IUC Vehicle Tax: Vehicle Ownership Presumption and Taxpayer Liability After Sale (CAAD 789/2014-T)

ARBITRAL DECISION

Subject: Single Circulation Tax – Vehicle Ownership – Taxpayer Status

Claimant: A…, Lda.

Respondent: AT - Tax and Customs Authority

I - REPORT

1. Request

A…, Lda, legal entity no. …, with registered office at …, Avenue …, lot ……….., 2nd floor, in Lisbon, hereinafter referred to as the Claimant, filed on 24-11-2014, pursuant to the provisions of paragraph a) of article 2, no. 1 and article 10 of Decree-Law no. 10/2011, of 20 January, which approves the Legal Framework for Arbitration in Tax Matters (RJAT), a request for arbitral ruling, in which the AT - Tax and Customs Authority is the Respondent, seeking:

• The annulment of 35 Single Circulation Tax assessment acts referring to the years 2013 and 2014.

The Claimant alleges, in essence, the following:

• The disputed assessment acts are unlawful because the subjective prerequisites for the tax's application do not exist;

• This error is embodied in the disputed assessment acts being based on the assumption that the Claimant was the owner of the vehicles in question on the date of the tax facts, when, in reality, the Claimant was not the owner of the vehicles in question on those dates.

• And was not the owner of the said vehicles because it had previously proceeded to their sale.

• According to article 3, no. 1 of the Single Circulation Tax Code (CIUC), the taxpayer of the circulation tax (IUC) is the owner of the vehicle. And although the same provision states that the owner of the vehicle is considered to be the person registered as such in the Motor Vehicle Register, this rule should be interpreted as a rebuttable presumption of incidence, as the contrary would be an interpretation incompatible with the principle of contributory capacity enshrined in the Constitution of the Portuguese Republic.

• Taking into account that the IUC follows the "principle of equivalence, seeking to burden taxpayers in the measure of the environmental and road cost they cause", an interpretation according to which the expression "being considered" constitutes an irrebuttable presumption of ownership based on the register would clash frontally with that principle, by allowing the new owner, and consequent causer of the inherent "environmental and road cost", to be relieved from the payment of the IUC, while continuing to burden the owner who sold it, and relative to whom the mentioned "assumption selected as the object of the tax" no longer exists.

1. Response of the Respondent

In response to the request for ruling submitted by the Claimant, the Respondent AT - Tax and Customs Authority alleges preliminary issues as follows:

2.1. That the Claimant does not identify, in the request, the tax acts disputed, as it was obliged to do under article 10, no. 2, paragraph b) of the RJAT;

2.2. That the Claimant did not attach to the initial petition copies of the disputed assessment acts, which could only be done with the same initial petition, under article 423 of the New Code of Civil Procedure, which constitutes a procedural irregularity.

It further alleges, on the merits of the case, that:

2.3. The tax legislator, in establishing in article 3, no. 1 who are the taxpayers of the IUC, expressly and intentionally established that these are the owners (or, in the situations provided for in no. 2, the persons listed there), being considered as such the persons in whose name the same [vehicles] are registered. This rule is not to be interpreted, therefore, as a presumption.

2.4. The tax provision is full of provisions analogous to that enshrined in the final part of no. 1 of article 3, in which the tax legislator, within its legislative discretion, expressly and intentionally, establishes what should be considered legally, for purposes of incidence, income, exemption, determination and periodization of taxable profit, for purposes of residence, location, among many others;

2.5. The tax legislator intended expressly and intentionally that persons in whose name (the vehicles) are registered should be considered as owners, lessees, acquirers with reservation of ownership or holders of the right of purchase option in long-term rental;

2.6. It is, rather, a clear option of legislative policy adopted by the legislator, whose intention, within its legislative discretion, was that, for purposes of IUC, those registered as such in the motor vehicle register should be considered owners.

2.7. The systematic element of interpretation of the law also demonstrates that the solution advocated by the Claimant is intolerable, finding no support in the law for the understanding sustained by it.

