Process: 16/2018-T

Date: June 25, 2018

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 16/2018-T) addresses the critical question of who bears IUC (Imposto Único de Circulação - Motor Vehicle Circulation Tax) liability for vehicles under financial leasing contracts in Portugal. A leasing company challenged four IUC assessment acts totaling €446.60, arguing that the Tax Authority (AT) incorrectly identified it as the taxable person. The claimant contended that under Portuguese law, IUC is an environmental and road infrastructure tax based on the principle of equivalence, targeting those with actual use and potential pollution capacity of vehicles. In financial leasing arrangements, the legal ownership remains with the lessor (leasing company), but exclusive enjoyment and economic ownership belong to the lessee. The claimant argued that the CIUC (IUC Code) correctly places tax liability on the user who has the right to use the vehicle—the financial lessee—not the legal owner who never enjoys the vehicle. The case was brought under RJAT (Legal Framework for Arbitration in Tax Matters) after the leasing company paid the tax and sought reimbursement plus compensatory and indemnity interest under Article 43 of the General Tax Law. The company supported its position with legal opinions emphasizing that IUC's environmental component requires taxation of the actual polluter, not the nominal owner. This arbitration highlights the intersection of financial leasing regulations, environmental tax policy, and subjective tax incidence principles in Portuguese tax law, with significant implications for the automotive financing sector.

Full Decision

ARBITRAL DECISION

Report:

A..., S.A., a legal entity no. ..., with registered office at Rua ..., ...-... Lisbon (hereinafter referred to as the "Claimant"), filed a request for arbitral pronouncement and constitution of a singular arbitral tribunal on 10 January 2018, pursuant to the provisions of article 4 and no. 2 of article 10 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as "RJAT"), in which the Tax and Customs Authority (hereinafter referred to as the "Respondent" or "AT") is the defendant.

The Claimant seeks in the said request for arbitral pronouncement that the following be:

  • Declared as illegal and consequently annulled the 4 assessment acts relating to the Tax on Motor Vehicle Circulation (IUC) concerning the 4 vehicles identified in the proceedings; and consequently the AT be condemned,

  • To the Reimbursement of the amount of € 446.60, relating to the tax and compensatory interest wrongfully paid by the Claimant; and

  • To the Payment of Indemnity Interest, for the loss of said amount of € 446.60, pursuant to article 43 of the General Tax Law.

The request for constitution of the Singular Arbitral Tribunal was accepted by the President of CAAD on 11 January 2018, and served upon the Respondent.

The Claimant did not appoint an arbitrator, whereupon, pursuant to the provisions of subparagraph a) of no. 2 of article 6 and subparagraph b) of no. 1 of article 11 of the RJAT, the President of the Ethics Council of CAAD appointed the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the appointment within the applicable period and the parties did not manifest refusal of the appointment, pursuant to article 11, no. 1 subparagraphs a) and b) of the RJAT and article 7 of the Code of Ethics.

On 20 March 2018 the arbitral tribunal was constituted.

Notified for this purpose on 20 March 2018, the Respondent presented, on 26 April 2018, its Response, having sent a copy of the administrative file on the same date.

The arbitral hearing provided for in article 18 of the RJAT and the written pleadings were waived.

On 29 May 2018 the deadline for publication of the final decision was set until 2 July 2018.

The Claimant sustains its request, in summary, as follows:

The Claimant is a credit institution with strong presence in the national market and, among its areas of activity, special relevance is assumed by financing to the automobile sector.

The financial leasing contracts it concludes are intended for the acquisition, by companies and individuals, of motor vehicles and follow, essentially, a common script, typical of this type of financing: the Claimant, after being contacted by the customer, acquires the vehicle from the supplier indicated to it by the customer, and proceeds thereafter to its delivery to said customer – who thus assumes the quality of lessee.

During the period that shall be stipulated in the contract, this lessee maintains the temporary enjoyment of the vehicle – which remains the property of the Claimant – by means of remuneration to be paid to the Claimant in the form of rent; and may acquire the vehicle, at the term of the contract, by payment of a residual value.

The vehicle subject to the contract remains at all times, during the validity of the contract, in the exclusive enjoyment of the customer/lessee.

The motor vehicles identified in the proceedings were subject to Financial Leasing Contracts.

Such leasing was in force, according to the Claimant, in the year (or, more specifically, in the relevant month of the year) in which the obligation to pay the IUC associated with the respective vehicle fell due.

On that date and, moreover, during the entire period in which the aforementioned Contracts were in force – as occurs in any contract of this nature – the use of the respective motor vehicles was always exclusively the responsibility of the lessee.

Its (legal) ownership belonged to the Claimant, as the lessor entity; however, it never enjoyed, as it alleges, the vehicles, which were, from the moment of their acquisition, being used (only and exclusively) by the lessees.

The Claimant was notified to proceed with payment of the IUC to which the additional assessment acts identified in the proceedings relate, which it duly did.

Through the aforementioned additional assessment acts, the Tax and Customs Authority came to demand payment of the outstanding IUC from the Claimant here, even knowing – or being obliged to know, according to the Claimant, since financial leasing is subject to registration at the Commercial Registry – that, on these particular motor vehicles, financial leasing contracts were in force, and knowing even the identity of the lessees.

For all vehicles identified in the proceedings, in the month of registration, the aforementioned leasing contract was in force.

The Claimant cannot, therefore, be considered the respective passive subject.

In coming to demand the outstanding tax from the Claimant here, the AT acts on a basis which seems wrong to it: that the lessor entity of a particular automobile is, in light of the Code of the Tax on Motor Vehicle Circulation (CIUC), responsible for its payment, that is, it is the passive subject of this tax.

