Process: 182/2015-T

Date: January 8, 2016

Tax Type: IUC

Source: Original CAAD Decision

Summary

This arbitral decision from the Portuguese Tax Arbitration Center (CAAD) addresses a dispute between a vehicle importer/distributor and the Tax Authority regarding IUC (Single Vehicle Circulation Tax) liability for vehicles sold years earlier but still registered in the company's name. The claimant, an official automobile distributor, was assessed IUC for 15 vehicles (registered 1964-1978) that had been sold over 10 years prior to the 2009-2010 tax assessments. The core legal issue concerns subjective incidence of IUC: whether vehicle registration creates a rebuttable presumption or an irrefutable legal fiction of ownership for tax purposes. The distributor argued it ceased being the IUC passive subject upon selling the vehicles, despite registration remaining in its name, and that Article 3(1) of the IUC Code establishes only a rebuttable presumption of ownership. The Tax Authority contended that Article 3 creates a legal fiction making registered owners liable regardless of actual ownership, and that the burden of proof for disproving ownership lies with the taxpayer. Additional issues included whether Decree-Law 78/2008's official registration cancellation system exempted these vehicles from IUC, and constitutional challenges based on equality principles. The Tax Authority raised preliminary exceptions arguing the arbitral tribunal lacked jurisdiction over registration cancellation matters and constitutional review. The case exemplifies common problems for vehicle importers who must initially register vehicles in their name for customs purposes, potentially creating long-term tax liabilities for vehicles no longer in their possession. The decision required analysis of the distinction between actual ownership and registered ownership, the nature of legal presumptions versus fictions, and the proper allocation of burden of proof in tax proceedings.

Full Decision

ARBITRAL DECISION

I. STATEMENT OF FACTS:

A..., S.A., formerly designated B..., S.A., a company with registered office at Rua Dr. ..., n.º..., ...-... Lisbon, holder of single registration and collective person identification number ..., hereinafter referred to as the Claimant, filed a request for establishment of an arbitral tribunal in tax matters and a request for arbitral ruling, pursuant to paragraph a) of Article 2, subsection 1, and paragraph a) of Article 10, subsection 1, both of Decree-Law no. 10/2011, of January 20th (Legal Regime of Arbitration in Tax Matters, hereinafter abbreviated as RJAT), petitioning for the revocation of the partial dismissal decision of the hierarchical appeal filed and consequent declaration of illegality and annulment of 20 (twenty) assessment acts for Single Vehicle Circulation Tax (IUC) and compensatory interest, relating to the years 2009 and 2010, concerning 15 (fifteen) motor vehicles, in the total value of € 5,484.52, as well as the condemnation of the Tax and Customs Authority (AT) to refund to the Claimant the tax paid, plus indemnificatory interest.

To support its request, it alleges, in summary:

a) The Claimant is the official distributor in Portugal of the automobile brand "...";

b) In the scope of its activity, the Claimant imports automobiles of the said brand and subsequently proceeds with their sale;

c) For this purpose, the Claimant requests the competent services to assign the respective registration plates;

d) Whenever the Claimant requests the assignment of a registration plate, it is obliged to make the initial registration of vehicle ownership in its name, due to the fact that the Customs Vehicle Declaration is issued in its favor;

e) In the years 2012 and 2013, the Claimant was notified that payment of IUC was outstanding for several vehicles;

f) The vehicles for which IUC payment was outstanding had been sold by the Claimant more than 10 years ago;

g) The AT considered that, as of the date of tax exigibility, the Claimant was the owner of the vehicles in question, as they were registered in its name;

h) The Claimant is not a passive subject of single vehicle circulation tax, inasmuch as, as of the date the tax became exigible, it was not the owner of the respective vehicles, which it had sold more than 10 years ago;

i) The vehicles involved in the present proceedings are Category C vehicles, registered between the years 1964 and 1978;

j) The Claimant requested the cancellation of the respective registration plates, which occurred in the year 2010;

k) Vehicle ownership registration is not constitutive in nature, merely serving to presume the existence of the registered fact;

l) Article 3, subsection 1, of the CIUC provides for a rebuttable presumption of ownership;

m) The vehicles upon which the IUC subject to the assessments impugned was levied are not subject to IUC, either through the system of official cancellation of registration plates provided for in Decree-Law 78/2008, of May 6th, or because they are not intended for any of the purposes referred to in Article 2, subsection 1, paragraph c) of the CIUC;

n) Articles 5, subsection 3, of Decree-Law 78/2008, of May 6th, and Article 2, subsection 1, paragraphs c) and d), of the CIUC, in the interpretation defended by the Respondent, are unconstitutional, as they violate the principle of equality.

