IUC Subjective Incidence & Legal Presumptions: CAAD Case 677/2014-T Annulment of 86 Tax Assessments

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 677/2014-T

Subject Matter: IUC: subjective scope; legal presumptions

Claimant – A…-…, S.A.

Respondent – TAX AND CUSTOMS AUTHORITY

The Arbitrator appointed - Maria de Fátima Alves

1 REPORT

1.1 A…-…, S.A., with TIN: …, Claimant in the tax proceedings above referenced, hereinafter denominated "Claimant", came, pursuant to the combined provisions of articles: 2º, no. 1 letter a) and 10º of Decree-Law no. 10/2011, of 20 January (hereinafter RJAT), of article 99º of the Tax Procedure and Process Code (CPPT) and of article 95º, nos. 1 and 2 letter d) of the General Tax Law (LGT), to request the establishment of a Singular Arbitral Tribunal, with a view to:

• The annulment of 86 tax assessment acts relating to the Single Circulation Tax (hereinafter designated as IUC), carried out by the Tax Authority (hereinafter TA), referring to the year 2014, contained in document no. 4, attached to the Request for Arbitral Pronouncement, and of which forms an integral part the listing concerning the numbers of said assessments and registration numbers of each vehicle to which the said IUC payment corresponds.

• The claim for refund of the total amount of €6,334.75, unduly paid by the Claimant and compensatory interest as provided for in article 43º of the LGT and article 61º of the CPPT.

1.2 Pursuant to the provisions of letter a) of no. 2 of article 6º and letter b) of no. 1 of article 11º of Decree-Law no. 10/2011, of 20 January, in the wording introduced by article 228º of Law no. 66-B/2012, of 31 December, the Deontological Board appointed as sole arbitrator Maria de Fátima Alves, who communicated acceptance of the assignment within the applicable period;

• On 31-10-2014 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 11º no. 1 letters a) and b) of the RJAT and articles 6º and 7º of the Code of Deontology,

• Wherefore, the arbitral tribunal was constituted on 20-11-2014, as stipulated in letter c) of no. 1 of article 11º of Decree-Law no. 10/2011, of 20 January, in the wording introduced by article 228º of Law 66-B/2012, of 31 December.

1.3 The Claimant, in the substantiation of its request for arbitral pronouncement, alleges, in summary, the following:

• The vehicles to which the single circulation tax assessment and identified in document nos. 4, attached to the Request for Pronouncement, when notified of their respective assessments, were not the property of the Claimant for the following reasons;

• The Claimant is a credit institution, whose corporate purpose, with legally provided exceptions, consists in the activities permitted to banks, as per document no. 3, attached to the present Request;

• It further appears from document no. 2 (attached to the Request), that the Claimant assumed the assets and liabilities, rights and responsibilities of B…-…, LDA, in the year 2004;

• Wherefore the Claimant is a legitimate party in the present proceedings, "insofar as concerns the discussion of the legality of the IUC assessments that are issued in the name of the company that the same incorporated by merger";

• In any event, legal ownership did not belong, in fact, to the Claimant, inasmuch as 76 vehicles were sold by A…, at a date prior to 2014 and the remaining 11 vehicles were leased under a financial lease arrangement during the financial year 2014, cf., doc. 6;

• Being, therefore, the Claimant, at the moment of the facts, the lessor entity, resulting therefrom, that this one never enjoyed the use of the vehicles, as these were, being used, solely and only, by the lessees;

• Wherefore, at the date of the tax facts, the Claimant could not be considered a taxable person regarding the tax, a fact which precludes any subjective liability for its payment;

• The Claimant grounds its position on the fact that the 11 motor vehicles taxed are comprised within the scope of financial lease contracts, which, in our legal system, presupposes to the lessee the exclusive enjoyment of the leased asset, cf., doc. 7;

• Factual situation which removes the Claimant from being the owner of the vehicles on the date the respective tax became due;

• Not being, therefore, responsible for any amount;

• Moreover, it should be added that the disputed question is limited to the interpretation of article 3º of the CIUC;

• To which are common the 86 tax assessment acts of IUC, sub judice

"Not being, therefore, responsible for the payment of any amount".

