Process: 118/2014-T

Date: October 14, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

This arbitral decision (Process 118/2014-T) addresses a critical issue in Portuguese IUC (Imposto Único de Circulação) taxation: whether vehicle registration or actual ownership determines tax liability. A financial leasing company challenged IUC self-assessments for 2009-2012, arguing it had sold the vehicles before tax payment deadlines and should not be liable. The company contended that Article 3 of the IUC Code establishes merely a rebuttable legal presumption (juris tantum) regarding tax liability based on registration, and that actual ownership should prevail. The Tax and Customs Authority (TCA) countered with systematic and teleological interpretations, arguing that Article 3 does not contain a presumption but rather a deliberate legislative definition. The TCA emphasized that the legislator intentionally avoided using presumption language ('it is presumed'), instead establishing a clear rule: IUC passive subjects are those registered as owners in the motor vehicle register. The Authority argued this interpretation aligns with the IUC Code's systematic structure and administrative efficiency objectives. The case highlights the tension between civil law ownership concepts and tax law definitions. While the financial company issued invoices proving sales transactions, the purchasers failed to register their ownership. The TCA maintained that invoices alone cannot prove bilateral contracts without corresponding registration, and that registration serves not merely as publicity but as the determinative factor for IUC liability. This decision has significant implications for financial leasing companies operating in Portugal, clarifying that registration status at the tax payment deadline determines liability regardless of underlying ownership transfers. Companies must ensure proper registration procedures are completed to avoid IUC liability on vehicles already sold.

Full Decision

ARBITRAL DECISION

A – REPORT

  1. A, SA, legal entity no. …, with head office at … Lisbon, requested the constitution of an arbitral tribunal, pursuant to the provisions of articles 2, no. 1, a) and 10, no. 1 and 2 of the Legal Regime of Tax Arbitration, provided for in Decree-Law 10/2011 of 20 January, hereinafter designated "LRTA" and articles 1 and 2 of Order no. 112-A/2011 of 22 March, with a view to obtaining a declaration of illegality of the acts of self-assessment of the Unique Circulation Tax for the years 2009 to 2012, and the recognition of the right to compensatory interest, with the Tax and Customs Authority (hereinafter designated "TCA") being the respondent.

  2. Having admitted the request for constitution of a single arbitral tribunal, and as the applicant did not opt for the appointment of an arbitrator, in accordance with the provisions of article 6, no. 2, a) and article 11, no. 1, b) of the LRTA, in the version introduced by article 228 of Law no. 66-B/2012 of 31 December, the Ethics Council appointed the signatory as arbitrator.

The parties were notified of this appointment, having not expressed any will to refuse the appointment of the arbitrator, in accordance with the combined provisions of article 11, no. 1, a) and b) of the LRTA and articles 6 and 7 of the Ethics Code, and, in accordance with the provisions of article 11, no. 1, c) of the LRTA, in the version introduced by article 228 of Law no. 66-B/2012 of 31 December, the arbitral tribunal was constituted on 15-04-2014.

  1. Once notified, the TCA presented a reply in which it raised no exception.

  2. The hearing provided for in article 18 of the LRTA was dispensed with, as well as the presentation of oral arguments, with the consent of the parties.

  1. The applicant requests that the illegality and resulting annulment of the acts of assessment of the Unique Circulation Tax for the years 2009 to 2012 be declared, with the consequent restitution of the tax paid, plus compensatory interest, alleging in summary:

a) That it is a financial institution whose corporate purpose is the conduct of operations permitted to banks, except for the acceptance of deposits.

b) In the conduct of its activity, it enters into contracts for long-term rental and financial lease contracts of motor vehicles with its customers, upon the conclusion of which it transfers ownership of them to the respective lessees or to third parties.

c) That it sold the motor vehicles to which the assessments relate, for proof of which it attached copies of the respective invoices/receipts.

d) That it proceeded with the payment of the tax relating to the disputed assessments.

e) It sustains, in summary, its request on the understanding that article 3 of the CUT establishes a mere legal presumption, relative, juris tantum.

f) On the other hand, it contends that the essential function of registration is only to give publicity to the act, having no constitutive effect and functioning as a mere rebuttable presumption of the existence of the right as well as of the respective ownership.

