IUC Tax Liability During Financial Leasing Contracts: CAAD Arbitration Ruling 839/2014-T

THE PARTIES

Claimant: «A…, S. A.», NIPC …, with registered office at Rua …, n.º …, … Lisbon

Respondent: Tax and Customs Authority

Subject Matter: IUC in the validity period of a financial leasing contract

ARBITRAL DECISION

I - Subject matter of the claim and procedural processing

On 23 December 2014, the Claimant filed a request for arbitral decision, seeking:

i) Declaration of illegality of the following assessment notices for Vehicle Circulation Tax (IUC) and respective compensatory interest:

ii) The consequent reimbursement of the aforementioned amount for unduly paid taxes; and

iii) The payment of compensatory interest.

By decision of the President of the Deontological Council (no. 1 of article 6 of the RJAT) the undersigned was appointed as sole arbitrator. The singular arbitral tribunal was constituted on 25 February 2015.

The Tax and Customs Authority (hereinafter referred to, in short, as AT) filed its Reply on 7 April. Having alleged two preliminary exceptions based on the lack of procedural standing of the Claimant.

On 10 April the Arbitral Tribunal notified the Claimant to clarify part of the evidentiary matter alleged and to indicate whether it waives the examination of witnesses or, if not, to identify the alleged facts to the proof of which the indicated witnesses are intended.

On 23 April the Claimant made pronouncements on the exceptions invoked by the Respondent and submitted new documentary evidence.

The arbitral hearing provided for in article 18 of the RJAT took place on 8 May.

In the course thereof, AT alleged not to have been notified of the request submitted by the Claimant on 23 April.

The Arbitral Tribunal emphasized that the Claimant had not submitted documentation which it had protested to attach in the request for arbitral decision, highlighting the relevance thereof to assess its procedural standing. At the end of the day, the Claimant submitted the missing documentation.

After hearing the Parties, it was decided (i) to reschedule the examination of witnesses for 20 May, (ii) to admit the joining, by the Claimant, of the pending documentation and (iii) to grant AT a period to review until 19 May.

On 19 May AT notified the Arbitral Tribunal that it would not make pronouncements regarding the documents submitted by the Claimant. Basing this decision on the fact that (i) the Arbitral Tribunal had not issued a ruling admitting the request submitted by the Claimant on 23 April and (ii) the hearing of the Parties regarding the allegation of exceptions was reserved for the arbitral hearing provided for in article 18 of the RJAT.

In the same request, AT contradicted the response of the Claimant to the exceptions alleged by AT, although restricted to the transfer of assets of the company «B…, S. A.» (given that, as mentioned, AT excludes itself from analyzing the documentation sent by the Claimant with respect to the patrimonial transmission of «C…, S. A. - Branch in Portugal»).

AT further requested condemnation of the Claimant as a litigant in bad faith.

Moreover, it requested the dispensation of witness examination, clarifying that this had already been requested in the reply filed on 7 April. In fact, the witnesses had already been examined in the arbitral proceedings no. 642/2014-T and no. 643/2014-T, with their testimony having been recorded. In such terms AT requested the use of this witness testimony.

On 19 May the Claimant requested the same use of the witness examination conducted and the holding of oral arguments on 20 May.

Also on 19 May the Arbitral Tribunal notified the Parties (i) of the acceptance of their requests regarding the use of witness examination conducted in the proceedings referred to above, (ii) of the holding of written and successive arguments and (iii) consequent dispensation of the hearing scheduled for 20 May.

The final arguments were submitted by the Respondent and Claimant on 29 May and 8 June, respectively.

The Arbitral Tribunal was duly constituted and is competent. The case suffers from no nullity.

It is necessary, nonetheless, to clarify the allegation of the Respondent regarding its unavailability to contradict the documentation submitted by the Claimant on 8 May.

In the hearing provided for in article 18 of the RJAT, held on 8 May, it is verified, from reading the corresponding minutes, that the Tribunal "gave the floor to the representatives of the Claimant and Respondent to, in that order, make pronouncements on: (i) the procedural processing, (ii) any exceptions that should be assessed and decided before the Tribunal knew of the claim, (iii) the need for corrections to be made in the procedural documents submitted and (iv) the need to schedule a new hearing for the holding of oral arguments".

It can further be read that "the Tribunal, having heard the Parties and with their agreement (…) decided to admit the joining of the documentation indicated in point 27 of the Request submitted by the Claimant on 20-4-2015, joined to the file on 23-4-2015 and by oversight not sent therewith, granting the Respondent a period to review until 19-05-2015".

In fact, in that hearing on 8 May, the Respondent alleged not to have been notified of the request submitted on 23 April.

For which reason the period to review, which earned the agreement of both Parties, was intended for both the examination of the documentation then missing and the assessment of the request of 23 April.

