Process: 127/2014-T

Date: September 10, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

Process 127/2014-T addresses the critical question of IUC (Single Circulation Tax) liability when vehicle ownership has been transferred but vehicle registration records remain unchanged. The claimant A..., S.A. contested IUC assessments totaling approximately €300 for four vehicles across tax years 2009-2012, arguing that the vehicles had been sold prior to the tax liability dates despite the registrations remaining in their name. The claimant alleged a fundamental defect of lack of reasoning in the assessments and argued that since they rebutted the presumption of ownership under Article 7 of the Property Registration Code, they should not be liable for IUC on vehicles they no longer owned. The Tax and Customs Authority defended the assessments by invoking Article 3(1) of the IUC Code, which explicitly defines taxpayers as vehicle owners and considers owners to be those in whose name vehicles are registered. The AT argued this constitutes a deliberate legislative policy choice, not merely a rebuttable presumption. The AT further contended that Article 6(1) of the IUC Code establishes that the tax event is constituted by vehicle ownership as evidenced by registration, making registered ownership determinative for IUC purposes. Additionally, the AT challenged the evidentiary value of the sales invoices submitted by the claimant, characterizing them as unilateral documents insufficient to prove synallagmatic sale contracts. The AT also raised constitutional arguments, asserting that devaluing registered reality in favor of informal arrangements would violate principles of legal certainty, trust, tax system efficiency, and proportionality. The case highlights the tension between civil law ownership transfer rules and tax law's reliance on registration systems for determining liability.

Full Decision

ENGLISH TRANSLATION

I – Report

  1. On 13.02.2014, the Claimant A..., S.A., legal entity no. …, requested from CAAD the constitution of an arbitral tribunal, in accordance with art. 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority is the Respondent, for the purpose of annulling the following tax acts, relating to Single Circulation Tax ("IUC"):
  • Assessments numbers ... and ..., relating to the vehicle with registration ..-..-.., for the years 2009 and 2010 and the month of November, in the amount of 32.80 € and 33.10 €, respectively.
  • Assessments nos. ..., ..., ... and ..., relating to the vehicle with registration ..-..-.., for the years 2009, 2010, 2011 and 2012 and the month of June, in the amount of 32.80 €, 33.10 €, 33.83 € and 34.61 €, respectively.
  • Assessments nos. ... and ..., relating to the vehicle with registration ..-..-.., for the years 2009 and 2010 and the month of July, in the amount of 29 € each.
  • Assessments nos. ... and ..., relating to the vehicle with registration ..-..-.., for the years 2009 and 2010 and the month of May, in the amount of 16.40 € and 16.50 €, respectively.

The Claimant further requests payment of compensatory interest for the deprivation of the amounts corresponding to the taxes in question, in accordance with art. 43 of the General Tax Law.

  1. The request for constitution of the arbitral tribunal was accepted by the Esteemed President of CAAD and notified to the Tax and Customs Authority. In accordance with the provisions of no. 1 of art. 6 of RJAT, by decision of the President of the Deontological Council, duly communicated to the parties within the applicable legal deadlines, the signatory was appointed as arbitrator, who communicated to the Deontological Council and to the Centre for Administrative Arbitration the acceptance of the office within the regularly applicable deadline.

The Arbitral Tribunal was constituted on 17.04.2014.

  1. By order dated 14.06.2014, the meeting provided for in article 18 of RJAT was dispensed with, following a request to that effect submitted by the Claimant, to which the Respondent agreed.

  2. The grounds presented by the Claimant, in support of its claim, are, very briefly, as follows:

4.1. The Tax Authority does not expressly indicate the reasons for the assessment of the taxes in question to the Claimant, which constitutes a defect of lack of reasoning, which is expressly alleged.

4.2. Despite this lack of reasoning, the position of the Tax Authority can only rest on the circumstance that in the months and years in which the taxes in question became due, the ownership of the corresponding motor vehicles was still registered in the name of the claimant, notwithstanding that they had already been transferred.

4.3. The lack of registration does not affect the validity of the contract of sale but only its effectiveness, and only the latter, and only against third parties acting in good faith for registration purposes, a qualification which the Tax Authority does not assume in the case at hand.

