IUC Tax Liability After Vehicle Sale: Subjective Incidence and Legal Presumptions (CAAD 75/2015-T)

ARBITRAL DECISION

Claimant – A… –…, Lda., Tax Identification Number: …

Respondent - Tax and Customs Authority (TCA)

Subject Matter - Single Vehicle Circulation Tax (SVCT) Assessment

Appointed Arbitrator - Maria de Fátima Alves

1. REPORT

1.1

A…-…, LDA.; with Tax Identification Number: …, Claimant in the tax procedure referenced above and hereinafter referred to as the "Claimant," invoking the provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (hereinafter RTAT) and Article 99 of the Tax Procedure Code (TPC) and Articles 95, paragraphs 1 and 2, subsection d) of the General Tax Law (GTL), requested the establishment of a Single Arbitral Tribunal in order to:

• Annul the assessment acts relating to the Single Vehicle Circulation Tax (hereinafter referred to as SVCT) for the year 2014 concerning the vehicles set out in the Gracious Complaint proceedings attached to the Request for Arbitral Pronouncement, see paragraphs 2, 3, 4, 5, 6, 7 and 8, which are hereby fully incorporated for all legal purposes;

• Obtain reimbursement of the total amount of €19,261.52, plus the respective compensatory interest provided for in Articles 43 of the GTL and Article 61 of the TPC.

1.2

Pursuant to subsection a) of paragraph 2 of Article 6 and subsection b) of paragraph 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Ethics Council appointed Maria de Fátima Alves as sole arbitrator, who confirmed acceptance of the appointment within the applicable period:

• On 17-04-2015, both parties were duly notified of this appointment and did not express an intention to challenge the arbitrator's appointment in accordance with the combined provisions of Article 11, paragraph 1, subsections a) and b) of the RTAT and Articles 6 and 7 of the Ethics Code;

• Therefore, the arbitral tribunal was constituted on 17-04-2015, as required by subsection c) of paragraph 1 of Article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Article 228 of Law 66-B/2012, of 31 December;

• When the Respondent (TCA) filed its Reply on 20-05-2015, it requested an exemption from the hearing, pursuant to Article 18 of the RTAT;

• The request was granted and communicated to the Claimant;

• Consequently, the date for the issuance of the Arbitral Decision was set for 15-06-2015.

1.3

The Claimant, in substantiating its request for arbitral pronouncement, asserts, in summary, the following:

• The vehicles to which the single vehicle circulation tax assessment relates were not, at the date of the tax facts, owned by the Claimant, and therefore the Claimant was not the taxpayer liable for the tax, a fact which prevents any subjective responsibility for its payment;

• The Claimant bases its position on the fact that the assessed motor vehicles had already been sold to third parties, as evidenced by the sales invoices attached to the Gracious Complaints contained in the File, which are hereby fully incorporated for all legal purposes;

• Adding further that the single vehicle circulation tax is equally at issue for the same year 2014, corresponding to motor vehicles that were declared as "Total Loss" and whose registrations had been cancelled before the aforementioned taxation, as evidenced by the documents cited above and which are hereby fully incorporated for all legal purposes;

• In light of the facts presented, ownership of the said vehicles cannot be imputed to the Claimant, who therefore cannot be the taxpayer liable for the tax, contrary to the letter and spirit of Article 3 of the Single Vehicle Circulation Tax Code (hereinafter referred to as SVCTC);

• It is a fact that Article 3 of the SVCTC considers the owner of a motor vehicle to be the person in whose name it is registered;

• However, the registration of vehicles in the competent Motor Vehicle Registry Office is not a condition for the transfer of ownership, since such registration merely serves to publicize the legal status of the assets, as follows, in particular, from the provision of Article 1 of Decree-Law No. 54/75, of 12 February;

• Therefore, SVCT taxation cannot be based solely on those registered as owners of the vehicles; the actual owners must be considered.