  1. For its part, the respondent replied, alleging in summary:

a) The applicant's claim is based on a misunderstanding, which results not only from a biased reading of the letter of the law, but also from the adoption of an interpretation that does not take into account the systematic element, violating the unity of the regime established in the entire CUT and, more broadly, in the entire tax legal system and, finally, results from an interpretation that ignores the ratio of the regime established in the article in question, and likewise, throughout the entire CUT.

b) When establishing in article 3, no. 1 who are the passive subjects of the CUT, the tax legislator expressly and intentionally established that these are the owners (or in the situations provided for in no. 2, the persons mentioned therein), being considered as such the persons in whose name they are registered.

c) It emphasizes that the legislator did not use the expression "it is presumed", as it could have done, for example, in the following terms: "the passive subjects of the tax are the owners of the vehicles, being presumed to be such natural or legal persons, of public or private law, in whose name they are registered."

d) The tax norm is full of provisions analogous to that established in the final part of no. 1 of article 3, in which the tax legislator, within its freedom of legislative configuration, expressly and intentionally, establishes what should be considered legally, for purposes of taxable base, income, exemption, determination and periodization of taxable profit, for purposes of residence, location, among many others.

e) In view of the wording of the provision it is not clearly possible to argue that it is a presumption, as the applicant contends. Rather, it is a clear legislative policy choice adopted by the legislator, whose intention, within its freedom of legislative configuration, was that, for purposes of the CUT, those who appear as such in the motor vehicle register are to be considered owners.

f) In light of a teleological interpretation of the regime established throughout the Code of the CUT, the interpretation advocated by the applicant to the effect that the passive subject of the CUT is the actual owner, regardless of not appearing in the motor vehicle register, the registration of that status, is manifestly wrong, inasmuch as the proper ratio of the regime established in the Code of the CUT clearly demonstrates that what the tax legislator intended was to create a Unique Circulation Tax based on the taxation of the vehicle owner as recorded in the motor vehicle register.

g) Invoices, by themselves, are not apt to prove the conclusion of a bilateral contract, such as a purchase and sale, since those documents do not by themselves reveal an essential and unequivocal declaration of intent on the part of the alleged purchaser.

h) It maintains that the tax acts in question are valid and legal, because they conform to the legal regime in force at the date of the tax facts, and therefore, in this case, no error attributable to the authorities occurred.

i) It further contends that the legal requirements conferring the right claimed to compensatory interest are not met under any circumstances.

  1. The Arbitral Tribunal was regularly constituted and is materially competent.

The parties possess legal personality and judicial capacity and are legitimate (arts. 4 and 10, no. 2, of the same decree and art. 1 of Order no. 112-A/2011 of 22 March).

The proceedings do not suffer from any nullities.

B. DECISION

1. MATTERS OF FACT

1.1. PROVEN FACTS

The following facts are considered proven:

a) The applicant is a financial institution whose corporate purpose is the conduct of operations permitted to banks, except for the acceptance of deposits.

b) In the conduct of its activity, it enters into contracts for long-term rental and financial lease contracts of motor vehicles with its customers, upon the conclusion of which it transfers ownership of them to the respective lessees or to third parties.

c) The applicant issued invoices relating to the sale of all motor vehicles to which the disputed assessments relate with dates prior to the payment deadlines for the CUT for the years 2009 to 2012.

l) However, the respective purchasers did not register their ownership.

m) The assessments which are the subject matter of the proceedings result from ex officio assessments made by the TCA.

n) The applicant proceeded with the payment of the tax to which the present proceedings relate.

n) On 12-12-2014 the applicant presented the request for arbitral pronouncement which gave rise to the present proceedings.

1.2 The facts were given as proven on the basis of documents attached to the proceedings by the applicant, the authenticity of which was not challenged by the respondent.

1.3 UNPROVEN FACTS

There are no unproven facts with relevance for the assessment of the request.

1.4 THE LAW

The fundamental issue to be assessed lies in the interpretation to be given to no. 1 of article 3 of the CUT in order to determine whether the norm on subjective tax base contained therein establishes a legal presumption juris tantum – and, as such, susceptible of rebuttal (as the applicant contends) or, on the other hand, an express and intentional definition of the personal tax base, in the sense that the person in whose name the motor vehicle is registered as owner is necessarily the passive subject of the tax.

Article 3, no. 1 of the CUT provides: "the passive subjects of the tax are the owners of the vehicles, being considered as such natural and legal persons, of public or private law, in whose name they are registered".

