Process: 140/2014-T

Date: August 29, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 140/2014-T) addresses a fundamental question in Portuguese tax law regarding IUC (Imposto Único de Circulação) vehicle tax liability when legal presumptions of ownership diverge from actual ownership. The claimant, A... S.A., a credit institution specializing in financial leasing, challenged three IUC assessments totaling €125 for the 2009 tax year concerning three vehicles. The company had originally acted as lessor under financial lease agreements executed between 2002 and 2003, but subsequently sold all three vehicles to third parties in 2008, prior to the tax period in question. The central dispute arose because the purchasers failed to register the ownership transfers with the Motor Vehicle Registration Office (Conservatória do Registo Automóvel), leaving the claimant's name in the official database as the registered owner. Consequently, the Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira) issued IUC assessments against the claimant based on the legal presumption that the registered owner is the taxable person under Article 3(1) of the Single Motor Vehicle Tax Code (CIUC). The claimant argued this presumption should be rebutted by documentary evidence, presenting sales invoices and receipts dated October and August 2008 proving the vehicles had been sold before the 2009 tax year commenced. The case illustrates the tension between administrative presumptions based on vehicle registration records and substantive tax liability principles based on actual ownership and possession. The arbitral tribunal, constituted under the Legal Framework of Arbitration in Tax Matters (RJAT), conducted formal proceedings including documentary review, meetings, and oral arguments. This decision addresses the critical question of subjective incidence for IUC purposes, determining whether registration formalities or economic reality should prevail when establishing tax liability in financial leasing contexts where subsequent sales have occurred but registration transfers remain incomplete.

Full Decision

ARBITRAL DECISION

Claimant: A..., S.A.

Respondent: Tax and Customs Authority

I - REPORT

  1. On 15 February 2014, the company A..., S.A., holder of the NIPC [Tax Identification Number] ..., with registered office at ... Street, Lisbon, (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 Framework of Arbitration in Tax Matters, hereinafter referred to as "RJAT").

  2. The request for constitution of the arbitral tribunal was accepted by His Excellency the President of CAAD, on 18 February 2014, and notified, on 20 February 2014, to the Tax and Customs Authority (hereinafter referred to as "TA" or the "Respondent").

  3. The Claimant requests the pronouncement of the Arbitral Tribunal with a view to declaring the illegality and consequent annulment of 3 (three) assessment acts for the Single Motor Vehicle Tax (SMT) for the year 2009 regarding 3 (three) vehicles identified in Annex A attached to the initial petition, in the total amount of € 125.00 (one hundred and twenty-five euros) and reimbursement of that amount plus compensatory interest.

  4. In the request for arbitral pronouncement, the Claimant chose not to appoint an arbitrator. Under the terms of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of CAAD appointed as arbitrator of the sole arbitral tribunal His Excellency Dr. Olívio Mota Amador, who, within the applicable deadline, communicated acceptance of the assignment.

  5. The parties were notified, on 4 April 2014, of the appointment of the arbitrator, and did not express the intention to challenge the appointment of the arbitrator, in accordance with the combined provisions of article 11, no. 1, paragraphs a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

  6. In accordance with the provisions of paragraph c) of no. 1 of article 11 of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 22 April 2014.

  7. On 23 May 2014, the Respondent, duly notified for this purpose, filed its Response.

  8. On 16 June 2014, at 14:30, at the CAAD facilities, the meeting provided for in article 18 of RJAT took place. The representative of the Claimant stated that they waived witness testimony and requested the attachment to the records of the financial lease agreements that they sought to attach. The Arbitrator set a deadline of five days for the Respondent to comment after notification of the documents that the Claimant would attach. It was agreed between the parties that 10 July would be the date for oral arguments. (see record of the arbitral tribunal meeting, which is hereby fully reproduced).

  9. On 18 June, the Claimant sent the three financial lease agreements and on the following day the Respondent was notified of their attachment to the records.

  10. On 10 July 2014, at 15:00, at the CAAD facilities, the meeting for oral arguments took place, with the representatives of the Claimant and the Respondent reaffirming the positions contained in the documents attached to the records.

II – PRELIMINARY MATTERS

  1. The arbitral tribunal is substantively competent and is regularly constituted, in accordance with articles 2, no. 1, paragraph a), 5, no. 2, and 6, no. 1 of RJAT.

The parties have legal personality and capacity, are legitimated and are duly represented, in accordance with articles 4 and 10 of RJAT and article 1 of Regulation no. 112-A/2011 of 22 March.

The proceedings are not affected by any defects that would invalidate them.