The IUC is the tax that aims to burden taxpayers for the environmental and road cost associated with them, in a logic of equivalence and tax equality.

Thus, regarding this tax, the legislator opted, according to the Claimant, to burden the passive subject not in accordance with (and to the extent of) its wealth – moving away from the principle of contributive capacity – but rather in the just measure of the cost to the environment and to the road infrastructure that that passive subject, through the use of motor vehicles, can generate.

Underlying this rule of incidence is the assumption of the potential for use of motor vehicles: it is precisely because it has at its disposal the right to use a vehicle – which generates a certain level of pollution, wear of roads, etc. – that that passive subject has an increased potential to cause damage to the environment and infrastructure, damage that justifies, from an economic-legal point of view, its taxation under IUC.

In fact, and as is well-known, the weight of the environmental component, in the tax under consideration, is very significant.

The determining criterion for taxation is no longer (exclusively) engine capacity, but rather flows from "indicators of the polluting capacity of a vehicle", and it is true that, "as a structuring and unifying element of these categories, the principle of equivalence is enshrined".

The Claimant raises and transcribes an Opinion made at the request of "B...", which it attaches to the proceedings, by Diogo Leite de Campos to support its position.

In financial leasing, acquisition with reservation of ownership, etc. – the legislator opted, therefore, and (in the Claimant's opinion) well, to burden with the obligation to pay tax not the owners, but the individuals who have exclusive enjoyment (potential for use) of the automobiles: financial lessees, acquirers with reservation of ownership or lessees with option to purchase.

Something that, moreover, is in conformity with the assumption underlying this tax, which was referred to above: the potential capacity for pollution associated with the use of the motor vehicle on which the taxation is based.

In a financial leasing contract, no doubts remain, according to the Claimant, that the right to use the property is withdrawn from the respective owner – who, in this respect, is assumed as lessor – to be incorporated into the sphere of the lessee.

Indeed, in financial leasing contracts it is the lessee who has exclusive enjoyment of the leased property.

This one holds the economic ownership of the property, so to speak, with the lessor having nothing more than its legal ownership.

In accordance with no. 2 of article 3 of the IUC Code, the rule is very simple according to the Claimant: with exclusive enjoyment of the motor vehicle subject to the contract falling to the lessees, the obligation to pay the tax also falls to them.

With respect to financial leasing, it is then evident, according to the Claimant: recognizing it the legislator itself as "user of the leased vehicle" (see article 19), there is no doubt that the lessee should bear the responsibility for indemnifying the costs (environmental and road-related) associated with the potential use of the respective vehicle.

And this rule is, according to the Claimant, the one that appears most consistent, precisely from the point of view of the ratio of the law, to which reference was made above: knowing in advance that the IUC aims to impute to taxpayers the responsibility asserted against them by the potential use of motor vehicles – as regards the environmental and road costs that such use entails – it cannot fail to be the burden of whoever actually causes such costs, which cannot fail to be the person to whom belongs the right to use the vehicle in question.

Thus, being subject to financial leasing contracts, the motor vehicles whose IUC assessment the Claimant contests were not, at any moment, used by the Claimant, but rather by their respective lessees.

Considering that, with respect to all and each of the cases better identified in the list attached to the proceedings, this was the case – the motor vehicles were already in the possession of their respective lessees at the end of the month of registration or, in the case of the year of registration of the vehicle, ninety days after the date of registration – without exception, it should necessarily be concluded, according to the Claimant, that the responsibility for assessment of the tax belonged not to the lessor entity but to the lessees.

Lessees whose identity is known to the AT according to the Claimant; indeed, in compliance with the provisions of article 19 of the IUC Code, it is promptly and timely informed of the existence of said leasing contract, as well as of the identity (notably, tax identification number) of the "user of the leased vehicle" (see article 19), and, even if this were not the case, the truth is that the said lessee is equally, moreover, perfectly identified with the Motor Vehicle Registry Conservatory.

And there is not even, according to the Claimant, any hint that the legislator intended to burden the lessor entity with the responsibility – subsidiary, joint, joint and several or any other – for payment of the tax, whenever a lessee exists.

Had that been the legislative intention, some expression would have had to be inserted into the legal text to indicate it – the hermeneutic rules in force, according to the Claimant, rule out any interpretation that does not have the minimum correspondence with the letter of the law.

It follows for the Claimant that it is not a passive subject of IUC with respect to the financial leasing contracts of which it is a party, being, therefore, absolutely illegal the additional assessment acts of which it was the object, better identified in the list attached to the proceedings.

This has been decided, systematically, the Claimant referring to several CAAD decisions on the subject in question in the proceedings, namely those of processes 170/2013-T, 256/2013-T, 286/2013-T, 45/2014-T, 60/2014-T, 129/2014-T, 136/2014-T, 221/2014-T, 222/2014-T, 225/2014-T, 228/2014-T, 229/2014-T, 230/2014-T, 232/2014-T, 235/2014-T, 645/2014-T, 655/2015-T, 371/2015-T, etc.

The mentioned assessments are the exclusive and sole responsibility of the AT, which, thus, cannot fail to be responsible for the payment of indemnity interest and for the assumption of arbitral costs.

The Respondent replied sustaining the lack of merit of the request for arbitral pronouncement and alleging, in summary, that:

Even if it were concluded that we are dealing with financial leasing contracts granted by the Claimant, the latter would always have had to demonstrate having complied with the accessory obligation imposed by article 19 of the CIUC.

