IUC Tax on Leased Vehicles: Validity of Leasing Contracts and Tax Liability (CAAD 741/2016-T)

ARBITRAL DECISION

I REPORT

Subject Matter of the Request and Constitution of the Arbitral Tribunal

1. A... sa, Legal Entity no. …, with registered office at Rua …, no. …, … – …, in Lisbon, hereinafter referred to as the "Claimant", filed a request for constitution of a single arbitral tribunal, under the provisions of Article 10 and point a), paragraph 1, of Article 2, of the Legal Framework for Tax Arbitration, approved by Decree-Law no. 10/2011, of 20 January, hereinafter referred to as "RJAT", in which the Tax and Customs Authority is named as respondent, hereinafter designated as "Respondent" or "AT", with a view to annulling, on grounds of illegality, 104 assessments of the Single Motor Vehicle Tax (IUC), relating to seventy-seven motor vehicles, for the years 2010, 2011 and 2012, plus compensatory interest, as well as the decision dismissing the hierarchical appeal rendered on the request for official revision of these assessment acts. The total global value, tax and interest, initially stated in the request was €10,758.67, as shown in the table attached as Annex A to the arbitral pronouncement request, which is here reproduced in full.

2. The request for constitution of the Arbitral Tribunal, presented on 15-12-2016, was accepted on the same date by His Excellency the President of CAAD and automatically notified to the respondent AT. The Claimant opted not to appoint an arbitrator, and therefore, under the provisions of paragraph 1 of Article 6 of the RJAT, the undersigned was appointed on 08-02-2017 by the Ethics Council of the Center for Administrative Arbitration as arbitrator of the single arbitral tribunal. The appointment was accepted and the parties, having been notified of the acceptance, did not refuse the appointment, in accordance with the provisions of points a) and b) of paragraph 1 of Article 11 of the RJAT, in conjunction with the provisions of Articles 6 and 7 of the Code of Ethics.

Thus, in accordance with the provision of point c) of paragraph 1 of Article 11 of the RJAT, the single Arbitral Tribunal was constituted on 23-02-2017.

On 25-02-2017 the respondent "AT" was notified to submit its response within the statutory period, in accordance with paragraphs 1 and 2 of Article 17 of the RJAT.

On 27-03-2017 the AT filed its Response, accompanied by the respective Administrative File (PA).

On 27-04-2017 an arbitral order was issued as follows: "Considering the pleadings filed and the witness testimony indicated by the Claimant, the next hearing is scheduled for 10 May 2017, at 14:30, for the holding of the meeting provided for in Article 18 of the RJAT, intended for the examination of witnesses and other matters provided for in paragraphs 1 and 2 of the same legal provision. In case of impossibility, the parties must indicate three alternative dates."

On 3-05-2017 the AT filed a motion pointing out that neither the arbitral order nor any other procedural act carried out by the Claimant clarifies which subject matter(s) of the evidence are related to the witness testimony. It further alleges that witness testimony is not an admissible means of proof for the verification of the causes of extinction of obligations. Finally, it alleges the lack of documents in the list indicated by the Claimant and suggests dispensing with the meeting provided for in Article 18 of the RJAT, as is evident from the arbitral order issued in another arbitral case, which it cited and filed.

On 05-05-2017 the following arbitral order was issued:

"Considering the motion presented by the Respondent, it is clarified that, as results from Article 18 of the RJAT, the first meeting of the arbitral tribunal is intended, precisely, to:

a) Define the procedural process to be adopted depending on the circumstances of the case and the complexity of the proceedings;

b) Hear the parties as to any exceptions that may need to be considered and decided before deciding on the merits of the claim; and

c) Invite the parties to correct their procedural documents, when necessary"

In the present case the meeting is also intended to examine the witnesses indicated by the Claimant, and nothing prevents the indication of the factual matter to which the examination will relate from being done at the meeting itself. All the questions mentioned by the Respondent in the motion presented can and must be clarified at the 1st meeting, already previously scheduled by the tribunal for that purpose, including the indication of the factual matter to which it intends to examine the witnesses indicated.

To date the Claimant has not waived the examination of the witnesses, and therefore the scheduled meeting is maintained, which is intended to resolve all questions that prove relevant, including those that the Respondent mentions in its Response and in the Motion now presented."

On 08-05-2017 the Claimant filed a motion and presented documents 101 to 130, due to failure to submit them with the arbitral petition. In the same motion it reinforced the necessity of the meeting referred to in Article 18, on the grounds that:

…"with regard to the fulfilment of such obligation, the same cannot be susceptible to documentary proof, insofar as the Tax and Customs Authority does not provide any proof that would allow attesting to its fulfilment. Indeed, the communication obligation in question is fulfilled electronically, through the Tax Portal, and it is not possible to extract from said portal any proof of compliance therewith. Thus, the Claimant, in order to prove fulfilment of the obligation in question, only has witness testimony, a means of proof that has already been admitted for this matter in numerous cases that have proceeded in this Center for Administrative Arbitration.

Now, if the production of such proof is not permitted, it will find itself in a situation of not impossible proof, but impossible proof, insofar as, if it is understood that the fulfilment of such obligation can only be demonstrated documentarily, it does not have any means to do so. However, should this Learned Arbitral Tribunal come to understand that the fulfilment of the obligation – accessory – stipulated in Article 19 of the IUC can only be demonstrated documentarily, the Claimant hereby requests that the AT be notified to come file a document that demonstrates, unequivocally, the fulfilment or non-fulfilment thereof by the Claimant. In this case, we are dealing with a matter regulated by the Code of Civil Procedure (CPC, hereinafter) – applicable to the present case by virtue of the provision of point e), paragraph 1 of Article 29 of the RJAT – more precisely, in its Articles 429 and following. This legal provision (Article 429 of the CPC) provides that "when one wishes to make use of a document in the possession of the opposing party, the interested party requests that it be notified to present the document within the designated period; in the motion, the party identifies the document as far as possible and specifies the facts that it wishes to prove with it" and that "if the facts that the party intends to prove are of interest to the decision of the case, notification is ordered".

