Process: 166/2017-T

Date: November 13, 2017

Tax Type: IUC

Source: Original CAAD Decision

Summary

In CAAD Process 166/2017-T, the arbitral tribunal addressed whether IUC (Imposto Único de Circulação - Single Circulation Tax) liability persists when a vehicle has physically disappeared. The taxpayer challenged a €52.71 IUC assessment for the 2016 taxation period, arguing that their vehicle had disappeared from a repair workshop in December 2013 and could no longer cause environmental or road costs. The applicant relied on a final court judgment establishing that the vehicle vanished from the workshop owner's custody and that they were awarded €2,500 in compensation. The core legal argument centered on Article 2 of the IUC Code, which establishes the tax's objective scope by requiring the existence of vehicles in specified categories. The applicant invoked the equivalence principle underlying IUC, arguing that without the physical vehicle, there could be no environmental or road costs to tax under the polluter-pays principle. The Tax Authority maintained that vehicle registration creates a legal presumption of ownership and liability that persists regardless of the vehicle's physical location or existence. This case raises fundamental questions about whether IUC incidence depends solely on registration formalities or requires the vehicle's continued physical existence. The decision examines the tension between administrative efficiency through registration-based taxation and the substantive tax principle that taxation should correspond to actual environmental and road usage costs. The outcome has significant implications for taxpayers whose vehicles are stolen, destroyed, or otherwise no longer in their possession but remain registered in their name.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. A…, taxpayer no. …, with mailing address at PO Box …, …, …-… Lisbon, requested the constitution of the arbitral tribunal in tax matters with a view to declaring the illegality and consequent annulment of the assessment acts for Single Circulation Tax (IUC), and respective default interest, relating to the taxation period of 2016 and the motor vehicle with registration number …-…-…, in the amount of € 52.00 of tax and € 0.71 of interest, totaling € 52.71.

  2. As the basis of the application, presented on 09-03-2017, the Applicant invokes the illegality of the challenged assessment, alleging, in summary, that they are not the taxpayer in relation to the tax obligation to which the challenged acts relate, since from 2005 the vehicle in question, which was at a repair workshop, disappeared in December 2013, the current location of which is unknown or even whether the vehicle, or the parts that comprised it, still exists.

  3. In response to the request, the Tax and Customs Authority (AT) pronounced on the lack of merit of the present arbitration application, expressing the understanding that the tax act challenged should be maintained in the legal order and, accordingly, the tribunal should rule for the dismissal of the respondent entity.

  4. The application for constitution of the arbitral tribunal was accepted by the Chairman of CAAD and automatically notified to the Tax and Customs Authority on 20 March 2017.

  5. In accordance with the provisions of letter a) of no. 2 of article 6 and letter b) of no. 1 of article 11 of Decree-Law No. 10/2011 of 20 January, as amended by article 228 of Law No. 66-B/2012 of 31/12, the Ethics Committee appointed the undersigned as arbitrator of the single arbitrator tribunal, who communicated acceptance of the appointment within the applicable deadline, and notified the parties of that appointment on 05-05-2017.

  6. Duly notified of that appointment, the parties did not express an intention to challenge the arbitrator's appointment, in accordance with the combined provisions of article 11, no. 1, letters a) and b) of the RRAT and articles 6 and 7 of the Code of Ethics.

  7. Thus, in accordance with the provision of letter c) of no. 1 of article 11 of the RRAT, as amended by article 228 of Law No. 66-B/2012 of 31/12, the single arbitrator tribunal was constituted on 22-05-2017.

  8. Duly constituted, the arbitral tribunal is materially competent, in light of the provision of articles 2, no. 1, letter a), of the RRAT.

  9. The parties have legal personality and capacity and have standing (articles 4 and 10, no. 2, of the RRAT, and article 1 of Ordinance No. 112-A/2011 of 22/03).

  10. Considering that this is essentially a matter of law and given the knowledge derived from the procedural documents in the case, which is deemed sufficient, the Tribunal decided to dispense with the hearing referred to in article 18 of the RRAT.