1.4 The Respondent, Tax and Customs Authority (hereinafter designated as TA), presented a response, from which it appears that the disputed tax acts do not suffer from any defect of violation of Law, pronouncing itself in favour of the inadmissibility of the claim and the maintenance of the questioned assessment acts, defending, summarily, the following:

• That the allegations of the Claimant, relating to the disputed facts, "cannot be upheld, inasmuch as they make an interpretation and application of the legal norms applicable to the case, sub judice, notoriously erroneous";

• Since "the understanding propounded by the Claimant derives from a biased reading of the letter of the law, violating the unity of the regime established throughout the CIUC and, more broadly, throughout the entire legal-fiscal system, but also of an interpretation that ignores the ratio of the regime established in the article in question, and likewise throughout the CIUC".

1.5 The meeting provided for in article 18º of the RJAT took place on 02-03-2015, where it was decided by the Tribunal, with the agreement of the parties, to dispense with the examination of witnesses;

• The illustrious Counsels of the parties presented, orally, their arguments;

• The Tribunal, in compliance with the provisions of article 18º, no. 2 of the RJAT, designated up to 20-04-2015 for the purposes of rendering the arbitral decision.

2 ISSUES TO BE DECIDED

2.1 In view of what is stated in the preceding numbers, regarding the presentation of the parties and the arguments presented, the main issues to be decided are as follows:

• The allegation made by the Claimant relating to the material assessment of the 86 assessment acts relating to the year 2014 concerning the IUC on the vehicles above referenced in the Request;

• The rebuttable presumption of article 3º of the CIUC;

• The erroneous interpretation and application of the norms concerning subjective scope of the single circulation tax assessed and collected, which constitutes the central issue to be decided in the present proceedings;

• The legal significance of the registration of motor vehicles.

3 STATEMENT OF FACTS

3.1 In matters of fact, relevant to the decision to be rendered, this Tribunal considers as established, in light of the evidence in the record, the following facts:

• The Claimant presented evidentiary elements contained in documents nos. 2, 3, 4, 6 and 7, attached to the Request, which are considered fully reproduced for all legal purposes.

3.1.1 SUBSTANTIATION OF THE FACTS FOUND

• The facts found are based on the documents annexed to the request for arbitral pronouncement of the above-mentioned Request, which are considered fully reproduced for all legal purposes.

3.1.2 FACTS NOT FOUND

• There are no facts found as not established, given that all facts deemed relevant to the appraisal of the claim were found.

4 LEGAL GROUNDS

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

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

• The proceedings do not suffer from any procedural defects.

4.2 The claim, object of the present proceedings, is the declaration of annulment of the IUC assessment acts relating to motor vehicles better identified in the documents attached to the respective Request;

4.2.1 Condemnation of the TA to refund the amount of the tax relating to such assessments in the amount of €6,334.75;

4.2.2 Condemnation of the TA to payment of compensatory interest on the same amounts.

4.3 The factual matter is fixed, as stated in no. 3.1 above, and it now becomes necessary to determine the law applicable to the underlying facts, in accordance with the issues to be decided, identified in no. 2.1 above, being certain that the central issue in the present proceedings, as to which there are absolutely opposed understandings between the Claimant and the TA, consists in knowing whether no. 1 of article 3º of the CIUC relating to the subjective scope of the single circulation tax establishes or not a rebuttable presumption.

4.4 All considered and, taking into account, on the one hand, the positions of the parties in confrontation, mentioned in points 1.3 and 1.4 above and, considering, on the other hand, that the central issue to be decided is whether no. 1 of article 3º of the CIUC establishes or not a legal presumption of tax scope, it is necessary, in this context, to consider and render a decision.

5 THE QUESTION OF ERRONEOUS INTERPRETATION AND APPLICATION OF THE NORM CONCERNING SUBJECTIVE SCOPE OF THE IUC

5.1 Considering it to be undisputed in doctrine that in the interpretation of tax laws the general principles of interpretation apply fully, which will be, only and naturally, limited by the exceptions and particularities dictated by the law itself being interpreted. This is an understanding that has come to be accepted in the General Tax Laws of other countries and that has also come to be established in article 11º of our General Tax Law, which has, moreover, been frequently underscored by case law.

