Process: 174/2014-T

Date: August 6, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 174/2014-T) addresses the critical question of IUC (Single Circulation Tax) subjective tax incidence when vehicles are sold but registration remains unchanged. A company challenged IUC assessments totaling €3,357.27 for 2009-2012 on 66 fleet vehicles that had been sold but remained registered in its name. The claimant argued that Article 3(1) of the IUC Code establishes a rebuttable presumption, and that under Article 408 of the Civil Code, sale contracts produce immediate real effects without requiring registration. The company contended that vehicle registration serves only a publicity function and creates a mere presumption that can be overcome with proof of sale. The Tax Authority maintained that IUC liability follows vehicle registration records, as these constitute the only verifiable means for the TCA to determine ownership. The TCA argued the company failed to prove the alleged transfers occurred before the tax events, and that the claimant bore the legal obligation to update registrations under Article 5(1)(a) of Decree-Law 54/75 and Article 118(4) of the Road Code. This case presents fundamental questions about the interplay between civil law property transfer rules and tax law incidence criteria. It examines whether administrative registration requirements can create tax liability contrary to underlying civil ownership, and whether taxpayers can rebut registration-based presumptions with alternative evidence. The decision has significant implications for fleet operators, leasing companies, and vehicle dealers regarding IUC liability exposure after vehicle disposal and the evidentiary burden required to challenge registration-based tax assessments.

Full Decision

ARBITRAL DECISION

I - REPORT

  1. On 17 January 2014, the company "A"…, S.A., holder of Tax ID Number …, with registered office at Street …, in 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 for Arbitration in Tax Matters, hereinafter referred to only as "RJAT").

  2. The request for constitution of the arbitral tribunal was accepted by the Honourable President of the Administrative Arbitration Centre (CAAD) and notified, on 26 February 2014, to the Tax and Customs Authority (hereinafter referred to as "TCA" or the "Respondent").

  3. The Claimant seeks the pronouncement of the Arbitral Tribunal with a view to declaring the illegality of the assessment acts for Single Circulation Tax (IUC) for the years 2009, 2010, 2011 and 2012, concerning the vehicles identified in Documents Nos. 2 to 67 attached to the initial petition, in the total amount of € 3,357.27 (three thousand three hundred and fifty-seven euros and twenty-seven cents) with all legal consequences, namely the reimbursement together with compensatory interest at the legal rate calculated from the date of the respective payment until full reimbursement.

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

  5. The parties were notified, on 11 April 2014, of the designation of the arbitrator, and neither party expressed an intention to challenge the arbitrator's designation, pursuant to the combined provisions of article 11, paragraph 1, subparagraphs (a) and (b) of the RJAT and articles 6 and 7 of the Deontological Code.

  6. In accordance with the provisions of subparagraph (c) of paragraph 1 of article 11 of the RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 30 April 2014.

  7. On 3 June 2014, the Respondent, duly notified for this purpose, filed its Response.

  8. On 17 June 2014, at 14h30m, at the premises of the CAAD, the meeting provided for in article 18 of the RJAT took place.

  9. Both parties waived the making of oral arguments.

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

a) The rule contained in article 3, paragraph 1, of the IUC Code, establishes a presumption which, being related to a rule of tax incidence, always admits proof to the contrary;

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

c) The essential function of vehicle registration is to give publicity to the legal situation of vehicles, the registration having no constitutive effect, functioning (only) as a mere rebuttable presumption of the existence of the right, as well as of the respective ownership, all according to what is provided therein. The presumption that the registered right belongs to the person in whose name it is registered may be rebutted by presenting proof to the contrary.

d) As the TCA does not satisfy the requirements of the definition of "third party" for purposes of registration, it cannot avail itself of the absence of updating of the registration of the property right to call into question the full effectiveness of the contract of sale and purchase and to require the seller (former owner) to pay the IUC owed by the buyer (new owner), provided that the presumption of the respective ownership is rebutted through sufficient proof of the sale.

e) If under the terms of a contract of sale and purchase which has as its object an automobile, on the date of the occurrence of the tax event, the vehicle has already been previously alienated although the property right thereof continues to be registered in the name of its former owner, for purposes of the provisions of article 3, paragraph 1 of the IUC Code, the taxpayer of the IUC is the new owner, provided that sufficient proof of the sale is presented which rebuts the presumption of registration.