Now, in these terms, and since the facts intended to be proved have relevance to the decision of the case – the fulfilment of the obligation contained in Article 19 of the IUC which, despite having an accessory nature and never being able to have an impact on the determination of the taxable person –, the Tribunal should proceed to notify the Respondent to file a document proving compliance by the Claimant with the obligation in question.

It should be so, all the more so since it is documentation necessary to rebut the allegations by the Respondent that the Claimant would not have complied with the accessory obligation incumbent upon it.

If the Respondent is notified for that purpose and does not comply with the obligation incumbent upon it to file documents pertaining to the fulfilment by the Claimant of the obligation under Article 19 of the IUC Code, being documentation that may be crucial to the proof by the Claimant that it complied with the accessory obligation in question – and, thus, to rebut the allegations by the AT in Article 119 of its response – the Claimant understands that the Learned Tribunal should apply, with respect to this fact, the regime contained in paragraph 2 of Article 344 of the Civil Code (applicable by virtue of Articles 430 and 417, paragraph 2 of the CPC), considering as proved the fulfilment by the Claimant of the obligation contained in Article 19 of the IUC Code unless the Respondent succeeds in demonstrating the contrary. (…)"

Also in this motion, the claimant alleges that the jurisprudence of CAAD has repeatedly pronounced itself on the nature of such obligation (accessory), being practically unanimous that its fulfilment (or lack thereof) could never have consequences for the subjective scope of the tax. "In this sense, see, among others, the Decision rendered in the arbitral case no. 655/2015-T (Arbitrator Nina Aguiar), in which it was established, with respect to the obligation under Article 19 of the IUC Code, that '[n]on-compliance with an accessory obligation cannot determine the subjective scope of the tax, strictly subject as it is to the principle of tax legality, unless such is clearly determined by law'.

In summary, the Claimant came to argue that, being unaware of the Tribunal's position on the question of whether the obligation under Article 19 of the IUC Code can or cannot influence the determination of the taxable person, the necessity of holding the meeting referred to in Article 18 of the RJAT for the examination of the witnesses listed appears essential to demonstrate compliance with such obligation (provided for in Article 19 of the IUC Code). And, it adds, bearing in mind that the production of witness evidence appears necessary not only for the demonstration of compliance with the obligation under Article 19 of the IUC Code, but also regarding the other facts at issue in the case. Finally, also in the same motion, it filed the 30 (thirty) documents which, due to an oversight, did not follow with the Arbitral Petition. It concluded by requesting postponement of the meeting so as to permit the AT to exercise proper adversarial proceedings with respect to them.

On 08-05-2017 an arbitral order was issued admitting the filing of the 30 documents by the claimant, setting a deadline of 10 days for the AT to pronounce itself on them and come to clarify whether or not there was documentation proving compliance with the obligation referred to in Article 19 of the CIUC and provide the information contained in the portal on this matter. The scheduling of the meeting scheduled for 10/05/2017 was suspended pending the AT's pronouncement.

The respondent AT responded on 23-05-2017, in accordance with the motion filed, which is reproduced herein. It further requested an extension of the deadline for filing the information from the platform regarding compliance with the obligation under Article 19 of the CIUC.

On 25-05-2017 an arbitral order was issued granting the request, granting the AT an additional 10 days to file the information requested. On 23-06-2017 the AT filed a clarification from the services, without any supporting documentation relating to the claimant, and reiterated the thesis of inadmissibility of witness testimony.

On 23-06-2017 the following arbitral order was issued:

"Considering the pleadings filed, the motions presented by the Claimant and the Respondent, respectively on 08-05-2017 and 07-06-2017, it appears pertinent that witness testimony be produced, as well as to ensure full and proper adversarial proceedings regarding the factual matters to be established.

Accordingly, the date of 7 July 2017, at 2 p.m., is set for the holding of the meeting referred to in Article 18 of the RJAT, which is intended:

a) For the examination of witnesses as to the factual matter to be indicated by the Claimant, within five days after the present order.

b) Production of oral arguments and other relevant matters, in accordance with paragraph 2 of Article 18 of the RJAT.

c) Subsequent procedural process."

On 07-07-2017 the scheduled meeting was held, as is evident from the minutes, which are filed and reproduced herein. At the meeting held, without the presence of AT representatives, the claimant waived witness testimony and final arguments and withdrew its claim regarding the assessment acts mentioned in Articles 86 to 103 of the response and the three assessment acts mentioned in the motion of 22-05-2017, and maintained its claim regarding the remaining 84 IUC assessments contested.

The total value of these assessments is €844.32, thus reducing the claim to €9,914.35.

The Tribunal admitted the withdrawal of the claim with the corresponding reduction in value.

The tribunal also requested the sending of procedural documents in Word format and extended the deadline for decision in the case by an additional two months from the end of the deadline, in accordance with the provisions of Article 21, paragraph 2 of the RJAT. It set as the expected date for issuance of the judgment 25-09-2017 and cautioned the Claimant regarding the payment of the subsequent arbitral fee.

Regarding Procedural Requirements

1. The Arbitral Tribunal is regularly constituted and materially competent, in accordance with Article 2, paragraph 1, point a) of Decree-Law no. 10/2011, of 20 January.

The Parties have legal personality and capacity, are legitimate and are legally represented.

As to the cumulation of claims, seeking the joint assessment of the legality of the IUC assessments relating to the years 2010, 2011 and 2012, despite constituting autonomous acts, the prerequisites required by paragraph 1 of Article 3 of the RJAT and Article 104 of the CPPT are met, and cumulation is to be admitted. Thus, in the same arbitral request the cumulation of claims for declaration of illegality of all tax assessment acts for IUC and their corresponding compensatory interest is accepted, given the identity of the tax and the fact that assessment of the tax acts in question depends on assessment of the same factual circumstances and application of the same legal rules.

There are no procedural nullities that would invalidate the proceedings and no exceptions have been raised that would prevent judgment on the merits of the case, and therefore the Tribunal is in a position to render the arbitral decision.

