IUC Tax on Sold Vehicle: Challenging Tax Assessments When Ownership Ends (CAAD 89/2015-T)

THE PARTIES

Claimant: A, NIPC ..., with registered office in .., ...

Respondent: Tax and Customs Authority

ARBITRAL AWARD

I - Subject Matter of the Claim and Procedural Proceedings

On 11 February 2015, the Claimant filed a request for arbitral pronouncement, requesting the declaration of illegality of the following assessment notices for the Single Circulation Tax (IUC) and respective compensatory interest:

By decision of the President of the Deontological Council (no. 1 of article 6 of RJAT), the undersigned was designated as sole arbitrator. The sole arbitration tribunal was constituted on 21 April 2015.

The Tax and Customs Authority (hereinafter referred to, in short, as AT) presented its Response on 22 May. And submitted the administrative file on 29 May.

Given the absence of contested evidentiary matters, and based on the principles of procedural economy and prohibition of performance of acts without useful effect, the arbitral tribunal notified the Parties, on 3 June, of the exemption from the meeting provided for in article 18 of RJAT and from final submissions.

The parties have legal capacity and standing.

The Arbitral Tribunal was duly constituted and is competent.

The proceedings do not suffer from any nullity. No exceptions were raised by the parties that would impede the examination of the merits of the case.

II - Factual Background

A. Facts Considered Proven in Light of the Documentation

Based on the documents submitted to the proceedings, it is established as proven that:

a) The Claimant was the owner of the heavy vehicle with registration number ...-...-...;

b) On 31 December 1990, the Claimant deposited the circulation documents with the Directorate-General of Land Transport (current Institute for Mobility and Transport);

c) In August 2001, the Claimant sold the motor and gearbox to the company "B" for the amount of 200,000 Escudos (€997.60);

d) In determining the taxable profit for the fiscal year 2001, the Claimant recorded this amount in the periodic income tax return as a capital gain;

e) In August 2003, the Claimant sold the remaining components of the vehicle, as scrap, to C for the amount of €150;

f) In determining the taxable profit for the fiscal year 2003, the Claimant recorded said amount as a capital gain;

g) On 11 December 2013, the Claimant was notified of the contested assessment notices;

h) On 27 March 2014, the Claimant filed an administrative appeal, which was dismissed by the AT;

i) On 9 June 2014, the Claimant filed a hierarchical appeal, which was also dismissed by the AT (notification to the Claimant on 17 November 2014);

j) On 24 January 2014, the IMT informs the Claimant that the deposit of circulation documents does not constitute a vehicle registration cancellation procedure and sends the NV-28 form;

k) Which the Claimant subsequently uses to request said cancellation, which is registered on 27 February 2014.

D. Facts Not Proven

With relevance to the examination of the merits, there are no unproven facts.

III - Summary of the Legal Grounds Invoked by the Parties and Their Written Final Submissions

A. The Claimant's Position

The ownership of the vehicle was definitively transferred in 2003. A moment that precedes the due date of the IUC.

Furthermore, the vehicle had not circulated since 1990 and its main components (motor and gearbox) were sold in 2001.

Once the ownership of the vehicle was transferred, the Claimant does not meet the subjective tax incidence rule of the IUC. Regardless of whether the vehicle registration cancellation was registered only in 2014.

B. The Respondent's Position

The IUC Code presented an innovative element, reflected in the incidence of the tax on vehicle owners, "being considered as such the natural or legal persons, of public or private law, in whose names the same are registered".

The literal element is clear and direct. By using the expression "being considered as such", the tax rule clearly establishes the absence of a presumption. Therefore, the owner does not have the right to present proof to the contrary, given that no presumption exists that could be rebutted.

In the tax-legal system, there are abundant other analogous situations, in which the legislator establishes rules of incidence, objective or subjective, based on given abstract factuality. And without the taxpayers having the right to, through suitable evidentiary elements, set aside the rule of incidence.
Precisely because we are not dealing with the figure of a presumption.

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.

The principle of contributory capacity is not absolute, and its practical reconciliation with other value principles must be achieved. Such as the principles of simplicity and efficiency.