4.4. As the Claimant is not the owner of the motor vehicles in question at the moment of the tax-relevant facts, having rebutted the presumption of art. 7 of the Property Registration Code, the assessments made to it should be considered illegal and consequently annulled.

4.5. The Respondent knew or should have known that the vehicles in question were no longer the property of the claimant at the moment when the taxes in question should have been paid.

  1. The Tax and Customs Authority, called upon to respond, contested the Claimant's claim, defending itself by means of impugnation, alleging, also very briefly, the following:

5.1. The tax legislator, in establishing in article 3, no. 1, who are the passive subjects of the IUC, expressly and intentionally established that these are the owners, being considered as such the persons in whose name the same are registered, this not being a presumption but a clear choice of legislative policy adopted by the legislator within its freedom of legislative configuration.

5.2. The tax norm is replete with provisions analogous to that enshrined in the final part of no. 1 of art. 3, in which the tax legislator, within its freedom of legislative configuration, expressly and intentionally, establishes what should be legally considered, for purposes of tax incidence.

5.3. Also the systematic element of the interpretation of the law demonstrates that the solution advocated by the Claimant is intolerable, as article 6, no. 1, of the IUC Code provides that "The tax event is constituted by the ownership of the vehicle, as attested by the registration or registration in national territory."

5.4. The failure to update the registration, in accordance with article 42 of the Motor Vehicle Registration Regulations, shall be attributable to the legal sphere of the passive subject of the IUC and not to that of the Portuguese State, as the active subject of this tax.

5.5. The interpretation proposed by the Claimant of art. 3, no. 1 of the IUC Code is contrary to the Constitution of the Portuguese Republic insofar as it devalues the registered reality against an "informal reality", violating the principle of trust and legal certainty, the principle of efficiency of the tax system and the principle of proportionality.

Even if this were not the case,

5.6. Documents 5 to 8 attached to the request for arbitral opinion are copies of sales invoices for each of the vehicles.

The invoices do not constitute suitable documents to prove the sale of the vehicles in question, since the same is nothing more than a document unilaterally issued by the Claimant and is not suitable to prove a synallagmatic contract such as purchase and sale.

5.7. In the matter of financial leasing and for the purposes of art. 3, no. 2, of the IUC Code, it is necessary that the lessors fulfill the ancillary obligation provided for in art. 19 of the IUC Code, which did not happen in the case at hand, with the consequent liability of the Claimant for the arbitration costs, since such omission gave rise to the issue of the assessments sub judice.

  1. The parties presented written pleadings in which, essentially, they maintained their positions.

  2. The cumulation of claims relating to the tax acts of assessment subject to the present request for arbitral opinion is admissible in light of art. 3, no. 1 of RJAT, since the merits of the claims depend on the assessment of the same circumstances of fact and the interpretation and application of the same rules of law.

  3. The tribunal is materially competent and is regularly constituted in accordance with the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented.

The proceedings do not suffer from defects that would invalidate them.

II – The Relevant Facts

  1. The tribunal considers the following facts proven:

9.1. The Respondent made the following assessments of IUC, with the Claimant as the passive subject:

  • Assessments numbers ... and ..., relating to the vehicle with registration ..-..-.., for the years 2009 and 2010 and the month of November, in the amount of 32.80 € and 33.10 €, respectively, paid by the Claimant on 3.12.2013.

  • Assessments nos. ..., ..., ... and ..., relating to the vehicle with registration ..-..-.., for the years 2009, 2010, 2011 and 2012 and the month of June, in the amount of 32.80 €, 33.10 €, 33.83 € and 34.61 €, respectively, paid by the Claimant on 26.11.2013.

  • Assessments nos. ... and ..., relating to the vehicle with registration ..-..-.., for the years 2009 and 2010 and the month of July, in the amount of 29 € each, paid by the Claimant on 26.11.2013.

  • Assessments nos. ... and ..., relating to the vehicle with registration ..-..-.., for the years 2009 and 2010 and the month of May, in the amount of 16.40 € and 16.50 €, respectively, paid by the Claimant on 25.11.2013.

