tax Procedure Code, the documentary evidence and the Administrative Proceedings attached to the file are considered proven, relevant to the decision, the facts listed above.
ON THE LAW
In accordance with article 2.º, n.º 1, subparagraph f) of the SCT Code, the tax applies to leisure vessels for private use with engine power equal to or greater than 20kW, registered since 1986 or registered in Portuguese territory, with number 4 of the same article providing that "private use means the use of a vessel or aircraft by its owner (...)".
As to the subjective scope of application, pursuant to article 3.º, n.º 1 of the SCT Code, the passive subjects of the tax are "natural or legal persons, of public or private law, in whose name the ownership of the vehicles is registered."
Pursuant to article 2.º, n.º 1 of Law n.º 22-A/2007, of 29 June: "[t]he competence regarding the administration of the tax on vehicles, abbreviated as ISV, and the single circulation tax, abbreviated as SCT, falls to the Directorate-General of Customs and Special Duties on Consumption and the Directorate-General of Taxes, respectively."
Furthermore, pursuant to article 3.º, n.º 1 of the aforementioned Law n.º 22-A/2007, of 29 June, "[t]he revenue generated by SCT on vehicles of categories A, E, F and G belongs to the municipality of residence of the passive subject or equivalent, as well as 70% of the component relating to engine capacity on vehicles of category B, unless such revenue is on vehicles subject to long-term rental or operational leasing, in which case it should be allocated to the municipality of residence of the respective user".
It is important to highlight, in this regard, that the ownership of SCT revenue belongs to the municipality of residence of the passive subject and not the municipality or region where the vessel is registered.
In this sense, further, article 14.º, subparagraph c) of Law n.º 73/2013, of 3 September 2013, which establishes the Financial Regime of Local Authorities and Intermunicipal Entities, under the heading "municipal revenues" provides that "[c]onstitute revenues of the municipalities: c) The share of the revenue from the single circulation tax that belongs to the municipalities, pursuant to article 3.º of Law n.º 22-A/2007, of 29 June".
In any case, pursuant to article 24.º, n.º 1 of Decree-Law n.º 96/89, of 28 March, "[t]he tax regime applicable to the entities referred to in article 8º is that provided for in legislation relating to the free zone of Madeira", adding number 2 of the same article that the "regime referred to in the previous number also applies to vessels registered in MAR".
Pursuant to article 7.º, subparagraph d) of Decree-Law n.º 165/86, of 26 June "[c]ompanies installed in the free zone of Madeira enjoy the following tax benefits: Exemption from local taxes and duties;"
Now, without prejudice to article 3.º, n.º 1, subparagraph b) of the GTL distinguishing between taxes "state, regional and local", the said legal instrument does not present a distinguishing criterion that allows identification of each of the three.
In this way, doctrine has been working with the said concepts without, however, being unanimous as to the criterion that allows distinguishing, in particular, a state tax from a local tax.
The criteria most frequently pointed out by doctrine are the criterion of administration of the tax and the criterion of ownership of the revenue.
In this sense, Suzana Tavares da Silva states that "[t]his distinction is rooted in the active ownership of the tax law relationship and through it it is intended to highlight that not all tax revenue is intended for the 'general coffers of the State'. Indeed, alongside state taxes, those whose ownership of the tax credit belongs to the State, regional and municipal taxes stand out, upstream of the State, European and international taxes stand out.
Doctrine is not unanimous as to the scope to be given to this classification. Some authors emphasize that the fact that the operations of assessment, levy and collection of taxes are carried out by the services of the Tax Administration (ex. art. 113.º of the ICI), notwithstanding the municipal ownership of the respective revenue (ex. art. 1.º of the ICI), is not sufficient to speak of a municipal tax, which can only happen when municipalities choose to promote the respective levy and collection in accordance with the provisions of art. 13.º/2 of the Local Finance Law (Casalta Nabais: 2012, pp. 78). Other authors, however, focus only on the active subject of the tax relationship, regardless of who carries out its management, thus tending to classify the tax as municipal, as long as the law establishes an entity other than the State as the active subject of the respective tax relationship." (Suzana Tavares da Silva, Direito Fiscal – Teoria Geral, Coimbra: Imprensa da Universidade de Coimbra, 2013, p. 43).
Note that Portuguese legislation also appears to show some fluctuation as to the criteria used.
See, for example, that while the Regional Legislative Decree n.º 27/2008/M, of 3 July, which "[a]pproves the organic and functional adaptation of national tax legislation to the Autonomous Region of Madeira" only qualifies as "local taxes" the Municipal Tax on Real Estate and the Municipal Tax on Onerous Transfers of Real Estate (see Section II of the said Regional Legislative Decree), the State Budget includes SCT in the chapter of local taxes (cf. State Budget for 2019, approved by Law n.º 71/2018, of 31 December).