Since, even if the thesis defended by the Claimant were accepted regarding the fact that article 3 of the CIUC enshrine a rebuttable presumption, it would be concluded that the same equally depends on compliance with the provisions of article 19 of the CIUC, as can be inferred from its literal element ("for purposes of article 3 of this code (...)"). Consequently, the intended rebuttal of article 3 here in question would necessarily have to fail, according to the Respondent.

The AT alleges that when consulting the Motor Vehicle Registry Conservatory, it is verified that the Claimant appears as owner of the motor vehicles, as stated in the administrative file and as the Claimant itself assumes in article 19 of the arbitral request.

The Respondent alleges that the Claimant has a skewed reading of the letter of the law since no. 1 of article 3 of the CIUC establishes that "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".

The tax legislator, according to the AT, in establishing in article 3, no. 1 who are the passive subjects of the IUC expressly and intentionally established that these are the owners (or in the situations provided for in no. 2, the persons mentioned there), being considered as such the persons in whose names the same are registered.

No presumption was established there.

Indeed, according to the AT, the tax regulation is full of provisions analogous to that enshrined in the final part of no. 1 of article 3, in which the tax legislator, within its freedom of legislative configuration, expressly and intentionally, establishes what should be considered legally, for purposes of incidence, of income, of exemption, of determination and of periodization of taxable profit, for purposes of residence, of location, among many others.

Exemplifying with articles 2 of the Code of the Municipal Tax on Onerous Transfers of Real Estate (CIMT), 2, 3 and 4 of the Code of the Tax on Income of Natural Persons (CIRS) and 4, 17, 18 and 20 of the Code of the Tax on Income of Legal Persons (CIRC).

The AT alleges that the Claimant did not attach any document proving the transfer of ownership of the vehicle, limiting itself to attaching a copy of the financial leasing contracts, not knowing if the same were complied with or if there are breaches, challenging them.

Not having the Claimant complied with that obligation, it is necessary to conclude that it is the passive subject of the tax.

Thus, not having the Claimant complied with the burden of proof that was imposed on it and finding now the breach of the declarative obligation required by article 19 of the CIUC, two consequences (intra and extra-procedural) must necessarily be drawn from its omissive behavior: On the one hand, its responsibility for arbitral costs relating to the present request for arbitral pronouncement, given that the failure to provide the data inevitably gave rise to the issuance on the part of the assessments sub judice, in the terms better explained in a separate chapter. And, on the other hand, upon the determination of its responsibility in terms of contraventions in light of article 117, in conjunction with article 26 no. 4, both of the General Regime of Tax Offenses, punishable by a fine of € 300.00 to € 7,500.00 for each of the financial leasing contracts.

Nevertheless, the Claimant alleging to have concluded financial leasing contracts, it is certain that it is responsible for payment of the respective IUC, since it did not communicate the existence of financial leasing to which article 19 of the CIUC refers.

In the context of process no. 210/13.0BEPNF, the Administrative and Tax Court of Penafiel accepted the position endorsed by the Respondent.

It is imperative to conclude that, according to the Respondent, in the case of the present proceedings for arbitral pronouncement, the legislator expressly and intentionally established that they are considered as such [as owners or in the situations provided for in no. 2, the persons mentioned there] 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 here a presumption would unequivocally be to carry out an interpretation contrary to law.

Also, invokes the Respondent, the systematic element of interpretation of the law demonstrates that the solution propounded by the Claimant is intolerable, finding no support in the law for the understanding endorsed by it.

From the articulation between the scope of the subjective incidence of the IUC and the fact constitutive of the corresponding tax obligation it follows unequivocally that only legal situations subject to registration (without prejudice to the permanence of a vehicle in national territory for a period exceeding 183 days, provided for in no. 2 of article 6) give rise to the birth of the tax obligation.

The moment from which the tax obligation is constituted presents a direct relationship with the issuance of the registration certificate, in which must appear the facts subject to registration (See articles 4/2 and 6/3 of the CIUC, article 10/1 of Decree-Law 54/75, of 12 February, and article 42 of the Motor Vehicle Registration Regulation).

In the same sense operates the legislative solution adopted by the tax legislator in article 3/2 of the CIUC in making the equiparisons enshrined there coincide with the situations in which motor vehicle registration obliges their registration.

In order to assess the IUC, the Respondent consults the databases, both of the Institute of Land Transport Mobility (IMTT) and of the Institute of Registration and Notary/Motor Vehicle Registry Conservatory (IRN), as a way to determine the owners or financial lessees, acquirers with reservation of ownership or holders of the right of option to purchase, passive subjects of the IUC in light of the provisions of article 3 of the CIUC, in conjunction with article 6 of the same code.

Determined the passive subject of IUC according to the persons in whose names the vehicle in question is registered with the Motor Vehicle Registry Conservatory, the Respondent proceeds to assess the IUC with respect to these.

After assessing the IUC, the passive subject in question comes to invoke on the basis of the conclusion of a contract (which, note, can even be of a merely verbal nature) that it is no longer the owner of the vehicle or that it gave the vehicle on financial lease, but did not proceed with registration and that the passive subject is another.

If the position defended by the Claimant were accepted (that article 3 of the CIUC can never be interpreted in the sense of intending to tax only whoever appears in the registration as owner, since registration is merely an appearance of reality), the Respondent would have to proceed to assess the IUC with respect to that other person identified by the person appearing in the motor vehicle registration to whom it had first assessed the IUC (or not, since it would suffice for the latter to move away from its quality as passive subject at the date of the tax event)

In turn, after assessing the IUC with respect to that other person, this one could also allege and prove that it had meanwhile already concluded a purchase and sale contract, financial leasing, long-term rental, or other with another third party, but that this one also did not register it.

The Respondent would then have to re-assess the IUC against that other (presumable) passive subject and so on successively... and indefinitely...