9.2. The Claimant is a credit institution.

9.3. One of its areas of activity is the financing of the automotive sector.

9.3. The motor vehicles identified were given in a long-term rental contract, by the Claimant, to the customers identified in Annex A attached to the request for arbitral opinion.

9.4. All of these customers acquired, by purchase, in accordance with the respective contract, the motor vehicle on which the same fell, by means of the payment of the corresponding residual value, the vehicle with registration ..-..-.. being sold on 24.06.2009, the vehicle with registration ..-..-.. being sold on 30.04.2009, the vehicle with registration ..-..-.. being sold on 25.05.2009 and the vehicle with registration ..-..-.. being sold on 20.04.2009.

9.5. The Claimant was notified to proceed with the payment of the assessments identified, with 21.11.2013 being indicated as the deadline for that purpose.

  1. Unproven Facts.

It was not proven that the Respondent had knowledge, at the date of the assessments, that the vehicles were no longer the property of the Claimant.

It was also not proven that the Claimant complied with the obligation provided for in art. 19 of the IUC Code, nor was it proven the contrary fact, that is, that such obligation had not been complied with.

  1. The Tribunal's conviction regarding the decision on the facts was based on the documents in the proceedings, as well as on the statements of the parties in the pleadings submitted, it being noted that the Respondent did not dispute the Claimant's statements relating to the facts in nos. 9.1, 9.2, 9.3 and 9.5.

As for the fact proven under no. 9.4, it must be stated, first and foremost, that the Respondent did not dispute the accuracy of the copies of the invoices[1] attached to the request for arbitral opinion as documents numbers 5, 6, 7 and 8.

The Tribunal's conviction regarding the facts in question results from the issuance of the respective invoices on the dates contained in the facts given as proven under no. 9.4.

Although such documents are issued unilaterally by the seller, according to the rules of experience, nothing indicates, on the contrary, any non-coincidence of such invoices with the reality they represent.

On the other hand, the Respondent does not point out any concrete lack of correspondence of the invoices with the transactions represented therein, and furthermore, value added tax was levied on the same, it not having been alleged that the same was not reported in the respective declarations, or that the purchasers, recipients thereof, did not take them into account for legal-tax purposes.

With regard to the unproven facts, the Tribunal's decision is based on the total absence of proof of the same.

III – Applicable Law

  1. As the claimant has imputed various defects to the tax acts impugned, it is necessary to determine the order of assessment thereof, and the order of art. 124 of the Code of Administrative Tax Procedure must be observed, applicable by virtue of art. 29, no. 1, al. a) of RJAT (See Jorge Lopes de Sousa, Commentary on the Legal Framework for Tax Arbitration, in GUIDE TO TAX ARBITRATION, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, p. 202). (See JORGE LOPES DE SOUSA, Commentary on the Legal Framework for Tax Arbitration, in Guide to Tax Arbitration, Coord. Nuno Villa-Lobos and Mónica Brito Vieira, 2013, Almedina, p. 202).

The merits of any of the defects raised by the claimant shall lead to annulment of the tax act. However, the defect of violation of law is that which shall lead to the "most stable or effective protection of the interests harmed" insofar as its possible merits will prevent renewal of the act, which does not occur with the annulment resulting from other defects.

Accordingly, the Tribunal shall assess first the defect of violation of law.

  1. In accordance with article 3, no. 1 of the IUC Code, "the passive subjects of the tax are 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."

Article 2 of the same provision provides that "Financial lessees, acquisitions with reservation of ownership, as well as other holders of purchase option rights under the lease contract, are assimilated to owners."

The legal problem to be decided relates to the question of whether the person in whose name the vehicle ownership is registered may prove, despite this circumstance, that he was not the owner of the same at the date of the tax-relevant fact, in order to set aside the quality of passive subject of the tax.

  1. In order to respond to the problem in question, it seems pertinent to inquire whether art. 3, no. 1, of the IUC Code establishes a presumption, a position sustained by the Claimant, or whether it is merely the configuration of the legal type of tax, within the scope of freedom of legislative configuration, as the Respondent argues.

