Process: 120/2014-T

Date: August 7, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

Process 120/2014-T addressed a fundamental dispute regarding IUC (Single Motor Vehicle Tax) liability when vehicles have been sold but remain registered in the seller's name. The claimant company challenged IUC assessments totaling €1,198.62 for tax years 2009-2012 on vehicles it had already sold. The central legal issue concerned the interpretation of Article 3(1) of the IUC Code, which designates as taxable persons those 'in whose names vehicles are registered.' The claimant argued this provision establishes a rebuttable presumption that can be overcome with proof of sale, citing Article 408(1) of the Civil Code regarding the real effect of sales contracts and the non-constitutive nature of vehicle registration. The company contended that registration serves merely as a publicity mechanism and rebuttable presumption, not as a determinative factor when contrary evidence exists. The Tax Authority defended that Article 3 constitutes special tax legislation intentionally establishing registration as the definitive criterion for IUC liability, arguing this interpretation preserves legal system unity and reflects explicit legislative intent. The TCA maintained this is not a presumption but an exhaustive legal rule where IUC Code provisions, as special law, derogate from general civil law principles. The arbitration was conducted under Decree-Law 10/2011 (LRAT) before a single arbitrator at CAAD, with the claimant seeking declaration of illegality of the assessments and reimbursement with legal interest.

Full Decision

ARBITRAL DECISION

Process No. 120/2014-T

Claimant: A… –, S.A.

Respondent: Tax and Customs Authority.

I - REPORT

  1. On 12 February 2014, the company A… –, S.A., holder of tax identification number …, with registered office at …, (hereinafter referred to as "Claimant") requested the constitution of an arbitral tribunal, pursuant to the provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as "LRAT").

  2. The request for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD and notified, on 14 February 2014, to the Tax and Customs Authority (hereinafter referred to as "TCA" or the "Respondent").

  3. The Claimant requests the pronouncement of the Arbitral Tribunal with a view to declaring the illegality of the acts of assessment of Single Motor Vehicle Tax (IUC) for the years 2009, 2010, 2011 and 2012, with respect to the vehicles identified in Documents No. 2 to 35 attached to the initial petition in the total amount of €1,198.62 (one thousand one hundred ninety-eight euros and sixty-two cents) with all legal consequences, namely the reimbursement plus interest at the legal rate counted from the date of the respective payment until full reimbursement.

  4. In the request for arbitral pronouncement, the Claimant chose not to designate an arbitrator. In accordance with paragraph (a) of Article 6, Section 2, and paragraph (b) of Article 11, Section 1, of the LRAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council of CAAD designated as arbitrator of the singular arbitral tribunal His Excellency Dr. Olívio Mota Amador who, within the applicable period, communicated acceptance of the appointment.

  5. The parties were notified, on 1 April 2014, of the designation of the arbitrator, and did not manifest the will to refuse the designation of the arbitrator, in accordance with the combined provisions of Article 11, Section 1, paragraphs (a) and (b) of the LRAT and Articles 6 and 7 of the Deontological Code.

  6. In accordance with the provisions of paragraph (c) of Article 11, Section 1, of the LRAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 16 April 2014.

  7. On 27 May 2014, the Respondent, duly notified for that purpose, presented its Response.

  8. On 16 June 2014, at 14:00 hours, at the premises of CAAD, the meeting provided for in Article 18 of the LRAT was held. The representatives of the Claimant and the Respondent pronounced themselves on the matters contained in the case file and maintained their respective allegations in the petition and in the response.