However, in the case under analysis, more than establishing a criterion that allows qualifying a tax as local or state, what matters above all is to distinguish taxes that are local in relation to a given territorial jurisdiction, i.e., whether one can be considered local in the specific case of article 7.º, subparagraph d) of Decree-Law n.º 165/86, of 26 June.
What matters is not so much determining whether SCT can be reduced to any concept of local tax (i.e., knowing whether it is a local tax in the abstract), given that, in the opinion of this Tribunal, the exemption above referred to has its territorial scope of application limited to cases where there is ownership of revenue, that is, it does not apply to all taxes that may be reduced to the concept of local taxes in the abstract.
In other words, the exemption was not established for local taxes in the abstract, but rather requires a connection to specific revenue of which one is the owner.
In the specific case, however, the owner of the revenue is the municipality of residence of the passive subject, i.e., the municipality of Ovar, and not the municipality or region where the vessel is registered, whereby the Claimant cannot benefit from the exemption.
As writes Nuno Sá Gomes, who gives as an example the tax benefits granted to the Free Zones of Madeira and the Island of Santa Maria, "in accordance with the territorial scope of application of the taxes in which they are inscribed, tax benefits have, in parallel, national, continental, regional or local scope." (Nuno Sá Gomes, Teoria Geral dos Benefícios Fiscais, Cadernos de Ciência e Técnica Fiscal, 165, Lisboa: Centro de Estudos Fiscais, 1991, p. 140).
Indeed, having considered the integration of article 7.º, subparagraph d) of Decree-Law n.º 165/86, of 26 June, into the national tax legal system, this is the interpretation that appears to us most consistent.
Without prejudice to the reference made by Decree-Law n.º 96/89, of 28 March, it is important not to lose sight of the markedly territorial character of Decree-Law n.º 165/86, of 26 June.
Indeed, this appears, from the outset, from the preamble of the legal instrument that "the Government proposed and obtained from the National Assembly legislative authorization to revise the tax benefits to be granted to companies that install themselves in the already created free zones, which is now done, in conjunction with other benefits whose allocation aims at equal purposes.
In the conception of the incentive scheme now established, the economic backwardness was already taken into account to help the installation of companies defined in terms compatible with the provisions of n.º 3 of article 92 of the Treaty of Rome and aimed at regional development and the improvement of competitive conditions for companies that install themselves in the free zone of Madeira (...)" (underlined and bold ours),
This also flows from the operative part of the said legal instrument, from which results from article 1.º that "[f]or the promotion and attraction of investments in the free zone of Madeira, regional fiscal and financial benefits may be granted, (...)" (bold and underlined ours).
Equally, pursuant to article 2.º, "[t]he incentives to be granted to promote and attract investments in the free zone of Madeira shall be defined by the Regional Government, taking into account, in particular, their contribution to the economic and social development of the Region and the resources available to the Regional Government for this purpose". (bold and underlined ours).
The provision of article 7.º of Decree-Law n.º 165/86, of 26 June, itself applies to "companies installed in the free zone of Madeira (...)", which confirms the territorial nature of the exemption.
Note that the installation of companies implies a connection to the territory and a materiality that is not comparable with the mere registration of a vessel in the ISRM-MAR.
On the other hand, from the preamble of Decree-Law n.º 96/89, of 28 March, it appears that the ISRM-MAR was created with a view to "international competition in the commercial shipping sector" seeking to "stop the processes of departure of ships from the main register to flags of convenience, as well as to attract some new shipowners and ships to the new registers, offering them cost conditions similar to those of the most competitive registers", taking into account that "commercial shipping, because of its true and entirely international character, has very special characteristics, given that the essential activity normally takes place in international waters or in countries different from those of registration".
Therefore, it does not appear that the legislator, namely in light of the provision of article 3.º, n.º 1 of the aforementioned Law n.º 22-A/2007, of 29 June, and article 14.º, subparagraph d) of Law n.º 73/2013, of 3 September, and even in virtue of the constitutional principle of local autonomy – sought to encourage the registration of Portuguese flag vessels in the ISRM-MAR while limiting access of the remaining municipalities to an important source of tax revenue.
On the other hand, the limitation of the exemption to a given territorial jurisdiction - which does not cover leisure vessels owned by residents on the mainland - flows also from the singularities of commercial shipping and the exercise of this activity in relation to the use of leisure vessels.
Indeed, the reality and activity of commercial shipping is, as follows from the above-quoted preamble, endowed with some specificities. Therefore, even if the exemption regime provided for in the ISRM-MAR is considered applicable to leisure vessels, by virtue of Decree-Law n.º 92/2003, of 22 August, the application of the said regime must be made with particular caution, since the regime provided for in Decree-Law n.º 96/89, of 28 March, ensures that the beneficiary of the exemption has permanent representation in the Autonomous Region of Madeira.