The Claimant attached 6 documents and did not list any witnesses.

In the request for arbitral ruling, the Claimant opted not to designate an arbitrator, wherefore, pursuant to Article 6, subsection 1, of the RJAT, the signatory was designated by the Deontological Council of the Administrative Arbitration Center, and the appointment was accepted in accordance with legal provisions.

The arbitral tribunal was constituted on May 26, 2015.

Notified in accordance with the terms and for the purposes set forth in Article 17 of the RJAT, the Respondent presented a response, presenting defense by exception and by impugnation.

By exception, it invoked, in summary:

a) The examination of issues concerning the official cancellation of registration plates is outside the scope of tax arbitration;

b) The Respondent is an entity unrelated to the procedure of official cancellation of registration plates, wherefore it is not a legitimate party in the present action.

By impugnation, it alleges, in summary, the following:

a) The legislator expressly and intentionally established that the passive subjects of IUC are the owners of vehicles, considering as such the persons in whose name the vehicles are registered;

b) As of the date of the tax-generating fact, the Claimant was the owner of the vehicles upon which the impugned assessments were levied;

c) Article 3 of the CIUC does not establish any presumption of ownership, but a true legal fiction;

d) Although the Claimant alleges that it was not the owner of the vehicles as of the date of the tax facts to which the disputed assessments refer, the truth is that the evidence presented by it is not apt to permit such a conclusion;

e) The fact that it no longer has in its possession the documents evidencing the alleged sale of the ownership of the said vehicles, as it is not legally obliged to do so, does not allow the conclusion that it is not obliged to prove the alleged sale of ownership;

f) Decree-Law 78/2008, of May 6th, applies only to vehicles registered between 01/01/1980 and 31/12/2000 that have not been subjected to compulsory periodic inspection after 01/01/2003;

g) The Claimant failed to prove that the vehicles upon which the impugned assessments were levied were not subjected to compulsory periodic inspection;

h) Articles 5, subsection 3, of Decree-Law 78/2008, of May 6th, and Article 2, subsection 1, paragraphs c) and d), do not violate the principle of equality and are therefore not unconstitutional;

i) Motor goods vehicles and mixed-use automobiles weighing more than 2500 kg are always subject to IUC, with their classification as Category C or D differing only in light of the particular or public nature of the activity to which they are assigned;

j) The Claimant failed to prove that it does not engage in any of the activities referred to in Article 2, subsection 1, paragraph c) of the CIUC.

It concludes, requesting the acceptance of the exceptions invoked and, consequently, its absolution from the proceedings, or, if not so understood, the inadmissibility of the request for arbitral ruling.

The Respondent attached a copy of the administrative file and did not list any witnesses.

The Claimant responded to the exceptions invoked by the Respondent, arguing for their inadmissibility.

Given the position assumed by the parties and the absence of necessity for additional production of evidence, the meeting referred to in Article 18 of the RJAT was dispensed with, as well as the presentation of arguments.

II. EXAMINATION OF THE EXCEPTIONS INVOKED:

The Respondent raised exceptions which, as they may prevent examination of the merits of the request, must be examined first.

On the material incompetence of the arbitral tribunal:

The AT argues that the examination of any issues concerning the official cancellation of registration plates, as well as the examination of the constitutionality of Article 5, subsection 3, of Decree-Law 78/2008, of May 6th, and of Article 2, subsection 1, paragraphs c) and d) of the CIUC, is outside the scope of the competence of tax arbitration.

To support this, it argues, in summary, that the competence of arbitral tribunals is circumscribed to the matters listed in Article 2 of the RJAT, among which are not included issues concerning the official cancellation of registration plates nor the examination of the constitutionality of any norms.

The Claimant, for its part, argues that the proceedings do not petition for the cancellation of any registration plates, but rather and solely the examination of the legality of the impugned IUC assessments.

Let us examine this:

Regarding the competence of arbitral tribunals, Article 2, subsection 1, paragraph a) of the RJAT provides that arbitral tribunals are competent to examine claims for declaration of illegality of tax assessment acts, self-assessment, withholding at source, and payment on account.