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

a) The tax acts at issue do not suffer from any defect of violation of law, in that in light of the provisions of paragraph 1 of article 3 and article 6 of the CIUC, it was the Claimant who was the taxpayer of the IUC for being in its name that, on the date of the tax events, the property of the vehicles in question was registered.

b) However, even if this were not the case, from the elements in the record it appears that the Claimant failed to provide the proof incumbent upon it that on the date of the events it was not the owner of the said vehicles.

c) The Claimant failed to prove the alleged transfer of ownership of the vehicles in question, nor the date on which it occurred, for purposes of their subjection to IUC, and it appears irrelevant that the cancellation of registrations at the Vehicle Registry took place at a time subsequent to the occurrence of the tax events in question, relating to the years 2009, 2010, 2011 and 2012.

d) The Claimant's claim should be judged unfounded and, consequently, the TCA should be absolved from the claim in its entirety, with the disputed assessments remaining in the legal order as they constitute a correct application of the law to the facts.

e) Even if the Claimant is condemned in the claim, it should, in any case, not be condemned to pay costs as it was not the one that gave rise to the proceedings.

f) The disputed IUC assessments, within the competence of the TCA, aim to tax the ownership of the vehicle, which, in turn, is revealed through the competent vehicle registration, there being no possibility whatsoever of control by the TCA with respect to the ownership of the vehicles, since no obligation of an ancillary/declarative tax nature is associated with it.

g) It was incumbent upon the Claimant to take steps to update the vehicle registration, pursuant to article 5, paragraph 1(a) of Decree-Law 54/75, of 12 February, and article 118, paragraph 4 of the Road Code, which, had it been done, if the alleged transfer of vehicles is proved and its thesis regarding the interpretation of the law is judged to be well-founded, would have prevented the assessments in question and the consequent litigation concerning them.

h) It happens, however, that the Claimant continues to appear as the owner of the vehicles in the Vehicle Registry, on the date of the events in question in the present request for arbitral pronouncement.

i) Thus, even if the Tribunal were to conclude that there is error on the part of the TCA as to the factual premises upon which the disputed assessments were based, it could not judge this error as attributable to the TCA but rather to the Claimant, as it was incumbent upon the latter to take steps to effect a timely update of the vehicle registration.

j) Consequently, should the Respondent be condemned in the claim, the principle cannot apply in the present arbitral proceedings that the costs are the responsibility of the losing entity, since it was not the party that gave rise to the dispute, and the Claimant should be condemned to pay the arbitration costs arising from the present request for arbitral pronouncement, pursuant to article 527, paragraph 1 of the New Civil Procedure Code as per article 29, paragraph 1, subparagraph (e) of the RJAT.

II - PRELIMINARY EXAMINATION

  1. The arbitral tribunal is materially competent and is regularly constituted, pursuant to articles 2, paragraph 1, subparagraph (a), 5, paragraph 2, and 6, paragraph 1 of the RJAT.

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

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

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

Considering the identity of the tax events and the factual and legal grounds invoked, nothing prevents, in view of the provisions of article 104 of the CPPT and article 3 of the RJAT, the joinder of claims that has occurred in this case.

III - FACTUAL MATTER

  1. Proven Facts

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

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

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

C) The Claimant was notified, between 10 and 20 December 2013, of 66 (sixty-six) official assessments of Single Circulation Tax (IUC) relating to the taxation periods of 2009 (18 - eighteen assessments), 2010 (12 - twelve assessments), 2011 (17 - seventeen assessments) and 2012 (19 - nineteen assessments) concerning 45 (forty-five) vehicles identified in the assessment notes contained in documents Nos. 2 to 67 annexed to the request for arbitral pronouncement and which are hereby fully reproduced.

D) The Claimant made voluntary payment of the IUC in December 2013, as shown in documents Nos. 2 to 67 attached as annexes to the request for arbitral pronouncement.

E) The Claimant presents copies of invoices/receipts of sales of the vehicles for which IUC payment was required, with dates prior to the period to which the tax relates, and which are contained in documents Nos. 68 to 112 annexed to the request for arbitral pronouncement and which are hereby fully reproduced.