For which reason it is difficult to understand, if not even surprising, the reference of the Respondent to the lack of admission, by the Tribunal, of the additional documentation that the Claimant brought to the case. Since, as we saw, that admission was decided - after hearing the Parties - in the arbitral hearing on 8 May.

Equally not apparent is the reference of the Respondent to the fact that the response to exceptions is, under the terms of the RJAT, made "orally within the scope of the arbitral tribunal hearing".

Indeed, that oral debate did not take place, precisely because the Respondent alleged not to have been notified of that same response to the exceptions alleged by it. Consensual attribution to the Respondent of an additional period having been made. The Respondent subsequently requested that the arguments be made in written and successive form.

It falls to the arbitral tribunal to effect practical conciliation between, on the one hand, the approximation of the RJAT to the rules and norms governing the tax procedure and, on the other hand, the definition of the processing suitable to satisfy the principles of procedural celerity, simplification and informality (no. 2 of article 29 of the RJAT).

In conclusion, only the Respondent will know the reason why it decided not to assess and/or contradict the additional documentation submitted by the Claimant. What is certain is that this procedural action was agreed upon by the Parties when the arbitral hearing on 8 May. As stated in the corresponding minutes, signed by the Parties and the sole arbitrator.

II - Summary of the grounds of law invoked by the parties, the exceptions and the written final arguments

A. The understanding of the Claimant

The request for arbitral decision encompasses 36 additional assessment notices for IUC and respective compensatory interest, insofar as they share the same illegality. Specifically, during the pendency of a financial leasing contract, the taxpayer of the IUC is the lessor. And not the lessee.

The assessment acts were notified to the following taxpayers:

• 27 to the Claimant, in the amount of 2,861.30 €;

• 7 to «B…, S. A.», in the amount of 293.08 €; and

• 2 to «C…, S. A. - Branch in Portugal», in the amount of 107.11 €.

The share capital of «B…, S. A.» was entirely held by the Claimant. On 31 December 2008 dissolution with immediate distribution was decided, whereby the assets and liabilities were transferred to the Claimant, including, in particular, the contractual position in the financial leasing contracts for motor vehicles. For which reason the Claimant has standing in the proceedings.

As for the branch of the company incorporated under Spanish law, the corresponding assets and liabilities were incorporated into the patrimonial sphere of the Claimant, through a capital increase operation. Capital was increased in January 2007, having been partially realized in kind through the incorporation of the assets of the branch.

For which reason the Claimant presents itself as successor to the universality of the legal positions, active and passive, of the branch. Which, again, grants it the necessary procedural standing.

The additional assessments in dispute have a common factual framework and are based on the same grounds of law. For which reason they were aggregated in a single request for arbitral decision.

The genesis of the disputed tax - IUC - results from the execution of financial leasing contracts for motor vehicles. In which motor vehicles are acquired by the Claimant (lessor) and delivered to its clients (lessees).

As consideration for a monthly lease payment, the lessee acquires, exclusively, the use and enjoyment of the motor vehicle. Although the Claimant maintains, formally, the legal ownership of the asset, the respective economic enjoyment is, materially, entrusted to the lessee.

The financial leasing contracts (attached to the case) were in force at the moment the taxable event giving rise to subjection to IUC and the consequent obligation to assess the tax obligation arose.

AT issued the disputed assessment notices to the Claimant. However, AT was not unaware - by virtue of the right to prior hearing exercised by the Claimant - that the motor vehicles underlying resulted from the execution of financial leasing contracts. In fact, in the context of prior hearing, the Claimant identified the corresponding lessees.

It is to the lessees - and not to the Claimant - that the IUC Code invests with the status of taxpayer of the tax.

IUC is an indirect tax aimed at burdening the environmental and road charges arising from the use of motor vehicles, in compliance with the principles of tax equivalence and equality and conveying a message of social responsibility.

There is thus a presumption of potential use of the vehicles, which only the lessees satisfy exclusively. For which reason the incidence of IUC is rooted not in the ownership of the vehicle, but in its use. Which is only within reach of the lessee.

Indeed, the financial leasing contract presents a singular characteristic: the acquisition of a motor vehicle, with the purpose of proceeding to its immediate delivery to a natural or legal person, so that it may enjoy the asset in an autonomous and exclusive manner.

AT has information capable of allowing the identification of the lessee, namely through the obligation of the lessor to send it the identifying data of the lessee, as provided for in article 19 of the IUC Code.

To the general principle that makes the subjective incidence of IUC fall upon "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", the legislator added "financial lessees, buyers with retention of title, as well as other holders of purchase option rights by virtue of the leasing contract".

There is thus a legal recognition that legal ownership of a motor vehicle does not always flow the status of taxpayer under IUC. As occurs in the case sub iudice, in which the taxpayers are the lessees as economic owners of the assets. Being, for IUC purposes, equated to legal owners of motor vehicles not covered by financial leasing contracts.