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

Given the identity of the tax facts and the factual and legal grounds invoked, nothing prevents, in light of the provisions of article 104 of the Tax Code of Administrative Procedure and Process (CPPT) and article 3 of RJAT, the cumulation of claims verified in the present case.

III – FACTUAL MATTERS

  1. Established Facts

Based on the documentary evidence attached to the records, the following facts are considered established:

A) The Claimant is a credit institution which, in the scope of its activity, proceeds to finance the automobile sector through the execution – among others – of financial lease agreements intended for the acquisition by companies and individuals of motor vehicles.

B) The Claimant incorporated the asset portfolio of B..., S.A. Branch in Portugal (B...), which was extinguished in 2007.

C) Due to the fact referred to in the previous paragraph, the Claimant assumed the legal position of B..., namely the agreements relating to the vehicles whose SMT is under discussion in these proceedings.

D) The Claimant was notified of 3 (three) official assessments of Single Motor Vehicle Tax (SMT) relating to the tax period of 2009 concerning 3 (three) vehicles with the registration numbers ..-..-., ..-..-., and ..-..-.., as per the assessment notes contained in the annex to the request for arbitral pronouncement and which are hereby fully reproduced.

E) The Claimant proceeded to voluntary payment of the SMT, as shown in the documents attached as annex to the request for arbitral pronouncement.

F) The Claimant was the owner and lessor of the vehicles identified in paragraph D) according to the movable financial lease agreement no. ..., of 15 October 2003, for a term of 60 months, concerning the vehicle with registration number ..-..-.; the movable financial lease agreement no. ..., of 15 February 2003, for a term of 60 months, concerning the vehicle with registration number ..-..-..; and the movable financial lease agreement no. ..., of 15 August 2002, for a term of 72 months, concerning the vehicle with registration number ..-..-.

G) The Claimant presents copies of the sales invoices/receipts of the vehicles for which payment of the SMT was pending with a date prior to that to which the tax relates (invoice/receipt issued on 13/10/2008 relating to the vehicle with registration number ..-..-.; invoice/receipt issued on 13/10/2008 relating to the vehicle with registration number ..-..-..; and invoice/receipt issued on 13/08/2008 relating to the vehicle with registration number ..-..-.) and which are contained in the documents attached as annex to the request for arbitral pronouncement and which are hereby fully reproduced.

H) The purchasers of the vehicles referred to in the previous paragraph had not, at the date of the tax events, made the acquisition registrations with the Motor Vehicle Registration Office, so that, in its database, the Claimant continued to appear as the owner thereof.

  1. Unproven Facts

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

IV – LEGAL MATTERS

  1. In view of the matters contained in these proceedings, the central question to be examined is whether, for the purposes of the provisions of article 3, no. 1, of the Single Motor Vehicle Tax Code (SMVTC), the taxable person liable for the SMT is the lessor or the new owner if it has been verified that, at the date of the occurrence of the tax-triggering event, the vehicle had been previously sold but remains registered in the name of the lessor (its former owner).

  2. The factual matter is settled (see above no. 12) and we will now determine the applicable law to the underlying facts in accordance with the question already stated (see above no. 14).

  3. The arbitrator in the present proceedings has already delivered two arbitral decisions in cases no. 174/2014-T and 120/2014-T regarding an identical question to that presented in these proceedings. The submission of the same substantive question in a new proceeding may always result in a modification of the position previously adopted, because from the new adversarial process may result a deeper analysis and a reconsideration of the legal matter.

  4. From these proceedings, despite the respect that the argumentative effort evidenced by the Respondent deserves, there are no elements that justify the alteration of the position that I subscribed to in the arbitral decisions delivered in the proceedings identified in the previous no.

  5. Article 3 of the SMVTC states as follows:

"Article 3

Subjective Scope

1- The taxable persons 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- The financial lessees, the buyers with reservation of title, as well as other holders of purchase option rights by virtue of the lease agreement are equated to owners."

It is important to clarify whether the provision contained in no. 1 of article 3 of the SMVTC admits or not that the person, in whose name the vehicle is registered in the Motor Vehicle Registration Office, may 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, avoid the tax obligation that rests on them.

No. 1 of article 3 of the SMVTC does not use the term "are presumed", which appeared in the now extinct Motor Vehicle Tax Regulation, and replaced it with "being considered". Does this semantic alteration by the legislator, having chosen the term "being considered", make the existence of a presumption impossible?

The literal interpretation of no. 1 of article 3 of the SMVTC alone cannot be considered entirely determinative and should be accompanied by other elements that reveal the true meaning of the provision under analysis.