  9. The position of the Claimant, in accordance with the provisions in the petition for constitution of the Arbitral Tribunal, contains the following conclusions:

a) The norm contained in Article 3, Section 1, of the IUC Code enshrines a presumption which, concerning a norm of tax incidence, always admits proof to the contrary;

b) The contract of sale and purchase is real in nature, and the real effect, in view of the provisions of Article 408, Section 1, of the Civil Code, is the effect of the contract itself and does not depend on any subsequent act, such as, in particular, registration;

c) The essential function of vehicle registration is to publicize the legal situation of vehicles and registration does not have constitutive effect, functioning (only) as a mere rebuttable presumption of the existence of the right, as well as its respective ownership, all in accordance with its terms. The presumption that the right registered belongs to the person in whose name it is registered can be rebutted by presenting proof to the contrary.

d) Not meeting the requirements of the concept of "third party" for registration purposes, the TCA cannot prevail itself of the absence of updating the registration of the property right in order to put in question the full effectiveness of the contract of sale and purchase and to require from the seller (former owner) the payment of the IUC owed by the purchaser (new owner) provided that the presumption of its respective ownership is rebutted through sufficient proof of sale.

e) If, in accordance with a contract of sale and purchase of an automobile, on the date of the occurrence of the tax event, the vehicle has already been previously disposed of although the property right therein continues to be registered in the name of its former owner, for the purposes of the provisions of Article 3, Section 1 of the IUC Code, the passive subject of the IUC is the new owner, provided that sufficient proof of the sale is presented which rebuts the presumption of the registration."

  1. The Respondent in its response states, in abbreviated summary, the following:

a) The interpretive sense to be attributed to the equation contained in Article 3, Section 2, of the IUC Code is that when a certain motor vehicle is the object of a financial lease contract, a contract of sale and purchase with reservation of ownership or a lease contract with purchase option, the financial lessee, the acquirer with reservation of ownership and the holder of the right of purchase option, by force of the lease contract, respectively, should be treated as (or equated to) owner, in accordance with Section 1 of the same legal provision. This means that, in the cases stated and exhaustively provided for in the provision, the passive subjects of the tax are the financial lessees, the acquirers with reservation of ownership and the holders of purchase option rights by force of the lease contract, in the same terms as the owner in accordance with Section 1. That is, "(…) natural or legal persons, of public or private law, in whose names the same are registered."

b) It is imperative to conclude that the legislator established expressly and intentionally that the following are to be considered as such (as owners or in the situations provided for in Section 2, the persons stated therein) the persons in whose names the same (the vehicles) are registered because this is the interpretation that preserves the unity of the legal-tax system. To understand that the legislator enshrined a presumption here would unequivocally constitute an interpretation contra legem.

c) Even admitting that, from the perspective of the rules of civil law and property registration, the absence of registration does not affect the acquisition of the quality of owner and that registration is not a condition of validity of contracts with real effect, in the terms established in the IUC Code (which in the case in question constitutes special law, which, in accordance with general legal rules, derogates from the general rule), the tax legislator intentionally and expressly wished that those to be considered as owners, lessees, acquirers with reservation of ownership or holders of the right of purchase option in long-term leasing be the persons in whose names [the vehicles] are registered.

d) In the present process, the legal presuppositions that confer the right to indemnitory interest are not assembled for the petitioners.

e) It was not the Respondent who gave rise to the deduction of the request for arbitral pronouncement, but rather the Claimant itself which consequently should be condemned to the payment of the arbitral costs arising from this request for arbitral pronouncement, in accordance with Article 527, Section 1, of the New Code of Civil Procedure by virtue of Article 29, Section 1, paragraph (e) of the LRAT.

II – SANATION

  1. The arbitral tribunal is materially competent and is regularly constituted, in accordance with Articles 2, Section 1, paragraph (a), 5, Section 2, and 6, Section 1, of the LRAT.

The parties have legal personality and capacity, are legitimate and are duly represented, in accordance with Articles 4 and 10 of the LRAT and Article 1 of Order No. 112-A/2011 of 22 March.

The process does not suffer from any defects that would invalidate it.

In these terms, there is no obstacle to the appreciation of the merits of the case.

Considering the identity of the tax facts and the grounds of fact and law invoked, nothing prevents, in view of the provisions of Articles 104 of the TCPP and 3 of the LRAT, the cumulation of claims verified in the present case.