F) The purchasers of the vehicles, referred to in the preceding subparagraph, had not, on the date of the tax events, effected the registration of the acquisitions with the Motor Vehicle Registry Office, with the result that, in the database thereof, the Claimant continued to appear as the owner of the same.

  1. Facts Not Proven

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

IV - LEGAL MATTER

  1. In view of what has been set out in the preceding paragraphs, the central issue to be examined in the present proceedings consists in determining whether, for purposes of the provisions of article 3, paragraph 1, of the Single Circulation Tax Code (CIUC), the taxpayer of the IUC is the lessor or the new owner, in the event that it is verified that, on the date of the occurrence of the tax event, the vehicle has been previously alienated, but continues to be registered in the name of the lessor (its former owner).

  2. The factual matter is established (see supra paragraph 13) and we shall now determine the law applicable to the underlying facts in accordance with the question already stated (see supra paragraph 15).

  3. Article 3 of the CIUC provides as follows:

"Article 3

Subjective Scope of Application

1 - The taxpayers of the tax are the owners of the vehicles, considered as such the natural or legal persons, of public or private law, in whose names the same are registered.

2 - Equivalent to owners are financial lessees, buyers with reservation of ownership, as well as other holders of purchase option rights by virtue of the leasing contract".

It is necessary to clarify whether the rule contained in paragraph 1 of article 3 of the CIUC permits or does not permit the person in whose name the vehicle is registered with the Motor Vehicle Registry Office to demonstrate, through the means of proof permitted in law, that such person is not the owner of the vehicle in the period to which the tax relates and, in this manner, to avoid the tax obligation that falls upon such person.

Paragraph 1 of article 3 of the CIUC does not use the term "shall be presumed", which was contained in the extinct Regulation on Vehicle Tax, and replaced it with "considered as such". Does this semantic change by the legislator, in opting for the term "considered as such", prevent the existence of a presumption?

The literal interpretation of paragraph 1 of article 3 of the CIUC alone cannot be considered entirely determinative and must be accompanied by other elements that reveal the true meaning of the rule in question.

  1. Presumptions are defined, pursuant to article 349 of the Civil Code, as "... conclusions 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, presumptions contained in rules of tax incidence always admit proof to the contrary.

The rule of paragraph 1 of article 3 of the CIUC has the structure of a presumption rule as defined in the Civil Code. Indeed, it is verified that the law draws from the known fact, that is, the ownership of the vehicle as recorded in the vehicle registration, the presumption as to the taxpayer who should bear the burden of the IUC. It happens, however, that it shall always be possible for the subject appearing in the registry to avoid the application of the rule of tax incidence, provided that such subject proves that the taxable capacity which justifies the tax imposition belongs to another person, for example, due to the existence of the sale of the vehicle at a time prior to the occurrence of the tax event.

In short, the rule of paragraph 1 of article 3 of the CIUC contains a presumption of subjective tax incidence with respect to the owner of the vehicle as such registered with the Motor Vehicle Registry Office, which, obviously, does not preclude the possibility of proof to the contrary.

  1. Presumptions of tax incidence may be rebutted through the means provided for in article 64 of the CPPT or, alternatively, through voluntary submission or judicial challenge of the tax acts based thereon.

In the present case, the request for constitution of the arbitral tribunal is the proper means to rebut the presumption of subjective tax incidence of the IUC supporting the tax assessments whose annulment constitutes the object of the claim, as this is a matter falling within the competence of this arbitral tribunal, in accordance with articles 2 and 4 of the RJAT.

  1. In the present proceedings, the vehicles for which IUC payment was required were sold on a date prior to the date to which the tax relates, but the purchasers of said vehicles had not, on the date of the tax events, effected the registration of the acquisitions with the Motor Vehicle Registry Office, with the result that, in the database thereof, the Claimant continued to appear as the owner of the same (see subparagraphs E) and F) of paragraph 12).

By virtue of the celebration of the contract of sale and purchase, the owner in full right becomes directly covered by paragraph 1 of article 3 of the CIUC.

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

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

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

  1. In the factual circumstances which are the object of the present arbitral proceedings, it appears that the sale of the vehicles in question took place in years prior to the year to which the tax relates, although in thirteen cases, the sale took place in that same year, but in a month prior to the one in which the tax event occurred and the consequent exigibility of the tax.