  1. Presumptions are defined, under the terms of article 349 of the Civil Code, as "...deductions that 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 provisions on tax scope always admit contrary evidence.

The provision of no. 1 of article 3 of the SMVTC has the structure of a presumption provision as defined in the Civil Code. In effect, it is verified that the law draws from the known fact, namely, the ownership of the vehicle contained in the motor vehicle register, the presumption about the taxable person who must bear the burden of the SMT. However, it will always be possible for the person listed in the register to avoid the application of the provision, provided they prove that the contributory capacity that 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 event.

In summary, the provision of no. 1 of article 3 of the SMVTC contains a presumption of subjective tax scope regarding the owner of the vehicle as registered with the Motor Vehicle Registration Office, which obviously does not preclude the possibility of contrary evidence.

  1. Presumptions of tax scope may be rebutted through the means provided for in article 64 of the CPPT or, alternatively, by way of gracious complaint 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 tax scope of the SMT that supports the tax assessments whose annulment constitutes the object of the request, as it is a matter that falls within the competence of this arbitral tribunal, in accordance with articles 2 and 4 of RJAT.

  1. In these proceedings, the vehicles for which payment of the SMT was pending were sold at a date prior to that to which the tax relates, but the purchasers of said vehicles had not, at the date of the tax events, made the acquisition registrations with the Motor Vehicle Registration Office, so that, in its database, the Claimant continued to appear as the owner thereof (see paragraphs G) and H) of point no. 12.)

Due to the execution of the purchase and sale agreement, the full owner comes to be covered directly by no. 1 of article 3 of the SMVTC.

According to jurisprudence, it is clear that, in light of the provisions of article 408, no. 1, of the Civil Code, the creation or transfer of real rights over a determined thing is given by the mere effect of the contract, except for the exceptions provided for in law. This is the case of the purchase and sale agreement of a motor vehicle (articles 874 and 879, paragraph a) of the Civil Code), which does not depend on any special formality and is valid even when executed verbally.

The right of ownership of motor vehicles is subject to registration, under the terms provided for in Decree-Law no. 54/75, of 12 February, as subsequently amended, and whose purpose, in accordance with article 1, no. 1, is to "...give publicity to the legal situation of motor vehicles and their trailers, with a view to the security of legal commerce".

Non-registration does not affect the validity of the purchase and sale agreement, but only its effectiveness, and even then, only vis-à-vis third parties in good faith for registration purposes.

  1. In the factual circumstances that are the object of these arbitral proceedings, it results that the sale of the vehicles in question was effected in the year 2008, that is, in a year prior to that to which the tax relates (year 2009). From the elements contained in the records, it is verified that, at the date of the exigibility of the tax to which the assessments in question relate, the Claimant was not the owner of the identified vehicles, as their respective transfer of ownership had already previously occurred, in accordance with civil law.

The means of proof presented by the Claimant, constituted by copies of sales invoices/receipts (see paragraph G) of no. 12.), enjoy the presumption of truthfulness conferred on them under the terms of no. 1 of article 75 of the General Tax Law. Thus, these documents appear to be suitable and have sufficient force to rebut the presumption on which those assessments are based. Moreover, the Respondent did not argue facts that, if they fall within the paragraphs of no. 2 of article 75 of the General Tax Law, would remove the presumption of truthfulness regarding said documents.

  1. As a consequence of the foregoing, the assessments that are the object of the present arbitral proceedings 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 compensatory interest, under article 43 of the General Tax Law.

Under the terms of the provision of no. 1 of article 43 of the General Tax Law, compensatory interest is owed "when it is determined, in a gracious complaint or judicial challenge, that there was an error attributable to the services that resulted in payment of the tax debt in an amount greater than that legally due." As follows from article 24, no. 5 of RJAT, the right to the aforementioned interest may be recognized in the arbitral proceedings.

  1. The right to compensatory interest referred to in the General Tax Law provision presupposes that tax was paid in an amount greater than that due and that this results from an error, of fact or of law, attributable to the services of the TA. In the present case, even though it is recognized that the tax paid by the Claimant was not due, it is not apparent that, in its origin, there is an error attributable to the TA. In promoting the official assessment of the SMT, the TA limited itself to complying with the provision of no. 1 of article 3 of the SMVTC and attributed the quality of taxable person of this tax to the persons in whose names the vehicles are registered.

No. 1 of article 3 of the SMVTC has the nature of a legal presumption, from which it follows, for the TA, the right to assess and exact the tax from these persons, without need to prove the facts that lead to it, as expressly provided in no. 1 of article 350 of the Civil Code.