The motor vehicles remained, from the beginning of the financial leasing contracts, under exclusive economic enjoyment of the respective lessees. Belonging to them the responsibility for the assessment of IUC.

In support of this understanding of attribution of the status of taxpayer of IUC to the lessee, case law of the arbitral tribunal is cited.

Legal opinions from Prof. Dr. … and Prof. Dr. … were attached.

B. The understanding of the Respondent

The Claimant overstates the value attributed to arbitral case law, and the Respondent is governed by the principle of legality.

Moreover, the arbitral decisions listed by the Claimant cannot be considered as having been delivered by a court of superior hierarchy, a fact which impacts their degree of persuasive precedent.

The Respondent objects to the legal opinions invoked by the Claimant, highlighting the inherent lack of independence and impartiality.

Prof. Dr. … and the mandataries of the Claimant are part of the same law firm.

And Prof. Dr. … is president of the Fiscal Council of the Claimant.

Entering into the crux of the disputed issue, the IUC Code presented an innovative element, contained in the incidence of the tax on 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".

The literal element is clear and direct. By using the expression "being considered as such" the tax norm makes clear the absence of a presumption. Therefore, the owner has no right to present evidence to the contrary, given the absence of a presumption capable of rebuttal.

In the tax-legal system there abound other analogous situations, in which the legislator establishes rules of incidence, objective or subjective, according to a given abstract factuality. And without the taxpayers having the right to, by means of suitable evidence, depart from the rule of incidence.

Precisely because we are not dealing with the figure of presumption, under penalty of emptying the useful effect of the legal norm.

There is thus a coincidence between the literal element and the spirit of the legislator: to consider as taxpayer the owner in whose name the vehicle was registered.

This framework was already endorsed by the judicial courts (proceeding no. 210/13.0BEPNF), in which the Administrative and Tax Court of Penafiel decided that "the ownership and actual possession of the vehicle is irrelevant for the verification of the subjective and objective incidence and the taxable event of the tax".

Because "regardless of whether the registration of the property right of the motor vehicle registration is mandatory (…) and the appellant sold the motor vehicle (…) what is at issue is the determination of the taxable event and the determination of its subjective incidence, which are fixed by the property right of the vehicle as certified by the license plate or registration in national territory".

"The sale of the vehicle (…) is irrelevant. For the assessment of IUC (…) and the determination of the responsible for its payment, the only relevant facts are the maintenance of the license plate and motor vehicle registration in national territory and the registration of the property right in the Motor Vehicle Registration Office independent of its effective alienation. The seller has the duty at the moment of alienation to take care to proceed with the registration of the sale for the new acquirer, being the only way to ensure that the registration is made for the new acquirer".

Only legal situations subject to registration generate the birth of the tax obligation. IUC is considered due on the first day of the tax period referred to in no. 2 of article 4, which denotes its direct relationship with the issuance of the registration certificate.

For which reason the failure to update the registration, in accordance with the terms of article 42 of the Motor Vehicle Registration Regulation, shall be imputable in the legal sphere of the taxpayer of IUC and not in that of the Portuguese State, as the active subject of this Tax.

IUC became due by the persons who appear in the registration as owners of the vehicles, a fact which effected a structural transformation in the regime of motor vehicle taxation. As can be verified by the transcription of the parliamentary session of 12 March 2008.

The acceptance of the reasoning adduced by the Claimant would be not only against the law, but equally contrary to the Constitution. By violation of the principles of trust, legal certainty, efficiency of the tax system and proportionality.

Indeed, the interpretation proposed by the Claimant undervalues registral reality, making minimal control by the Respondent impossible, being offensive of the basic principles of trust and legal certainty that should inform any legal relationship.

The efficiency of the tax system is prejudiced by the increase in control costs which would be charged to the Respondent, which would always have to be counterbalanced with the revenue generated by IUC.

The principle of proportionality is violated, insofar as the Claimant has the necessary and adequate legal mechanisms to safeguard its tax capacity (e.g., motor vehicle registration, request for seizure of documents and request for cancellation of registrations), without, however, having exercised them in due time.

Without dispensing with and merely by way of caution, the Respondent should be absolved of the request for payment of compensatory interest.

This, because the competence for motor vehicle registration is not within the sphere of the Respondent. Rather being attributed to various external entities, in particular to the Institute of Registries and Notarization to which it falls to transmit to the Respondent the changes verified in the ownership of motor vehicles.

Moreover, the Respondent cannot be imposed any mechanism of control of the transfer of ownership of the vehicles, since IUC is assessed in accordance with the registral information duly transmitted by the Institute of Registries and Notarization.

And having the Claimant failed to maintain the motor vehicle registration duly updated, this lack of diligence is solely imputable to it.

In defense of this reasoning, arbitral decision no. 26/2013-T is cited.