2.8. For from the articulation between the scope of the subjective incidence of the IUC and the fact constitutive of the corresponding tax obligation there follows unequivocally that only the legal situations subject to registration (without prejudice to the permanence of a vehicle in national territory for a period exceeding 183 days, provided for in no. 2 of article 6) generate the birth of the tax obligation.

2.9. The interpretation defended by the Claimant would unequivocally call into question legal certainty and security (in that the motor vehicle register institution would cease to provide the security and certainty that constitute its main purposes), as well as the power-duty of the Respondent to assess taxes;

2.10. But even if the provision in question is interpreted as containing a presumption, the Claimant fails to prove that the facts resulting from the register presumption are not true.

2.11. It fails to prove that the facts resulting from the register presumption are not true, first, because the invoices relating to sales of the vehicles that are presented do not have sufficient probative force to prove the transfer of ownership and thus rebut the register presumption.

2.12. Furthermore, the invoices presented by the Claimant have different descriptions.

2.13. In effect:

• The invoices corresponding to documents numbered 1, 4, 13 and 14 contain the mention "VENDA VIAT NÃO LOC" [VEHICLE SALE NON-LEASE];

• The invoices corresponding to documents numbered 3, 6, 8, 9, 10, 11, 12, 15, 17, 18 and 20 contain the mention "PERC TOT CLIENTE" [TOTAL CLIENT RECOGNITION], being noted to have been issued in the name of insurance companies and without VAT;

• The invoices corresponding to documents numbered 5 and 19 contain the mention "RESCISÃO ANTECIPADA" [EARLY TERMINATION].

2.14. Being in the presence of a single type of contract – purchase and sale – according to the Claimant, it would be expected that the invoices would all contain the same description;

2.15. The invoices having, on the contrary, different descriptions, it is necessary to conclude that the same invoices cannot benefit from the presumption of truthfulness that results from article 75 of the General Tax Law (LGT).

1. Subsequent Procedure

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

1. Submissions

The Claimant dispensed with the presentation of written submissions.

The Respondent presented written submissions, in which it reiterated all the arguments raised in its response.

II – CASE MANAGEMENT

The single arbitral tribunal was duly constituted on 30-01-2015, the arbitrator having been appointed by the Ethics Council of the CAAD, with the respective legal and regulatory formalities complied with (articles 11, no. 1, paragraphs a) and b) of the RJAT and articles 6 and 7 of the CAAD Ethics Code), and is competent ratione materiae, in accordance with article 2 of the RJAT.

The parties have legal standing and capacity, are legitimate and are duly represented.

No nullities were identified in the proceedings.

III – ISSUES FOR DECISION

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

1. Preliminary Issues

1.1. Failure to identify the tax acts subject to challenge

1.2. Failure to present evidence regarding the tax facts subject to challenge

1. Substantive Issues

2.1. The establishment, in article 3, no. 1 of the CIUC, of a presumption and its rebuttability

2.2. The rebuttal, in the present case, by the Claimant, of the presumption of ownership of the vehicles subject to tax

IV – ESTABLISHED FACTS

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

1st: The Claimant was notified of the IUC assessments identified in a document identified as "attached table", attached to the initial petition;

2nd The IUC assessments referred to vehicles whose ownership was registered in the name of the Claimant on the date of the tax facts;

3rd The Claimant issued sales invoices for the following vehicles, referring to the assessments also identified below:

No established facts failed to be proven with relevance to the decision of the case.

The established facts were proven on the basis of the documents attached to the proceedings and on the basis of the free appreciation of the lack of contestation of the facts invoked by the Claimant, under article 110, no. 7 of the Tax Procedure and Process Code (CPPT), applicable by virtue of article 29, no. 1, paragraph a) of the RJAT.