III – MATTER OF FACT

  1. Proven Facts

Based on the documentary evidence attached to the case file, the following facts are considered proven:

A) The Claimant is a financial institution whose corporate purpose is the performance of operations permitted to banks, with the exception of receipt of deposits, having for that purpose all the authorizations legally required.

B) In the scope of its activity, the Claimant enters into contracts for Long-term Leasing and Contracts for Financial Leasing of motor vehicles with its clients, at the end of which it transfers the ownership of the same to the respective lessees or to third parties.

C) The Claimant was notified, in November 2013, of 33 (thirty-three) official assessments of Single Motor Vehicle Tax (IUC) with respect to the tax periods of 2009 (7 - seven assessments), 2010 (8 - eight assessments), 2011 (8 - eight assessments) and 2012 (10 - ten assessments) relating to 20 (twenty) vehicles identified in the assessment notes appearing in documents No. 2 to 35 attached to the request for arbitral pronouncement and which are hereby fully reproduced.

D) The Claimant proceeded with the voluntary payment of the IUC, in November 2013, as shown in documents No. 2 to 35 attached to the request for arbitral pronouncement.

E) The Claimant presents copies of the invoices/receipts of sales of the vehicles with respect to which the payment of the IUC was incumbent, dated prior to the date to which the tax relates and which appear in documents No. 36 to 55 attached to the request for arbitral pronouncement and which are hereby fully reproduced.

F) The acquirers of the vehicles, referred to in the preceding paragraph, had not, on the date of the tax facts, made the registrations of acquisition at the Motor Vehicle Registry Office, whereby, in the database thereof, the Claimant continued to appear as the owner of the same.

  1. Unproven Facts

There are no facts relevant to the decision that have not been proven.

IV – MATTER OF LAW

  1. In view of the foregoing in the preceding sections, the central issue to be examined in the present case is to determine whether, for the purposes of the provisions of Article 3, Section 1, of the Single Motor Vehicle Tax Code (IUC Code), the passive subject of the IUC is the lessor or the new owner if it has been found that, on the date of the occurrence of the tax event, the vehicle was previously disposed of but continues to be registered in the name of the lessor (its former owner).

  2. The matter of fact is fixed (see above Section 13) and we will now determine the applicable law to the underlying facts in accordance with the issue already stated (see above Section 15).

  3. The arbitrator in the present process rendered the arbitral decision in case No. 174/2014-T, with the identical issue of merit and the same Claimant. Of course, the submission of the same issue of merit in a new process can always lead to a modification of the position previously adopted, because from the new contradiction a deepening of the analysis and a reconsideration of the matter of law may result.

  4. The arbitral decision rendered in case No. 174/2014-T found the request for arbitral pronouncement well-founded with respect to the rebuttal of the presumption of subjective incidence of the IUC and consequently annulled the assessments of this tax. It also found the request ill-founded as regards the recognition of the right to indemnitory interest in favor of the Claimant and condemned the Respondent to the payment of the costs of the process.

  5. From the present case file no elements emerge that justify the alteration of the position which I subscribed to in the arbitral decision rendered in case No. 174/2014-T, whereby in the following sections, we follow the argument set forth in the aforementioned decision.

  6. Article 3 of the IUC Code states the following:

"Article 3

Subjective Incidence

1 - The passive subjects 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 names the same are registered.

2 - Equated to owners are the financial lessees, the acquirers with reservation of ownership, as well as other holders of purchase option rights by force of the lease contract".

It is urgent to clarify whether the norm contained in Section 1 of Article 3 of the IUC Code admits or not that the person, in whose name the vehicle is registered at the Motor Vehicle Registry Office, can demonstrate, through the means of proof admitted in law, that they are not the owner of the vehicle in the period to which the tax relates and, in this way, set aside the tax obligation that rests upon them.

Section 1 of Article 3 of the IUC Code does not use the term "are presumed", which appeared in the extinct Motor Vehicle Tax Regulation, and replaced it with "being considered as". Does this semantic change by the legislator, upon having opted for the word "being considered as", prevent the existence of a presumption?