REGARDING THE CLAIM FILED BY THE CLAIMANT

1. The Claimant files the present arbitral pronouncement request seeking the illegality and consequent annulment of the act dismissing the hierarchical appeal presented, following dismissal of the request for revision of the tax assessment acts it contests, alleging in summary the following:

• The Claimant is a credit institution with a strong presence in the national market, whose activity consists of financing the acquisition of motor vehicles through the conclusion, among others, of lease contracts intended for the acquisition, by companies and individuals, of motor vehicles;

• In the present case, all the contested assessment acts originate exclusively from the single motor vehicle tax on motor vehicles subject to a financial leasing contract;

• During the period stipulated in the contract the lessee maintains temporary use of the vehicle – which remains the property of the Claimant – through payment made to the Claimant in the form of rent;

• Such leasing that was in effect in the year in which the IUC obligation associated with the respective vehicle became due, with the exception of contracts regarding which the Claimant withdrew its claim.

• On the date of the tax facts, the Claimant was merely the lessor of the motor vehicles identified in the contested assessments and therefore was not subject to the scope of IUC. Despite this, the Claimant made full payment thereof, including interest, and subsequently requested revision of the tax assessment acts. This request for revision was dismissed by the AT. The Claimant filed a hierarchical appeal which was also dismissed, followed by the presentation of the request for constitution of an Arbitral Tribunal.

The Claimant invokes extensive legal reasoning to support its arbitral pronouncement request. However, the essential question rests, in summary, on the allegation that the Claimant cannot be considered the taxable person for IUC with reference to the vehicles and years in question, by virtue of its position as lessor of the said vehicles, through a contract concluded in the exercise of its economic activity.

It invokes in defence of its position numerous case law, particularly arbitral, according to which, during the validity of a financial lease contract the lessor entity, despite being the holder of legal ownership of the vehicles, should not be considered the taxable person for IUC. It concludes by petitioning for the declaration of illegality and consequent annulment of the contested tax acts.

D) – THE RESPONSE OF THE RESPONDENT

1. The Respondent, within the statutory period, presented its response and filed the respective administrative file (PA). In summary, it alleges in defence of the legality of the contested acts that the Claimant is not correct, whose understanding incurs a skewed reading of the letter of the law, an interpretation that does not regard the systematic element, that violates the unity of the regime enshrined throughout the CIUC and, more broadly, throughout the entire tax-legal system that is based on an interpretation contrary to the Constitution. It bases its allegation on the provisions of paragraphs 1 and 2 of Article 3 of the CIUC, which respectively provide that "The taxable persons of the tax are the owners of the vehicles, being considered as such the natural or legal persons, of public or private law, in whose name the same are registered" and that the taxable persons for IUC are "the owners (or in the situations provided for in paragraph 2, the persons mentioned therein), being considered as such the persons in whose name the same are registered".

In addition to all of this, it understands that lessors only exempt themselves from the obligation to pay IUC during the validity of their respective lease contracts if they demonstrate that they have fulfilled the obligation contained in Article 19 of the CIUC, the burden of proof of which falls on the Claimant and that this proof can only be achieved by document. It concludes that the IUC assessment acts are not afflicted by illegality nor are the legal prerequisites met for conviction in compensatory interest.

It concludes in favour of rejection of the arbitral claim, seeking the legality of the contested tax acts and the acquittal of the Respondent in the claim.

II. FACTUAL FINDINGS

Findings of Fact

1. As the factual matter relevant to the decision to be rendered, the Tribunal finds proved the following facts:

a) The Claimant is a credit institution whose activity consists of financing the automotive sector, through the conclusion, among others, of financial lease and vehicle rental contracts without a driver, intended for the acquisition, by companies and individuals, of motor vehicles;

b) In the exercise of this activity, various financial lease contracts were concluded, with different terms, in which the Claimant is the lessor, as per documents nos. 78 to 130 filed; These lease contracts were accompanied by the respective purchase and sale promise contract envisioned for the end of the contractual period;

c) The Claimant was notified to pay 104 single motor vehicle tax assessments and their corresponding compensatory interest, relating to the years 2010, 2011 and 2012, as well as the respective compensatory interest, relating to vehicles with the registrations properly identified in the IUC assessments filed as documents nos. 1 to 77, which are here reproduced in full;

d) All the motor vehicles referenced in the IUC assessments were subject to vehicle rental contracts without a driver, concluded by the Claimant with the customers identified in the Table attached to the PA as Annex A, for differentiated periods and with respective purchase and sale promise contract;

e) On the date of the tax facts generating the IUC contained in the contested assessments, the respective vehicle rental contracts without a driver were still in effect, with the exception of contracts relating to the vehicles listed below:

Registration …-…-…, whose lease contract ended on 2011-01-22, with the reference date for the assessment (date of registration) being January, which gave rise to assessment no. 2012…, in the total value (IUC and interest) of €125.42 – Cfr. Doc. 99 attached to the PI;

Registration …-…-…, whose lease contract ended on 2009-11-08, with the reference date for the assessment (date of registration) being August, which gave rise to assessment no. 2010…, in the total value (IUC and interest) of €32.62 – Cfr. Doc. 57 attached to the PI;

Registration …-…-…, whose lease contract ended on 2010-01-15, with the reference date for the assessment (date of registration) being February, which gave rise to assessments nos. 2010…, 2011… and 2012…, in the total value (IUC and interest) of, respectively, €33.20, €33.15 and €33.01 – Cfr. Doc. 58 attached to the PI;

Registration …-…-…, whose lease contract ended on 2008-04-22, with the reference date for the assessment (date of registration) being April, which gave rise to assessments nos. 2012…, 2011… and 2012…, in the total value (IUC and interest) of, respectively, €37.34, €37.15 and €36.42 – Cfr. Doc. 59 attached to the PI;

Registration …-…-…, whose lease contract ended on 2006-03-31, with the reference date for the assessment (date of registration) being April, which gave rise to assessments nos. 2010… and 2011…, in the total value (IUC and interest) of, respectively, €33.01 and €32.94 – Cfr. Doc. 99 attached to the PI;

Registration …-…-…, whose lease contract ended on 2008-10-15, with the reference date for the assessment (date of registration) being October, which gave rise to assessment no. 2010…, in the total value (IUC and interest) of €32.42 – Cfr. Doc. 61 attached to the PI;