For its part, regarding the binding of the tax administration to the jurisdiction of arbitral tribunals, Article 4, subsection 1, of the said regime provides that this depends on an order of the Government members responsible for the areas of finance and justice.

Pursuant to the provisions of Articles 1 and 2 of that order – Ordinance 112-A/2011 of March 22nd – it results that the General Tax Administration and the General Customs and Excise Duties Administration (to which the AT succeeded) are bound by the jurisdiction of arbitral tribunals constituted pursuant to the RJAT that have as their object the examination of claims relating to taxes whose administration is entrusted to them.

In the case at hand, there is no doubt that the administration of the tax in question – IUC – is entrusted to the Respondent, and it is responsible not only for the competence to assess and collect it, but also to exercise the inherent inspection functions, to exercise tax enforcement actions, and to represent the Public Treasury before judicial bodies.

This being stated,

Having examined the request for arbitral ruling filed, it is verified that it is at no time petitioned by the Claimant to cancel the registration plates of the vehicles upon which the impugned assessments were levied, nor to declare the unconstitutionality of any norm.

To the contrary, as the Claimant emphasizes, it merely petitions for the examination of the legality of the said assessments, basing the alleged illegality on the alleged violation of the provisions in Article 5, subsection 3, of Decree-Law 78/2008, of May 6th, and Article 2, subsection 1, paragraphs c) and d) of the CIUC, and on their unconstitutionality by violation of the principle of equality.

Now, the examination of the legality of the impugned assessments involves an analysis of the legal order and the respective regime applicable to the vehicles upon which the assessments were levied.

It is thus in that context that the Claimant raises the issue of whether the provision in Article 5, subsection 3, of Decree-Law 78/2008, of May 6th, should also apply to vehicles registered before January 1, 1980, and its possible unconstitutionality when interpreted to the contrary. In the same sense and with the same grounds, it argues the unconstitutionality of Article 2, subsection 1, paragraphs c) and d) of the CIUC.

It is certain that the cancellation of registration plates does not fall within the powers of this tribunal.

However, the interpretation of the norm that provides for the official cancellation of registration plates, with a view to determining its meaning and scope, falls within the powers of this tribunal, constituting a procedure necessary for the examination of the legality of the impugned tax acts.

Otherwise, it is not clear what matters would, in the Respondent's view, fall within the powers of this tribunal, since, it is insisted, the examination of the legality of tax acts necessarily involves the prior examination and interpretation of the respective legal regime that underlies it.

With regard to the alleged unconstitutionality, it is also not petitioned by the Claimant the declaration of unconstitutionality of the said norms, but only and solely the refusal of their application by this tribunal, by virtue of the alleged unconstitutionality.

Which, it should be said, is neither prohibited nor can be seen how it could be prohibited by this tribunal, since the refusal to apply a norm based on grounds of its unconstitutionality is always admissible, and indeed such refusal constitutes grounds for appeal to the Constitutional Court, pursuant to Article 280 of the Constitution of the Portuguese Republic.

Naturally, this tribunal – nor any other, except the constitutional court – could not declare the unconstitutionality of the said norms.

But such does not prevent it from refusing their application by considering them to be unconstitutional.

Thus, as the Claimant does not petition for either the cancellation of registration plates or the declaration of unconstitutionality of any norms, the alleged exception of incompetence of this tribunal is not verified, with the examination of the issues raised by the Claimant falling within the necessary activity of interpretation of law, with a view to the examination of the legality of the tax acts scrutinized.

In light of the foregoing, and without need for further considerations, the exception of incompetence of this tribunal is judged inadmissible.

On the passive illegitimacy of the Respondent:

The AT further argues that it is an entity unrelated to the procedure of official cancellation of registration plates, wherefore it has no legitimacy to be in court as the sole defendant.

This is because, in its view, the competence to effectuate the official cancellation of registration plates falls within the competences of the Institute of Land Mobility (IMT). For its part, constituting the registration plate an essential element for the registration of vehicle ownership, within the competence of the Institute of Registries and Notary (IRN), these two entities – IMT and IRN – have interest in intervening in the present proceedings.

The Claimant responded to the exception invoked, arguing that, having petitioned for the examination of the legality of IUC assessments and being the Respondent the entity competent to proceed with their assessment, it has interest to intervene.

As was clarified when examining the exception of material incompetence of the tribunal, the Claimant does not petition for the cancellation of any registration plates, but rather the non-subjection to IUC of the vehicles in question, as it considers that the registration plates should be deemed cancelled, through the application of Article 5, subsection 3, of Decree-Law 78/2008, of May 6th.