The answer to this question may be decisive, given that, in accordance with art. 73 of the General Tax Law, "Presumptions enshrined in tax incidence norms always admit proof to the contrary." Furthermore, as stated in the arbitral decision rendered in case 286/2013-T, the "understanding of the Constitutional Court, affirmed in the ruling no. 348/97, of 29.4.1997 and reiterated in the ruling no. 311/2003, of 28.4.2003, regarding the unconstitutionality of the 'establishment by the tax legislator of a presumption juris et de jure' since it 'completely prevents taxpayers from contradicting the presumed fact, subjecting them to taxation that may be based on a taxable matter fixed in disregard of the principle of tax equality'.[2]

  1. In the doctrine, the distinction between fictions and presumptions has been analyzed, from the perspective of tax law.

Thus, ANA PAULA DOURADO, ("The Principle of Fiscal Legality: Typicality, Indeterminate Legal Concepts and Margin of Free Discretion", Editor Almedina, Theses Collection, 2007) writes:

"With regard to fictions, as a technique used in tax laws, and its function, Karl Larenz tells us that 'legal fictions normally aim at the application of the rule given for one provided fact (F1) to another provided fact (F2)... the law 'pretends' that F2 is a case of F1" (p. 603).

"The fiction is distinguished from simple presumption and absolute presumption by not being based 'on a probability that normally becomes truth', since it 'consciously distorts ("a legal truth")" (p. 604)

Also on this question, in terms convergent with ANA PAULA DOURADO, JOÃO SÉRGIO RIBEIRO, ("PRESUMPTIVE TAXATION OF INCOME, A Contribution to Reequating Indirect Methods of Determining Taxable Matter, Almedina, Theses, 2010, pp. 48-49) considers that the criterion of distinction between the two realities should be "eminently legal" and that "In light of that criterion the essential difference between presumption and legal fiction lies in the fact that the former has as its starting point the truth of a fact, that is, a connection to the natural order of things, given that from a known fact an unknown probable fact is inferred; whereas fiction, conversely, arises from a falsehood or something unreal, detached from the natural order of things. That is, in fiction a legal truth is created distinct from the real; in presumption a causal relationship is created between two realities or natural facts. (…).

Despite both presumption and fiction being the result of legislative techniques, through which consequences of legal facts are taken as true, what truly distinguishes them is the circumstance that, in legal presumption, the presumed fact has a high degree of probability of existing, and in fiction, the presumed fact is very improbable."

CASALTA NABAIS also examined this question ("The Fundamental Duty to Pay Taxes", Almedina, 2004, p. 500-501) writing that "(...) a distinction must be made between situations in which we are facing legal presumptions, in which from a known fact (real or even legal) a naturally probable legal fact is inferred, a case in which proof to the contrary must be allowed, to make them compatible with the principle of contributive capacity, from situations in which we encounter the assumption of common experience rules as taxation rules, thus verifying the construction of legal norms (or legal types) with the (possible) resort to legal fictions. In these, the principle of contributive capacity undergoes the natural impact of the principles of practicability and effective fight against tax evasion, having to settle for a safety valve for those cases that, by reaching such rigors of iniquity, cannot fail to allow the setting aside of the said rules of experience."

  1. In the case at hand, and in light of the esteemed doctrine cited, it appears clear that in art. 3, no. 1, of the IUC Code, we are faced with a presumption, insofar as it results (very) probable from the fact that a person has a vehicle registered in his name that he is, effectively, the owner of the same.

It is this same probability that underlies the presumption derived from registration enshrined in art. 7 of the Property Registration Code, applicable by reference from art. 29 of the Motor Vehicle Registration Regulations.

It is true that the law does not use the expression "being presumed as such, until proof to the contrary", which appeared in art. 3, no. 1 of the Motor Vehicle Tax Regulation (approved by Decree-Law no. 143/78, of 12 June and repealed by Law no. 22-A/2007, of 29 June), ("the tax is due by the owners of vehicles, being presumed as such, until proof to the contrary, the persons in whose name the same are registered or recorded"). But this does not appear to prevent our being materially faced with a presumption.