Registration …-…-…, whose lease contract ended on 2009-04-15, with the reference date for the assessment (date of registration) being March, which gave rise to assessment no. 2010…, in the total value (IUC and interest) of €37.52 – Cfr. Doc. 64 attached to the PI;

Registration …-…-…, whose lease contract ended on 2011-05-25, with the reference date for the assessment (date of registration) being March, which gave rise to assessment no. 2012…, in the total value (IUC and interest) of €57.49 – Cfr. Doc. 65 attached to the PI;

Registration …-…-…, whose lease contract ended on 2007-05-09, with the reference date for the assessment (date of registration) being May, which gave rise to assessments nos. 2011… and 2012…, in the total value (IUC and interest) of, respectively, €37.13 and €36.61 – Cfr. Doc. 69 attached to the PI;

Registration …-...-…, whose lease contract ended on 2012-09-28, with the reference date for the assessment (date of registration) being October, which gave rise to assessment no. 2012…, in the total value (IUC and interest) of €116.06 – Cfr. Doc.40 attached to the PI

Registration …-…-…, whose lease contract ended on 2008-01-28, with the reference date for the assessment (date of registration) being August, which gave rise to assessment no. 2010…, in the total value (IUC and interest) of €37.23 – Cfr. Doc.52 attached to the PI

Registration …-…-…, whose lease contract ended on 2008-03-20, with the reference date for the assessment (date of registration) being March, which gave rise to assessments nos. 2010…, 2011… and 2012…, in the total value (IUC and interest) of, respectively, €18.72, €18.57 and 18.31 – Cfr. Doc. 53 attached to the PI

All in the total value of €844.32;

f) The global value of all tax assessments initially contested was €10,758.67, which after the withdrawal of the claim presented by the Claimant at the meeting of 07-07-2017 regarding the assessments listed in the preceding item, was reduced to €9,914.35.

g) The Claimant made payment of the value of all tax assessments contested in the case, which is evidenced by the documents filed by the Claimant and which comprise documents nos. 1 to 77 attached to the arbitral request;

h) On the date of the tax facts the vehicles identified in the contested assessments were in the possession and use of their respective lessees, in accordance with the lease contracts in effect and respective purchase and sale promise contracts, with the exception of the vehicles listed in e);

i) On the date of the tax facts the vehicle registration of each of these vehicles was registered in the name of the lessor.

j) All contested IUC assessments were paid by the Claimant, which subsequently filed a request for official revision of the tax acts which was dismissed;

k) Since the presentation of the request for revision of the tax acts, presented on 05-01-2015, the AT has had all relevant information regarding the existence of financial lease contracts, vehicle registrations, complete identification of the lessees and their respective tax identification number;

l) Following the dismissal of the request for revision, the Claimant filed a hierarchical appeal, which was also subject to a dismissal decision;

m) The Claimant contested this dismissal act and the underlying tax assessments, through the filing of a request for constitution of an arbitral tribunal.

FACTUAL SUPPORT FOR THE FINDINGS OF FACT

1. The decision on the factual matter in the terms described above is based on the documentary evidence that the Parties filed with the present case, the Claimant in the attachment to the arbitral request and the AT in the response and respective administrative file (PA). The Tribunal considered in particular that the factual reality underlying the business dealings relating to the various vehicles, evidenced by the documents filed in attachment to the arbitral request, as well as by the documents subsequently filed, by motion presented on 08-05-2017.

FACTS NOT PROVED

1. Not proved that the claimant effected the communication provided for in Article 19 of the CIUC and not proved compliance with the procedure indicated by the AT, as described in the email from the AT services, filed on 07-06-2017.

There are no other relevant facts to be considered as not proved, of relevance to the final decision.

IV – LEGAL FINDINGS

1. With the factual matter established, it is necessary to address the fundamental legal question in dispute, which concerns the personal scope of the motor vehicle circulation tax, since the disputed question is who is responsible for payment of the IUC during the validity of a financial lease contract on a motor vehicle.

What is sought is for this Arbitral Tribunal to decide on the question of whether the lessor (claimant) should or should not be considered as the taxable person for IUC in light of the applicable legal framework. More specifically, it is necessary to decide, with reference to the vehicles with the registrations identified in the contested assessments (cfr. documents 1 to 77 attached to the PI), whether the Claimant should be classified as the taxable person for the Single Motor Vehicle Tax, assessed regarding the years 2010 to 2012, for the vehicles identified in the case, with respect to which a financial lease contract was in effect on the date of the tax fact.

As results from the matters established, of the 104 contested assessments only 84 are in dispute, since with respect to the remaining 20 assessments identified in item e) of the established facts the withdrawal of the claim presented by the claimant was accepted, as is evident from the minutes of the meeting held on 07-07-2017. It is therefore only these 84 assessments that are at issue, all relating to vehicles which on the date of the tax facts were contracted by the claimant with their respective lessees, subject to financial lease contracts, as results from the matters established.

The disputed question consists of determining whether the taxable person for IUC due during the validity of a financial lease contract is the owner (lessor) or the user (lessee). The parties are in disagreement on this question, since from the Claimant's perspective, financial lessees are equated with owners along with other holders of purchase option rights by virtue of the conclusion of a lease contract, and therefore the personal scope of IUC falls on the lessees with whom the Claimant has contracted financial lease agreements.

The Respondent contends that, even in these cases, the taxable person for the tax is the owner in whose name the registration has been effected. In the present case, given the factuality established, it is only this question that must be decided.

The decision of this question requires assessing the terms of the configuration of the personal scope of IUC in light of the provisions of Art. 3, of the Code of the Single Motor Vehicle Tax (CIUC), namely the question of whether the personal scope is strictly based on the registration of vehicle ownership in the Vehicle Registry, or whether registration operates only as a rebuttable presumption of tax scope, in accordance with the provisions of Art. 73, of the General Tax Law. On this matter there is already abundant and well-established arbitral and judicial case law contained in various decisions mentioned by the parties and in some others rendered subsequent to the presentation of this arbitral pronouncement request, which will be referred to as appropriate.