V - GROUNDS

1. Preliminary Issue - Failure to identify the tax acts subject to challenge

Contrary to what the Respondent alleges, we consider that the assessment acts are perfectly identified through the numbers of the assessments in the document attached to the initial petition and designated "Attached Table".

The number of each tax assessment is unique, thus constituting sufficient element for its identification.

There is, therefore, in the Tribunal's view, no breach of article 10, no. 2, paragraph b) of the RJAT.

1. Preliminary Issue: Failure to present evidence regarding the tax facts subject to challenge

The assessment of a tax is an administrative act that is known to and in the possession of the party here as Respondent.

The document in which the same act is embodied is part of the administrative process relating to the disputed act. In this way, the Tax Administration was obliged, under article 17, no. 2 of the RJAT.

Accordingly, the Tribunal considers that the disputed act need not be proven by the challenging party, although it contributes to good procedural efficiency that the document embodying it accompanies the instruction of the request.

Having not proceeded, the Tax Administration, when called upon to do so, to remit the administrative file, article 110 of the Tax Procedure and Process Code is applied by virtue of article 29, no. 1, paragraph a) of the RJAT.

Under no. 7, "the judge freely appreciates the lack of specific contestation of facts".

In the present case, it is the Tribunal's understanding that what the Claimant alleges as the content of the identified tax acts is true.

There is, therefore, no procedural irregularity committed by the Claimant in this respect either.

1. On the Merits

1.1. The establishment, in article 3, no. 1 of the CIUC, of a presumption and its rebuttability

This issue has already been the subject of numerous arbitral decisions. In the sense that article 3, no. 1 of the CIUC establishes a presumption, pronouncements were made by the arbitral decisions rendered in proceedings no. 230/2014-T, no. 414/2014-T, no. 350/2014-T, 336/2014-T, no. 333/2014-T, no. 220/2014-T, no. 150/2014-T and 63/2014-T, among others. In the same sense pronounced the Central Administrative Court of the South, in judgment of 19-3-2015 (Proceedings no. 08300/14).

In the last cited arbitral decision, whose reasoning we adopt, it is stated with regard to this issue:

"Article 11, no. 2 of the General Tax Law is the starting point for this question, stating that "whenever, in tax provisions, terms proper to other branches of law are used, they must be interpreted in the same sense that they have there, unless otherwise directly follows from the law".

It is therefore necessary to ascertain whether it unequivocally follows from the provisions of article 3 of the CIUC that the legislator intended to establish there a concept of "vehicle owner" peculiar to tax law, which encompasses persons who are not holders of such a right according to the rules of civil law.

Now, can the "legislative discretion" of which the legislator enjoys, which the Respondent refers to in paragraph 17 of its Response, go so far, as to determine, categorically, who is the owner of a vehicle, even for purely tax purposes, radically dissociating that tax qualification from the qualification of civil law?

And, following the previous question, another question arises: why would the legislator not simply have stipulated - as this would achieve exactly the same useful effect but eliminate any margin of legal insecurity or uncertainty - that "the taxpayers of the tax are the persons in whose names the vehicles are registered, whether as owners, financial lessees, acquirers with reservation of ownership, or as other holders of purchase option rights by virtue of the lease contract"? A question all the more pertinent, and hypothesis all the more attractive, given that the legislator knew the negative experience, and which continues to repeat itself, of the previous Circulation Tax?

The answer seems evident: because, in this latter hypothesis, which the legislator did not follow, the subjective incidence of the tax could be completely disconnected from any economic substance and would depend exclusively on a legal appearance.

Now, if the legislator had, as the Respondent intends, established in the law a non-presumptive qualification about who are the owners of vehicles (a legal fiction), it would thereby be establishing, through a different formulation, a rule in all respects identical to the hypothetical rule mentioned. It would be making the subjective incidence of the tax rest on a legal fiction, in total disconnection from any economic substance as the basis of subjective incidence.

It is true that the efficiency of taxation requires that the IUC rest on the motor vehicle register and, consequently, requires that the tax administration can trust in the same motor vehicle register.