As written in the arbitral decision already cited rendered in case 286/2013-T, "as has already been noted in other arbitral decisions rendered at this CAAD in relation to the same matter (see the decisions rendered in cases no. 14/2013-T, 27/2013-T, 73/2013-T, 170/2013-T, in which it is possible to find examples of legislative provisions, different from those invoked above, in which likewise the use of the expression 'being considered' or 'is considered' occurs with the meaning of presumption), not only can it not be said, in any way, that the attribution of a presumptive meaning to the expression 'being considered' does not possess 'a minimum of verbal correspondence, albeit imperfectly expressed' (no. 2 of art. 9 of the Civil Code), but, more than that, one should even recognize such a word a current and normal correspondence to that presumptive sense.

Therefore, the fact that, differently from what occurred with the literal enunciation 'being presumed' that was previously found in article 3 of the Motor Vehicle Tax Regulation, the legislator has now taken to using in the IUC Code the formula 'being considered' that appears in the current art. 3 of that Code, does not assume decisive weight, since this expression has perfect semantic power to encompass the establishment of a presumption". [3]

  1. The ruling of the Supreme Administrative Court of 4-11-2009, rendered in case 0553/09, applying art. 73 of the General Tax Law, in the context of income tax, goes even further considering that this rule "does not appear to apply only to tax incidence norms in the strict sense, but also to all norms that establish fictions that influence the determination of taxable matter (whether directly, through fictionalised values for taxable matter, or indirectly, by fixing fictionalised values of income relevant to its determination). This, it seems, is the scope of the adverb 'always' used in article 73 of the General Tax Law, which raises this rule to a fundamental principle of the entirety of the tax legal system, a corollary of the principle of equality in the distribution of public burdens, based on the principle of contributive capacity."

It is true that the IUC is not, essentially, subordinated to the principle of contributive capacity, but rather to the principle of equivalence. However, this does not appear to impose different solutions insofar as both principles are intrinsically linked to the general principle of tax equality, where they find their foundation.

In truth, "The principle of contributive capacity represents the material criterion of equality appropriate to taxes"[4] whereas "The principle of equivalence represents the material criterion of equality appropriate to fees and contributions".[5]

  1. It should also be noted that, in addition to art. 1 of the IUC Code providing that "The single circulation tax obeys the principle of equivalence, seeking to burden taxpayers to the extent of the environmental and road cost that these cause, in implementation of a general rule of tax equality", other norms reinforce and make concrete the weight of this principle in the internal system of this tax.

First and foremost, art. 3, no. 1, of the Law that approved the IUC Code (Law no. 22-A/2007, of 29 June), implementing this idea of equivalence determines that: "The revenue generated by the IUC applicable to vehicles of categories A, E, F and G, as well as 70 % of the component relating to engine displacement applicable to vehicles of category B, is the responsibility of the municipality of residence of the passive subject or equivalent, except if that revenue is applicable to vehicles subject to long-term rental or operating lease, in which case it should be assigned to the municipality of residence of the respective user."

And, for purposes of effective implementation of this legislative intention, art. 19 of the IUC Code provides that: "For the purposes of article 3 of this code, as well as no. 1 of article 3 of the law of its approval, entities that engage in financial leasing, operational leasing or long-term rental of vehicles are obliged to provide the Tax Directorate with data relating to the tax identification of the users of the leased vehicles."

Furthermore, it also implements this principle of equivalence no. 2, of art. 3 of the same Code by providing that "Financial lessees, acquisitions with reservation of ownership, as well as other holders of purchase option rights under the lease contract, are assimilated to owners."

  1. It is thus clearly established the decisive importance given by the Law to the principle of equivalence, both on the side of the causer of environmental and road cost, and on the side of the Municipality which tends to bear such costs and which, for that reason, is the beneficiary of the tax revenue.

As Sérgio Vasques points out: "The structure of the new single circulation tax, which since 2007 has charged automobiles according to levels of CO2 emissions, is also clearly commutative, openly appealing to the principle of equivalence and a relationship of exchange with taxpayers"[6]

Should it not be possible for the person registered as owner in the motor vehicle registration to set aside the quality of passive subject, by proving that he was not the owner at the date of the tax-relevant fact, this idea of equivalence could be decisively put into question, taxing those who did not cause environmental and road cost and not assigning the revenue to the Municipality that tended to bear those costs.