Even placing in question the statute of limitations of the tax.

And putting in question, unequivocally, legal certainty and security.

It also matters to demonstrate that in light of a teleological interpretation of the regime enshrined throughout the CIUC, the interpretation propounded by the Claimant in the sense that the passive subject of the tax is the effective owner, regardless of not appearing in the motor vehicle registration the registration of that quality, is manifestly wrong.

And it is a wrong interpretation in that it is the very ratio of the regime enshrined in the CIUC that constitutes clear proof that what the tax legislator intended was to create a tax based on the taxation of the owner of the vehicle as it appears in the motor vehicle registration.

Indeed, the CIUC carried out a reform of the motor vehicle taxation regime in Portugal, substantially altering the automobile taxation regime, with the passive subjects of the tax becoming the owners appearing in the property register, regardless of the circulation of the vehicles on public roads.

That is, the IUC came to be owed by the persons who appear in the register as owners of the vehicles.

Concluding, thus, the Respondent that the tax acts in question do not suffer from any defect of violation of law, in that in light of the provisions of article 3 of the CIUC and article 6 of the same code, it was the Claimant, in the capacity of owner, the passive subject of the IUC.

Being, according to the Respondent, by virtue of the provisions of article 3 of the CIUC and article 6 of the same code, the Claimant, in the capacity of owner appearing in the Motor Vehicle Registry Conservatory, the passive subject of the IUC.

Hence the entire reasoning propounded by the Claimant is marred by error, it not being possible to rebut the legal presumption established, in accordance with the position endorsed by the Respondent.

However, even if this were not so – which the Respondent only admits as a mere academic hypothesis – and accepting that the rebuttal of the presumption is admissible in light of the jurisprudence already established in this arbitration center, it will also be necessary to assess the documents submitted by the Claimant and their probative value with a view to such rebuttal.

The Respondent questions whether the financial leasing contracts would constitute sufficient evidence to undermine the (supposed) legal presumption established in article 3 of the CIUC.

According to the Respondent, the answer is negative and it challenges for all legal purposes the Documents.

Being that the Claimant makes no proof as to the actual option of acquisition of the vehicle just listed at the term of the financial leasing contract, since it limited itself to attaching a copy of the financial leasing contract according to the Respondent.

Furthermore, if it were concluded that we are dealing with a financial leasing contract granted by the Claimant, the latter would always have had to demonstrate having complied with the accessory obligation imposed by article 19 of the CIUC.

According to the Respondent, the Claimant does not demonstrate that it complied with this obligation, wherefore the intended rebuttal of article 3 here in question must necessarily fail.

This means, therefore, that the IUC is assessed in accordance with the registration information timely transmitted by the Institute of Records and Notary not having the Claimant taken care of the update of the motor vehicle registration, as it could and should have [article 5/1-a) of Decree-Law 54/75, of 12 February, and article 118/4 of the Traffic Code], and not having had the vehicle registrations here in question cancelled, it is necessary to conclude that the Claimant did not proceed with the diligence required of it.

Therefore, it was not the Respondent who gave rise to the filing of the request for arbitral pronouncement, but the Claimant itself.

The same reasoning applies with respect to the request for condemnation to the payment of indemnity interest and costs formulated by the Claimant.

Order in Limine:

2.1. The Tribunal is competent and is regularly constituted, pursuant to articles 2, no. 1, subparagraph a), 5 and 6, all of the RJAT.

2.2. The parties have legal personality and capacity, are legitimate and are represented, pursuant to articles 4 and 10 of the RJAT and 1 of Ordinance no. 112-A/2011, of 22 March.

2.3. There are no nullities that affect the entire proceedings, hence it is necessary to rule on the merits of the case.

2.4. The cumulation of claims is admitted pursuant to articles 3 of the RJAT and 104 of the Code of Administrative Procedure (CPPT) having regard to the identity of tax facts, of the court competent for the decision and of the grounds of fact and law.

Factual Matters (Findings of Fact):

It is for the tribunal to select the facts that matter for the decision of the case and to distinguish the proven from the unproven facts (in accordance with article 123, no. 2, of the CPPT and article 607, no. 3 of the Civil Procedure Code, applicable ex vi article 29, no. 1, subparagraphs a) and e), of the RJAT).

Thus, the facts relevant to the judgment of the case are chosen and outlined according to their legal relevance, which is established with regard to the various plausible solutions of the question(s) of law (in accordance with the former article 511, no. 1, of the CPC, corresponding to the current article 596, applicable ex vi article 29, no. 1, subparagraph e), of the RJAT).

Thus, having regard to the positions assumed by the parties, the documentary evidence and the elements contained in the Administrative File attached to the proceedings, the following facts were considered proven, with relevance to the decision:

The Claimant is a credit institution with strong presence in the national market and, among its areas of activity, special relevance is assumed by financing to the automobile sector.

The Additional IUC Assessments, notified to the Claimant and which it paid including compensatory interest, referred to vehicles whose ownership was registered in the name of the Claimant at the date of the tax events – Docs. Nos. 1 to 4 attached with the initial petition:

  • Assessment no. 2017 ... concerning the vehicle with registration ..., in the global amount of € 258.97, paid by the Claimant on 13/10/2017;

  • Assessment no. 2017 ... concerning the vehicle with registration ..., in the global amount of € 33.82, paid by the Claimant on 13/10/2017;

  • Assessment no. 2017 ... concerning the vehicle with registration ..., in the global amount of € 102.34, paid by the Claimant on 13/10/2017;

  • Assessment no. 2017 ... concerning the vehicle with registration ..., in the global amount of € 52.47, paid by the Claimant on 10/11/2017;

The Additional IUC Assessments refer to the year 2017, the months of registration being January with respect to the vehicle with registration ..., January with respect to the vehicle with registration ..., February with respect to the vehicle with registration ... and July with respect to the vehicle with registration ..., in accordance with Docs. Nos. 1 to 4 attached with the request for arbitral pronouncement.