Based on the wording of this provision, the respondent - TCA - contends that the personal tax base which it defines does not today contain any legal presumption, since it transmits in an express and intentional manner the intention of the tax legislator, in the sense of considering, in an irrefutable manner, as passive subjects of the CUT the persons in whose name the motor vehicles are registered.

In support of its thesis, it advances hermeneutic reasons for interpretation of the law, appealing not only to its literal wording but also to systematic and teleological elements.

A fully meaningful invocation, insofar as, in accordance with article 11 of the General Tax Code, "in determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed". As noted by Diogo Leite Campos, Benjamim Rodrigues, J. Lopes de Sousa – General Tax Code 4th ed., in annotation to such article, "... without departing from the letter of the law, which must be the primary reference and starting point for the interpreter, its automatic application is excluded, assuming that in laws there is an operative rationality that the interpreter must strive to reconstruct".

It is, therefore, within this framework of interpretation of tax law, in this case article 3, no. 1 of the CUT, that we must find the answer to the antagonism of positions between the applicant and the TCA.

For the TCA, decisive for the determination of the passive subject of the CUT is the registration of ownership of the motor vehicle, so that the person in whose name it is registered shall be considered as such, in an irreversible manner.

The registration of vehicle ownership is, pursuant to article 5, no. 1, a) and no. 2 of Decree-Law 54/75 of 12 February, mandatory, whereby any property right affecting the vehicle is subject to registration, the purpose of which is the security of legal transactions, as well as the publicity of the legal situation thereof.

Such registration enjoys, pursuant to article 7 of the Land Registry Code (applicable to motor vehicle registration by virtue of article 29 of the aforementioned Decree-Law 54/75), "... the presumption that the right exists and belongs to the registered holder, in the precise terms in which the registration defines it".

We therefore hold that the registration inscription of vehicle ownership is, also, a presumption that the property right therein exists in accordance with the terms contained in the registration.

That is to say, motor vehicle ownership registration does not constitute any condition of validity of contracts subject to it, in the same manner as occurs with property registration (the regime of which, as we have already noted, is extended to motor vehicle registration); registration has merely a declaratory function.

However, article 5, no. 1 of the Land Registry Code, provides that "facts subject to registration produce effect against third parties only after the date of the respective registration". From which it would seem to follow that this would be sufficient for the TCA to invoke the absence of registration to immediately apply article 3, no. 1 of the CUT, demanding payment of the tax from the person in whose name the vehicle is registered, as being the passive subject of the tax.

However, no. 4 of article 5 of the Land Registry Code restricts such understanding, by determining that "third parties, for purposes of registration, are those who have acquired from a common predecessor rights that are incompatible with each other". From which it follows that, by this means, the TCA would never be entitled to invoke the lack of registration, inasmuch as it does not meet the concept of third party.

Having established this in general terms, it must be determined whether, notwithstanding what has just been stated, no. 1 of article 3 of the CUT contains, or does not contain, a legal presumption.

In short, everything comes down to determining whether the expression "being considered" used there has the nature of a legal presumption.

As a starting point, the answer appears to be negative.

It appears contrary to the unity of the legal system – and indeed, with the appropriate adaptations, opposed to no. 2 and 3 of article 11 of the General Tax Code - that an individual should be considered as not the owner of an asset for civil purposes and yet necessarily be so for tax purposes.

To which is added the fact that the TCA must guide its activity by compliance with the principles of legality, investigation and discovery of the material truth, inherent in the constitutional imperative of taxpaying capacity.

In any event, it appears evident that, both from a systematic and teleological perspective, the expression "being considered" adopted in no. 1 of article 3 of the CUT contemplates a true presumption, to which neither the apparent literal wording of the expression nor the tax legal order is opposed.

In this regard, Diogo Leite Campos, Benjamim Rodrigues, J. Lopes de Sousa – General Tax Code 4th ed., in annotation to article 73, page 651, state: "presumptions in matters of tax base may be explicit, revealed by the use of the expression "it is presumed" or similar, as occurs, for example, in no. 1 to 5 of article 6, in section a) of no. 3 of article 10, in articles 19 and 40, no. 1, of the Personal Income Tax Code. However, presumptions may also be implicit in tax base norms, particularly of objective tax base, when certain values of moveable or immoveable property are considered to constitute taxable matter, in situations in which it is not impracticable to ascertain the real value ...", followed by a number of examples.

We understand that this is precisely the case that article 3, no. 1 of the CUT contemplates: an implicit presumption. A presumption, moreover, which has always existed in the domain of motor vehicle circulation tax, although previously defined in an explicit manner.