1. The fundamental legal framework applicable to this matter is provided for in Articles 1 to 6 of the CIUC, approved by Law no. 22-A/2007, of 29 June.

Article 1 of the CIUC defines the objective scope of the tax, distinguishing vehicles by specified categories, a provision that appears clear and without difficulties of application. However, the same is not true of the norm of personal scope contained in paragraph 1 of Article 3 of the CIUC, which is at the origin of the present dispute and thus constitutes a question to be decided in the case under consideration.

The analysis of both provisions (Articles 1 and 3) makes it possible to conclude that, in the operation of the IUC, vehicle registration plays a fundamental role. What is therefore important is to determine the meaning and scope of the norm of personal scope contained in Article 3, paragraph 1 of the CIUC and the possible existence or not of a rebuttable presumption, connected with the question of the legal effects of vehicle registration, raised by the Claimant.

On this question, the positions of the parties are totally divergent, as we have already seen.

Let us therefore see what results from the legal regime in force and its application to the specific case at issue.

Article 3 of the CIUC provides that:

"ARTICLE 3

PERSONAL SCOPE

1 – The taxable persons of the tax are the owners of the vehicles, being 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 lease contract are equated with owners".

In the case of the present proceedings, the provision in question is precisely the one contained in paragraph 2 of this article, whose interpretation is decisive for the decision to be rendered. It should be noted that the normative provision contained in paragraph 2 of Article 3 of the CIUC does not present special complexity, quite the contrary, it appears very clear. The legislator, by choice, determined that in cases of financial leasing or acquisition with reservation of ownership the lessees (and not the owners in the technical-legal sense) should be the taxable persons of the tax, faithful to the principle of equivalence that informs this tax, because they are the users of the vehicles. There is no doubt that this was and remains the legislator's choice. We can understand that such a choice contemplates difficulties that would certainly not exist if this obligation remained only with the legal owners (lessors), all the more so since these could always exercise the right of recovery against the customer for the respective tax values during the validity of the lease contracts and similar arrangements. Perhaps that would have been the better choice from the perspective of tax administration and effectiveness in tax collection, however, by (conscious) choice of the legislator that was not the solution adopted.

1. Thus, what is relevant for the correct decision of the case is to take into account, first and foremost, the letter of the law. Article 11, paragraph 1 of the LGT provides that:

"In the determination of the meaning of tax provisions and in the qualification of facts to which they apply, the general rules and principles of interpretation and application of laws are observed".

The interpretation and application of the legal norm presupposes the performance of an interpretive activity, which must be objective, balanced, and consistent with the letter and spirit of the law. Any text, and the law is no exception, contains multiple meanings and frequently contains ambiguous or unclear expressions. For that reason, although the letter of the law is "the guiding thread" of the interpreter, it must be interpreted taking into account the underlying objectives, "the ratio" or the motivation of the legislator in establishing the rule under analysis.[1]

To these elements is added another according to which the interpretation of the legal norm must respect the "unity of the legal system", its coherence and intrinsic logic. Article 9 of the Civil Code (CC) provides the fundamental rules and elements for the interpretation of the legal norm, which interpretation of the tax law must also obey the provisions of that normative provision, which begins by saying that interpretation should not be limited to the letter of the law, but should reconstruct from it the "legislative intent".[2]

To these general principles are added, furthermore, the principles contained in the LGT, particularly in Article 73, which establishes that presumptions contained in norms of tax scope always admit proof to the contrary.

With regard to the question under analysis, it should be noted the contribution of numerous arbitral and judicial decisions already rendered, revealing a refined reflection on the fundamental question under consideration, establishing a uniform understanding on this same question. It is, therefore, within this framework, using the fundamental hermeneutic principles just referred to, accepted by the case law of our superior courts, that we should seek to find the appropriate interpretation of the norms in question.

1. Thus, as to the question that has caused the greatest controversy in this matter, which is to know, in light of the literal wording of paragraph 1 of Article 3 of the CIUC, what the scope of the expression "considered as such", given that in the current version the legislator did not use the term "presumed" (which was contained in the extinct Regulation of the Motor Vehicle Tax), the Tribunal understands that it can only be the following: the legislator presumes (considers) that the owners are the persons in whose name the vehicles are registered. This means that such presumption, implicit, is naturally rebuttable in accordance with the provisions of Article 73 of the LGT. In this sense have pronounced themselves, in an extremely clear and concordant manner, the arbitral tribunals operating at CAAD, as well as our superior courts.

2. However, the question to be decided in the present case is much simpler, since it is limited to the normative provision contained in paragraph 2 of Article 3 of the CIUC. In fact, this norm offers no doubt, since the legislator is clear in equating lessees with owners for purposes of tax scope. Thus, the logic and rationality of the new motor vehicle taxation system presupposes and aims at a taxable person coincident with the owner of the vehicle, on the assumption that it is that party, and not another, who is the real and effective subject causing environmental damage, as results from the principle of equivalence enshrined in Art. 1 of the CIUC.

This principle of equivalence, which informs the current single circulation tax, has underlying it the polluter-pays principle, and embodies the idea inscribed in it, that whoever pollutes must, for that reason, pay. After all, it is a matter of addressing the negative environmental externalities that result from the use of motor vehicles, whether assumed by their owners and/or by the users, as costs that only they should bear.

In light of the proved facts it is settled that the Claimant and its clients concluded financial lease contracts and the lessees are holders of the purchase option right of the vehicle during or at the end of the validity of the contract. Thus, with respect to the lease contracts in effect at the time of the tax facts, the claimant demonstrated the existence and validity of those contracts with the documents that it filed and which are the only possible and admissible ones to demonstrate the existence of those contracts. During the entire period of validity of the said contracts, the vehicles were, it should be understood, in the possession of the lessees, at least with respect to the vehicles mentioned in the 84 assessments in dispute. If the moment at which the tax facts generating the IUC occurred, to which the contested assessments relate, falls within the period of validity of the contract, then there is no doubt that the IUC is due by the respective lessees.