Now, pursuant to Article 30, subsection 1, second part, of the Code of Civil Procedure (CPC), the defendant is a legitimate party when it has a direct interest in defending, this interest to defend being assessed by the prejudice that may result to the defendant from the acceptance of the action – see Article 30, subsection 2, second part.

Now, in the case at hand, it seems evident that any acceptance of the claim formulated by the Claimant can only cause prejudice to the Respondent itself and not to the said entities.

Indeed, given the specific claim formulated by the Claimant – declaration of illegality of the tax acts of dismissal of the hierarchical appeal and assessment of IUC and consequent reimbursement of the amounts paid, plus indemnificatory interest – if this is judged to be well-founded, it will be the Respondent and not any of the said entities that will be forced to reimburse the Claimant the amount paid by it and to pay it the corresponding indemnificatory interest.

Given that no claim is formulated against the entities referred to by the AT as being a legitimate party in the present action, these entities will never suffer any prejudice from the possible acceptance of the action, and none of these entities can be condemned to reimburse the Claimant anything whatsoever.

To the contrary, the only entity that will suffer prejudice from the acceptance of the action is the Respondent itself.

It thus seems evident that the only entity with interest to intervene in the present proceedings is the Respondent itself and not the IMT or the IRN, wherefore the Respondent is the only legitimate party in the present action.

Thus, the alleged exception of passive illegitimacy of the Respondent is inadmissible.

III. PRELIMINARY EXAMINATION:

The Arbitral Tribunal was regularly constituted and is materially competent.

There are no nullities that invalidate the proceedings.

The parties have legal personality and capacity and are legitimate, with no defects in representation.

There are no other nullities, exceptions, or preliminary questions that prevent examination of the merits and which must be examined ex officio.

IV. QUESTIONS TO BE DECIDED:

Given the positions assumed by the Parties, set forth in the arguments made, it must be determined:

  1. Whether the norm of subjective incidence provided for in Article 3, subsection 1, of the CIUC provides for a rebuttable presumption or, to the contrary, a legal fiction;

  2. Whether, in light of the regime provided for in Decree-Law 78/2008, of May 6th, the vehicles are subject to IUC;

  3. Whether to examine the objective incidence of the vehicles to IUC.

V. FACTUAL MATTER:

a. Facts Established

With relevance to the decision to be made in the present proceedings, the following facts were established:

  1. The Claimant is the official distributor in Portugal of the automobile brand ...;

  2. In the scope of its activity, the Claimant imports automobiles of the said brand and subsequently proceeds with their sale;

  3. The Claimant proceeds with the introduction of the vehicles it imports into consumption through the presentation of the respective Customs Vehicle Declaration (DAV), which is issued in its name;

  4. For purposes of the sale of the imported automobiles, the Claimant requests the issuance of the registration certificate, by presenting the DAV;

  5. On 10/04/2013, IUC assessments and respective compensatory interest were issued relating to the years 2009 and 2010, concerning vehicles with registration plates ...-... -...; ...-... -...; ...-... -...; ...-... -...; ...-... -...; ...-... -...; ...-... -...; ...-... -...; ...-... -...; ...-... -...; ...-... -...; ...-... -...; ...-... -...; ...-... -... and ...-... -..., in the total value of € 5,484.52;

  6. On 18/04/2013, the Claimant proceeded with payment of the IUC and respective compensatory interest concerning the assessments referred to in item 5) above, in the total value of € 5,484.52;

  7. The vehicles referred to in item 5) above all belong to Category C) referred to in Article 4 of the CIUC;

  8. The vehicles referred to in item 5) above were all registered between the years 1964 and 1978;

  9. The registration plates referred to in item 5) above are all cancelled;

  10. The Claimant filed a formal complaint against the IUC assessments and compensatory interest now impugned;

  11. By letter dated 21/10/2013, the Claimant was notified of the decision dismissing the formal complaint filed;

  12. The Claimant filed a hierarchical appeal of the decision dismissing the formal complaint filed;

  13. By letter dated 12/12/2014, the Claimant was notified of the decision of partial dismissal of the hierarchical appeal filed;

  14. The request for establishment of an arbitral tribunal in tax matters and for arbitral ruling was filed on 16/03/2015.

b. Facts Not Established

With interest for the proceedings, it was not established:

  • That as of the date of the tax-generating fact the vehicles upon which the impugned assessments were levied had already been sold by the Claimant more than ten years earlier;

  • That the Claimant engages only in the activity of commercialization of automobiles;

  • That the Claimant is not authorized to engage in any other type of activity beyond the commercialization of automobiles.

c. Justification of Factual Matters

The conviction regarding the facts established was formed on the basis of the documentary evidence submitted by the Claimant, indicated relative to each item, and whose adherence to reality was not questioned, as well as the matters alleged and not impugned.