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

• Regarding the interpretation of tax law, one must consider case law, namely the Judgments of the Supreme Administrative Court of 05-09-2012, case no. 0314/12 and of 06-02-2013, case 01000/12, available at www.dgsi.pt, the importance of the provisions of article 9º of the Civil Code (CC), as a fundamental element of legal hermeneutics;

• Article 3º, no. 1 of the CIUC provides that "The taxable persons of the tax are the owners of vehicles, being considered as such the natural or legal persons, of public or private law, in whose name the same are registered";

• The formulation used in the said article resorts to the expression "being considered" which raises the question of whether to such expression can be attributed a presumptive sense, equating itself to the expression "being presumed", these are expressions frequently used with equivalent meanings;

• As teaches Jorge Lopes de Sousa, in Tax Procedure and Process Code, Annotated and Commented, volume I, 6th Edition, Área Editora, SA, Lisbon 2011, p. 589, that in matters of tax scope, presumptions can be revealed by the expression "it is presumed" or by a similar expression, therein mentioning various examples of such presumptions, referring to that contained in article 40º, no. 1 of the Corporate Income Tax Code, in which the expression "it is presumed" is used and that contained in article 46º no. 2 of the same Code, in which use is made of the expression "it is considered", as an expression with an effect similar to that one and embodying, likewise, a presumption;

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

• The use of the expression "being considered" was intended only to establish a more marked and clear approximation between the taxable person of the IUC and the actual owner of the vehicle, which is in line with the reinforcement conferred on vehicle ownership, which now became the taxable event, pursuant to article 6º of the CIUC;

• The relevance and interest of the presumption in question, which historically was revealed through the expression "being presumed" and which now resorts to the expression "being considered", resides in the truth and justice which, by this means, is conferred on tax relations and which embody fundamental tax values, allowing the taxation of the real and actual owner and not that which, due to circumstances of a different nature, is often no more than an apparent and false owner. If the case were not thus considered, not admitting and pointing out the presentation of evidentiary elements intended to demonstrate that the actual owner is, in fact, a person different from that which appears in the registration and who was initially, and in principle, presumed to be the true owner, those values would be objectively set aside.

5.2 One must also consider the principle of equivalence, inscribed in article 1º of the CIUC, which has underlying the polluter-pays principle and embodies the idea therein inscribed that whoever pollutes must, therefore, pay. The said principle has constitutional basis, insofar as it represents a corollary of the provisions of letter h) of no. 2 of article 66º of the Constitution, and also has basis in Community law, whether at the level of primary law, article 130º-R, of the Treaty of Maastricht (Treaty on European Union, of 07-02-1992), where the said principle came to be enshrined as the support for Community Policy in the field of the environment and which aims to make responsible those who contribute to the harm that accrues to the community resulting from the use of motor vehicles, that these are assumed by their owner-users as costs that only they must bear.

5.3 Considering the facts described above, it is important to note that the aforementioned elements of interpretation, whether those related to literal interpretation, supported by the words legally used, whether those relating to the logical elements of interpretation, of a historical nature or of a rational order, all point in the direction that the expression "being considered" has a meaning equivalent to the expression "being presumed", and therefore it should be understood that the provisions of no. 1 of article 3º of the CIUC establishes a legal presumption which, in light of article 73º of the LGT, where it is established that "The presumptions established in the norms of tax scope always admit proof to the contrary", will necessarily be rebuttable, which means that the taxable persons are, in principle, the persons in whose name such vehicles are registered. These shall be, therefore, the persons identified in these conditions to whom the TA must necessarily direct itself:

• But it will be, in principle, given that within the framework of prior hearing, of mandatory character, in light of the provisions of letter a) of no. 1 of article 60º of the LGT, the tax relationship may be reconfigured, validating the taxable person initially identified or redirecting the procedure in the direction of that which is, in fact, the true and actual taxable person of the tax in question;

• The taxpayer has the right to be heard through prior hearing (José Manuel Santos Botelho, Américo Pires Esteves and José Cândido de Pinho, in Tax Procedure Code, Annotated and Commented, 4th edition, Almedina, 2000, annotation 8 of article 100º);