The Claimant concluded, in the capacity of lessor, financial leasing contracts for all vehicles on which the assessments in question are imposed, in accordance with copies of contracts attached as Docs. Nos. 5 to 8:

  • For the vehicle with registration ... a contract was concluded with C... on 13/12/2011, with a term of 84 months from the conclusion of the transaction;

  • For the vehicle with registration ... a contract was concluded with D... on 19/11/2010, with a term of 84 months from the conclusion of the transaction;

  • For the vehicle with registration ... a contract was concluded with E... on 21/01/2011, with a term of 72 months from the conclusion of the transaction;

  • For the vehicle with registration ... a contract was concluded with F... on 04/07/2003, with a term of 72 months;

The financial leasing contracts, considering the duration foreseen for each of the transactions in question in the proceedings, were in force at the date of the fact giving rise to the tax in relation to all the assessments challenged, with the exception of assessment no. 2017..., concerning the vehicle with registration ... – In accordance with Docs. Nos. 4 and 8 attached with the initial petition.

The IUC assessment concerning this vehicle with registration ... with no. 2017 ..., refers to the year 2017, the fact giving rise to IUC corresponding to the date of the anniversary of the registration of July 2017, being property of the Claimant without, on that date, having the leasing contract in force, in accordance with Docs. Nos. 4 and 8 and Annex A attached with the initial petition.

The financial leasing contracts were communicated to the AT through the electronic platform of that entity;

No other facts with relevance to the decision of the case were proven, considering the possible legal solutions.

Substantiation of the Proven and Unproven Factual Matters:

The conviction regarding the factual matters resulted from the documentary support attached to the proceedings and the position assumed by the parties.

Subject Matter and Scope of the Present Proceedings:

The following issues to be decided are put to the Tribunal:

  • Should the 4 assessment acts relating to the IUC concerning the 4 vehicles identified in the proceedings be declared illegal and consequently annulled, with the amounts paid being reimbursed to the Claimant?

  • Does the Claimant have the right to indemnity interest?

  • Can the Respondent be exempted from payment of arbitral costs, with the responsibility in these cases being solely that of the Claimant?

On the Law:

The question underlying the present request for arbitral pronouncement takes into account the IUC assessments that the Claimant paid, plus the respective compensatory interest, in accordance with the attached list and assessments attached to the proceedings, in the total of 4, invoking the circumstance that, at the date to which the tax events that originated them relate, the same were delivered to the respective lessees under financial leasing contracts and, consequently, not assume the quality of the passive subject of the tax that was assessed against it.

To this effect, it will be necessary to determine the subjective incidence of the Tax on Motor Vehicle Circulation, i.e., to determine whether the Claimant should or should not be considered a passive subject of IUC with respect to the vehicles and periods to which the tax relates, duly identified in the annex to the request, since at the date of the tax obligation's due date they were leased under financial leasing contracts.

Regarding this specific question, article 3 of the IUC Code establishes:

"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.

  1. Financial lessees, acquirers with reservation of ownership, as well as other holders of purchase option rights by virtue of a leasing contract are equated to owners".

Subjective Incidence of IUC Following the Termination of the Financial Leasing Contract

The financial leasing contract for the vehicle with registration ... terminated its validity at the end of the 72 months from the date of its conclusion on 4 July 2003, namely July 2009, and the IUC assessment concerning this vehicle, with no. 2017..., refers to the year 2017 and the fact giving rise to IUC corresponding to the date of the anniversary of registration in July 2017, in accordance with Doc. No. 8 attached with the Respondent's response.

The Claimant alleges in its written pleading that all contracts in question, without exception, were in force but there is no element, notably documentary, that permits concluding that the contract was in force or if a purchase option was exercised.

Thus, the fact giving rise to the tax in question refers to the year 2017 date on which the contract was no longer in force, considering the documentary content itself, hence no. 2 of article 3 of the CIUC does not apply, the general rule of no. 1 applying, i.e., the passive subject of the tax is the Claimant accompanying the position of the Respondent in this respect.

Thus, the Claimant's claim to annul assessment no. 2017 ... concerning the vehicle with registration ... is without merit.

Subjective Incidence of IUC During the Validity of Financial Leasing Contracts

This matter has been the subject of decision within the scope of arbitral tribunals functioning at CAAD in general in the sense of the merit of the respective claims, on the grounds that the norm in question, in the wording in force at the date of the facts to which the present request relates, contains a legal presumption that admits proof to the contrary.

The same understanding results from the Judgment of the Central Administrative Court of the South, issued on 19-03-2015, Process 08300/14, available at: www.dgsi.pt, which endorses the referred jurisprudence, when it expressly states that article 3, no. 1 of the CIUC "[…] enshrines a legal presumption that the holder of motor vehicle registration is its owner, and such presumption is rebuttable by virtue of article 73 of the LGT".

This is also our position.

Following what was referred to in decision 43/2014-T, which we follow closely, "it is verified, by way of example, that in articles 243, no. 3, of the Civil Code and 45, no. 6, and 89-A, no. 4, of the General Tax Law, the expression 'shall be considered' is also used, and yet we are dealing with legal presumptions whereby, in accordance with the general norms of interpretation provided for in article 9, no. 2, of the Civil Code, it is considered that the minimum of verbal correspondence is assured, for purposes of the determination of the legislative thought that is objectified in the norm in question – literal element".