With respect to the factual matter not established, this was due to the total absence of evidence in that sense.

VI. ON THE LAW:

With the factual matter established, it now falls to determine, by reference to it, the applicable law.

The first of the issues to be analyzed concerns the interpretation of the norm contained in Article 3, subsection 1, of the CIUC and, more specifically, whether or not it contains a legal presumption.

To this end, the Claimant argues that, regarding the IUC assessments in question, the elements of subjective incidence provided for in Article 3 of the CIUC are not satisfied, and it is therefore not a passive subject of IUC.

To this end, it alleges, in summary, that Article 3 of the CIUC establishes an implicit presumption of vehicle ownership in favor of those in whose name they are registered, a presumption that, by force of the application of the general rule provided for in Article 73 of the General Tax Law, is rebuttable by contrary evidence.

For its part, the Respondent argues that Article 3 of the CIUC does not establish any implicit presumption, but a true legal fiction, non-rebuttable, therefore, by contrary evidence.

Given the position of the parties, let us examine what should be, according to the rules of legal hermeneutics consecrated, the interpretation of Article 3, subsection 1, of the CIUC.

Article 3, subsection 1, of the CIUC provides:

"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 name the same are registered."

From the simple reading of subsection one of the said provision, it is verified, without great difficulty, that the touchstone is in the expression "considered as" used by the legislator.

Given the terminology used, should it be understood that the legislator intended to establish an implicit presumption or a true legal fiction?

To examine this issue, it is important, first of all, to bring to bear some legal concepts and legal definitions.

Thus,

Pursuant to Article 349 of the Civil Code, presumptions are the inferences that law or the judge draws from a known fact to establish an unknown fact.

Regarding legal presumptions, Article 350, subsection 2, of the same Code provides that these may be rebutted by contrary evidence, except in cases where the law prohibits this.

As for, specifically, tax incidence presumptions, Article 73 of the General Tax Law establishes that these always admit contrary evidence.

In addition to presumptions, the legislator also resorts to so-called "legal fictions," which translate into "a legal process that considers a situation or a fact as distinct from reality to assign it legal consequences"[1].

According to the thesis advanced by the Respondent, the fact that Article 3, subsection 1, of the CIUC establishes that the "considered" as owners, rather than "presumed" as owners, reveals that the legislator, within its freedom of legislative configuration, expressly intended to determine that the persons in whose name the vehicles are registered are considered, without any possibility of contrary evidence, as the owners thereof.

Also according to the Respondent, if the legislator intended to create a presumption and not a legal fiction, it would have written, as it does in various other legal instruments, that they are presumed owners and not that they are considered owners.

From the outset we can state that this tribunal does not endorse the understanding defended by the Respondent.

This is because, by analyzing the historical and teleological elements, in addition, of course, to the literal element of legislative interpretation, we will inevitably arrive at the conclusion that the legislator did not intend to establish any legal fiction but only and solely a presumption, rebuttable by contrary evidence in accordance with and for the purposes set forth in Article 73 of the General Tax Law.

Let us examine this:

As to the historical element, it is important to note that the current IUC had its genesis in the creation, through Decree-Law 599/72, of December 30th, of the vehicle tax.

This vehicle tax, which remained in force until the creation of the current IUC, expressly provided that the tax is owed by the owners of the vehicles, being presumed as such the persons in whose name the same are registered or inscribed – see Article 3 of the Vehicle Tax Regulation, attached to the said Decree-Law 599/72, of December 30th.

When approving the new CIUC, the legislator substituted the expression "being presumed as such" for the expression "being considered as such," but this cannot be taken to mean that such alteration represents a true substitution of a presumption (rebuttable) for a legal fiction (non-rebuttable).

Indeed, as we are taught by JORGE LOPES DE SOUSA[2], in the matter of tax incidence, presumptions may be revealed by the expression "it is presumed" or by a similar expression. By way of example, the author advances that in Article 40, subsection 1, of the Corporate Income Tax Code the expression "it is presumed" is used, whereas in Article 46, subsection 2, of the same Code the expression "is considered" is used, there being no difference between one and the other expression, both meaning, ultimately, the same thing: a legal presumption.