1.4

The Respondent, the Tax and Customs Authority (hereinafter referred to as TCA), filed the Administrative Tax Process and presented a Reply, from which it appears that the tax acts in question are not affected by any defect of violation of law, arguing for the dismissal of the claim and the maintenance of the questioned assessment acts, defending, in summary, the following:

• The taxpayers liable for the single vehicle circulation tax are the persons registered as owners of the vehicles, as provided in paragraph 1 of Article 3 of the SVCTC, which in the present case applies to the Claimant;

• For this to be verified, the registration of the vehicles must be in the name of a particular person for that person to assume the status of taxpayer in the SVCT tax obligation;

• The interpretation that the Claimant makes of the provision in Article 3 of the SVCTC is notably incorrect, insofar as it incurs in a "biased interpretation of the letter of the law" and in the adoption of "an interpretation that does not regard the systematic element, seeking the unity of the regime established throughout the SVCTC and, more broadly, throughout the entire tax-legal system," further following the Claimant an "interpretation that ignores the rationale of the regime established in the article in question and, equally, throughout the SVCTC."

2. ISSUES TO BE DECIDED

2.1

Given the foregoing in the preceding paragraphs, concerning the written submissions of the parties and the arguments presented, the main issues to be decided are the following:

• The challenge made by the Claimant regarding the substantive assessment of the assessment acts for the year 2014 relating to the SVCT on the vehicles referenced above in the File;

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

• The legal value of the registration of motor vehicles.

3. FINDINGS OF FACT

3.1

Regarding the facts relevant to the decision to be rendered, this Tribunal finds established, based on the elements in the case file, the following facts:

• The Claimant presented evidentiary documents regarding the motor vehicles in question, corresponding to the period before the taxation period – see sales invoices to third parties attached to the Gracious Complaints (contained in the File) which are hereby fully incorporated for all legal purposes.

3.1.1 GROUNDS FOR PROVEN FACTS

• The facts found as proven are based on the sales invoices to third parties attached to the Gracious Complaints (contained in the File) which are hereby fully incorporated for all legal purposes.

3.1.2 UNPROVEN FACTS

• There are no facts found as unproven, since all facts deemed relevant to the assessment of the claim have been proven.

4. LEGAL GROUNDS

4.1

The Tribunal is materially competent and is regularly constituted pursuant to Articles 2, paragraph 1, subsection a), 5, paragraph 2, subsection a), 6, paragraph 1, 10, paragraph 1, subsection a) and paragraph 2 of the RTAT:

• The parties have legal personality and capacity and are entitled to participate, by virtue of Articles 4 and 10, paragraph 2, of the RTAT and Article 1 of Ordinance No. 112-A/2011, of 22 March;

• The proceeding does not suffer from nullities;

• There is no prior question on which the Tribunal must pronounce itself.

4.2

The claim which is the object of the present proceeding is a declaration for the annulment of the SVCT assessment acts relating to the motor vehicles better identified in the case.

4.2.1

Condemnation of the TCA to reimburse the amount of tax relating to such assessments in the amount of €19,261.52;

4.2.2

Condemnation of the TCA to pay compensatory interest on the same amount.

4.3

According to the TCA's understanding, it is sufficient that the vehicle be registered as the property of a particular person for that person to be the taxpayer liable for the tax obligation.

4.4

The facts are established as set out in section 3.1 above. It now becomes necessary to determine the applicable law to the underlying facts in accordance with the issues to be decided identified in section 2.1 above. It is certain that the central issue in the present case, regarding which there are absolutely opposed understandings between the Claimant and the TCA, is whether paragraph 1 of Article 3 of the SVCTC establishes or does not establish a rebuttable presumption.

4.5

Having analyzed everything and, taking into account, on the one hand, the positions of the parties in conflict mentioned in paragraphs 1.3 and 1.4 above, and considering, on the other hand, that the central issue to be decided is whether paragraph 1 of Article 3 of the SVCTC establishes or does not establish a legal presumption of tax liability, it falls to this Tribunal, in this context, to assess and render a decision.

5. THE ISSUE OF ERRONEOUS INTERPRETATION AND APPLICATION OF THE RULE CONCERNING THE SUBJECTIVE SCOPE OF SVCT

5.1

Considering that it is widely accepted in legal doctrine that the interpretation of tax laws fully applies the general principles of interpretation which will, only and naturally, be limited by the exceptions and particularities dictated by the very Law subject to interpretation. This is an understanding that has received acceptance in the General Tax Laws of other countries and which also found expression in Article 11 of our General Tax Law, something which has, moreover, frequently been emphasized by case law.