C. Preliminary exceptions invoked by the Respondent

Among the tax acts whose legality is contested by the Claimant, the following 7 assessment notices issued to «D… - …, S. A.» are identified:

The Claimant alleged that the referred commercial company was dissolved with concomitant immediate distribution of its assets, as stated in the minutes attached to the request for arbitral decision. For which reason the assets and liabilities, particularly the financial leasing contracts, would have been transferred to the Claimant.

For this purpose, the Claimant attached a copy of the minutes no. 30 of the referred company (of 31 December 2008).

However, the minutes state - on 3 occasions - the fact that the company "on this date" no longer had "any asset or liability", for which reason it is "in a position to be considered as liquidated".

For which reason the Claimant failed to present any documentary support to the operation of acquisition of the assets and liabilities of the dissolved company. Being, consequently, lacking in standing.

The request for arbitral decision further includes the following assessment notices issued to «B…, S.A. - Branch in Portugal»:

The Claimant alleged that the set of assets and liabilities of this branch, among which the financial leasing contracts are included, were incorporated into its legal sphere.

Such allegation is supported by copy of a commercial registry certificate, which states the closure of the branch and cancellation of its respective registration (10 January 2007). For which reason it is not minimally demonstrated that the financial leasing contracts were transferred to the Claimant. Reason for which the request for arbitral decision suffers from lack of standing.

D. Final arguments

The Parties maintained the grounds of fact and law expressed in the previous documents.

III - Preliminary exceptions

A. «B… – …, S. A.»

In response to the lack of standing invoked by the Respondent, the Claimant reported that a lapse had occurred in the reference, made in the minutes of the general assembly, to the absence of assets and liabilities.

A list of the financial leasing contracts which are to have been transferred to the Claimant was sent (together with a liquidation statement) by way of the liquidation of the company. The corresponding contractual position (lessor) having been transferred to the legal sphere of the Claimant.

The Claimant alleges that the lapse "does not constitute full proof of the supposed absence of assets and liabilities in the mentioned liquidated company".

The accounting documents prove the existence of assets and liabilities "when the dissolution and liquidation was proceeded with", for which reason "the circumstance that these assets were transferred ope legis to the sphere of the Claimant results from the law itself". Thus, additional proof would not even be necessary to demonstrate it, given that the Claimant would have become "responsible for the supervenient liability of the extinct company".

The Claimant further highlights the confession it makes regarding the existence of these assets and liability at the moment of dissolution and liquidation. A confession made in court and endowed with full evidentiary value, in accordance with article 358 of the Civil Code.

Moreover, if no transfer existed, the Claimant would be prevented from exercising the rights and fulfilling the obligations inherent to the financial leasing contracts, among which could be enumerated the invoicing and collection of monthly rent or the alienation and delivery of the vehicle at the end of the contract.

The Respondent contradicted, emphasizing that "notwithstanding the wealth of documents joined by the Claimant, at no point in the evidence presented is it clear that the assets of company B… were incorporated in the Claimant".

"In fact the Claimant came to join the statements and other accounting documents, however, it is not inferred from the presented documents the incorporation of the assets of company B… in the Claimant".

The fact that the Claimant paid the disputed IUC assessments does not grant it procedural standing.

From the outset, because article 41 of the LGT allows the making of payments by a third party, a fact which grants it a right of subrogation, but not the interest to act or procedural standing.

As for the allegation by the Claimant that "in the circumstance that this contract had not been transferred, the AT would be faced with the non-existence of company B…, being unable to proceed with the assessment and respective collection of IUC", the Respondent cites rulings of the STA (proceeding no. 0372/09, of 16 September 2009 and appeal no. 1975/02 of 12 March 2003).

Having as framework a merger operation, the STA emphasizes that "the extinct company continues, moreover, to be the subject of the tax legal relationship, even if the law designates other responsible parties for its payment. The termination of the legal personality of a given subject does not imply the extinction of the credits of its creditors, there is nothing in the law which prevents the Tax Authority from making a tax act of assessment already after extinction of the person (singular or collective) taxpayer of the tax obligation. Still less, to demand the payment of the tax obligation already liquidated. (....) In short, the disappearance of the collective legal personality of the respective taxpayer is not an extinguishing cause of credit obligations, not preventing, therefore, the creditors from making their corresponding rights prevail. Thus, the Tax Authority, armed with an executory title in which the extinct company appears as debtor, may proceed (and even establish) enforcement action for the respective collection, provided that the debt becomes exigible".

Finally, the Respondent identifies an irreparable contradiction between the minutes previously presented as evidence and the subsequent confession that these minutes constitute a lapse.

Moreover, in the understanding of the Respondent, evidence must expressly be part of the request for arbitral decision. For which reason the subsequent confession could not be admitted.