But the principle of efficiency of taxation cannot override absolutely the principle of contributory capacity, to the point of eliminating it as a criterion of subjective incidence. And it is also true that the tax legislator would have at its disposal other means of holding the seller of the vehicle responsible for its failure to communicate the sale of the vehicle, for the payment of the tax, without being as a direct taxpayer (by configuring, for example, a case of tax liability for debt of a third party).

And, if this is so, it will also necessarily follow that article 3, no. 1 can only establish a presumption of ownership of the vehicle, even with all the negative consequences that this conclusion will certainly entail in terms of efficiency of tax administration."

Thus accompanying the cited decision, concluding to the effect that article 3, no. 1 of the CIUC contains a "juris tantum" presumption, rebuttable.

1.2. The rebuttal, in the present case, by the Claimant, of the presumption of ownership of the vehicles subject to tax

The Claimant intends that the disputed IUC assessments be annulled due to a defect of violation of law, arising from the non-existence of the prerequisites of the subjective incidence of the tax.

In the Claimant's view, the prerequisites of the subjective incidence of the tax are not met because the Claimant was not, on the date of the tax facts, the owner of the vehicles on which the tax was levied.

And was not the owner of those vehicles because it had proceeded to their sale, at a moment prior to the fact generating the tax (paragraph 12 of the Initial Petition).

The fact "sale of the vehicle" constitutes, therefore, in relation to each of the 35 combined requests, the cause of action.

It is incumbent upon the Claimant to prove the facts that constitute the cause of action, in accordance with article 10, no. 2, paragraph d) of the RJAT.

Now, the Claimant attaches, as proof of the alleged facts – sale of the vehicles – sales invoices for the following vehicles:

With respect to the remaining vehicles, the Claimant attaches documents which, by their description, cannot be considered as invoices relating to sales.

In effect, the remaining documents contain the descriptions "PERC TOT CLIENTE" [TOTAL CLIENT RECOGNITION], and "RESCISÃO ANTECIPADA" [EARLY TERMINATION].

As for the vehicles with the registrations …-…-…, …-…-…, …-…-…, …-…-…, and …-…-…, therefore, the documents attached as evidence are not at all suitable to prove the facts that constitute the cause of action, so that, in relation to these, the purchase and sale cannot be considered proven.

As for the remaining vehicles:

On the question of the evidence necessary to rebut the presumption of ownership, one must begin by bringing to the equation the question of the presumption resulting from the motor vehicle register.

The ownership of motor vehicles is subject to mandatory registration. And according to article 7 of the Property Register Code, applicable to the Motor Vehicle Register by virtue of article 29 of the Motor Vehicle Register Code,[1] the registration of ownership of a vehicle gives rise to the presumption that the holder of the property right is the entity in whose favor the same right is registered.

If it is true that the presumption of article 3, no. 1 of the CIUC is established with a view to the purposes of taxation, the presumption established by registration law has in view legal security in general, there being no reason to judge that this presumption does not apply within the scope of tax legal relations.

Therefore, the existence of a registral presumption of ownership in favor of the Claimant, this party, in order to set aside its qualification as owner, must set aside the presumption resulting from the motor vehicle register.

As stated in the judgment of the Court of Appeal of Lisbon of 24-3-2011 (proceedings no. 195/09.8TBPTS.L1-2), "the property register pursues, at one and the same time, purposes of a private nature and purposes of a characteristically public nature. It pursues purposes of a private nature, given that it guarantees security in the field of private rights, specifically in the plane of rights with real efficacy – security of legal commerce (…), globally considered – facilitates traffic and exchange of goods, and ensures the fulfillment of the social function of real rights; it pursues purposes of public interest, as an instrument of legal certainty, protection of third parties and security of legal commerce, and guarantor of the updating of the register in the face of the publicly disclosed fact".