It is consensually accepted that, with a view to grasping the meaning of the law, interpretation relies, a priori, on reconstructing the legislative intent through the words of the law, which means seeking its literal meaning, evaluating it and assessing it in light of other criteria, with the intervention of elements of a logical, rational or teleological nature and of a systematic order:

• Concerning the interpretation of tax law, account must be taken of case law, in particular, the judgments of the Supreme Administrative Court (SAC) of 05-09-2012, case No. 0314/12 and of 06-02-2013, case No. 01000/12, available at www.dgsi.pt, the importance of the provision in Article 9 of the Civil Code (CC), as a fundamental element of legal hermeneutics;

• Paragraph 1 of Article 3 of the SVCTC provides that "The taxpayers liable for the tax are the owners of the vehicles, understood as the natural or legal persons, under public or private law, in whose names they are registered";

• The wording used in the said article uses the expression "understood as" which raises the question of whether such expression can be given a presumptive meaning, being equivalent to the expression "presumed," terms frequently used with equivalent meanings;

• As Jorge Lopes de Sousa teaches, 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 liability, presumptions may be revealed by the expression "presumed" or by a similar expression, various examples of such presumptions being mentioned, referring to that in Article 40, paragraph 1 of the Corporate Income Tax Code, where the expression "presumed" is used, and that in Article 46, paragraph 2 of the same Code, where use is made of the expression "understood as," as an expression with an effect similar to the former and also constituting a presumption;

• In the legal wording set out in paragraph 1 of Article 3 of the SVCTC, where a presumption has been established, revealed by the expression "understood as," of meaning similar and equivalent value to the expression "presumed," in use since the creation of the tax in question;

• The use of the expression "understood as" was intended merely to establish a more marked and clear connection between the taxpayer liable for SVCT and the actual owner of the vehicle, which is in line with the emphasis placed on the ownership of the vehicle, which became the taxable event, pursuant to Article 6 of the SVCTC;

• The relevance and interest of the presumption in question, which historically was revealed through the expression "presumed" and which now uses the expression "understood as," lies in the truth and justice which, in this way, is conferred on tax relations, embodying fundamental tax values, making it possible to tax the real and actual owner and not one who, due to circumstances of various kinds, is sometimes merely an apparent and false owner. If this were not the case, not admitting and recognizing the presentation of evidentiary elements intended to demonstrate that the actual owner is, in fact, a different person from the one registered and who, initially and in principle, was supposed to be the true owner, those values would be objectively undermined.

5.2

There is also to be considered the principle of equivalence, set out in Article 1 of the SVCTC, which has underlying it the polluter-pays principle and concretizes the idea embodied therein that whoever pollutes must, for this reason, pay. The said principle has constitutional basis, insofar as it represents a corollary of the provision in subsection h) of paragraph 2 of Article 66 of the Constitution, and also finds basis in Community law, whether at the level of primary law, Article 130-R of the Maastricht Treaty (Treaty on European Union, of 07-02-1992), where the aforementioned principle came to be set out as the foundation of Community Policy in the environmental field, and which aims to hold responsible those who contribute to the damage accruing to the community resulting from the use of motor vehicles, ensuring that such damage is assumed by their owner-users as costs that only they must bear.

5.3

In light of 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, or those relating to logical elements of interpretation, of a historical or rational nature, all point in the sense that the expression "understood as" has a meaning equivalent to the expression "presumed," and should thus be understood as establishing a legal presumption that, in light of Article 73 of the GTL, which provides that "Presumptions established in rules concerning the subjective scope of tax liability always admit proof to the contrary," will necessarily be rebuttable, which means that the taxpayers liable are, in principle, the persons in whose names such vehicles are registered. These are, therefore, the persons whom the TCA must necessarily address;

• However, it is in principle, given that in the framework of prior hearing, mandatory in nature, as required by subsection a) of paragraph 1 of Article 60 of the GTL, the tax relationship may be reconfigured, validating the taxpayer initially identified or redirecting the procedure toward the person who is, in fact, the true and actual taxpayer liable for 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 Administrative Procedure Code, Annotated and Commented, 4th edition, Almedina, 2000, annotation 8 of Article 100).

• The prior hearing, which must naturally occur at the moment immediately before the assessment procedure, is the proper place and time to, with certainty and assurance, identify the taxpayer liable for SVCT.