B. «C…, S.A. - Branch in Portugal»:

As referred to above, the Respondent chose not to contradict the documentation which the Claimant had protested to attach when submitting the request for arbitral decision and which ended up being attached on 8 May following the arbitral hearing.

C. Preliminary assessment

Beginning with «B… -…, S. A.» the Claimant acts, in fact, in the conviction that those financial leasing contracts were transferred to it.

As appears from the witness testimony, the leasing contracts were analyzed individually, so as to verify their validity and any possible existence of pending debts requiring settlement. Having subsequently been charged in the accounting and invoicing systems.

However, no documentary support was presented capable of identifying and characterizing the operation by which this transfer of assets and liabilities was effected.

As the Respondent emphasizes, the liquidation statements (which are not signed) do not materialize any effective proof, appearing without any other documentary relationship.

Indeed, the periodic statement of income was not presented, given that the dissolution and patrimonial liquidation of a company constitutes an onerous transfer. Giving rise to the eventual determination of gains or losses (for fixed asset items, which would not be the case for financial leasing contracts) or of an eventual income or expense (for the remaining patrimonial elements). This, insofar as the transfer is effected at market value, which may diverge from the net accounting value.

The Simplified Business Information was not presented. Or the statement of cessation under VAT and IRC, which could permit the identification of the assignee of the establishment.

As for the confession, its validity is conditional upon the revelation of an act favorable to the opposing party. Which is not verified in the case at issue, insofar as the Claimant intends to confess a fact that is favorable to it. And in direct contradiction with the minutes of the general assembly that decided upon the dissolution.

As for the witness examination, it revealed only the lack of knowledge regarding the transfer act. The witness having used the term "merger" several times, when it is certain that this operation - as a universal succession and ope legis of assets and liabilities in the perspective of strict continuity of legal title of the incorporated company and in all respects similar to succession mortis causa - did not take place.

Indeed, in a merger operation the dissolution of the incorporated company does not occur, contrary to what happened in the case under consideration.

Witness testimony was restricted to matters of an operational nature, when it could (should) have involved professionals from the legal and/or financial sector of the Claimant. Who, by the exercise of their functions would be better able to identify (and present probative documentation) of the mechanism used in the transfer of assets and liabilities among which the financial leasing contracts could figure.

Finally, there would remain judicial presumption, in which the tribunal could anchor itself in rules of experience and principles of logic, with the purpose of formulating judgments of value regarding the matter of fact under consideration.

And, indeed, the effective transfer of the financial leasing contracts would not be excluded. Given that the action of the Claimant and its clients was based on this transfer, insofar as rights and obligations would have been reciprocally fulfilled after the dissolution.

In truth, the vehicles did not "disappear" as a consequence of the dissolution. The lessees remained in their possession and enjoyment. Rents were invoiced and collected.

The Claimant attached a copy of a notice of enforcement directed to the Claimant "in the capacity as depositary of «B… - …, S. A.»".

For which reason it seems certain that there exists a factual framework, capable of evidencing the passage - in fact - of the leasing contracts to the Claimant.

It happens that what is at issue is not only proof regarding the transfer of the financial leasing contracts. But, fundamentally, proof regarding the means by which this transfer was effected. Proof which was not established by way of documentary or witness evidence.

Now no matter how great the conviction of the arbitral tribunal regarding the transfer, in fact, of the contractual position, judicial presumption can only be affirmed on the basis of the matter proven. Being prohibited the interpreter from resorting to judicial presumption in order, proceeding from unproven facts, to establish proven facts.

Tax debts supervenient to the dissolution and liquidation of a company cannot remain "in no man's land". Under penalty of any assessment of tax to the dissolved company being doomed to lack any means of defense.

As occurs in the case at issue - and anticipating the arbitral decision - the taxpayer of IUC during the pendency of a financial leasing contract is the lessee. And not the owner. For which reason procedural standing requires to be overcome, under penalty of the legality of these tax debts being insindicable.

It happens that it is not the tribunal's role to supply the evidentiary deficiencies in the matter of fact alleged by the Parties. Particularly when this evidence would not present itself as difficult to configure or demonstrate.

Now, the Claimant availed itself of a set of probative means (documentary and testimonial) little or not at all apt to demonstrate the legal transfer of assets and liabilities. And having regard to the legal processing inherent to a process of dissolution and liquidation (or immediate distribution), along with the set of accounting and tax obligations that accompany it, it would not be difficult or onerous to present documentary evidence of the transfer of these assets and liabilities of the dissolved company.

In conclusion, the exception invoked by the Respondent proceeds, preventing the tribunal from considering the substantive issue underlying 7 assessment notices for IUC.

Passing to «C…, S.A. - Branch in Portugal», the Claimant attached a public deed of increase of its share capital, through incorporation, inter alia, of the assets and liabilities affected to the Portuguese branch of its shareholder «D…, S. A.».