  1. The Respondent argues that the interpretation proposed by the Claimant of art. 3, no. 1 of the IUC Code is contrary to the Constitution of the Portuguese Republic insofar as it devalues the registered reality against an "informal reality",[7] violating the principle of trust and legal certainty, the principle of efficiency of the tax system and the principle of proportionality.

It is not clear, with all due respect, how the position that we are, in art. 3, no. 1, of the IUC Code, faced with a rebuttable presumption, could put into question the principles of trust and legal certainty, as these impose duties and restrictions on public law activity.[8]

The same can essentially be said regarding the principle of proportionality.[9]

Indeed, regarding this principle, we would even say that the question that could be raised would be whether such principle would not be violated by the interpretation advocated by the Respondent insofar as, if it were admitted that a citizen could be prevented, for taxation purposes, from proving that despite the registration he is not the actual owner of the vehicle, this would amount to suffering the consequence of the omission of an act (the motor vehicle registration) in whose legally binding terms, from a civil law perspective, is another person (the purchaser).

In fact, even if it is admitted that such solution is apt to achieve the public purpose in view, it is not clear that there are no alternative measures equally apt.

On the other hand, from the perspective of balance or proportionality in the strict sense, it is understood that a rule with the interpretation sustained by the respondent would have excessive costs, from the perspective of the rights and interests of individuals (in this case former owners of the vehicles) compared to the benefits that are aimed to be achieved with the public interest, this fundamental requirement of the principle of proportionality being considered not verified.

In reality, the benefit achieved, from the perspective of tax management, with the rebuttable presumption is already significant, and cases of absence of registration by purchasers are certainly situations in number certainly not very relevant in the universe of vehicle transactions, considering the natural motivation of buyers to effect the registration, since this is in their own interest.

Note also that the rebuttable presumption already represents some sacrifice for the legitimate interests of the seller, insofar as to exempt himself from a taxation offensive to the principle of equivalence, he bears the burden of rebutting the same.

However, considering, in particular, the requirements of practicability of tax management, it is considered that the same is apt, necessary and reasonable from the perspective of the principle of proportionality, which would not already be the case with an absolute presumption, explicit or implicit, that would not even allow the citizen to make proof contrary to the presumption.

  1. The Respondent further invoked that the rule in question, in the interpretation sustained by the Claimant, would violate the principle of efficiency of the tax system.

It appears to us that the Respondent has in mind the idea of efficiency in tax law, related to administrative efficiency.[10] It must be observed, however, that the relevance of a principle in the resolution of a specific case should not operate in isolation but in joint weighing with the other principles and, in the sequence of what has been said above, regarding the principles of equality, equivalence and proportionality, the idea of efficiency is not sufficient to postpone the possibility of the taxpayer rebutting the presumption resulting from motor vehicle registration. Moreover, efficiency and practicability are sufficiently safeguarded by the existence of a rebuttable presumption, in the terms referred to above.

  1. Therefore, it is concluded that art. 3, no. 1, of the IUC Code, establishes a rebuttable presumption, with the interested party bearing the burden, to set it aside, of proving that, despite the registration, he was not the actual owner, having sold it in the meantime.

In this sense, were the decisions rendered in arbitral cases no. 26/2013-T, 27/2013-T, 14/2013-T, 170/2013-T, 256/2013-T, 286/2013-T and 289/2013-T, the understanding of which is thus endorsed.

Therefore, with regard to the taxes relating to vehicles, as to which it was proven that they had been sold by the Claimant before the tax-relevant fact, the request for arbitral opinion cannot but succeed.

Thus, the assessment of the other issues raised by the Claimant is rendered moot, in accordance with art. 124 of the Code of Administrative Tax Procedure, by application of art. 29, no. 1 of RJAT.

  1. The Claimant further requested the right to compensatory interest.

The Claimant's claim must still be assessed in light of article 43 of the General Tax Law.

No. 1 of that article provides that "Compensatory interest is due when it is determined, in a gracious claim or judicial impugnation, that there was an error attributable to the services from which resulted payment of the tax debt in an amount greater than that legally due."