The registration is an essential element to define the scope of action of the AT, insofar as it is not responsible for managing the Vehicle Registry. Rather, it is limited to receiving the information contained in the databases of the Registry and IMT, which are responsible for updating the information regarding the transactions or legal acts carried out by the owners. It falls to these to take action to carry out the registrations, so as to keep the ownership records duly updated.

Furthermore, the taxable event is constituted by the ownership and registration of the vehicle, as attested by the registration in national territory, being due until the registration is cancelled. The taxable event ceases upon registration of said cancellation.

As regards the invoices presented by the Claimant, the same are not apt to prove the conclusion of a synallagmatic contract, as appears from the arbitral decisions no. 63/2014-T, no. 150/2014-T and no. 220/2014-T.

Citing the first of said decisions, "what the Claimant seeks in these proceedings is not merely to rebut a tax presumption. It is to rebut the presumption of veracity of the facts that are publicly registered, and that are registered for purposes of public interest, a presumption of which any person should be able to avail themselves, under penalty of rendering the registration useless".

And "(…) what the Claimant would have to prove, in order to rebut the presumption that arises, either from article 3, no. 1 of the IUC Code or from the Vehicle Registry itself, is that she, the Claimant, was not the owner of the vehicles in question in the period to which the contested assessments relate, as this is the fact that results from the registral presumption".

Now "what the Claimant presents as evidence, however - invoices unsigned by the buyer and copies of client account accounting extracts - are solely private, commercial, and unilateral documents, i.e., for the issuance of which no intervention by the buyer occurred".

IV - On the Law

The crux of the disputed question can be narrowed down to the following question: does the IUC constitute a tax on ownership or on the registration of ownership?

This implies the analysis of two prior and concurrent questions:

i) Does no. 1 of article 3 of the IUC Code constitute a legal presumption susceptible of being rebutted?

ii) If so, what are the suitable and adequate evidentiary means for setting aside the presumption?

From the Claimant's perspective, the circulation documents of the vehicle were handed over in 1990, the main parts were sold in 2001 and the ownership of the motor vehicle was transferred in 2003. And not being the Claimant the owner of the vehicle, the same does not meet the subjective tax incidence rule of the IUC Code.

For the Respondent, the IUC Code makes the incidence of the tax fall on the owner in whose name the registration is effected. So that the transfer of ownership only becomes relevant after the consequent registration.

Even if it were admitted that the transfer of the vehicle would be susceptible of restricting the assessment of the IUC, the invoices issued by the Claimant constitute private, internal and unilateral documents. Not being apt to prove the transfer of ownership of a good.

Principle of Economic Equivalence

The IUC Code, already in its article 1, establishes the principle of equivalence as a structuring rule of this tax. Reflected in the charging of negative externalities, of an environmental and road character, resulting from the use of a good (motor vehicle) by certain taxpayers.

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

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

However, the principle of equivalence is reaffirmed in no. 2 of that article 3, when it is stated that "financial lessees, acquirers with reservation of ownership, as well as other holders of purchase option rights arising from a lease contract, are treated as taxpayers".
Imposing on lessors, regardless of the modality of the lease contract, the obligation to identify "the users of the leased vehicles", in accordance with article 19 of the IUC Code.

It should be noted that the normative text falls short of the subjective tax incidence rule set out in article 3, insofar as the obligation to identify the beneficiary of the use of the motor vehicle should be extended to other entities, not just lessors. One need only think of a purchase and sale contract, in which the seller retains the reservation of ownership until full payment of the price.

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

To admit the contrary would imply accepting that the IUC would tax the owners in the registry and, consequently, freeing the real economic beneficiaries of the goods.
Contradicting the principle of equivalence which, it is emphasized, the IUC Code elevates to the category of a structuring and shaping rule of this tax.

Furthermore, the "realization of a rule of tax equality" embraced in the latter part of article 1 is, precisely, the corollary of the principle of equivalence. In this case, as a shaper of the principle of contributory capacity, which requires that the tax be borne by the taxpayers who demonstrate a benefit resulting from the use of a good.