A question identical to this was decided by the Central Administrative Court in the recent judgment already cited. It is stated there:

"In these terms, it should be noted that we are faced with mere private and unilateral documents, whose issuance does not require the intervention of the counterparty in the alleged agreement, thus having a reduced value to prove the existence of a synallagmatic contract, as is the case with purchase and sale".

And further:

"And recall that none of the accounting documents in question proves, even, the payment of the price by the purchaser. Both the invoice and the debit note constitute accounting documents prepared within the company and which are intended for the outside. The invoice should be viewed as the accounting document through which the seller sends to the purchaser the general conditions of the transaction carried out. For its part, the debit note consists of the document in which the issuer communicates to the recipient that the latter owes him a certain monetary amount. Both documents appear in the phase of liquidation of the amount to be paid by the purchaser, thus not proving payment of the price by the same purchaser and, consequently, proof that the purchase and sale was concluded".

The Tribunal concluding:

"Thus, it should be concluded that the defendant company did not even produce evidence relating to the alleged sale of the vehicles, and it would have to prove that it was not the owner of the vehicles on the date to which the assessments refer, which would imply, in the present case, proving who was the current owner."

It is emphasized from the doctrine expounded the following aspect: what the Claimant has to prove, to set aside its qualification as owner, is not that it alienated a vehicle at a given moment, but rather that it was not the owner of the vehicle at the moment of the tax facts, which are distinct legal facts. We are in the domain of proof by full presumption, which cannot be set aside by judgments of mere probability.

To this argument, with which we entirely agree and which we adopt, only the following is added. Being universally accepted and even common sense that the invoice or any private and unilateral document is not sufficient to prove the conclusion of a purchase and sale contract, all the more so the ownership or non-ownership, to this is added that the rebuttal of the presumption of registral truth is particularly exacting.

On the subject, says Mouteira Guerreiro (Mouteira Guerreiro, J. A., Notions of Property Register Law, 2nd ed. Coimbra, 1994, p. 70): "The protection conferred by registration is reflected in our system, in a rebuttable presumption. But, we must not forget, it is a legal presumption. (…) What the register reveals cannot be challenged, even in court, without simultaneously requesting its cancellation".

The same author (Ibidem, p. 71) adds: "From the principle of presumption of truth or accuracy follows the rule provided for in article 8 of the Constitution. If the final registration presumes that the right exists and belongs to the registered holder "in the precise terms in which the register defines it", it would make no sense to judicially challenge this publicly advertised truth, without simultaneously challenging the register itself. Therefore, whoever intends to contest the truthfulness of the facts set forth in the register will also have to request the cancellation of the register. If they do not, the action will not proceed after the pleadings, because there would be the risk of arriving at an effective contradiction: on one hand, having a sentence declaring certain facts legally irrelevant or untrue and, on the other, there existing a register presuming erga omnes the truthfulness and validity of those same facts".

The understanding exposed is sanctioned by the case law of the superior courts. See the judgments previously cited, in which it is stated that, to set aside the presumption of ownership arising from the Motor Vehicle Register, it is necessary to prove that the ownership of the registered right belongs to another, but this being insufficient, it being further necessary to simultaneously request its cancellation (cf. judgment of the Court of Appeal of Coimbra of 22-01-2013, proceedings no. 3654/03.2TBLRA.C1; judgment of the Court of Appeal of Coimbra of 3-06-2008, proceedings no. 245-B/2002.C1).

VI. DECISION

For the reasons set forth, this Tribunal decides to wholly reject the present request for arbitration.

Economic utility value of the proceedings: The economic utility value of the proceedings is fixed at 1649.22 euros.

Costs: Under article 22, no. 4, of the RJAT, the amount of costs is fixed at 306.00 euros, under Table I attached to the Costs Regulation in Tax Arbitration Proceedings, at the charge of the Claimant.

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

Lisbon, Administrative Arbitration Centre, 30 July 2015

The Arbitrator

(Nina Aguiar)

[1] D.L. no. 54/75, of 12 February.