This matter has already been the subject of various arbitral decisions, such as cases no. 232/2014-T, no. 294/2013-T, no. 289/2013-T, no. 286/2013-T, no. 256/2013-T, no. 170/2013-T, no. 73/2013-T, no. 27/2013-T, no. 26/2013-T and no. 14/2013-T.

In all of them the tribunal considered that the aforesaid paragraph 2 of Article 3 of the IUC Code is clear and unequivocal, providing that the taxable persons for IUC are the lessees of financial lease contracts or any other type of contract in which the vehicle purchase option is provided for. From this provision, combined with the provision of paragraph 2 of Article 4 and paragraph 3 of Article 6, it results that there follows a tax period corresponding to the year in which the contract begins, on the date of registration, and subsequently on each of its anniversaries. The IUC being due on the first day of these tax periods.

The exclusive primacy of ownership as contained in the vehicle registration is thus excluded, by express determination of the legislator in paragraph 2 of Art. 3 of the CIUC, particularly when there exists a financial lease contract by which the lessee has the use of the vehicle as if it were his own, especially when it has the purchase option of the vehicle.

As has already been said, it is not for courts (arbitral or ordinary) to do anything but apply the law, in obedience to the express and unequivocal will of the legislator. It is not for the court to analyse the greater or lesser merits of a legislative choice. Finally, if the solution is not the most adequate for proper and timely tax collection, it is for the legislator to resolve that inefficiency by amending the law, a possibility that is his exclusive competence.

And, further on this point, it may be said that the solution contained in paragraph 2 of Article 3 of the CIUC is, given the nature and purposes of this tax to which it goes to meet the principle of equivalence, that the IUC Code, already in its Article 1, enshrines as a structuring rule of this tax, intended to burden those who effectively contribute most to environmental and road damage resulting from the enjoyment of the motor vehicle. It was that reason that determined the legislator to consider, accordingly, as taxable persons of the tax the lessees.

On this point, it is also appropriate to cite the case law contained in Arbitral Decision no. 14-2013 T, of 15 October, from which we highlight in summary the following conclusions, which this tribunal endorses, namely:

"(…) during the validity of a financial lease contract, although the lessor continues to be the owner of the property in question, only the lessee has exclusive enjoyment of the leased property, using it as if he were the true owner. (…) It is true that the financial lessee is equated with an owner for the purposes of paragraph 1 of Article 3 of the CIUC, the same is to say for being a taxable person for IUC (Cfr. paragraph 2 of Art. 3). (…) Thus, as it is, with the lessor not having, by legal and contractual imposition, the potential for use of the vehicle and the lessee having exclusive enjoyment of the automobile, we reiterate the conclusion which we had already reached that, in our view, the ratio legis of the CIUC mandates that under the terms of the aforementioned paragraph 2 of Article 3 of this Code it be the lessee who is responsible for payment of the tax, since he is the one who has the potential for use of the vehicle and causes the road and environmental costs inherent thereto. The same conclusion is reached when one verifies the importance given to users of leased vehicles in Article 19 of the CIUC. Indeed, according to the provisions of this article, entities that proceed, particularly, to the financial leasing of vehicles are obliged to provide the AT (former DGCI), the tax identity of the users of the leased vehicles for purposes of the provisions of Article 3 of the CIUC (personal scope), as well as of paragraph 1 of Article 3 of the Law of its approval, since according to the provisions of this provision of Law no. 22-A/2007, if the revenue generated by the IUC is incident on vehicles subject to long-term rental or operational leasing, must be allocated to the municipality of residence of the respective user (underlined).

(…)

Having reached this point, we are of the opinion that if on the date of occurrence of the tax fact a financial lease contract is in effect that has as its object an automobile, the taxable person for the tax is not the lessor but rather, in light of paragraph 2 of Article 3 of the CIUC, the lessee, which, in our view, makes complete sense, given that he is the one who has the enjoyment of the vehicle and, as such, the inherent pollution potential, regardless of whether the registration of the property right remains in the name of the lessor, as is better explained below."

And concludes:

"(…) One of the obligations of the lessor is to sell the property to the lessee, should he wish to. It is evident that with the conclusion of the purchase and sale contract the until then lessee becomes an owner of full right, coming to be covered directly by paragraph 1 of Article 3 of the CIUC."

1. Returning to the case under consideration in the present proceedings, given the factual matter considered as proved and everything set forth above, it may be concluded that the Claimant cannot be considered the taxable person for the tax due on the motor vehicles with respect to which a financial lease contract was in effect, on the date of the tax facts, by virtue of which the said vehicles were being used by their respective lessees, although it was the owner thereof.

Thus, although the financial lessor is the owner of the vehicles at issue in the case at issue, with reference to the years 2010, 2011 and 2012, it is the lessee that constitutes, exclusively, the taxable person for IUC, given that it is "equated with an owner", and therefore the Claimant does not assume the status of taxable person for the tax, with reference to any of the vehicles under analysis, nor of the tax periods in reference (years 2009 to 2012).

1. Due to the withdrawal of the claim presented by the Claimant regarding the assessment acts relating to the vehicles mentioned in item e) of the established factual matter, there is no other question to be decided, remaining only to assess what the consequences are of compliance or non-compliance with the provisions of Article 19 of the CIUC. As results from the matter established as proved, the Claimant did not succeed in proving that it complied with the communication obligation provided for in Article 19 of the CIUC.

On this point the AT came to allege that proof of compliance with that obligation could only be achieved by document and not by witness testimony, having therefore requested dispensation with the meeting referred to in Article 18 of the RJAT due to the absence of factual matter to be proved by witness testimony.

The provision of Art. 19 of the CIUC, precisely for the purposes of the provision of Art. 3, paragraph 2 of the CIUC (that is, for the purposes of personal scope), imposes on entities that proceed to financial leasing the obligation to provide the AT with data relating to the tax identification of the users of the leased vehicles, requiring knowledge of the actual users of the leased vehicles, because these are the taxable persons for the tax.

Confronted with this question, the Claimant came to allege that, with respect to compliance with such obligation, the same cannot be susceptible to documentary proof, in that "the Tax and Customs Authority does not provide any proof that would allow attesting to its compliance."