In fact, it follows from article 17.º, n.º 3 of Decree-Law n.º 96/89, of 28 March: "[i]n cases where the domicile or registered office of the entities referred to in the previous number, which have as their purpose the maritime transport industry or recreational shipping, is located outside the Autonomous Region of Madeira, the requirements referred to in n.ºs 2 and 3 of article 11º shall be complied with."
Article 11.º, n.º 2 of Decree-Law n.º 96/89, of 28 March, also provides that "[i]n cases where the registered office is located outside the Autonomous Region of Madeira, those entities must have locally a branch, delegation, agency or any other form of representation, equipped with all the powers necessary to, before the authorities of the State or the Autonomous Region of Madeira and before third parties, ensure full representation, with choice of particular domicile for this purpose."
In summary, the interpretation to be made of "local taxes", in its application to leisure vessels, must therefore take into account the systematic integration and the reason for being of the exemption itself.
It should also be noted that the connection of the exemption to a given territorial area is further reinforced by article 15.º of the said regime itself, which draws this connection (between taxing power and territory):
"Municipalities have taxing powers relating to taxes and other duties to whose revenue they are entitled, namely:
(...)
b) Possibility of assessment and collection of taxes and other duties to whose revenue they are entitled, on terms to be defined by specific legal instrument;
c) Possibility of compulsory collection of taxes and other duties to whose revenue they are entitled, on terms to be defined by specific legal instrument;
d) Granting of exemptions and tax benefits, on terms of n.º 2 of the following article;
e) Compensation for the granting of tax benefits relating to taxes and other duties to whose revenue they are entitled, by the Government, on terms of n.º 4 of the following article;
f) Other powers provided for in tax legislation." (underlined and bold ours).
Further, pursuant to article 16.º, n.º 2 of the same regime, "[t]he municipal assembly, by proposal of the municipal chamber, approves a regulation containing the criteria and conditions for the recognition of total or partial, objective or subjective exemptions, relating to taxes and other duties of its own."
The very subparagraph b) of n.º 8 of article 5.º of the SCT Code makes a connection between exemption and territory, referring that: "[a]re exempt from 50% of the tax the following vehicles: vehicles of categories C and D that carry out transport exclusively within the territorial area of an autonomous region."
Therefore, without prejudice to neither article 24.º, n.º 1 of Decree-Law n.º 96/89, of 28 March, nor subparagraph d) of article 7.º of Decree-Law n.º 165/86, of 26 June, making restrictions as to the territorial scope of application, from the combined reading of the said Decrees-Law, as well as the SCT Code and the Financial Regime of Local Authorities and Intermunicipal Entities, it follows that local taxes owned by mainland municipalities will not be exempt.
In this way, it is considered that the exemption provided for in article 7.º, subparagraph d) of Decree-Law n.º 165/86, of 26 June, is not applicable in the specific case, and the ex officio assessment of SCT should be upheld as described above.
INDEMNITY INTEREST
In the case under analysis, there being no annulment of the ex officio assessment act, there is no entitlement to reimbursement of the tax paid, by application of articles 24.º, n.º 1, subparagraph b) of the LRATM and 100.º of the GTL.
DECISION
Under these terms, this Arbitral Tribunal decides to judge the arbitral claim as unfounded and, in consequence:
Maintain the assessment of SCT effected through Official Letter n.º..., of 15 December 2017, relating to the years 2015, 2016 and 2017, corresponding, respectively, to document n.º 2015... (payment reference n.º...), in the amount of €2,998.74, including compensatory interest in the amount of €294.84, payment document n.º 2016... (payment reference n.º...), in the amount of €2,952.98, including compensatory interest in the amount of €207.32, and, finally, n.º 2017... (payment reference n.º...), in the amount of €2,864.77, including compensatory interest in the amount of €98.23, as well as in the condemnation to reimbursement of the amounts unduly paid plus indemnity interest;
Condemn the Respondent to payment of the costs of the proceedings, fixing the amount of €918.00, to be borne by the Respondent.
D. VALUE OF THE PROCEEDINGS
The value of the proceedings is fixed at €8,816.49, pursuant to article 97.º-A, n.º 1, subparagraph a), of the Tax Procedure Code, applicable by virtue of subparagraphs a) and b) of n.º 1 of article 29.º of the LRATM and n.º 2 of article 3.º of the Regulation of Costs in Tax Arbitration Proceedings.
E. COSTS
The amount of the arbitration fee is fixed at €918.00 pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, pursuant to articles 12.º, n.º 2, and 22.º, n.º 4, both of the LRATM, and article 4.º, n.º 4, of the said Regulation.
Notify accordingly.
Lisbon, 4 January 2019
The Arbitrator
(Leonardo Marques dos Santos)
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