That is, both expressions have been used by the legislator without thereby being able to conclude that this one did not want to establish, in fact, a legal presumption, and it cannot be inferred that the change of expression could lead to a different interpretive sense.

On the other hand, as it follows from the aforementioned decision 43/2014-T "within the scope of the elements of interpretation in accordance with article 9 of the Civil Code, it is important to attend to the historical element. Thus, recalling Decree-Law no. 599/72, of 30 December and Decree-Law no. 116/94, of 3 May, as regards subjective incidence, the presumption was foreseen that the passive subjects of IUC are the persons in whose names the vehicles were registered at the date of assessment".

On the other hand, considering the rational and teleological element, the IUC has as its premise the environmental and road cost of the actual use of the automobile. The IUC thus has underlying the principle of equivalence provided for in article 1 of the CIUC, with a view to "burdening taxpayers to the extent of the environmental and road cost that they cause, in realization of a general rule of tax equality".

Thus complying with the constitutional command, provided for in article 66, whereby sustainable development requires that the State ensure "that fiscal policy reconciles development with environmental protection and quality of life" (paragraph h) of no. 2).

Promoting a principle of "polluter-pays", complying with the requirement of material equality among all citizens who cause the environmental cost, thus embodying in the IUC the environmental concerns that fiscal policy imposes.

Thus, also in accordance with this element, article 3, no. 1, of the IUC Code should be interpreted in the sense that there is a true presumption.

Regarding the matter of registration.

Pursuant to article 7 of the Property Register Code, applicable ex vi article 29 of Decree-Law no. 54/75 (Motor Vehicle Registration), which "definitive registration constitutes a presumption that the right exists and belongs to the registered holder in the precise terms in which the registration defines it".

This means that the registration of the right of property of the vehicle has a merely declarative effect and not constitutive of any registered right, hence it is configured as a presumption of the existence of the right, in the terms in which it is registered, which can be rebutted, that is, admits proof to the contrary.

The definitive registration constitutes nothing more than the presumption that the right exists and belongs to the registered holder, in the exact terms of the registration, but a rebuttable presumption, admitting, therefore, contrary proof, as results from the law and jurisprudence, notably citing the Judgments of the Supreme Court of Justice nos. 03B4369 and 07B4528, respectively, of 19/02/2004 and 29/01/2008, available at www.dgsi.pt.

For this reason, and following the arbitral decision within process no. 145/2017-T "the function legally reserved for registration is, thus, on the one hand, that of publicizing the legal situation of the goods, in the case, of the vehicles and, on the other, to allow us to presume that there exists a right over those vehicles and that it belongs to the holder, as such inscribed in the registration, which means that registration does not have a constitutive nature of the right of property, but only declarative, and such presumptions are rebuttable, whether by virtue of the established in no. 2 of article 350 of the CC, whether in light of the provisions of article 73 of the LGT. Hence, from the moment that these presumptions are set aside, by means of adequate proof, the AT cannot persist in considering as a passive subject of the IUC the person in whose name the vehicle remains registered".

There being, notably at the level of the CIUC, no legal provision that attributes to the registration of the vehicle any legal effect, including the condition of validity or effectiveness of the underlying transaction.

In this way, and following the decision issued within process no. 145/2017-T "The interpretation of no. 1 of article 3 of the CIUC, (...), taking into account, particularly, the legal relevance conferred on the principle of equivalence, does not permit the taxation, in IUC, of the lessor who, as the formal owner of the vehicle, thus has no consequent potential for pollution, which means that the damage arising to the community, resulting from the use of motor vehicles should be assumed by their real users, as costs that only they should bear. The lessee, that one, has the full use and enjoyment of the vehicle, as legally established, being its true user and effective generator of environmental damage, and should thus be responsible for the corresponding tax, this being the understanding that, in light of the ratio legis of the CIUC, should be drawn from the provisions of no. 2 of article 3 of that same Code".

"Thus, the interpretation of no. 2 of article 3 of the CIUC will only allow envisaging the lessee as responsible for payment of the IUC, it being important, to this effect, to note the provisions of article 19 of the CIUC, when, precisely, for purposes of the provisions of article 3 of the said Code, that is, for purposes of subjective incidence, it imposes on entities that proceed to financial leasing the obligation to provide the AT with data relating to the fiscal identification of users of leased vehicles, which reveals, namely, that, for purposes of the said incidence, it was intended to know who were, ultimately, the real users of leased vehicles, so that they, and no others, would bear the unique tax on motor vehicle circulation, which, moreover, is shown to be in full harmony with the principle of equivalence, as a structuring principle of the CIUC".

Now, for each of the automobiles in question in the proceedings the Claimant attached the respective leasing contracts which were in force, with the exception of the decision regarding the contract referred to in point 5.1. above, hence, and regardless of what appeared in the register, the Claimant demonstrates that it is the lessor of each of the automobiles (with the exception alluded to) and the same were delivered to third parties under leasing contracts.

This is what we understand based on the proof presented by the Claimant.

The means of proof presented are embodied in the financial leasing contracts which were valid at the date of the IUC obligation's due date, as is proven in the proceedings (with the caveat for the exception alluded to).

Such contracts are suitable means to prove the quality of lessor and lessee, for purposes of the provisions of no. 2 of article 3 of the CIUC, that is, for purposes of its equating to owner of the vehicle and of its consequent binding to the payment of the tax in question. There are indeed no elements that permit understanding that the data recorded in that contract do not correspond to the contractual truth, this Tribunal seeing no reasons to challenge them, it also being certain that the law, in the case, no. 1 of article 75 of the LGT, attributes to that document a presumption of truthfulness that was not set aside.