II. FACTUAL MATTERS

  1. With relevance to the assessment of the issue raised, the following factual elements are highlighted, which, based on the elements comprising this case, are considered proven:

11.1. On 20-06-2016 the Applicant was notified by the Finance Department of Sintra … of the assessment of Single Circulation Tax (IUC) relating to the taxation period of 2016 and the vehicle with registration number …-…-….

11.2. In the assessment, made on 04-06-2016 under no. …, the amounts of € 52.00 of tax and € 0.71 of default interest were determined, with the respective notification stating, as the deadline for voluntary payment, 4 July following (see Docs. 1 and 2).

11.3. On 26 June of the same year, the now Applicant submitted an application for legal assistance, in the form of exemption from court fees and other case expenses and appointment of legal counsel, under Law No. 34/2004 of 29/07 (System of Access to Law and Courts). This fact was duly notified to the competent tax services by registered mail (see Docs. 3 and 4).

11.4. Meanwhile, and in accordance with a judgment rendered on 19-05-2015 in case no. …/13… YXLSB of the District Court of Santarém, local instance of Cartaxo, it was established as proven that:

  • the Plaintiff (now Applicant) is the legitimate owner of the vehicle with registration …-…-…;

  • at the beginning of 2005, on a date that cannot be specified, the P (now Applicant) placed the aforementioned vehicle in a repair workshop belonging to the D and in their care;

  • the D committed to providing bodywork and painting repair services and, given the deteriorated condition of the vehicle, to inform when it would be ready;

  • over time, the P (now Applicant), personally and through relatives and acquaintances, contacted the D multiple times with a view to addressing the vehicle repair;

  • meanwhile, the D kept the workshop closed for about six months, from December 2013, and during that period the vehicle in question disappeared;

  • the D did not report to the police authorities the disappearance of the vehicle.

11.5. In light of the facts established and proven, the D was ordered to pay compensation to the P for the value of the disappeared vehicle with registration …-…-…, fixed at the sum of € 2,500.00.

11.6. The D lodged an appeal against the said judgment, which was dismissed by judgment of the Court of Appeal of Évora dated 09-02-2017.

11.7. As certified and attached to this case, the said judgment was duly notified and became final on 20-03-2017.

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

III. LEGAL MATTERS

  1. In the arbitration application, the Applicant submits for the consideration of this tribunal the assessment act for IUC and default interest relating to the taxation period of 2016 and the vehicle with registration number …-…-…, requesting that its illegality be declared and, consequently, its annulment be ordered.

  2. In the application formulated based on the facts described above, further developed in arguments subsequently submitted, the Applicant alleges that:

"9 ... the Single Circulation Tax is governed by the principle of equivalence, seeking to burden taxpayers to the extent of the environmental and road cost they cause, in implementation of a general rule of tax equality (article 1, of the IUC Code).

  1. The assertion of the principle of equivalence, as a legitimizing principle and as a limit of the Single Circulation Tax, requires that taxpayers be burdened to the extent of the cost they cause to the environment and the road network, this being the reason for the existence of this tax figure, see Explanatory Memorandum of Bill No. 118/X.

  2. It thus appears evident that the Single Circulation Tax is not intended to tax those who do not own any vehicle nor, consequently, produce any "environmental and road cost", not being the "polluter-pays" principle that the legislator intended to tax.

  3. Indeed, the "principle of equivalence", inherent in the principle of equality, requires that taxes be apportioned in accordance with the cost caused by the taxpayer.

  4. However, if the taxable event of such environmental costs and damages does not exist, that is, the motor vehicle, there is no basis for taxation.

  5. In accordance with article 2 of the IUC Code, a rule of objective scope, the tax applies to vehicles in the categories provided therein.

  6. The existence of such vehicles is a sine qua non condition for the determination of the taxable matter and the assessment made.