Thus understanding the extension of the rule of personal tax incidence to lessees and users of goods under reservation of ownership. Under penalty of the IUC falling on taxpayers who do not cause environmental and road costs resulting from the use of vehicles that they made available to third parties. In which case the personal premise of taxation would be verified, materially and substantively, in a third party's sphere.
A fact which, if occurring, would directly conflict with the principle of equivalence.

The Registration as a Legal Presumption

It is beyond doubt that the IUC Code is based on the registral element, using it for purposes of establishing the taxable event and subjective tax incidence, as well as for the instrumental purposes of self-assessment or official assessment of the tax.

But, as we saw regarding the principle of equivalence, dependence on the vehicle registry is not absolute. Constituting a legal presumption. And, as such, susceptible of being rebutted.

The Respondent presented various examples in which the legislator resorts to fictions. Whether for reasons of simplification or practicability, whether as a way to avoid situations of potential fraud or tax evasion.

As appears from the Civil Code, a presumption constitutes a mechanism to, starting from a known fact, establish an unknown fact.
Conversely, fiction consists in considering as identical situations that are known to result from divergent factual scenarios. Or, in the opposite sense, considering as divergent situations that have a coinciding factual scenario.

Recovering one of the examples identified by the AT, we have the case of subjection to IMT of contract-promises in which the parties agree on the possibility of the promisee-acquirer transferring its contractual position. A situation that the IMT Code equates with the onerous transmission of real property.

This is not a presumption, but rather a fiction. In such cases, the legislator does not ignore that the mere possibility of transferring the contractual position does not constitute an onerous transmission of the ownership of or lesser real rights. But, knowing of the divergence between the transmission of real rights and the mere provision for contractual transfer, it attributes identical effect to it for IMT purposes.

We align ourselves with the uniform jurisprudence of CAAD on this matter: no. 1 of article 3 of the IUC Code does not constitute a fiction. But, rather, a mere legal presumption.
Which, moreover, is manifest in the arbitral decisions referenced by the Respondent. Insofar as, starting from the legal presumption, they reject its rebuttal by means of the presentation of commercial invoices.

The Constitutional Court, examining the absolute and irrebuttable presumption embodied in article 26 of the CIMSISD (judgment no. 211/03), emphasizes that "(…) the legislator in the name of reasons of efficiency of the Tax Authority and combating evasion and fraud in this field resorts to presumptions as a technique to better capture the factual reality resulting from the various life situations validated by criteria of normality, thus resorting to known facts to assert others that it does not know and thus overcome the evidentiary difficulties that the determination of the taxable matter inevitably raises".

"However, this technical process must be reconciled with respect for the principle of equality, which in turn must be reconciled with the general principle of taxation according to each person's contributory capacity (…)".

In the case at hand, we must add the principle of equivalence, around which the legislator built the IUC.

In conclusion, the legislator, for purposes of defining the subjective tax incidence rule of the IUC, established a legal presumption of ownership based on the elements contained in the vehicle registry. Thus should the expression "being considered as such" be interpreted.

This conclusion is consistent with the principle-rule of the merely advertising nature of the registry.

Rebuttal of the Legal Presumption of Ownership

Article 73 of the General Tax Law provides that legal presumptions enshrined in tax incidence rules always admit proof to the contrary.

To rebut the legal presumption, the Claimant presented the following documentation:

i) Deposit of circulation documents in 1990;

ii) Sales invoices in 2001 and 2003 of parts and scrap, respectively;

iii) Periodic income tax return for the 2001 fiscal year, in which it calculates a capital gain coincident with the value of the sale set forth in the 2001 invoice;

iv) Annual return for 2003, which includes a capital gain of identical value to that of the invoice issued in 2003 (as per its respective tax statement); and

v) Request for vehicle registration cancellation, supported by the delivery of the vehicle for scrap in 2003.

Was the ownership of the vehicle transferred in 2003, without the new owner having acted to alter the registration or, as would be expected given that it is scrap, cancel the registration?

The answer is affirmative in light of the facts proven.