The literal interpretation of Section 1 of Article 3 of the IUC Code alone cannot be considered entirely determinant and should be accompanied by other elements that reveal the true meaning of the norm under analysis.

  1. Presumptions are defined, in accordance with Article 349 of the Civil Code, as "... inferences which the law or the judge draws from a known fact to establish an unknown fact."

In accordance with the provisions of Article 73 of the General Tax Law, the presumptions contained in the norms of tax incidence always admit proof to the contrary.

The norm of Section 1 of Article 3 of the IUC Code has the structure of a presumption norm as it is defined in the Civil Code. In effect, it is verified that the law draws from the known fact, namely, the ownership of the vehicle as recorded in the motor vehicle registration, the presumption concerning the passive subject who must bear the burden of the IUC. It happens, however, that it will always be possible for the subject appearing in the registration to set aside the application of the incidence norm, provided that they prove that the tax capacity which justifies the tax imposition belongs to another, for example, due to the existence of the sale of the vehicle at a time prior to the occurrence of the tax fact.

In summary, the norm of Section 1 of Article 3 of the IUC Code contains a legal presumption of subjective incidence with respect to the owner of the vehicle as registered with the Motor Vehicle Registry Office, which, obviously, does not preclude the possibility of proof to the contrary.

  1. The presumptions of tax incidence can be rebutted through the means provided in Article 64 of the TCPP or, alternatively, by means of gracious reclamation or judicial challenge of the tax acts based on them.

In the present case, the request for constitution of the arbitral tribunal is the proper means to rebut the presumption of subjective incidence of the IUC that supports the tax assessments whose annulment constitutes the object of the claim, since it concerns a matter that falls within the competence of this arbitral tribunal, in accordance with Articles 2 and 4 of the LRAT.

  1. In the present case, the vehicles with respect to which the payment of the IUC was incumbent were sold on a date prior to that to which the tax relates, but the acquirers of the said vehicles had not, on the date of the tax facts, made the registrations of acquisition at the Motor Vehicle Registry Office, whereby, in the database thereof, the Claimant continued to appear as the owner of the same (see paragraphs E) and F) of Section 13.)

Due to the conclusion of the contract of sale and purchase, the owner of full right comes to be directly covered by Section 1 of Article 3 of the IUC Code.

In accordance with case law it is clear that, in view of the provisions of Article 408, Section 1, of the Civil Code, the constitution or transfer of real rights over a determined thing occurs by mere effect of the contract, save for the exceptions provided in law. This is the case of the contract of sale and purchase of a motor vehicle (Articles 874 and 879, paragraph a) of the Civil Code), which does not depend on any special formality, being valid even when celebrated in verbal form.

The right of ownership of motor vehicles is subject to registration, in accordance with the provisions of Decree-Law No. 54/75, of 12 February, as subsequently amended and whose purpose, in accordance with Article 1, Section 1, consists in "... giving publicity to the legal situation of motor vehicles and their respective trailers, with a view to the security of legal commerce."

The lack of registration does not affect the validity of the contract of sale and purchase, but only its effectiveness, and even this, only vis-à-vis third parties in good faith for purposes of registration.

  1. In the factuality subject to the present arbitral case it results that the sale of the vehicles in question was effected in years prior to that to which the tax relates, although in six cases, the sale was effected in that same year, but in the month prior to that in which the tax event occurred and the subsequent demand of the tax.

From the elements contained in the case file it is verified that on the date of the demand of the tax to which the assessments in question relate, the Claimant was not the owner of the vehicles identified, as their respective transfers of ownership had already previously occurred, in accordance with civil law.

The means of proof presented by the Claimant, consisting of copies of the invoices/receipts of sales (paragraph E) of Section 13.) enjoy the presumption of veracity which is conferred upon them in accordance with Section 1 of Article 75 of the General Tax Law. Thus, these documents appear to be suitable and with sufficient force to rebut the presumption upon which those assessments are based. Moreover, the Respondent did not argue facts that, if they fall within the paragraphs of Section 2 of Article 75 of the General Tax Law, and set aside the presumption of veracity with respect to the said documents.