Thus, as results from decision 179/2016-T, from the provision of no. 2 of article 3 of the CIUC, in conjunction with the cited article 19 of the same Code, there remain no doubts that with the vehicles transferred to third parties under financial leasing or other leasing contracts with option to purchase, the passive subject of this tax will be the lessee and not the respective owner, thus moving away from the rule of subjective incidence of no. 1 of that article, provided that sufficient proof is made to rebut the presumption that it contains.

Furthermore, it is now necessary to verify whether the circumstance provided for in no. 2 of article 3 of the CIUC removes or not the rule of incidence enshrined in no. 1 of the same article, in the event that compliance with the provisions of article 19 of the CIUC was not given.

Until its repeal by subparagraph f) of no. 1 of article 215 of Law no. 7-A/2016, of 30 March, article 19 of the CIUC imposed on the financial lessor of vehicles the obligation to provide to the Directorate-General of Taxes (now, to the AT – Tax and Customs Authority) data relating to the fiscal identification of users of leased vehicles.

It is emphasized that the relevance of non-compliance with such obligation with respect to the incidence of the tax in question has been the subject of various arbitral decisions, it being recalled to this effect the Arbitral Decision issued within Proc. 136/2014-T:

"Indeed, the provision of article 3, no. 2 of the CIUC is quite clear regarding the subjective incidence of the IUC, in the validity of financial leasing contracts, subjecting the lessee to that obligation, when it equates it to the owner for that purpose.

Thus, the law not attributing that obligation to the owner-lessor, there will be no place for any exemption on the part of the latter, with the communication provided for in the said article 19 of the CIUC, for the simple reason of never having been subject to payment of the tax.

The subjective incidence of the IUC is established, in all its elements, in article 3 of the CIUC, and it will be through the application of this provision that the passive subject will be determined, the non-compliance with the mentioned accessory obligation not being relevant for purposes of incidence of the tax."

It is, then, to this jurisprudential orientation that we adhere.

As already concluded, in situations in which the vehicles, at the date of the occurrence of the tax event, are transferred to the lessees, under financial leasing contracts or other leases involving option to purchase, the passive subject of the tax obligation is not the owner-lessor but, pursuant to no. 2 of article 3 of the CIUC, the respective lessee, by virtue of being the one who has the enjoyment of the vehicle. And this occurs regardless of whether or not the provisions of article 19 of that Code were complied with and of the circumstance that the property register remains in the name of the lessor, without the leasing contract having been inscribed therein.

Regarding this aspect, and considering the electronic nature of the communication and basing ourselves on the fact, of general knowledge, that it is frequent for the lack of provision of proofs of the acts that taxpayers practice through the AT's electronic communication platform, we understand we should consider it proven that the Claimant actually complied with the duty incumbent on it by virtue of article 19 of the CIUC.

But even if this were not so, that is, even if that obligation had not been complied with, we follow, as to this aspect, the decision issued in process no. 191/2015-T from which it is extracted that, "for these cases, the legislator instituted an explicit rule, in no. 2 of article 3 of the CIUC, according to which, during the validity of the lease contract, the lessees are the passive subjects of the tax. (…) it will also be asked: what about the communication provided for in article 19 of the CIUC? Does its non-compliance contend with the conclusion in the preceding paragraph regarding the responsible party for payment of the tax? The answer is, in our understanding, negative. Indeed, the consequence that results from the non-compliance with that accessory obligation is what we are witnessing: the AT issues the assessment notes in the name of the owner of the vehicle, by not knowing that the financial leasing contract was concluded. However, this does not prevent that same owner/lessor from proving the conclusion of the contract and the period for which it was concluded and, thus, preventing payment of the tax."

For all this, it will be said, in consonance with what has been set out above, that the assessment acts relating to the vehicles identified in the proceedings are considered illegal, with the exception of the vehicle referred to in point 5.1. above, in that, on the date of the IUC obligation's due date, the financial leasing contracts were valid, the passive subject of the tax being the respective lessee, and not the Claimant, by virtue of the provisions of no. 2 of article 3 of the CIUC.

In light of the foregoing, it is concluded that there is no legal basis for the IUC and compensatory interest assessment acts relating to the vehicles and periods identified in the annex to the request for arbitral pronouncement, with the exception of the above-mentioned regarding the IUC assessment concerning the vehicle identified in point 5.1., which at the date of the tax obligation's due date were transferred to the respective lessees under leasing contracts with option to purchase.

Thus, the Claimant's claim to annul the assessments in question in the proceedings is well-founded, with the exception of the above-mentioned assessment.

On the Right to Indemnity Interest

Alongside the annulment of the assessments and consequent reimbursement of the amounts wrongfully paid, the Claimant also requests that the right to indemnity interest be recognized, under article 43 of the LGT.

Pursuant to the provision of article 100 of the LGT, applicable to the case by virtue of the provision of subparagraph a) of no. 1 of article 29 of the RJAT, in which it is established that "The tax administration is obliged, in the event of total or partial merit of complaints or administrative appeals, or of court proceedings in favor of the passive subject, to the immediate and complete restoration of the situation that would have existed if the illegality had not been committed, including the payment of indemnity interest, in the terms and conditions provided for by law."

The case set out in the present proceedings raises the application of the mentioned norms, since as a result of the illegality of the assessment acts, referenced in this proceedings, there must necessarily be place for reimbursement of the amounts paid, both as tax and as compensatory interest, as a way of achieving the restoration of the situation that would have existed if the illegality had not been committed.

Thus, given what is established in article 61 of the CPPT and with the requirements for the right to indemnity interest being met, that is, the existence of error attributable to the services resulting in payment of the tax debt in an amount higher than legally due, as provided for in no. 1 of article 43 of the LGT, the Claimant has the right to indemnity interest at the legal rate, counted from the date of payment relating to each of the annulled assessments.