  1. The Respondent in its response considers that, foreseeing the possibility of the Claimant's claim being judged as well-founded, it should not be condemned to costs, because it did not give rise to the dispute.

Article 527 (General Rule on Costs) of the Code of Civil Procedure (CCP) provides as follows:

"1 — The decision that judges the action or any of its incidents or appeals condemns the party that gave rise to the costs or, if there is no judgment on the merits of the action, whoever took advantage from the proceeding to pay costs.

2 — The party that loses the action, in the proportion in which it loses, is understood to give rise to the costs of the proceeding.

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

The Arbitral Tribunal, under the terms of the foregoing, judged the Claimant's claim to be well-founded and, therefore, in accordance with nos. 1 and 2 of article 527 of the CCP, applicable by virtue of paragraph e) of no. 1 of article 29 of RJAT, the responsibility for payment of the arbitral fee is unequivocally that of the Respondent.

V – DECISION

In accordance with the foregoing, it is decided:

  1. To judge the request for arbitral pronouncement well-founded with respect to the rebuttal of the presumption of subjective tax scope of the SMT 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 restore the tax improperly paid;

  2. To judge the request ill-founded with respect to the recognition of the right to compensatory interest in favor of the Claimant;

  3. To condemn the Respondent to pay the costs of the present proceeding.

The value of the case is set at € 125.00 (one hundred and twenty-five euros), under the terms provided for in article 97-A, no. 1, paragraph a), of the CPPT, applicable by virtue of paragraphs a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulation on Costs in Tax Arbitration Proceedings.

The arbitration fee is set at € 306.00 (three hundred and six euros), under the terms of Table I of the Regulation on Costs of Tax Arbitration Proceedings (RCPAT), to be paid entirely by the Claimant, under the terms of article 22, no. 4, of RJAT.

Notify.

Lisbon, Administrative Arbitration Centre, 29 August 2014

The Arbitrator,

Olívio Mota Amador

Frequently Asked Questions

Automatically Created

Who is liable for IUC vehicle tax on leased cars in Portugal: the lessor or the lessee?
Under Portuguese IUC tax law, liability for leased vehicles depends on the lease status. During an active financial leasing contract, the lessee (user) is generally liable for IUC as they have possession and use of the vehicle. However, once the vehicle is sold by the lessor, the new owner becomes liable, even if registration has not been transferred. In Process 140/2014-T, CAAD addressed this issue where the lessor remained registered as owner despite having sold the vehicles.
Can legal presumptions of vehicle ownership be rebutted for IUC tax purposes in Portugal?
Yes, legal presumptions of vehicle ownership based on registration records can be rebutted for IUC tax purposes in Portugal. In this CAAD arbitration decision, the claimant successfully challenged IUC assessments by providing documentary evidence (sales invoices and receipts) proving the vehicles had been sold prior to the tax period, despite remaining registered in the company's name. This demonstrates that the Portuguese tax arbitration system allows taxpayers to overcome administrative presumptions with substantive proof of actual ownership transfers.
How does CAAD tax arbitration handle disputes over IUC vehicle tax assessments?
CAAD tax arbitration handles IUC vehicle tax disputes through a formal legal process under the RJAT framework. In Process 140/2014-T, the procedure included: filing an arbitration request, appointment of an arbitrator by the Deontological Council, submission of the Tax Authority's response, documentary evidence submission, arbitral tribunal meetings, and oral arguments. The process took approximately five months from initial filing to oral arguments, providing an alternative to traditional court litigation for resolving IUC assessment disputes.
What is the subjective incidence rule for IUC tax on vehicles under financial leasing contracts?
The subjective incidence rule for IUC tax on financial leasing contracts is governed by Article 3(1) of the Single Motor Vehicle Tax Code (CIUC). This provision determines who qualifies as the taxable person liable for payment. The rule creates a rebuttable presumption that the registered vehicle owner is liable, but as demonstrated in Process 140/2014-T, this presumption can be overcome when evidence shows the vehicle has been sold or transferred, even in the context of terminated financial lease agreements where registration has not been updated.
Can a company request annulment of IUC tax assessments through Portuguese tax arbitration?
Yes, companies can request annulment of IUC tax assessments through Portuguese tax arbitration under the RJAT framework. In Process 140/2014-T, A... S.A. successfully initiated arbitration proceedings before CAAD to challenge three IUC assessments totaling €125. The company requested a declaration of illegality and annulment of the assessments plus reimbursement with compensatory interest. This case demonstrates that tax arbitration provides an accessible mechanism for companies to contest IUC assessments they consider unlawful, offering a faster alternative to traditional administrative courts.