6. ON THE LEGAL VALUE OF REGISTRATION

6.1

Regarding the legal value of registration, it is important to note what is established in paragraph 1 of Article 1 of Decree-Law No. 54/75, of 12 February (amended on various occasions, most recently by Law No. 39/2008, of 11 August), which provides that "the registration of vehicles has essentially as its purpose to publicize the legal status of motor vehicles and their trailers, with a view to ensuring the security of legal transactions":

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

• Definitive registration constitutes no more than a rebuttable presumption, admitting, therefore, counterproof, as flows from the law and case law has indicated, as can be seen, among others, in the judgments of the Supreme Court of Justice (SCJ) No. 03B4369 of 19-02-2004 and No. 07B4528, of 29-01-2008, available at: www.dgsi.pt;

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

• Acquirers of the vehicles become owners of those same vehicles through the execution of the corresponding contracts of purchase and sale, with registration or without it;

• In this context it is worth recalling that, in light of the provision in paragraph 1 of Article 408 of the CC, the transfer of real rights over things, in the present case, motor vehicles, is determined by the mere effect of the contract, and according to the provision in subsection a) of Article 879 of the CC, among the essential effects of the contract of purchase and sale, stands the transfer of the thing;

• Given the foregoing, it becomes clear that the legislative intent points in the sense that the provision in paragraph 1 of Article 3 of the SVCTC establishes a presumption "juris tantum," and consequently rebuttable, thus allowing the person who is registered in the registry as the owner of the vehicle to present evidentiary elements intended to demonstrate that such ownership is inserted in the legal sphere of another person, to whom ownership was transferred.

7. THE PRESUMPTION IN ARTICLE 3 OF THE SVCTC AND THE DATE ON WHICH SVCT IS DUE

7.1 THE PRESUMPTION IN ARTICLE 3 OF THE SVCTC

• The TCA considers that the presumption that exists in paragraph 1 of Article 3 of the SVCTC is the result of an interpretation contra legem, resulting from a biased reading of the letter of the law and, therefore, violating the unity of the legal system; however, with all due respect, the understanding of case law points in the direction that the existence of a legally rebuttable presumption should be considered, and therefore consequently serves the values and interests questioned, both at the level of substantive tax justice and at the level of the environmental purposes aimed at by the SVCT;

• Concerning the unity of the legal system, it is important to note everything mentioned above, in particular, regarding the rationale of Article 1 of the SVCTC; regarding the norms and principles of the GTL; regarding the pertinent norms applicable to vehicle registration, regarding the interpretation that best serves and achieves the aforementioned unity and ensures the connection of these same norms, considering the legal presumption set out in Article 3 of the SVCTC.

7.2 THE DATE ON WHICH SVCT IS DUE

• SVCT is a periodic taxation tax, whose periodicity corresponds to the year which begins on the act of registration or on each of its anniversaries, as provided in paragraphs 1 and 2 of Article 4 of the SVCTC;

• It is due according to paragraph 3 of Article 6 of the said Code;

• It should be noted that, concerning the assessment of SVCT charged to the Claimant on the vehicles referenced above for the year 2014, these are not to be considered, because at the time of the tax facts the vehicles no longer belonged to it, as the said vehicles were sold to third parties before the year 2014, see the evidentiary documents already cited above and attached to the Gracious Complaints (contained in the File) which are hereby fully incorporated for all legal purposes.

7.2.1

Regarding the burden of proof, Article 342, paragraph 1 of the CC provides "the burden of proving the facts constitutive of the right alleged rests with the party invoking that right";

7.2.2

Also, Article 346 of the CC (counterproof) provides that "the party against whom the burden of proof lies may be met with counterproof regarding the same facts, intended to cast them into doubt; if it succeeds, the matter is decided against the party burdened with the proof." (As Anselmo de Castro states, A., 1982, ED. Almedina Coimbra, "Declaratory Civil Procedure Law", III, p. 163, "when one of the parties bears the burden of proof, the opposing party need only offer counterproof, this being proof intended to cast doubt on the facts alleged by the first.").

Thus, in the present case, what the Claimant must prove in order to rebut the presumption arising both from Article 3 of the SVCTC and from the Vehicle Registry itself, is that the Claimant was not the owner of the vehicles in question during the period to which the disputed assessments relate. What it proposes to prove, according to the case file, is that the ownership of the vehicles did not belong to it during the periods to which the assessments relate, see the documents attached to the Gracious Complaints, contained in the File, which are hereby fully incorporated for all legal purposes.