From the elements in the record it appears that on the date of the exigibility of the tax to which the assessments in question relate, the Claimant was not the owner of the vehicles identified, as the respective transfers of ownership had already previously been effected, pursuant to civil law.

The means of proof presented by the Claimant, consisting of copies of invoices/receipts of sales (subparagraph E) of paragraph 13), enjoy a presumption of truthfulness conferred upon them pursuant to paragraph 1 of article 75 of the General Tax Law. Accordingly, these documents appear suitable and have sufficient force to rebut the presumption upon which those assessments are based. Moreover, the Respondent did not raise facts which, if falling within the subparagraphs of paragraph 2 of article 75 of the General Tax Law, would negate 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 shall be annulled with the consequent restitution of the tax wrongfully collected from the Claimant.

  2. The Claimant also requests that it be recognized as having the right to compensatory interest, pursuant to article 43 of the General Tax Law.

Pursuant to the provisions of paragraph 1 of article 43 of the General Tax Law, compensatory interest is owed "when it is determined, in voluntary submission or judicial challenge, that there was error attributable to the services from which resulted payment of the tax debt in an amount exceeding that legally owed." As follows from article 24, paragraph 5 of the RJAT, the right to the aforementioned interest may be recognized in the arbitral proceedings.

  1. The right to compensatory interest to which the rule of the General Tax Law refers presupposes that tax in an amount exceeding that owed was paid and that such results from error, of fact or of law, attributable to the services of the TCA. In the present case, although it is acknowledged that the tax paid by the Claimant is not owed, it is not apparent that, in its origin, there is an error attributable to the TCA. In making the official assessment of the IUC, the TCA merely carried out the provisions of paragraph 1 of article 3 of the CIUC and attributed the status of taxpayer of this tax to the persons in whose names the vehicles are registered.

Paragraph 1 of article 3 of the CIUC has the nature of a legal presumption; from this, for the TCA, results the right to assess the tax and demand it from such persons, without the need to prove the facts that lead to it, as expressly provided for in paragraph 1 of article 350 of the Civil Code.

  1. The Respondent in its response considers that, in anticipation of the hypothesis that the Claimant's claim is judged to be well-founded, it should not be condemned to pay costs, because it did not give rise to the litigation.

Article 527 (General rule on costs) of the Civil Procedure Code (CPC) provides as follows:

"1 — The decision that judges the action or any of its incidents or appeals condemns in costs the party that gave rise to them or, if the action is not decided in favour of one party, whoever obtained benefit from the proceedings.

2 — A party is understood to have given rise to the costs of the proceedings as the losing party, in the proportion that it has lost.

3 — In the case of a judgment ordering solidary obligation, the solidarity extends to the costs."

The Arbitral Tribunal, pursuant to what has been set out above, has judged the Claimant's claim to be well-founded and, therefore, in accordance with paragraphs 1 and 2 of article 527 of the CPC, applicable by virtue of subparagraph (e) of paragraph 1 of article 29 of the RJAT, responsibility for payment of the arbitration fee is unequivocally that of the Respondent.

V - DECISION

In accordance with what has been set out, it is decided:

a) To judge the request for arbitral pronouncement to be well-founded insofar as it concerns the rebuttal of the presumption of subjective tax incidence of the IUC and consequently to annul the assessments of this tax to which the collection documents annexed to the request for arbitral pronouncement submitted by the Claimant refer, and to restitute the tax wrongfully paid;

b) To judge the claim unfounded insofar as it concerns the recognition of the right to compensatory interest in favour of the Claimant;

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

The value of the case is fixed at € 3,357.27 (three thousand three hundred and fifty-seven euros and twenty-seven cents), pursuant to the provisions of article 97-A, paragraph 1, subparagraph (a), of the CPPT, applicable by virtue of subparagraphs (a) and (b) of paragraph 1 of article 29 of the RJAT and paragraph 2 of article 3 of the Regulation on Costs in Tax Arbitration Proceedings.

The arbitration fee is fixed at € 612.00 (six hundred and twelve euros), pursuant to Table I of the Regulation on Costs in Tax Arbitration Proceedings (RCPAT), to be paid in full by the Claimant, pursuant to article 22, paragraph 4, of the RJAT.

Let notification be made.