The same occurred with the CIUC in which, notwithstanding the alteration, in relation to the original wording, of the expression "is presumed" by the expression "is considered," no substantive change occurred, the different expressions having exactly the same meaning.

We arrive at the very same conclusion by analysis of the teleological element.

Indeed, it is important to keep in mind the explanatory memorandum of Bill no. 118/X of 07/03/2007, underlying Law no. 22-A/2007, of June 29th.

Having analyzed this explanatory memorandum, it is verified that what was intended was to undertake a "comprehensive and coherent reform of taxes linked to the acquisition and ownership of motor vehicles," which results from the "imperative necessity of bringing clarity and coherence to this area of the tax system and the even more imperative necessity of subordinating it to the principles and concerns of an environmental and energy nature that nowadays mark the discussion of vehicle taxation."

Continuing, the said explanatory memorandum explains that "the two new taxes now created, the vehicle tax and the single vehicle circulation tax, constitute much more than the technical extension of the figures created in the 70s and 80s that preceded them, aimed predominantly at revenue collection, indifferent to the social cost resulting from vehicle circulation. They constitute something different, figures already of the century in which we live, with which it is intended, of course, to collect public revenue, but to collect it in the measure of the cost that each individual causes to the community."

Which led, indeed, to the consecration of the principle of equivalence, inscribed in Article 1 of the CIUC, "thus making clear that the tax, as a whole, is subordinate to the idea that taxpayers should be burdened in the measure of the cost they cause to the environment and the road network, being this the raison d'être of this tax figure. It is this principle that dictates the burden of vehicles in function of their respective ownership and until the moment of disposal."

The IUC, as a true environmental tax, thus has as its passive subject the polluter, being nothing more, after all, than the consecration of the polluter-pays principle.

By which it is verified that the structuring principle of the reform of vehicle taxation is precisely the incidence of taxation on the true user of the vehicle, not being compatible with this principle the "blind" reading of the letter of the law, which could lead, after all, to taxing one who was not the owner and, thereby, who was not the subject causing the "environmental and road cost" caused by the vehicle, to which Article 1 of the CIUC refers.

From all that has been stated it results that the literal, historical, and teleological elements of interpretation of law necessarily lead to the conclusion that the expression "being considered" has exactly the same meaning as the expression "being presumed," and should thus be understood as establishing that Article 3, subsection 1, of the CIUC consecrates a true presumption of ownership and not any fiction, being, therefore, such presumption rebuttable.

Pursuant to Article 3, subsection 1, of the CIUC, the passive subject of the tax is, in principle, the owner, since the law presumes that it is this party who uses the asset. But if it is proven that, after all, it is not the owner who makes use of the vehicle, but a third party, then it will be this party, inevitably, the passive subject of the tax.

This is, unless better judgment prevails, the interpretation that is in harmony, on the one hand, with the principle stated in Article 11, subsection 3, of the General Tax Law, according to which, in cases of doubt as to the interpretation of tax norms, "the economic substance of the tax facts" should be considered, and, on the other hand, with the principle of equality in the distribution of public burdens, which requires that the taxation of the generality of taxpayers, whenever possible, be based on the economic reality underlying the tax facts[3].

Indeed, any other interpretation would violate, from the outset, the aforementioned principle of equivalence enshrined in Article 1 of the CIUC, according to which it is established that the IUC seeks to "burden taxpayers in the measure of the environmental and road cost that they cause, in implementation of a general rule of tax equality."

With it established that the legal nature of the norm contained in Article 3, subsection 1, of the CIUC is a presumption, it now falls to clarify the issue of the subjective incidence of the tax when the vehicle, as of the date of the tax-generating fact, has already been sold.

Once the sale contract is concluded, the purchaser will be instituted, ex contractu, in the position of owner, consequently beginning to have Article 3, subsection 1, of the CIUC apply to it; i.e., the new owner begins to hold, for purposes of IUC, the position of passive subject of the tax.

And such solution is required from the moment of the perfection of the sale contract not only because the CIUC determines it – by stating that "the passive subjects of the tax are the owners" – but also because among us the principle of consensuality prevails, which requires that the transmission of ownership occurs by mere effect of contract; as results in the first instance from Article 408, subsection 1, of the Civil Code.