On the other hand, in compliance with the principles - as enshrined in our community legal order - of polluter pays and equivalence, the CUT entails environmental and energy concerns, intending that the costs arising from environmental damage caused by the use of motor vehicles be borne by the actual owners (and not by presumed owners).

It is therefore necessary to conclude that article 3, no. 1 of the CUT enshrines a presumption of subjective tax base.

Now, no. 2 of article 350 of the Civil Code establishes that legal presumptions may be rebutted by proof to the contrary, except in cases expressly provided for in the law.

And, with respect to the rebuttal of presumptions, we hold as sound the doctrine that the Supreme Court of Justice resorted to in the basis for Enactment no. 1/91 of 03-04-1991 (Official Journal no. 114 of 18 May) - to classify as juris tantum a presumption established in a labor statute - defended by Vaz Serra [Proofs (material evidentiary law), BMJ 110-112, page 35], as well as by Mário de Brito (Annotated Civil Code, page 466) and Mota Pinto (General Theory of Civil Law, page 429): "... juris tantum presumptions constitute the rule, while absolute presumptions (juris et de jure) are the exception. In doubt, the legal presumption is juris tantum, for it should not be considered, except by reference to the law, that it was intended to prevent the production of proof to the contrary, imposing a formal truth at the expense of what is really proved".

In turn, within the realm of tax law, article 73 of the General Tax Code provides that "presumptions enshrined in tax base norms always admit proof to the contrary". Which means that all presumptions regarding the tax base, such as that enshrined in no. 1 of article 3 of the CUT, are juris tantum and, as such, rebuttable.

From the evidence brought before the tribunal by the applicant, it will appear that the applicant was not the owner of the vehicles to which the assessments which are the subject matter of the present arbitral request relate, on the deadline dates for their respective payments.

On this point, the respondent challenges that invoices/receipts evidencing purchase and sale contracts are apt to prove the actual transfer of ownership of the vehicles.

It does not, however, challenge the authenticity of the documents attached. It being certain that in tax matters the presumption of truth of the elements contained in the taxpayer's accounting applies, as is the case with invoices.

We therefore hold as established that it has not been challenged that the transactions which the invoices attached by the applicant evidence have been carried out, it being certain that the purchase and sale contract is consensual, no special form being required.

Having proved the transfer of ownership and since the TCA does not have standing to invoke the absence of registration, as it is not for such purposes considered to be a third party, the annulment of the CUT assessments which are the subject matter of the present arbitral request is warranted.

Compensatory Interest

In addition to the restitution of the improperly paid tax, the applicant requests that the right to the payment of compensatory interest be declared.

Such right is established in article 43 of the General Tax Code which has as its prerequisite that it be determined, in a complaint or judicial challenge - or in tax arbitration – that there was an error attributable to the authorities from which resulted payment of the debt in an amount greater than legally due.

In the case at hand, it appears to us indisputable that no error can be attributed to the respondent, TCA.

On the contrary, the TCA acted in strict compliance with the law, assessing tax on the person who presumptively would be the passive subject thereof, it being incumbent upon the applicant to undertake proceedings with a view to rebutting such presumption.

Accordingly, the applicant does not have the right to the requested payment of compensatory interest.

Regarding responsibility for payment of costs

We understand, in summary, that article 3 contemplates a legal presumption which, by being juris tantum, is susceptible of being rebutted.

The TCA acted in strict compliance with the law, assessing tax on the person who presumptively would be the passive subject thereof, it being incumbent upon the applicant to undertake proceedings with a view to rebutting such presumption.

It being indisputable that no error can be attributed to the TCA in the assessments which are the subject matter of the request.

To rebut the presumptions provided for in tax base norms, the interested party may avail itself of the proper administrative procedure provided for in article 64 of the Code of Tax Procedure and Process, as an alternative to complaint or judicial challenge.

The TCA did not have any elements that would have allowed it to prevent the ex officio assessments that it made.

The applicant did not undertake, in any prior administrative proceeding, the rebuttal of the presumption that rested upon it.

From which it follows that responsibility for the CUT assessments can only be attributed to the applicant.

It was therefore the applicant that gave rise to the filing of the present request, which is why it is responsible for payment of the respective costs (art. 527, no. 1 of the Code of Civil Procedure and 22, no. 4 of the LRTA).