On Responsibility for Payment of Arbitral Costs:

Pursuant to article 527, no. 1 of the Civil Procedure Code, ex vi 29, no. 1, e) of the RJAT, it is established that the party that gave rise to them shall be condemned in costs or, if there is no judgment of the action, whoever derived profit from the proceedings.

No. 2 of the referred article specifies the expression "gave rise to them" by understanding it as the losing party, in the proportion in which it is defeated.

Considering that the request for arbitral pronouncement was partially successful, it is understood that the parties must bear the costs in the proportion of their respective defeat.

Thus, being the total value of the claim € 446.60 and considering that the claim for annulment did not proceed regarding the assessment act above referred to in point 5.1. with no. 2017..., concerning the vehicle with registration ..., in the global amount of € 52.47, the Respondent should be condemned in arbitral costs, in the proportion in which it is defeated, that is, in the amount corresponding to 88%, with the remaining 12% being borne by the Claimant.

Decision:

In these terms, and with the grounds set out, the present Arbitral Tribunal decides:

  • To judge without merit the annulment of the IUC assessment no. 2017..., concerning the vehicle with registration ... .

  • To judge with merit, as proven, on the grounds of violation of law, the request for arbitral pronouncement, annulling 3 acts of IUC assessment, concerning the vehicles identified in the proceedings, with the exception of the one referred to in the preceding point;

  • To condemn the AT to reimburse the amounts paid as IUC and compensatory interest, relating to the annulled assessment acts and, for these, to the payment of indemnity interest at the legal rate counted from the date of payment of said amount, until full reimbursement thereof;

  • To condemn the AT and the Claimant to pay the costs of the present proceedings in the proportion of 88% and 12%, respectively.

Case Value:

In accordance with the provisions of articles 306, no. 2 of the CPC and 97-A, no. 1 of the CPPT and 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned a value of € 446.60.

Arbitration Fee:

The arbitration fee is fixed at € 306.00, pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.

Notify accordingly.

Lisbon, 25 June 2018

The Arbitrator

(Marisa Almeida Araújo)

Frequently Asked Questions

Automatically Created

Who is liable for IUC (Imposto Único de Circulação) on vehicles under a financial leasing contract in Portugal?
Under Portuguese law, IUC liability for vehicles under financial leasing contracts falls on the lessee (the party with exclusive use and enjoyment of the vehicle), not the lessor/leasing company that holds legal ownership. The CIUC establishes that the taxable person is the individual or entity with the right to use the vehicle, reflecting the tax's environmental and road infrastructure cost allocation principles. This is based on the potential pollution capacity and actual use, not mere legal ownership. Financial lessees are specifically identified as passive subjects because they have economic ownership and exclusive enjoyment during the contract period.
Can a financial leasing company challenge IUC tax assessments through CAAD tax arbitration proceedings?
Yes, financial leasing companies can challenge IUC assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration proceedings under the RJAT framework. This case demonstrates that leasing companies have standing to contest assessments where the Tax Authority incorrectly identifies them as liable parties. The arbitration process allows companies to seek annulment of illegal assessment acts and claim reimbursement of wrongfully paid taxes plus compensatory and indemnity interest. The CAAD arbitration provides an alternative to judicial courts for resolving tax disputes efficiently, with the President of CAAD appointing arbitrators when parties don't make their own appointments.
What is the subjective incidence of IUC regarding vehicles registered under financial leasing agreements?
The subjective incidence of IUC for financial leasing vehicles is determined by the right to use and exclusive enjoyment, not legal ownership. Portuguese tax law recognizes that in financial leasing, the lessee holds economic ownership and bears environmental and road infrastructure costs through actual vehicle use. The CIUC framework establishes that financial lessees, acquirers with reservation of ownership, and lessees with purchase options are the passive subjects of IUC. This interpretation aligns with the equivalence principle underlying IUC, which taxes based on pollution potential and road wear caused by the party actually using the vehicle, not the entity holding bare legal title.
Are compensatory interest and indemnity interest applicable when IUC is unlawfully charged to a leasing company?
Yes, both compensatory interest and indemnity interest are applicable when IUC is unlawfully charged to a leasing company. Under Article 43 of the General Tax Law (LGT), taxpayers who pay taxes illegally are entitled to indemnity interest for the financial loss caused by the unlawful deprivation of funds. Compensatory interest may also apply for delays in tax assessment or reimbursement processes. In this case, the claimant sought €446.60 in reimbursement plus both types of interest, demonstrating that Portuguese tax law provides comprehensive remedies for wrongful tax collection, protecting taxpayers' financial positions and compensating for the time value of money improperly retained by the Tax Authority.
How does Portuguese tax arbitration (RJAT) handle disputes over IUC liability between leasing companies and the Tax Authority?
Portuguese tax arbitration under RJAT handles IUC disputes between leasing companies and the Tax Authority through a structured process: the claimant files a request for arbitral pronouncement under Articles 4 and 10 of Decree-Law 10/2011; CAAD's President accepts and appoints an arbitrator if parties don't designate one; a singular arbitral tribunal is constituted (here within approximately two months); the AT submits a response with the administrative file; and parties may waive hearings and written pleadings. The tribunal analyzes whether the AT correctly applied CIUC provisions regarding subjective incidence in financial leasing contexts. This specialized arbitration mechanism provides expertise in complex tax matters, examining contractual relationships, registration records, and the fundamental principles underlying IUC—including environmental policy and the equivalence principle—to determine proper tax liability allocation.