The claimant alleges that "the communication obligation in question is fulfilled electronically, through the Tax Portal, and it is not possible to extract from said portal any proof of compliance therewith. Therefore, if the production of witness testimony is not permitted, it will find itself in a situation of not merely impossible proof, but impossible proof, in that if it is understood that compliance with such obligation can only be demonstrated documentarily, it does not have any means to do so. However, should this Learned Arbitral Tribunal come to understand that compliance with the obligation – accessory – stipulated in Article 19 of the IUC can only be demonstrated documentarily, the Claimant hereby requests that the AT be notified to come file a document that demonstrates, unequivocally, compliance or non-compliance thereof by the Claimant."

The tribunal then notified the AT to pronounce itself, and the latter requested a period to request from the services the supporting document. It also requested an extension of the deadline for that purpose.

It is certain that it came to file an internal email from the services explaining that the AT issues a supporting document that it sends to the taxable person, but in the specific case of the present proceedings, it did not file any proof of that procedure, as far as the matter of the present case is concerned.

Given the above, it is necessary to clarify what the relevance of this question is for the final decision.

1. This question has been raised repeatedly in various cases of the same type and it is already settled case law of the arbitral tribunals constituted at CAAD that the nature of such obligation is merely accessory, being practically unanimous that its compliance (or lack thereof) could never have consequences for the personal scope of the tax. In this sense, the Claimant cited, among others, the Decision rendered in the arbitral case no. 655/2015-T, in which it was established, with respect to the obligation under Article 19 of the IUC Code, that "[n]on-compliance with an accessory obligation cannot determine the personal scope of the tax, strictly subject as it is to the principle of tax legality, unless such is clearly determined by law". Many other arbitral decisions have decided in the same sense.

Once again, running the risk of unnecessary repetition, an accessory obligation cannot, by itself, determine the personal scope of a tax. Given the rule of scope already thoroughly clarified above, there remains nothing but to conclude that compliance or non-compliance with this obligation may lead to the institution of an administrative infraction proceeding and application of a fine, but it is certain that it cannot determine the personal scope of the tax.

Furthermore, if the AT's understanding were to be upheld regarding compliance with this obligation, it would always be said that it was its responsibility to oversee that non-compliance in a timely manner, instituting the appropriate procedures. Now, the AT came only to file an email stating that such is the procedure followed, but it says nothing about the existence of proof of compliance or non-compliance with such obligation and did not file any supporting document of compliance or non-compliance with the obligation, or of warning for non-compliance. This also demonstrates that such procedure is nothing more than that and is not an essential condition for the determination of the personal scope of the tax proof of compliance with the obligation provided for in Article 19 of the CIUC.

Therefore, this question is resolved, as it cannot in any way prevent the decision on the merits regarding the determination of the scope of the tax.

1. However, because this question is still relevant for purposes of decision on what is petitioned regarding compensatory interest, it may always be said that, at least from the moment it became aware of the request for official revision of the tax acts, the AT had full knowledge of who the lessees were and the respective conditions of the contract. Therefore, from that point on, confronted with the information it should have acted accordingly instead of insisting on taxation of the Claimant, whose illegality results from direct violation of the provisions of the law.

If it is true that the personal scope of the IUC falling on the lessee implies the fulfillment of a concomitant declarative obligation on the part of the owner, it is also true that the IUC Code does not specify the manner of fulfillment of that declarative obligation, saying nothing about the procedure to be followed for that purpose.

From the evidentiary matter there is no information as to the moment and manner by which the Claimant effectuated the identification of the lessees (vd. facts not proved) but the AT did not demonstrate the existence of an internal procedure capable of ensuring compliance with the obligation and accountability in cases of non-compliance.

It is certain that, once informed of the existence of the lease contracts in effect, in the context of the revision of the tax acts and of the subsequent hierarchical appeal, the AT maintained the tax assessments, in violation of the provisions of Article 3, paragraph 2 of the CIUC.

Both the request for revision of the tax acts presented on 05-01-2015, and the subsequent hierarchical appeal, as well as the arbitral request, identify the financial lease contracts, their respective conditions, terms and complete identification of the lessees. Therefore, even if it has not demonstrated compliance with the information obligation provided for in Article 19 of the CIUC, it is certain that it informed the AT on 05-01-2015 of the contractual circumstances underlying each assessment.

The Claimant filed a copy of the financial lease contracts and the purchase option promise contracts for the vehicles, and Annex A to the arbitral pronouncement request identifies each vehicle, by registration, tax identification number of each lessee and the start date of the financial lease contract. Therefore, at least after notification of the request for constitution of an arbitral tribunal, and in light of the evidentiary matter included therein, the Respondent is unable to allege ignorance of the underlying factuality.

Now, upon becoming aware of the existence of financial lease contracts and purchase option of the vehicle, the temporal period of validity of those contracts and the concrete tax identification of the lessees, the AT was in a position to restore legality, annul the illegal assessment acts and promote the assessment of the tax due by the lessees, which did not occur.

1. As a consequence of everything set forth above, the decision of the AT that led it to issue and collect the contested tax assessments, as well as the decision dismissing the request for revision and the dismissal of the hierarchical appeal, violated the provisions of paragraph 2 of Article 3 of the CIUC as to the lessees, and therefore should be annulled for violation of law due to error regarding the factual and legal prerequisites.

Such assessments, with the exception of those contained in item e) of the established facts, appear therefore illegal, which requires the annulment of the corresponding tax acts.

Finally, the grounds of alleged unconstitutionality alleged by the Respondent are completely fortuitous and without any bearing on the reality of the specific case. The provision of paragraph 2 of Article 3 of the CIUC is clear and no possible unconstitutionality is foreseeable as seems to be alleged by the Respondent.

Regarding the Petition and the Right to Payment of Compensatory Interest:

1. Article 24, paragraph 1, point b) of the RJAT provides that the arbitral decision on the merits of the claim that is not subject to appeal or challenge binds the tax administration from the end of the period set for appeal or challenge, and this – in the exact terms of the success of the arbitral decision in favor of the taxable person and until the end of the period set for the execution of the sentences of the tax courts – must restore the situation that would exist if the tax act subject to the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose.