  1. In consequence of the foregoing, the assessments that are the subject of the present arbitral process must be annulled with the consequent restitution of the tax improperly collected from the Claimant.

  2. The Claimant also requests that it be recognized the right to indemnitory interest, under Article 43 of the General Tax Law.

In accordance with the norm of Section 1 of Article 43 of the General Tax Law, indemnitory interest is due "when it is determined, in gracious reclamation or judicial challenge, that there was error imputable to the services from which results payment of the tax debt in an amount superior to that legally due." As follows from Article 24, Section 5, of the LRAT, the right to the aforementioned interest can be recognized in the arbitral process.

  1. The right to indemnitory interest to which the norm of the General Tax Law alludes presupposes that tax has been paid in an amount superior to that due and that such derives from error, of fact or of law, imputable to the services of the TCA. In the present case, even if it is acknowledged that the tax paid by the Claimant is not due, it is not discerned that, in its origin, there is an error imputable to the TCA. Upon carrying out the official assessment of the IUC, the TCA merely limited itself to complying with the norm of Section 1 of Article 3 of the IUC Code and imputed the quality of passive subject of this tax to the persons in whose names the vehicles are registered.

Section 1 of Article 3 of the IUC Code has the nature of a legal presumption, from which it follows, for the TCA, the right to assess the tax and demand it from those persons, without need to prove the facts which lead to it, as expressly provided for in Section 1 of Article 350 of the Civil Code.

  1. The Respondent in its response considers that, foreseeing the hypothesis that the claim of the Claimant be found well-founded, it should not be condemned in costs, because it did not give rise to the litigation.

Article 527 (General Rule Regarding Costs) of the Code of Civil Procedure (CCP) provides the following:

"1 — The judgment that decides the action or any of its incidental matters or appeals condemns in costs the party that gave rise to them or, if there is no success of the action, whoever obtained benefit from the process.

2 — It is understood that the party condemned gives rise to the costs of the process, in the proportion in which it is condemned.

3 — In the case of condemnation by joint and several obligation, the joint and several liability extends to the costs."

The Arbitral Tribunal, in view of the foregoing, found the claim of the Claimant well-founded and, therefore, in accordance with Sections 1 and 2 of Article 527 of the CCP, applicable by force of paragraph (e) of Section 1 of Article 29 of the LRAT, the responsibility for the payment of the arbitration fee is unequivocally that of the Respondent.

V – DECISION

In accordance with the foregoing, it is decided:

a) To find the request for arbitral pronouncement well-founded with respect to the rebuttal of the presumption of subjective incidence of the IUC and consequently to annul the assessments of this tax, to which the collection documents attached to the request for arbitral pronouncement presented by the Claimant refer, and to order the restitution of the tax improperly paid;

b) To find the request ill-founded with respect to the recognition of the right to indemnitory interest in favor of the Claimant;

c) To condemn the Respondent to pay the costs of the present process.

The value of the case is fixed at €1,198.62 (one thousand one hundred ninety-eight euros and sixty-two cents), in accordance with the provisions of Article 97-A, Section 1, paragraph (a) of the TCPP, applicable by force of paragraphs (a) and (b) of Section 1 of Article 29 of the LRAT and of Section 2 of Article 3 of the Regulation of Costs in Arbitration Proceedings of Tax Matters.

The arbitration fee is fixed at €306.00 (three hundred and six euros), in accordance with Table I of the Regulation of Costs in Arbitration Proceedings of Tax Matters (RCPAT), to be paid in full by the Respondent, in accordance with Article 22, Section 4, of the LRAT.

Notify the parties.