7.3 REBUTTAL OF THE PRESUMPTION

• The Claimant, as referred to in 3.1, regarding the proven facts, alleged, with the purpose of rebutting the presumption, that it was not the owner of the vehicles at the time of the occurrence of the tax facts, offering for this purpose the following documents:

• Sales invoices to third parties;

• In this way, the ownership of the said vehicles no longer belonged to it, and therefore it could not enjoy the benefit of their use, from a date prior to that on which SVCT was due, embodying, thus, means of proof with sufficient and adequate force to rebut the presumption based on the registry, as provided in paragraph 1 of Article 3 of the SVCTC, documents which enjoy the presumption of authenticity provided for in paragraph 1 of Article 75 of the GTL. It follows from this that at the date on which SVCT was due, the person holding ownership of the motor vehicles was not the Claimant.

8. OTHER ISSUES RELATING TO THE LAWFULNESS OF THE ASSESSMENT ACTS

• Regarding the existence of other issues concerning the lawfulness 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 124 of the TPC, that proceeding with a request for arbitral pronouncement based on defects that prevent the renewal of the disputed assessments becomes moot, because useless, the knowledge of other issues raised does not appear necessary.

9. REIMBURSEMENT OF THE TOTAL AMOUNT PAID

• Pursuant to subsection b) of paragraph 1 of Article 24 of the RTAT and in conformity with what is established therein, the arbitral decision on the merits of the claim against which no appeal or challenge is available binds the tax authority from the end of the period provided for appeal or challenge, and this authority must, in the exact terms of the success of the arbitral decision in favor of the taxpayer and until the end of the period provided for voluntary execution of judgments by tax courts, "Restore the situation that would exist if the tax act, subject of the arbitral decision, had not been performed, adopting the necessary acts and operations for such purpose."

• These are legal mandates that are in complete harmony with the provision in Article 100 of the GTL, applicable to this case, by virtue of the provision in subsection a) of paragraph 1 of Article 29 of the RTAT, which establishes that "The tax authority is obliged, in case of total or partial success of complaints or administrative appeals or judicial proceedings in favor of the taxpayer, to immediately and fully restore the situation that would exist if the illegality had not been committed, the payment of compensatory interest being in accordance with the terms and conditions provided for by law."

• The case set out in the present proceedings raises the manifest application of the aforementioned norms, since as a result of the illegality of the assessment acts referenced in this proceeding, by force of these norms, there must occur a reimbursement of the amounts paid, whether for the tax paid, whether for the corresponding compensatory interest, as a means of achieving the restoration of the situation that would exist if the illegality had not been committed.

10. RIGHT TO COMPENSATORY INTEREST

• The declaration of illegality and consequent annulment of an administrative act grants to the recipient of the act the right to the restoration of the situation in which it would have been before the execution of the annulled act.

• In the context of tax assessment, its annulment grants to the taxpayer the right to the restitution of the tax paid and, as a rule, the right to compensatory interest, in accordance with paragraph 1 of Article 43 of the GTL and Article 61 of the TPC.

• Therefore, the Claimant has the right to compensatory interest on the amount of tax paid relating to the annulled assessment.

11. DECISION

In light of the foregoing, this Arbitral Tribunal decides:

• To judge as meritorious the claim for declaration of illegality of the SVCT assessment for the year 2014 relating to the motor vehicles identified in the present proceeding, thus annulling the corresponding tax acts;

• To judge as meritorious the claim for condemnation of the Tax Authority to reimburse the amount wrongly paid in the amount of 19,261.52 euros plus the respective legally due compensatory interest, condemning the Tax and Customs Authority to effect these payments.

VALUE OF THE CASE:

• In conformity with the provision in Articles 306, paragraph 2 of the Civil Procedure Code and 97-A, paragraph 1 of the TPC and Article 3, paragraph 2 of the Costs Regulation in Tax Arbitration Cases, the value of the case is set at €19,261.52.

COSTS:

• In accordance with paragraph 4 of Article 22 of the RTAT, the amount of costs is set at €1,224.00, in accordance with Table I attached to the Costs Regulation in Tax Arbitration Cases, to be borne by the Tax and Customs Authority.

Notify the parties.

Lisbon, 13-06-2015

The Arbitrator

Maria de Fátima Alves

(the text of this decision was prepared by computer, pursuant to Article 131, paragraph 5 of the Civil Procedure Code, applicable by reference in Article 29, paragraph 1, subsection e) of Decree-Law 10/2011, of 20 January (RTAT), its drafting following current orthography)