Such provision is in line with the provisions of Art. 100 of the LGT, applicable to the case by virtue of the provisions of point a) of paragraph 1 of Art. 29 of the RJAT, in which it is established that "The tax administration is obliged, in case of total or partial success of complaints or administrative appeals, or of judicial proceedings in favor of the taxable person, to the immediate and full restoration of the situation that would exist if the illegality had not been committed, including the payment of compensatory interest, in the terms and conditions provided for by law."

Article 43, paragraph 1 of the General Tax Law provides that "compensatory interest is due when it is determined, in a complaint or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount greater than legally due."

1. From the analysis of the evidentiary elements contained in the present case it is possible to infer that, by virtue of the request for revision and also of the hierarchical appeal that preceded the presentation of the arbitral request, the AT had long been aware of the existence of lease contracts in effect, and therefore had the opportunity to revoke the illegal assessments and did not do so. And, finally, it also had the possibility of revocation of the tax acts illegally carried out within the period for response to the present arbitral pronouncement request, but it also did not do so, opting to maintain the illegal assessments. That is where the error lies for which it is obliged to indemnify.

Therefore, the Tribunal cannot support the allegation of the Respondent according to which it merely applied the law and that, from the AT's perspective, this would not result in any error attributable to the services. If that were the case, the administration would never be held responsible for the illegal application of the provisions in force nor for the damage caused.

Thus, bearing in mind the provisions of Article 61 of the CPPT and considering that the requirements for the right to compensatory interest are met, that is, having verified the existence of error attributable to the services from which resulted payment of the tax debt in an amount greater than legally due, as provided for in paragraph 1 of Art. 43 of the LGT, the Claimant is entitled to compensatory interest at the legal rate, calculated on the amount of €9,914.35 (€10,758.67 - €844.32), from 05/01/2015, the date on which the request for official revision of the assessments was presented, from which point the AT became aware of all the factual and legal circumstances relevant to the correct assessment of the tax, until its full reimbursement.

1. In the case of the present proceedings, it is necessary to apply the principles mentioned above and, as a consequence of the declaration of illegality and annulment of the assessment acts, proceed to the reimbursement of the amounts unduly paid, as a way to achieve the restoration of the situation that would exist if the illegality had not been committed.

Regarding Liability for Payment of Costs of the Proceedings:

1. The Respondent's argument regarding payment of arbitral costs is based on the same argument invoked to attempt to dismiss its liability regarding the payment of compensatory interest, which is unfounded for the same reasons.

However, to that it adds another, briefly invoking that the Respondent does not control the information contained in the registration databases and that the IUC is not assessed in accordance with the information generated by the Respondent itself, and that not having the Claimant exercised the care of updating the vehicle registration, as it should have and was incumbent upon it, the AT could do nothing to prevent the assessment.

It concludes that it was the Claimant itself who gave rise to the present proceedings, by not having proceeded with the diligence that was required of it, led the AT to assess the IUC to the holder that appeared in the information contained in the registration. It also invokes arbitral decision no. 26/2013 T.

The Respondent is not correct for the same reasons indicated in the decision regarding compensatory interest.

The Respondent had the opportunity, as we have already mentioned, to revoke the illegal assessments and did not do so. Therefore, the proceedings only continued because the AT decided that they should. The arguments it invokes on this point are completely unfounded.

All that was said again applies to the reasoning of the decision regarding compensatory interest. The Respondent was in a position to have prevented the illegal assessments, had sufficient information to do so in accordance with the terms imposed by Article 19 of the CIUC, and, finally, could also have revoked the act. Thus, the continuation of the proceedings was, indeed, of its exclusive responsibility, and therefore, considering the successful petitions it is of its exclusive liability the payment of the arbitral costs.

The invocation of arbitral decision no. 26/2013-T does not apply, in which the AT was not condemned in its petition regarding compensatory interest, despite the success of the arbitral petition; it should be said that nothing is to be drawn from this regarding the claim regarding costs. As for the question of conviction regarding compensatory interest, the assessment contained in the present decision is different, given the prerequisites of the same amply reasoned.

Therefore, the Respondent AT's petition regarding liability for the costs of the proceedings is considered unfounded.

1. There do not appear to be any other relevant questions raised by the parties.

V - DECISION

Given the foregoing, this Arbitral Tribunal decides:

1. To hold the present arbitral petition successful, and to declare the illegality of the contested IUC assessments in the present proceedings, with the exception of the assessments nos. 2012…, 2010…, 2010…, 2011…, 2012…, 2012…, 2011…, 2012…, 2010…, 2011…, 2010…, 2010…, 2012…, 2011…, 2012…, 2012…, 2010…, 2010…, 2011…, 2012…, in the total value of €844.32, regarding which the Claimant presented withdrawal of the petition;

The illegality of the assessments results from the defect of violation of law, due to error regarding the factual and legal prerequisites, consequently annulling the corresponding tax acts;

1. To hold successful the petition for condemnation of the Tax Administration to reimburse the amount unduly paid, corresponding to the value of the 84 annulled assessments, in the amount of €9,914.35 (corresponding to the initially petitioned value of €10,758.67 minus the value of €844.32 of the remaining assessments), plus compensatory interest at the legal rate, counted from 05-01-2015 (date of presentation of the request for revision) until full reimbursement of the mentioned amount.

Value of the case: in accordance with the provisions of Articles 306, paragraphs 1 and 2 of the CPC, Article 97-A, paragraph 1, point a) of the CPPT and Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at €9,914.35.

Costs: in accordance with the provisions of paragraph 4 of Art. 22 of the RJAT and in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at €918.00, to be borne by the Respondent Tax and Customs Authority.

Register and notify.

Lisbon, 25 September 2017

The Single Arbitral Tribunal,

(Maria do Rosário Anjos)

[1] In this sense, cfr. BAPTISTA MACHADO, Introduction to Legitimating Discourse, p. 175 et seq.

[2] In this sense, see, among others, the Judgments of the STA of 05/09/2012 and 06/02/2013, respectively rendered in cases nos. 0314/12 and 01000/12, available at www.dgsi.pt.