Lisbon, Administrative Arbitration Centre, 7 August 2014

The Arbitrator

Olívio Mota Amador

Frequently Asked Questions

Automatically Created

Who is considered the taxable person for IUC under Article 3(1) of the IUC Code, and can this presumption be rebutted?
Under Article 3(1) of the IUC Code, the taxable person is defined as the natural or legal person in whose name the vehicle is registered. The key legal dispute concerns whether this constitutes a rebuttable presumption or a definitive criterion. The claimant's position argues that registration establishes only a rebuttable presumption that can be overcome with sufficient proof of sale, meaning the actual owner (purchaser) becomes liable for IUC even when registration hasn't been updated. The Tax Authority's position maintains that the IUC Code intentionally establishes registration as the determining factor and that this special tax legislation derogates from general civil law principles, making the registered owner conclusively liable regardless of actual ownership.
How can a company challenge IUC tax assessments when it is no longer the actual owner of the registered vehicles?
A company can challenge IUC assessments on vehicles it no longer owns by requesting arbitration at CAAD (Administrative Arbitration Center) under the Legal Regime of Arbitration in Tax Matters (Decree-Law 10/2011). The procedure involves: (1) filing a request for constitution of an arbitral tribunal identifying the contested assessments and vehicles; (2) presenting evidence of sale such as sale and purchase contracts demonstrating transfer of ownership; (3) arguing that vehicle registration serves only as a publicity mechanism and rebuttable presumption under civil law; (4) demonstrating that the actual purchaser became the new owner and therefore the proper taxable person; and (5) requesting declaration of illegality of the assessments plus reimbursement with legal interest. Multiple assessments across different tax years and vehicles can be consolidated in a single arbitration request.
What is the CAAD arbitration procedure for disputing multiple IUC tax assessments across different tax years?
The CAAD arbitration procedure for disputing multiple IUC assessments follows these steps: First, the taxpayer files a request for constitution of an arbitral tribunal under Article 2 and 10 of LRAT, which can cover multiple tax years and vehicles in a single petition (as occurred here with assessments for 2009-2012 covering 34 vehicles totaling €1,198.62). Second, the CAAD President accepts the request and notifies the Tax Authority. Third, an arbitrator is designated either by the taxpayer's choice or by the CAAD Deontological Council. Fourth, the tribunal is formally constituted after parties have opportunity to refuse the designation. Fifth, the Tax Authority presents its response. Sixth, a hearing is held under Article 18 of LRAT where both parties present arguments. Finally, the arbitrator issues a decision. The entire process from filing to constitution took approximately two months in this case.
Are taxpayers entitled to reimbursement with compensatory interest after a successful IUC arbitration decision?
Taxpayers are potentially entitled to reimbursement with compensatory interest after a successful IUC arbitration decision, but this right is disputed. The claimant in this case requested reimbursement of €1,198.62 plus interest at the legal rate calculated from the payment date until full reimbursement. However, the Tax Authority contested this, arguing that 'the legal presuppositions that confer the right to indemnitory interest are not assembled.' The entitlement to compensatory interest depends on establishing that: (1) the tax was illegally collected; (2) the taxpayer suffered financial harm through improper payment; and (3) the conditions under applicable law for awarding interest are met. Additionally, the Tax Authority argued the claimant should bear arbitration costs since it allegedly gave rise to the dispute by failing to update vehicle registrations, though the claimant would counter this was the purchaser's responsibility.
Does the vehicle registration presumption in the IUC Code qualify as a rebuttable presumption under Portuguese tax law?
Whether the vehicle registration presumption in the IUC Code qualifies as a rebuttable presumption is the central disputed legal question with two opposing interpretations. The claimant's position argues that Article 3(1) establishes a rebuttable presumption: registration creates a presumption of ownership that can be overcome with contrary proof (such as sale and purchase contracts), consistent with civil law principles where registration has non-constitutive effect and serves only for publicity purposes. The Tax Authority's counter-position argues this is NOT a rebuttable presumption but rather a definitive legal criterion: the IUC Code as special tax legislation intentionally and expressly designates registered persons as taxable persons, and this provision derogates from general civil law rules. The TCA maintains that interpreting Article 3 as a presumption would constitute interpretation contra legem (against the law) because the legislator deliberately chose registration as the determining factor to preserve legal system unity and provide certainty in tax administration.