3. DECISION

In light of the foregoing, it is decided:

a) to judge as well-founded, on the ground of violation of law, the request for annulment of the tax acts which are the subject matter of the arbitral request corresponding to the Unique Circulation Tax assessments for the years 2009 to 2012;

b) to judge as unfounded the request for payment of compensatory interest, absolving the Tax and Customs Authority from the respective request;

c) to condemn the applicant to payment of the costs of the proceedings.

VALUE OF THE CASE: In accordance with the provisions of article 306, no. 2 of the Code of Civil Procedure, article 97-A, no. 1, a) of the Code of Tax Procedure and Process and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is set at €3,324.90 (three thousand three hundred and twenty-four euros and ninety cents).

COSTS: Pursuant to the provisions of article 22, no. 4, of the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at €612.00 (six hundred and twelve euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Let it be notified.

Lisbon, 14 October 2014

The Arbitrator

(António Alberto Franco)

Frequently Asked Questions

Automatically Created

Who is liable for IUC payment on vehicles under financial leasing contracts in Portugal?
Under Portuguese tax law, IUC liability for vehicles under financial leasing contracts falls on the person registered as owner in the motor vehicle register. Article 3 of the IUC Code establishes that passive subjects are owners, defined as those in whose name the vehicle is registered. During the financial lease period, the leasing company typically remains the registered owner and thus liable for IUC. Upon conclusion of the lease contract when ownership transfers to the lessee or third party, IUC liability only shifts once the new owner completes registration procedures. The registration status at the tax payment deadline is determinative, not the underlying contractual ownership arrangements.
Can the legal presumption of IUC subjective incidence based on vehicle registration be rebutted?
According to the Tax Authority's position in this case, the legal framework in Article 3 of the IUC Code cannot be rebutted because it does not establish a presumption but rather a legislative definition. The TCA argues that the legislator deliberately chose not to use presumption language ('it is presumed') but instead established a clear rule that for IUC purposes, owners ARE those registered as such. This interpretation is based on systematic, literal, and teleological analysis of the IUC Code. The registered person remains liable even if they prove actual ownership has transferred to another party through invoices or contracts, unless proper registration is completed. This creates certainty and administrative efficiency in tax collection.
What is the CAAD arbitral procedure for challenging IUC self-assessment acts?
The CAAD (Centro de Arbitragem Administrativa) arbitral procedure for challenging IUC self-assessment acts follows the Legal Regime of Tax Arbitration (LRTA - Decree-Law 10/2011). Taxpayers must file a request for arbitral tribunal constitution under articles 2(1)(a) and 10(1)(2) of LRTA. If the applicant does not appoint an arbitrator, the Ethics Council appoints one. The Tax Authority then files a reply, which may raise exceptions. Parties can consent to dispense with hearings and oral arguments. The tribunal decides on the legality of the tax acts, and if successful, the taxpayer may obtain restitution of amounts paid plus compensatory interest. The process provides an alternative to judicial courts for resolving tax disputes.
Are financial leasing companies entitled to IUC refunds and compensatory interest after vehicle sale?
Based on this case, financial leasing companies face significant obstacles to obtaining IUC refunds and compensatory interest after vehicle sales. The Tax Authority's position is that registration, not actual ownership transfer evidenced by invoices, determines IUC liability. Even when companies issue invoices proving sales before tax payment deadlines, if purchasers fail to register their ownership, the leasing company remains liable as the registered owner. Entitlement to refunds depends on successfully arguing that Article 3 of the IUC Code establishes a rebuttable presumption rather than a definitive rule - a position the Tax Authority strongly contests. Companies seeking refunds must demonstrate not only the sale transaction but also that the legal framework permits challenging the registration-based liability determination.
How does Portuguese tax law distinguish vehicle ownership from registration for IUC purposes?
Portuguese tax law, specifically for IUC purposes, creates a distinction between civil law ownership and tax law liability based on registration. Under civil law, ownership transfers through valid contracts (purchase and sale agreements). However, Article 3 of the IUC Code establishes that for tax purposes, the owner is the person registered in the motor vehicle register. The Tax Authority argues this is not merely evidential but constitutive for tax liability - registration determines who IS the taxpayer, not merely who is presumed to be. This means actual ownership (proven by invoices, contracts, or possession) does not automatically confer or remove IUC liability. The registration system serves as the definitive criterion for identifying the passive subject of IUC, ensuring administrative efficiency and legal certainty in tax collection.