And what has just been said is relevant to support our position with respect to the legal value of vehicle registration. Recall, however, that according to the general rule seen above, the transfer of the right occurs ex contractu, without need for any material act or publicity[4].

As peacefully accepted by doctrine and jurisprudence, given the silence of Decree-Law no. 54/75, of February 12th, as to the question of the legal value of vehicle registration, it becomes necessary to resort to the discipline of land registration; an operation moreover authorized by Article 29 of that Decree-Law.

Now, taking into account the Land Registration Code – approved by Decree-Law no. 125/13, of August 30th – namely its Article 7, and combining this norm with Article 1 of Decree-Law no. 54/75, one quickly infers the primary function of vehicle registration: to provide publicity to the legal situation of motor vehicles.

It can thus be affirmed that registration does not have a constitutive nature, rather merely a declarative one, permitting only to presume the existence of the right and its ownership. Note: presume and not fiction, and thus can be rebutted by contrary evidence.

And this is so precisely because, pursuant to Article 408 of the Civil Code, and except as provided by law, the creation or transfer of real rights over a determined thing occurs by mere effect of contract, with its validity not depending on any subsequent act, e.g., entry in the register.

Thus, the law providing no exception for the sale contract of motor vehicles, the real effect normally produces its effects, with the purchaser becoming its owner, independently of registration.

Now, if independently of registration the purchaser becomes the owner, the person registered ceases concomitantly to be so, despite appearing in the register as such.

In the present case, and notwithstanding the lack of entry in the register, the alleged transfers effected may be enforceable against the Respondent, given the fact that it cannot be considered a third party for purposes of registration, in accordance with and for the purposes set forth in Article 5, subsection 1, of the Land Registration Code.

Now, despite the fact that as of the date of the tax assessments the Claimant still appears in the register as owner of the vehicles, the truth is that it alleges not to be, as of the date of the tax-generating fact, its owner, because it had already sold them.

Thus, and since the presumption resulting from the register is, as we have seen, rebuttable, let us examine whether the evidence produced by the Claimant is apt to fulfill such objective.

To this end, the Claimant argues that the vehicles in question in the present proceedings were sold by it more than ten years ago, arguing to this end that they do not appear in its inventories of the last ten fiscal years.

As such, it continues, the obligation does not fall upon it to produce further evidence, since, pursuant to Articles 40 of the Commercial Code and 123 of the Corporate Income Tax Code, it is only obliged to keep the books, accounting records, and respective supporting documents for a period of 10 years.

The Respondent, for its part, impugns the document submitted by the Claimant for purposes of proving that the vehicles in question in the present proceedings do not appear in the Claimant's inventories of the last ten fiscal years.

As to the non-obligation of the Claimant to keep in its possession the commercial and accounting documentation for more than ten years, the Respondent accepts, but does not draw from this non-obligation the conclusion sought by the Claimant.

Let us examine this.

It is certain that, by application of Articles 40 of the Commercial Code and 123 of the Corporate Income Tax Code, the obligation does not fall upon the Claimant to keep in its possession the books, accounting records, and respective supporting documents for a period exceeding ten years.

It is also certain that, as the Claimant argues, not being this obliged to possess the documentation relating to the sale of the vehicles in question in the present proceedings, because more than 10 years have already elapsed on such, it cannot be concluded from the lack of this documentation that the Claimant was the owner of the said vehicles.

However, such does not determine that the inverse be true, that is, that not falling upon the Claimant the obligation to possess the documentation relating to the sale of the said vehicles, it can be concluded that it is not the owner thereof.

In the absence of documentation evidencing the sale, this shall have to be proven through any other means of proof.

With a view to possibly producing this evidence, the Claimant submitted, under number 4, a document prepared by it, allegedly containing information relating to the stock of motor vehicles owned by the Claimant in the last ten fiscal years, among which the vehicles in question in the present proceedings do not appear.

The document submitted by the Claimant is a private document, without full probative force, which was expressly impugned by the Respondent.

Having the Respondent impugned this document and its respective probative value, it fell upon the Claimant to prove the facts contained therein, proof which could be effected by any means.

However, the Claimant submitted no further evidence nor requested any measures for purposes of proving the facts contained in that private document, expressly impugned by the Respondent.

Indeed, the Claimant was expressly notified to submit evidence of all facts alleged by it, having opted to submit nothing.