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

6 CONCERNING THE LEGAL SIGNIFICANCE OF REGISTRATION

6.1 Regarding the legal significance of registration, it is important to note what is established in no. 1 of article 1º of Decree-Law no. 54/75, of 12 February (amended several times, most recently by Law no. 39/2008, of 11 August), when it stipulates that "the registration of vehicles has essentially as its purpose to give publicity to the legal situation of motor vehicles and their trailers, with a view to ensuring the security of legal transactions":

• Article 7º of the Land Registry Code (CRP), applicable supplementarily to vehicle registration, by force of article 29º of the Vehicle Registry Code (CRA), provides that "Definitive registration constitutes a presumption that the right exists and belongs to the registered holder, in the precise terms in which the registration defines it";

• Definitive registration is no more than a rebuttable presumption, thus admitting counterproof, as follows from the law and case law has been pointing out, and can be seen, among others, in the Judgments of the Supreme Court of Justice no. 03B4369 of 19-02-2004 and no. 07B4528, of 29-01-2008, available at: www.dgsi.pt;

• Therefore, the function legally reserved to registration is on one hand that of giving publicity to the legal situation of assets, in the case in question, of vehicles and, on the other hand, allows us to presume that the right exists over those vehicles and that it belongs to the holder as such registered in the registration, it does not have a constitutive nature of the right of ownership, but only declarative, hence the registration does not constitute a condition of validity of the transmission of the vehicle from seller to buyer;

• The acquirers of vehicles become owners of those same vehicles by means of the celebration of the corresponding purchase and sale contracts, with or without registration;

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

• In light of the above, it becomes clear that the legislative intent points in the direction that the provisions of no. 1 of article 3º of the CIUC establishes a presumption "juris tantum", consequently rebuttable, thus allowing that the person who, in the registration, is registered as the owner of the vehicle, may present evidentiary elements intended to demonstrate that such ownership is inserted in the legal sphere of another person, to whom the ownership was transferred;

• What in respect to the disputed facts, there are the transfer of ownership by the Claimant to third parties. Evidentiary elements that were found by the Claimant, as per documents attached to the request for arbitral pronouncement, establishing, therefore the certainty that it belongs to the new owners (the third parties) the subjective responsibility for the IUCs, pursuant to no. 1 of article 3º of the CIUC.

7 THE PRESUMPTION OF ARTICLE 3º OF THE CIUC AND THE DATE ON WHICH THE IUC BECOMES DUE

7.1 DATE ON WHICH THE IUC BECOMES DUE

• The IUC is a tax of periodic taxation, whose frequency corresponds to the year which begins on the date of registration or on each of its anniversaries, as provided for in nos. 1 and 2 of article 4º of the CIUC;

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

• It being noted that, regarding the assessment of IUC taxed on the Claimant over the vehicles above referenced, in the years 2013 and 2014, these are not to be considered, because at the moment of the tax facts, the vehicles in question were in the legal sphere of new owners and equivalent owners, as per the evidentiary elements presented by the Claimant attached to the request for arbitral pronouncement, and these are responsible for payment of the obligation of the said tax.

7.1.1 Regarding the burden of proof, article 342º no. 1 of the CC stipulates "it is incumbent on that who invokes a right to prove the constitutive facts of the alleged right";

7.1.2 Also article 346º of the CC (counterproof) determines that "to the proof that is produced by the party on whom the burden of proof rests, the other party may oppose counterproof regarding the same facts, intended to render them doubtful; if it succeeds, the issue is decided against the party burdened with proof." (As states Anselmo de Castro, A., 1982, ED. Almedina Coimbra, "Declaratory Civil Procedure", III, p. 163, "with the burden of proof resting on one of the parties, it is sufficient for the other party to oppose counterproof, which is a proof intended to render doubtful the facts alleged by the first").

Thus, in the case at hand, what the Claimant must prove, in order to rebut the presumption arising both from article 3º of the CIUC and from the Vehicle Registration itself, is that it, the Claimant, was not the owner of the vehicles in question during the period to which the challenged assessments relate. It proposes to prove, as results from the record, that the ownership of the vehicles did not belong to it during the periods to which the assessments relate (year 2014).