Lisbon, Administrative Arbitration Centre,

6 August 2014

The Arbitrator

Olívio Mota Amador

Frequently Asked Questions

Automatically Created

Who is liable for IUC tax when a vehicle has been sold but registration was not updated?
When a vehicle has been sold but registration was not updated, IUC liability depends on whether the registration-based presumption in Article 3(1) of the IUC Code can be rebutted. The claimant argued that the new owner becomes liable upon sale, as Article 408 of the Civil Code provides that sale contracts produce immediate real effects, and vehicle registration serves only a publicity function with rebuttable presumptive value. However, the Tax Authority maintained that the registered owner remains liable, as the TCA relies exclusively on vehicle registration records to determine ownership and has no means to verify private sale transactions. The seller bore the legal obligation to update registration under Decree-Law 54/75 and the Road Code. Without such update, the former registered owner risks continued IUC assessments.
Can the presumption of taxpayer liability under Article 3(1) of the IUC Code be rebutted with proof of vehicle sale?
The claimant argued that the presumption of taxpayer liability under Article 3(1) of the IUC Code can be rebutted with sufficient proof of vehicle sale. This position relies on the principle that Article 3(1) establishes a mere presumption related to tax incidence rules, which must admit proof to the contrary. The claimant contended that vehicle registration creates only a rebuttable presumption of ownership, not a constitutive requirement for property transfer. Therefore, presenting adequate evidence of sale (such as purchase contracts, invoices, or other documentation) should shift IUC liability to the actual new owner on the tax event date. However, the Tax Authority disputed whether the claimant provided sufficient evidence to rebut the registration presumption, arguing that the documentary proof submitted failed to establish the timing and validity of the alleged transfers for the tax years 2009-2012.
How does Article 408 of the Portuguese Civil Code affect IUC subjective tax incidence on sold vehicles?
Article 408 of the Portuguese Civil Code provides that sale and purchase contracts have the nature of real rights, with real effects arising directly from the contract itself without requiring subsequent acts like registration. The claimant argued this principle means vehicle ownership transfers immediately upon contract formation, making the buyer the IUC taxpayer from that moment. Since vehicle registration serves only a publicity function and creates a rebuttable presumption rather than constitutive effect, the IUC Code's reference to registered ownership in Article 3(1) cannot override the Civil Code's property transfer rules. Thus, when proof of sale exists, Article 408 supports shifting IUC incidence to the actual owner (buyer) rather than the registered owner (seller). The Tax Authority, however, maintained that for tax administration purposes, the TCA must rely on registration as the verifiable criterion for determining IUC liability.
What is the CAAD arbitration procedure for challenging multiple IUC tax assessments on fleet vehicles?
The CAAD arbitration procedure for challenging multiple IUC tax assessments on fleet vehicles follows the framework established by Decree-Law 10/2011 (RJAT). The claimant filed a single arbitration request on January 17, 2014, challenging 66 IUC assessments for years 2009-2012 totaling €3,357.27, with supporting documentation attached. The CAAD President accepted the request and notified the Tax Authority on February 26, 2014. The claimant opted not to designate an arbitrator, so the CAAD Deontological Council appointed a sole arbitrator who accepted on April 11, 2014. The tribunal was constituted on April 30, 2014. The TCA filed its response on June 3, 2014. An Article 18 RJAT meeting occurred on June 17, 2014, with both parties waiving oral arguments. This procedure allows companies to consolidate multiple related IUC assessments in one efficient arbitration process.
Can a company claim reimbursement with compensatory interest after unlawful IUC tax assessments?
Yes, a company can claim reimbursement with compensatory interest after unlawful IUC tax assessments. The claimant specifically requested declaration of illegality of the IUC assessments with all legal consequences, including reimbursement of €3,357.27 plus compensatory interest at the legal rate calculated from the date of respective payments until full reimbursement. Under Portuguese tax law, when tax assessments are determined to be illegal and amounts were already paid, taxpayers are entitled to reimbursement of the principal amount plus compensatory interest to compensate for the State's wrongful retention of funds. The interest runs from the payment date until actual reimbursement, ensuring the taxpayer is made whole for the time value of money lost due to the erroneous assessment. This remedy is standard in successful tax challenges before CAAD arbitral tribunals.