In assessing the exception invoked by the Respondent, we understand that the same is unfounded.

Indeed, the authentic document is apt to demonstrate the transfer of assets and liabilities of the branch, insofar as the "assets relating to the business unit" of the branch are transferred. I.e., the universality of assets and liabilities that compose the commercial establishment affected to the branch were transferred.

From the documentation attached there is the necessary report of the official accounts auditor, evidencing the sufficiency (existence) of the assets for the realization of the share capital of the Claimant.

In conclusion, the Claimant acquired the universality of the assets and liabilities affected to the branch, among which, necessarily, the financial leasing contracts figure. For which reason the exception invoked by the Respondent is unfounded.

IV - Factual framework

A. Facts considered proven

In light of the documentary and testimonial evidence, the following is considered proven:

a) The Claimant carries on the economic activity of financial leasing;

b) Financial leasing contracts were executed for periods varying between 48 and 84 months, which corresponds to 75% of the maximum period of useful life of the vehicles. Which permitted its corresponding accounting and tax recognition (at the time based on Accounting Guideline no. 25 and Dispatch 503/2004 of SEAF);

c) Financial leasing contracts are accompanied by a promise of purchase and sale contract of the vehicle at the end of the contractual period. The lessee is granted the right to terminate the contract, in which case it incurs the obligation to indemnify the lessor in an amount "equal to the price agreed upon for the sale of the vehicle";

d) The lessee further has the right to early performance, with consequent obligation to pay the outstanding rents;

e) In case of transfer of contractual position among lessees (two contracts were identified) the transferee assumes the rights and obligations of the transferor;

f) AT issued 29 assessment notices for IUC with reference to the year 2013. The tax was paid by the Claimant;

g) Two assessment notices were issued to «C…, S. A. - Branch in Portugal». The assets and liabilities of this branch were integrated into the Claimant, by way of a capital increase realized in kind. The Claimant having assumed the legal position of successor in the financial leasing contracts previously executed by the branch;

h) At the moment the taxable event arose (first day of the month of the registration date) a financial leasing contract was in force, the underlying motor vehicles having remained ab initio in the possession and enjoyment of the lessees.

B. Facts not proven

With relevance to the assessment of the merits, it was not proven that the Claimant, in the exercise of the right to prior hearing, identified the lessees in accordance with the terms and for the purposes of article 19 of the IUC Code (in accordance with article 45 of the request for arbitral decision).

V - Law

The crux of the disputed question is encapsulated in the following question: is the taxpayer of IUC due during the pendency of a financial leasing contract the owner (lessor) or the user (lessee)?

In the perspective of the Claimant, financial lessees are equated to owners along with other holders of purchase option rights by virtue of the execution of a leasing contract. For which reason the subjective incidence of IUC falls upon the lessees with whom the Claimant agreed to financial leasing contracts.

As for the Respondent, the taxpayer of the tax cannot cease to be the owner in whose name the registration is effected.

It happens that the aforesaid question of law is duly answered, by means of the provisions in nos. 1 and 2 of article 3 of the IUC Code:

"1 - The taxpayers 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, buyers with retention of title, as well as other holders of purchase option rights by virtue of the leasing contract are equated to owners".

In light of the facts proven it is undisputed that the Claimant and its clients (i) executed financial leasing contracts and (ii) the lessees are holders of the right to purchase the vehicle during or at the end of the validity period of the contract.

Throughout the entire period of validity of the referred contracts, the vehicles were in the possession of the lessees. Which necessarily includes the moment in which the taxable events of IUC occurred, to which the disputed assessments relate.

This matter has already been the subject of diverse arbitral decisions, as, by way of example, proceedings 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.

And the evidence of this line of case law is understood, insofar as the aforementioned no. 2 of article 3 of the IUC Code is clear and direct. The taxpayers of IUC are the lessees of financial leasing contracts or any other contractual instrument in which the purchase option of the vehicle is provided for.

This norm is conjugated with the provisions in no. 2 of article 4 and no. 3 of article 6, from which there flows a tax period corresponding to the year which begins on the date of registration and subsequently on each of its anniversaries. IUC being due on the first day of these tax periods.

The primacy of registered ownership is thus set aside, by express determination of the IUC Code, whenever the same is accompanied by a financial leasing contract or any other agreement by which the lessee has the purchase option of the vehicle.

It is not incumbent upon a tribunal to analyze the greater or lesser merit of a legislative option.

Although it will always be said that the same meets the principle of economic equivalence which the IUC Code, already in its article 1, establishes as a structural rule of this tax. Contained in the burdening of negative externalities, of an environmental and road character, resulting from the enjoyment of an asset (motor vehicle) by determined taxpayers.

No. 1 of article 3 identifies those taxpayers as the owners of vehicles, "being considered as such the natural or legal persons, of public or private law, in whose name the same are registered".