In the case "sub judice", it was not demonstrated that the Respondent had knowledge, at the date of the assessments, that the vehicles in question had been sold on a date prior to that of the tax-relevant fact.

In making the assessments, the Respondent complied with the provisions of art. 3, no. 1, of the IUC Code, applying the presumption established in this legal provision.

Having merely applied the presumption, in the absence of proof that would set it aside, it cannot be concluded that there is an occurrence of "error attributable to the services."

Therefore, the claim for condemnation of the Respondent to pay compensatory interest to the Claimant does not succeed.

IV – Decision

Accordingly, the arbitral tribunal decides:

a) That the request for arbitral opinion be decided in favour of the claimant, declaring the annulment of the assessments impugned.

b) That the Respondent be absolved of the claim for payment of compensatory interest.

Value of the action: 291.41 € (Two hundred and ninety-one euros and forty-one cents) in accordance with the provisions of art. 315, no. 2, of the Civil Procedure Code and 97-A, no. 1, subparagraph a), of the Code of Administrative Tax Procedure and 3, no. 2, of the Regulation of Costs in Arbitration Cases.

Costs against the Respondent, in the amount of 306.00 € (three hundred and six euros) in accordance with no. 4 of art. 22 of RJAT.

Lisbon, CAAD, 10 September 2014

The Arbitrator

(Marcolino Pisão Pedreiro)

[1] For the purposes of art. 368 of the Civil Code.

[2] Available on the website "https://caad.org.pt"

[3] Furthermore, as sustained by Diogo Leite de Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, in the annotation to article 73, no. 3 of the General Tax Law ("LGT") "presumptions in tax incidence matters may be explicit, revealed by the use of the expression presume or similar (…). However, presumptions may also be implicit in incidence norms, in particular objective incidence, when certain values of movable or immovable property are considered as constituting taxable matter, in situations where it is not impractical to ascertain the real value" (See "General Tax Law Commented and Annotated", Encounters of Writing, 4th Edition, 2012, p. 651).

[4] Sérgio Vasques, Manual of Tax Law, Almedina, 2011, p. 251.

[5] Sérgio Vasques, Manual of Tax Law, Almedina, 2011, p. 260.

As this author further notes on p. 227 of the same work "Until the end of the twentieth century, special taxes on alcohol, tobacco, petroleum products or automobiles had no objective other than revenue collection, showing the unilateral characteristics typical of any tax. From the 1980s and 1990s onwards (…), however, these tax figures came to be instrumentalized to compensate for the costs that the consumption of these brings to public health and the environment, with the result that special consumption taxes have come to acquire the nature that is typical of contributions"

[6] Manual of Tax Law, Almedina, 2011, p. 229.

[7] It should be noted, however, that in Portuguese law the principle of freedom of form or consensuality applies (art. 219 of the Civil Code). Except when required by law, the validity of the negotial declaration does not depend on compliance with any special form. The "informal reality" to which the claimant refers is in fact the material reality that results from the norms of civil law.

[8] Jorge Bacelar Gouveia states that the principle of legal certainty requires "the publicity of acts of public power, as well as the clarity and determinability of sources of law" and that the principle of protection of trust requires "that the regulatory framework in force does not change in a way that frustrates the expectations created in citizens about its continuity, with the prohibition of an intolerable retroactivity of laws, as well as the need for its alteration in accordance with expectations that are constitutionally protected" (Manual of Constitutional Law, Almedina, 4th Ed., Vol. II, p. 821)

[9] According to the same author the configuration of this principle "is based on an internal material limitation to the discretionary action of public law of a character containing the excessive effects that may appear in the issuance of provisions of public power of an ablative nature for their respective recipients" (op. cit. pp. 839-840)

[10] And not, manifestly, the principle of efficiency of tax law since, as written by Jónatas E.M. Machado and Paulo Nogueira da Costa "From the principle of Efficiency it follows that the tax system should not have distortionary effects and should not interfere with the functioning of markets, except when, due to the existence of market failures, the same do not function efficiently." (Course in Tax Law, Coimbra Editora, 2009, p. 28.)