  7. The loss of the vehicle being proven, the rule of actual scope of the tax is not even fulfilled."

  8. In addition to the reasoning, essentially transcribed above, the Applicant further alleges that although the vehicle in question is registered in their name, they were not its owner during the taxation period to which the challenged assessment relates, a circumstance which, in their view, would rebut the presumption arising from that registration enshrined in the rule of subjective scope of the Single Circulation Tax set out in article 3, no. 1, of the respective Code.

  9. Such presumption would thus be rebutted in light of the facts established as proven in the court judgment, which has become final, to which reference was made above, in particular the disappearance of the vehicle.

  10. Different is the position of the Respondent, who contends that the rule of subjective scope of the IUC, as worded at the date of the facts, does not establish any legal presumption, therefore the owner of the vehicle who appears in the respective register is the taxpayer in relation to the said tax.

  11. In the present case, the Respondent concludes that "As they did not arrange for the cancellation of the registration, it is the Applicant who appears in the vehicle register as the owner of the vehicle, therefore it is they who is responsible for payment of the IUC."

  12. Furthermore, in the view of the Respondent, "the judgment referred to, if it has indeed already become final, only proves that the Applicant, during a certain period of time, did not enjoy the use of the motor vehicle... In fact, the court decision merely acknowledges that the motor vehicle was in a repair workshop and makes no reference to the transfer of the motor vehicle". Therefore, "even if it has already become final, the fact that the Applicant did not enjoy the use of the vehicle in question during that period of time does not mean that it ceases to be their property, since it was proven that it was in a repair workshop, but that it always remained registered in their name in the Vehicle Register and consequently, the Applicant is responsible for tax obligations, namely the payment of the IUC."

  13. Having set out the positions of the parties, essentially contained in the excerpts transcribed above, it is found that the present case concerns the assessment of the possible illegality of the Single Circulation Tax assessment with reference to a vehicle and a taxation period during which it was not in the possession of its respective owner, while remaining, however, registered in their name.

  14. According to the Applicant, the requirements for application, both objective and subjective, of the said tax are not fulfilled: the former due to the non-existence of the taxable vehicle, which has meanwhile disappeared, and the latter because the vehicle was not in their possession during the taxation period in question. For the Respondent, these facts are not relevant, the subjective scope of the tax being defined solely on the basis of the respective vehicle register.

  15. From the facts established in the court judgment and established as proven therein, it is derived, with relevance for the assessment of the merits of the present arbitration application, in summary, that during the 2016 taxation period, the vehicle to which the challenged act relates was not in the possession of the Applicant, its legitimate owner.

  16. In the judgment referred to, this quality of ownership is recognized without any questions being raised about it, a fact which justifies the right of the now Applicant to compensation for the value of the disappeared vehicle to which the Defendant was ordered to pay.

  17. The question that thus arises is whether ownership attested by the vehicle register prevails, for tax purposes, over any other circumstances, in particular the absence of possession for reasons entirely beyond the control of the holder of that right, as the Respondent contends. Or whether, differently, as the Applicant contends, from the principle of equivalence that shapes the system of taxation of vehicles, it follows that it is the possession and use of these that is relevant for the purpose of tax liability in relation to the Single Circulation Tax.

  18. On the question that thus arises, it is important to note that from the explanatory memorandum of Bill No. 118/X of 07 March 2007, which resulted in Law No. 22-A/2007 of 29/06, which approved the Single Circulation Tax Code, it is clear what reasons led the legislator to establish the principle of equivalence as a structuring element of the said tax.

  19. Thus, and according to the said Explanatory Memorandum, it was intended to undertake a "comprehensive and coherent reform of taxes linked to the acquisition and ownership of motor vehicles" in light of the "imperative need to bring clarity and coherence to this area of the tax system and the even more imperative need to subordinate it to environmental and energy principles and concerns that today mark the debate on motor vehicle taxation".

  20. From that stated perspective, "the two new taxes now created, the tax on vehicles and the single circulation tax, are much more than a technical continuation of the figures created in the 70s and 80s that preceded them, primarily aimed at revenue collection, indifferent to the social cost resulting from motor vehicle circulation. They constitute something different, figures of the century in which we live, with which it is intended, certainly, to raise public revenue, but to raise it to the extent of the cost each individual causes to the community."