At a first moment, we could consider that the IUC Code adopts the concept of "registration tax", making the tax fall upon taxpayers as they are identified for purposes of registration.

However, the principle of equivalence is reaffirmed in no. 2 of that article 3. Imposing upon lessors, regardless of the modality of the leasing contract, the obligation of identification "of the users of the leased vehicles", in accordance with article 19 of the IUC Code.

In such terms the literal reading of no. 1 of article 3 is required to be conjugated with the ultimate objective of the legislation: to ensure that the tax burden falls upon the beneficiaries of the use of motor vehicles, so as to address the negative externalities imposed upon the community in the environmental and road planes.

To admit the contrary would imply accepting that IUC burdened the owners appearing in the registration, liberating the real economic beneficiaries of the assets.

Contravening the principle of equivalence which, it is insisted, the IUC Code elevates to the category of a structural rule and conforming element of this tax.

Moreover, the "implementation of a rule of tax equality" adopted in the final part of article 1 constitutes, precisely, the corollary of the principle of equivalence. In this case, as a conforming element of the principle of tax capacity, which requires that the tax be supported by taxpayers who demonstrate a benefit arising from the enjoyment of an asset.

From the equation of the lessee to the owner and the obligation of sending to AT the identifying data of the lessees, it follows that these latter fulfill the norm of subjective incidence of IUC. For which reason at the date of the exigibility of IUC the Claimant was not a taxpayer of the tax.

Finally, and as for the violation of the 4 principles of constitutional dignity whose assessment the Respondent expressly requested, it is not understood how the same could collide with no. 2 of article 3 of the IUC Code.

Because, as we saw, the ordinary legislator established a rule of equation of financial leasing (and other figures and contractual modalities) to the right of ownership. It is not understood how such an equation could hurt the principles of trust, legal certainty, efficiency of the tax system or even proportionality.

In any case, the Respondent at no time alludes to the cited norm, all taking place, in its understanding, as if the same simply did not exist. And being that the norm conforming the arbitral decision, the constitutional control requested by the Respondent is emptied.

In such terms the 29 disputed assessment notices require annulment.

Compensatory interest

The Claimant further requests the payment of compensatory interest.

Article 100 of the General Tax Law (LGT) binds AT, in case of success of the request for arbitral decision, to the complete reconstitution of the situation that would have existed in the absence of illegality, including the payment of compensatory interest. All in line with subparagraph b) of no. 1 of article 24 of the RJAT.

No. 1 of article 43 of the LGT postulates that compensatory interest is due when it is determined, in a request for arbitral decision, that there was error imputable to AT from which has resulted the payment of tax superior to what was due.

The subjective incidence of IUC falling upon the lessee implies the fulfillment of a concomitant declarative obligation on the part of the owner, in accordance with that established in article 19 of the IUC Code. Indeed, without the identifying data of the lessees, AT would find itself in the impossibility of assessing the corresponding tax to them.

This means that the assessment of IUC to the lessee is dependent upon a prior action of the owner. It being that the IUC Code does not specify the manner of fulfillment of this declarative obligation.

From the evidentiary matter no information appears regarding the moment and manner by which the Claimant implemented the identification of the lessees. It is true that the Claimant mentions the sending of this information when exercising the right to prior hearing. But it does not accompany this allegation with any probative means.

There is, however, a certainty: the request for arbitral decision references the financial leasing contracts as the foundation of the illegality from which the disputed assessments of IUC suffer.

The Claimant attached copy of the financial leasing contracts and the promise contracts of purchase option for the vehicles.

And Annex A to the request for arbitral decision identifies, by registration number of each vehicle, the tax identification number of each lessee and the date of beginning of the financial leasing contract.

For which reason after notification of the request for constitution of an arbitral tribunal, and in light of the evidentiary matter included therein, the Respondent finds itself prevented from alleging ignorance of the underlying factuality.

Coming to have knowledge (i) of the existence of financial leasing contracts and of the purchase option of the vehicle, (ii) of the temporal period of validity of these contracts and (iii) of the concrete tax identification of the lessees.

In sum, AT had the necessary information to conclude by the subjective incidence of IUC in the figure of the lessees, as well as their tax identification data so as to notify them of the corresponding assessments of IUC.

And at the end of the 30-day period following the request for arbitral decision, AT maintained the tax acts unchanged. From which resulted the constitution of the arbitral tribunal on 25 February 2015. Preventing AT from practicing a new tax act.

It is precisely at this moment that the error imputable to AT occurs, from which flows the constitution of the duty of payment of compensatory interest.

The Respondent, contrary to what it alleges, did not merely follow the principle of legality, since it was imposed with the obligation of fulfillment of no. 2 of article 3 of the IUC Code. And despite the fact that it had all the necessary information available, it opted for the maintenance of the tax acts and consequent constitution of the arbitral tribunal.