7.2 REBUTTAL OF THE PRESUMPTION

• The Claimant, as referred to in 3.1., regarding the facts found, alleged, with the purpose of removing the presumption, not to be a taxable person of the tax upon the occurrence of the tax facts, offering for this purpose the following documents;

• Documents consisting of the invoice of sale of vehicles (doc. 6) in order to prove that A… was not the owner, "on the date of the anniversary of the registration of the respective vehicles" and, on the date of the assessments in question, the 11 vehicles were in the possession of the lessees due to the transfer of ownership of said vehicles (doc. 7);

• Now, those documents enjoy the presumption of truthfulness provided for in no. 1 of article 75º of the LGT. From this it follows that on the date the IUC was due the person who held ownership of the motor vehicles was not the Claimant.

8 OTHER ISSUES RELATING TO THE LEGALITY OF THE ASSESSMENT ACTS

• Regarding the existence of other issues pertaining to the legality of the assessment acts, taking into account that it is inherent in the establishment of an order of knowledge of defects, as provided for in article 124º of the CPPT, that proceeding with the request for arbitral pronouncement based on defects that prevent the renewal of the challenged assessments, it is rendered moot, because useless, the knowledge of other defects, it does not appear necessary to consider the other issues raised.

9 REFUND OF THE TOTAL AMOUNT PAID

• Pursuant to the provisions of letter b) of no. 1 of article 24º of the RJAT and, in accordance with what is established therein, the arbitral decision on the merits of the claim that no appeal or challenge may be brought, binds the tax administration from the end of the period provided for appeal or challenge, and this must, in the exact terms of the success of the arbitral decision in favour of the taxable person and up to the end of the period provided for voluntary compliance with the judgments of the tax courts "Reestablish the situation that would have existed if the tax act, object of the arbitral decision, had not been undertaken, adopting the acts and operations necessary for this purpose";

• These are legal commands that are in full harmony with the provisions of article 100º of the LGT, applicable to the case, ex vi, the provisions of letter a) of no. 1 of article 29º of the RJAT, in which it is established that "The tax administration is obliged, in case of total or partial success of claims or administrative appeals or judicial proceedings in favor of the taxable person, to the immediate and full reestablishment of the situation that would have existed if the illegality had not been committed, corresponding the payment of compensatory interest, under the terms and conditions provided for by law";

• The case contained in the present proceedings raises the manifest application of the mentioned norms, insofar as as a consequence of the illegality of the assessment acts referenced in this proceeding, by force of those norms, there must be a refund of the amounts paid, whether as the tax paid, whether of the corresponding compensatory interest, as a means to achieve the reestablishment of the situation that would have existed if the illegality had not been committed.

10 CONCERNING THE RIGHT TO COMPENSATORY INTEREST

• The declaration of illegality and consequent annulment of an administrative act confers on the addressee of the act the right to the reintegration of the situation in which the same would have found itself prior to the execution of the annulled act;

• Within the scope of tax assessment, its annulment confers on the taxable person the right to the restitution of the tax paid and, as a rule, the right to compensatory interest, pursuant to no. 1 of article 43º of the LGT and article 61º of the CPPT;

• Wherefore the Claimant has the right to compensatory interest on the amount of tax paid relating to the annulled assessments.

11 DECISION

In view of the above, this Arbitral Tribunal decides:

• To judge as well-founded the claim for declaration of illegality of the IUC assessment relating to the year 2014, regarding the motor vehicles identified in the present proceeding, annulling consequently the corresponding tax acts;

• To judge as well-founded the claim for condemnation of the Tax Administration to refund the amount unduly paid in the sum of 6,334.75 euros, condemning the Tax and Customs Authority to effect these payments.

VALUE OF THE CASE: In accordance with the provisions of articles 306º no. 2 of the Code of Civil Procedure and 97º-A, no. 1 of the CPPT and article 3º, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at €6,334.75.

COSTS: In accordance with no. 4 of article 22º of the RJAT, the amount of costs is fixed at €612.00, pursuant to Table I, annexed to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Tax and Customs Authority.

Let the parties be notified.

Lisbon, 20-04-2015

The Arbitrator

Maria de Fátima Alves

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