Frequently Asked Questions

Automatically Created

Who is liable for IUC payment when a vehicle has been sold but the registration has not been updated?
According to the Tax Authority's position in this case, liability for IUC payment rests with the person in whose name the vehicle is registered, regardless of whether actual ownership has been transferred. Article 3(1) of the IUC Code explicitly states that vehicle owners are considered to be those in whose name vehicles are registered. The AT argues this represents a deliberate legislative policy choice within the legislator's freedom of configuration, not a rebuttable presumption. The failure to update vehicle registration following a sale is attributable to the registered owner, not the State. Therefore, until registration is properly transferred under Article 42 of the Motor Vehicle Registration Regulations, the registered owner remains liable for IUC. The claimant contested this interpretation, arguing they had rebutted the ownership presumption and should not be liable for vehicles no longer in their possession.
Can the Tax Authority (AT) levy IUC based solely on vehicle registration records?
Yes, the Tax Authority can levy IUC based solely on vehicle registration records. The AT's defense relied heavily on Article 3(1) and Article 6(1) of the IUC Code. Article 6(1) specifically provides that 'the tax event is constituted by the ownership of the vehicle, as attested by the registration or registration in national territory.' The AT argued that the tax legislator intentionally established registration as the definitive criterion for determining IUC liability, making registered ownership determinative rather than actual ownership. This interpretation prioritizes the registered reality over any informal or unregistered ownership arrangements. The AT further argued that devaluing registered reality would violate constitutional principles including legal certainty, trust, tax system efficiency, and proportionality. The registration system provides the AT with a reliable, verifiable basis for tax assessment without requiring investigation into private ownership arrangements.
Does the lack of vehicle registration transfer affect the validity of a sale contract for IUC purposes?
According to the claimant's argument, the lack of vehicle registration transfer does not affect the validity of the sale contract, only its effectiveness, and only against third parties acting in good faith for registration purposes—a qualification the Tax Authority does not hold. Under general civil law principles, failure to register a sale affects opposability to third parties but not the contract's validity between the parties. However, the Tax Authority contested this position for IUC purposes, arguing that the IUC Code creates a specific tax regime where Article 3(1) deliberately establishes that owners are those registered, regardless of civil law ownership rules. The AT characterized this as an intentional legislative policy choice to use registration as the definitive criterion for tax liability. The AT also challenged the evidentiary basis of the alleged sales, noting that the invoices submitted were unilateral documents issued by the claimant, insufficient to prove synallagmatic sale contracts.
What constitutes a lack of reasoning (falta de fundamentação) in IUC tax assessments by the AT?
The claimant alleged that the Tax Authority did not expressly indicate the reasons for assessing IUC to them, constituting a defect of lack of reasoning (falta de fundamentação). The claimant inferred that the AT's position rested solely on the circumstance that vehicle ownership remained registered in their name at the time tax became due, despite alleged transfers. Under Portuguese administrative law, tax assessments must be properly reasoned to allow taxpayers to understand the legal and factual basis for the assessment and mount an effective defense. The lack of reasoning constitutes a formal defect that can render an administrative act invalid. However, the extent of reasoning required varies based on the nature and complexity of the assessment. Standard IUC assessments based on registration records may require less detailed reasoning than discretionary decisions. The AT's response implicitly addressed this by explaining that Article 3(1) of the IUC Code makes registration the definitive criterion for liability.
Are compensatory interest (juros indemnizatórios) available when IUC assessments are annulled by CAAD?
Yes, compensatory interest (juros indemnizatórios) are generally available when IUC assessments are annulled by CAAD. Article 43 of the General Tax Law (Lei Geral Tributária) provides for compensatory interest to be paid to taxpayers when they are deprived of amounts due to illegal tax collection. The claimant specifically requested payment of compensatory interest for deprivation of the amounts corresponding to the contested taxes. If the arbitral tribunal determines that the IUC assessments were illegal and annuls them, the State would be obligated to return not only the principal amounts paid but also compensatory interest calculated from the date of payment until restitution. This mechanism compensates taxpayers for the financial loss suffered due to erroneous tax collection. The calculation and rate of compensatory interest are governed by specific provisions of tax legislation to ensure taxpayers are made whole when illegally assessed taxes are subsequently annulled through administrative or judicial review.