Although no. 5 of article 61 of the Code of Tax Procedure and Process (CPPT) establishes a period of counting of interest which begins on the date of unduly paid tax, it is important to retain that the right to this financial remuneration rests upon the existence of an error imputable to AT.

And, as emphasized, this error arises when AT, confronted with the validity of financial leasing contracts and the identification of the lessees, decides upon the maintenance of the disputed assessments.

There being, previously to this moment, no error imputable to AT, the period which mediates between the unduly paid tax and the constitution of the arbitral tribunal is not capable of being considered for purposes of counting compensatory interest.

In light of the foregoing, compensatory interest is due counted from 25 February 2015 until the date of processing of the respective credit note, in accordance with the conjugated terms of no. 1 of article 43 of the LGT and no. 5 of article 61 of the CPPT.

Compensatory interest is calculated at the legal rate upon the amount of 2,968.41 €, which corresponds to the value of the request deducted from the 7 assessments subtracted from the assessment of the tribunal by way of preliminary exception.

Costs

The reasoning presented above with respect to the duty of payment of compensatory interest is - fully - applicable with respect to responsibility for the payment of costs.

The Respondent, having the opportunity (if not even obligation by obedience to the principle of legality) to revoke the tax acts, opted for the constitution of the arbitral tribunal. For which reason the existence of the dispute is entirely imputable to it.

Exception is made for the already referred 7 assessments whose merits could not be assessed by the arbitral tribunal. For which reason costs will be calculated pro rata, as follows:

• Respondent: (2,968.41 / 3,261.49) x 100 = 91%

• Claimant: (293.08 / 3,261.49) x 100 = 9%

VI - Litigant in bad faith

As already identified, the Respondent requests condemnation of the Claimant as a litigant in bad faith.

It alleges the verification of subparagraph b) of no. 2 of article 542 of the Code of Civil Procedure: "a litigant in bad faith is one who, with intent or gross negligence has altered the truth of the facts or omitted facts relevant to the decision of the case".

The Claimant is imputed the presentation of the minutes of the general assembly which decided upon the dissolution, which was admitted as a lapse only because the Respondent became aware of the content of the minutes. From which it invoked the lack of procedural standing of the Claimant.

The Claimant retracted, admitted the lapse and confessed in a manner contrary to the documentary evidence presented by it.

Contradicting this claim, the Claimant emphasizes having supplied the lapse not only by confession, but additionally through the sending of a liquidation statement, intended to demonstrate the existence of patrimonial assets when the dissolution occurred.

And shows surprise at the fact that AT struggles for the lack of standing, insofar as that same AT cited the Claimant for the payment of toll taxes "in the capacity of depositary" of the dissolved company.

Condemnation as a litigant in bad faith should be restricted to situations in which it is demonstrated, in a manifest and unequivocal manner, that the party acted, conscious and voluntarily, with intent or gross negligence.

Externalizing a manifestly reprehensible and censurable action. Directed at preventing the action of justice and frustration of the interest of the opposing party. Through the concealment or distortion of facts which it could not (or should) ignore.

In the case at issue, the lapse of the Claimant is manifest. Joining minutes which contradict its allegations. Can that lapse be regarded as an intolerable absence of truth?

Without overstepping the seriousness of that lapse and after its identification by AT, the Respondent promptly admitted it. And presented other documents apt, in its understanding, to demonstrate the veracity of the facts alleged by it.

Denoting a proper attitude and intended at the immediate repair of the damage caused by it.

In sum, one cannot consider that the conduct of the Claimant, contained in an isolated fact, configures an intentional action and imbued with a spirit of bad faith.

Finally, the attitude of the Parties must be analyzed in a context of reciprocity, as the facts and grounds are being alleged and contradicted.

As inferred from the arbitral decision, the Respondent also should not have ignored the existence of the financial leasing contracts and the identification of the lessees, directing the assessments of IUC to the taxpayers expressly established in the respective Code.

VII - Decision

In such terms this Arbitral Tribunal decides:

a) To find the preliminary exception regarding 7 assessment notices, in the amount of 293.08 €, to be well-founded;

b) To find the request for arbitral decision, in the amount of 2,968.41 €, to be well-founded, annulling the corresponding 29 tax acts of assessment of IUC and respective compensatory interest, determining the reimbursement of this amount to the Claimant; and

c) To find the payment of compensatory interest to be well-founded, calculated on the amount referred to in subparagraph above and counted from 25 February 2015.

The value of the proceedings is set at 3,261.49 €, to which corresponds an arbitration fee of 612 €.

Costs by the Respondent and Claimant in the amounts, respectively, of 556.92 € (91%) and 55.08 € (9%).

Let it be registered and notified.

Lisbon, 7 August 2015

The Singular Arbitral Tribunal

José Luís Ferreira