  21. In keeping with the reasoning stated, the legislator came to enshrine, in article 1 of the IUC Code, the principle of equivalence, clarifying that "the tax, as a whole, is subordinate to the idea that taxpayers should be burdened to the extent of the cost they cause to the environment and the road network, this being the reason for the existence of this tax figure. It is this principle that dictates the burden on vehicles in relation to their respective ownership and up to the moment of scrapping".

  22. This principle is present in the rule of subjective scope of the tax enshrined in article 3 of the Code, which points towards taxing the actual users of vehicles, considering as such their respective owners, on the assumption that, as follows from article 1305 of the Civil Code, they enjoy the rights of use and usufruct.

  23. It is, furthermore, in accordance with that principle that no. 2 of the said article gives relevance to the economic ownership of goods, defining as taxpayers in relation to the tax the respective lessees, in that these are the ones who have the potential to cause environmental costs and costs to the road network.

  24. However, it is emphasized that with reference to taxes whose defining element of subjective scope is the possession, use or ownership of goods, it constitutes an admissible ground for opposition to tax enforcement the substantive lack of standing of the opponent based on the fact that they, despite appearing as debtor in the enforcement title, were not, during the period to which the enforceable debt relates, the possessor of the goods that gave rise to it (See article 204, no. 1, letter b), of the Tax Procedural Code).

  25. As follows from the doctrine accepted by the Supreme Administrative Court, "This is one of the exceptions to the general rule that it is not possible to challenge, in opposition to tax enforcement proceedings, the legality of the assessment that gave rise to the enforceable debt. In fact, in the said situations it is accepted that the legality of the assessment may be questioned with regard to its subjective scope, but this exceptional possibility is justified by 'the failure of the tax administration to verify the factual prerequisites of the assessment act, in relation to a tax of this type, and the discovery of an error attributable to it', for, 'in order to proceed with the assessment of these taxes, no information is collected from the taxpayer through a declaration, nor is any inquiry made as to who is the real owner, user or possessor of the said goods, rather, the assessment is made on the basis of knowledge of the status of owner as appears in the records of the tax administration or other public services' (JORGE LOPES DE SOUSA, op. cit., annotation 5 to article 158, p. 103).

Now, one of the situations in which the ownership of certain goods is a prerequisite for the scope of the tax in question is precisely the Single Circulation Tax, for article 3 of the respective Code provides in its no. 1: 'The taxpayers in relation to the tax are the owners of vehicles, being considered as such the natural or legal persons, of public or private law, in whose name they are registered'" (see Supreme Administrative Court, judgment of 24.2.2016, case 0677/15. In the same sense, Supreme Administrative Court, judgment of 8.7.2015, case 0606/15).

  1. According to the case law cited, referring to the rule of article 240, no. 1, letter b), which defines as a ground for opposition to tax enforcement the fact that the said person "was not, during the period to which the enforceable debt relates, the possessor of the goods that gave rise to it", it is precisely this situation that occurs in relation to the Single Circulation Tax:

  2. According to the doctrine cited and accepted in the judgment referred to, one is faced with an exceptional possibility of challenging, in opposition to tax enforcement proceedings, the very legality of the tax assessment which, taking ownership as a reference, as appears in the register, does not attribute relevance to the possession or use of the good that gave rise to it, no "inquiry being made as to who is the real owner, user or possessor of the goods".

  3. It is concluded, therefore, following the understanding of the Applicant, that although they are the owner of the vehicle during the period to which the challenged assessment relates, they were not, during that period, its possessor or user, a fact from which its illegality follows, which is hereby declared.

  4. In these terms, and with the reasoning set out, the Tribunal decides to uphold the arbitration application and the consequent annulment of the Single Circulation Tax assessment relating to the vehicle with registration number …-…-… and the 2016 taxation period.