First and foremost, insofar as the Claimant presents, in a coherent and consistent manner, commercial and tax information.
Specifically, it presents the issuance of two invoices (commercial information) and periodic income tax return for 2001 and annual return for 2003 and tax statement of capital gains and losses (tax information).

From the tax returns, one can directly extract the capital gain resulting from the sale of the vehicle. Indeed, given that this would already be completely depreciated, its respective accounting and tax acquisition value would be nil (and, naturally, would remain nil by application of monetary correction factors).
For which reason the sale value set forth in the invoices is entirely coincident with the amount invoiced.

This documentary coherence undermines the interpretation of the invoice as an internal and unilateral document. Rather positioning it as an appropriate evidentiary element, which the Claimant relied upon for accounting and tax purposes.

Indeed, the Claimant issued the invoices required for VAT purposes. And, in the following year, when calculating the taxable profit for the fiscal year, it calculated the capital gain resulting from those onerous transmissions.
There being, thus, no reason to doubt the suitability of the invoices as an element of evidence of the transmission of ownership of the vehicle.

In this chapter, we must return to legal presumptions, particularly to no. 1 of article 75 of the General Tax Law. Under which it is presumed "truthful and made in good faith the statements of taxpayers presented in accordance with the provisions of the law, as well as the data and calculations entered in their books or ledgers, when these are organized in accordance with commercial and tax legislation (…)".

The documents presented by the Claimant are consistent with the legal presumption.
The Respondent, for its part, begins by emphasizing that "the alleged invoices are non-conforming to what the tax law requires regarding the legal requirements for their issuance (article 36/5 of the VAT Code)".

It would, however, be important for it to identify such non-conformities. Which it did not do.

In truth, the invoices comply with the tax requirements contained in article 35 of the VAT Code, as worded on the date of the commercial operations. And which, at that time, allowed the issuance of manual invoices.
The other elements required in the VAT Code are also present. Namely, the identification of the transferor and transferee, the description of the operation, the applicable VAT rate and the amount of VAT charged.

The invoices also contain information regarding the delivery of the goods and the unloading locations.

Furthermore, the Claimant submitted its corporate income tax declarations in conformity with the invoices issued by it. And these declarations, received by the Respondent AT, benefit from a legal presumption of truthfulness.

Were it not so, we would have to admit the absurdity of the Claimant, in addition to issuing invoices that do not document commercial operations, submitting corporate income tax declarations in which it calculates capital gains resulting from non-existent operations.

Given the foregoing, if it is true that invoices do not constitute purchase and sale contracts, it is no less true that purchase and sale contracts are governed by the principle of freedom of form. And the statement for registration purposes also does not document a purchase and sale contract. Which, in the limit, might not even exist or might have been simulated.

What is certain is that the invoices and tax returns, in addition to benefiting from a legal presumption as to their truthfulness, clearly evidence the onerous transmission of parts and scrap in 2001 and 2003. And the concomitant transmission of the ownership of the vehicle in 2003.

The IUC is a tax of annual periodicity. The taxation period refers to the year that begins on the date of registration or on each of its anniversaries. The tax is due on the first day of the taxation period.

Once the ownership was transferred in 2003, the subsequent taxable events begin to occur at a moment when the taxpayer is the acquirer of the vehicle. The one who, from 2003 onwards, is the owner of the good.

In other words, at the date of the due date of the IUC (2009 to 2012), the Claimant was not the taxpayer subject to the tax.

V - Decision

Applying the above considerations to the case sub judice, the illegality of the IUC assessments and respective compensatory interest is immediately evident.

In these terms, the Arbitral Tribunal decides:

a) To uphold the request for arbitral pronouncement; and

b) To annul the tax acts of IUC assessment and respective compensatory interest.

The Respondent AT requests the exemption from the payment of indemnificatory interest, without, however, the Claimant having made such request. Thus making the analysis of this topic prejudiced.

The value of the proceedings is set at €1,573.03.
Costs by the Respondent in the amount of €306.

Let the parties be notified.

Lisbon, 12 June 2015

The Sole Arbitration Tribunal

José Luís Ferreira