Process Value: The value of the case is fixed at € 52.71, in accordance with article 97-A, no. 1, letter a) of the Tax Procedural Code, applicable by reference to article 29, no. 1, letters a) and b), of the Rules of Tax Arbitration, and article 3, no. 2, of the Regulations on Costs in Tax Arbitration Proceedings.

Costs: Under article 22, no. 4, of the Rules of Tax Arbitration, and in accordance with Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, I fix the amount of costs at € 306.00, to be borne by the Respondent (AT).

Lisbon, 13 November 2017,

The Arbitrator,

Álvaro Caneira

Frequently Asked Questions

Automatically Created

Who is liable for IUC (Imposto Único de Circulação) when a vehicle has disappeared or its whereabouts are unknown?
Under Portuguese tax law, the registered owner remains prima facie liable for IUC even when a vehicle has disappeared or its whereabouts are unknown. The Tax Authority maintains that vehicle registration creates a legal presumption of ownership and tax liability under the IUC Code. However, as demonstrated in Process 166/2017-T, taxpayers can challenge this presumption through CAAD arbitration by proving the vehicle's disappearance through court judgments or other compelling evidence. The key issue is whether IUC incidence depends on formal registration or requires the vehicle's physical existence to generate environmental and road costs.
Can a registered vehicle owner challenge IUC tax assessments if the vehicle no longer exists or is missing?
Yes, registered vehicle owners can challenge IUC tax assessments when a vehicle no longer exists or is missing, as demonstrated in Process 166/2017-T. The taxpayer must present compelling evidence of the vehicle's disappearance, such as final court judgments, police reports, or documentation proving the vehicle's destruction. The legal basis for such challenges rests on Article 2 of the IUC Code, which establishes that the tax applies to vehicles in specified categories, and the equivalence principle, which requires that taxation correspond to actual environmental and road costs caused by the taxpayer. Without a physical vehicle, the taxpayer argues there is no factual basis for taxation under the polluter-pays principle.
What is the legal basis for IUC tax incidence under Portuguese tax law?
The legal basis for IUC tax incidence is established in Article 2 of the IUC Code, which defines the tax's objective scope by specifying the categories of vehicles subject to taxation. The tax is grounded in the equivalence principle, as stated in Article 1 of the IUC Code, which seeks to burden taxpayers proportionally to the environmental and road costs they cause. This implements the polluter-pays principle and the constitutional principle of tax equality. The IUC Code requires both objective elements (a vehicle in a taxable category) and subjective elements (a taxpayer with legal connection to the vehicle) for tax incidence. Vehicle registration creates a legal presumption of ownership and liability for IUC purposes.
How does the CAAD arbitral tribunal handle disputes over IUC liability for vehicles that have gone missing?
The CAAD arbitral tribunal handles disputes over IUC liability for missing vehicles by examining whether the physical existence of the vehicle is a substantive requirement for tax incidence under Article 2 of the IUC Code. In Process 166/2017-T, the tribunal accepted jurisdiction and analyzed the taxpayer's evidence, including a final court judgment establishing the vehicle's disappearance from a repair workshop in December 2013. The tribunal evaluates whether the equivalence principle underlying IUC—which ties taxation to environmental and road costs—can justify taxing a non-existent vehicle. The tribunal considers whether vehicle registration alone suffices for tax liability or whether the vehicle's physical existence is necessary for legitimate IUC incidence under constitutional tax principles.
What compensatory interest (juros compensatórios) applies to unpaid IUC tax assessments in Portugal?
The case refers to 'juros de mora' (default interest), not 'juros compensatórios' (compensatory interest). Default interest of €0.71 was assessed on the unpaid IUC tax of €52.00 for the 2016 taxation period. Default interest (juros de mora) applies when taxpayers fail to pay taxes by the voluntary payment deadline and is calculated from the payment deadline until actual payment occurs. The rates are established by administrative regulation. In contrast, compensatory interest (juros compensatórios) would apply when the Tax Authority must return improperly collected taxes to taxpayers. The distinction is important: default interest penalizes late payment, while compensatory interest compensates taxpayers for the State's improper retention of funds.