Thus, in light of the absence of evidence to this effect produced by the Claimant, upon whom fell the respective burden, in light of the express impugnation of the said document by the Respondent, this Tribunal cannot attribute to this document the probative force sought by the Claimant.

Therefore, in light of the absence of any evidence to the contrary, the Claimant must always be considered the owner of the vehicles as of the date of the tax-generating fact.

Let us now examine the second issue raised by the Claimant, concerning the application to the vehicles in question in the present proceedings of the provision in Decree-Law 78/2008, of May 6th.

To this end, the Claimant alleges that the vehicles in question in the present proceedings are not subject to IUC, because it is presumed, given the dates of their respective registration, that they would no longer be in use.

This is because, according to the Claimant's argument, notwithstanding the said regime only provides for the official cancellation of registration plates of vehicles registered between January 1, 1980, and December 31, 2000, it would necessarily have to be considered applicable to registrations earlier, under penalty of automobiles of categories "C" and "D," subject to tax irrespective of the year of registration, being placed in unequal situation vis-à-vis automobiles of other categories, without any justified reason.

As to this issue, the Respondent alleges, in summary, that the legislator made the choice to provide for a system of official cancellation of registration plates referring to vehicles registered between 01/01/1980 and 31/12/2000, excluding from such cancellation registration plates from earlier. It further alleges that Decree-Law 78/2008 established a transitional and exceptional regime, which would only be in force until 31/12/2008, and that the Claimant neither alleged nor proved the requisites on which depends the official cancellation of registration plates provided for in the said Decree-Law.

Let us examine this:

With a view to updating the databases of vehicles and vehicle ownership, purging them of vehicles that were no longer in circulation, the regime provided for in Decree-Law 78/2008, of May 6th, was established, a regime that is transitional and exceptional, which would be in force until December 31, 2008.

It must be noted immediately that the fact that this regime only remained in force until 31/12/2008 does not mean that, should this tribunal consider it appropriate to apply to the vehicles in question in the present proceedings the regime provided for in the said Decree-Law, it would be unable to do so, by virtue of the period of validity of the said regime having already elapsed.

This is because what the said Decree-Law provides is that the cancellation of registration plates, whether official or upon request, must be effected within that period. Now, as is evident, this tribunal could never, by virtue of the powers conferred upon it by law, cancel or order the cancellation of registration plates, even within that period. But the fact that it cannot cancel or order the cancellation of registration plates does not mean that it is prohibited from being able to declare verified the requisites of cancellation to draw from it the necessary consequences.

This being stated, Article 5, subsection 3, of Decree-Law 78/2008, of May 6th, provides, with respect to official cancellation:

"Registration plates are also officially cancelled for vehicles registered between January 1, 1980, and December 31, 2000, which have not been subjected to compulsory periodic inspection after January 1, 2003."

It is thus verified that the official cancellation of registration plates is only provided for:

a) vehicles registered between January 1, 1980, and December 31, 2000,

b) which have not been subjected to compulsory periodic inspection after January 1, 2003.

As for vehicles registered before January 1, 1980, the law provides nothing, wherefore it falls to interpret the norm contained in subsection 3 of Article 5 of Decree-Law 78/2008, of May 6th, so as to ascertain whether, as the Claimant argues, this regime also applies to these vehicles.

Now, clearing up doubts as to the meaning and scope to be attributed to a particular legal norm involves carrying out an interpretive task that permits drawing from the linguistic statement a particular meaning or "content of thought"[5].

Such a task can only be accomplished – thus achieving the vis ac potestas legis – through the use of a particular method, which is based on literal interpretation, on the one hand, and on logical or rational interpretation, on the other.

Recall also that in accordance with Article 11, subsection 1, of the General Tax Law, tax norms are interpreted in accordance with the principles of legal hermeneutics commonly accepted, namely those established, among us, in Article 9 of the Civil Code.

Literal interpretation presents itself, then, as the first stage of interpretive activity. As FERRARA states, "the text of the law forms the substrate from which the interpreter must depart and on which the interpreter must rest"[6].

In truth, since the law is expressed in words, the verbal significance they contain should then be extracted from them, according to their natural connection and grammatical rules. However, if the words employed by the legislator are ambiguous or indeterminate, it will be necessary to resort to logical interpretation, which attends to the spirit of the provision to be interpreted.

In the case at hand, from reading the letter of the law, no doubt remains that the official cancellation of registration plates is reserved for vehicles registered between January 1, 1980, and December 31, 2000, which have not been subjected to compulsory periodic inspection after January 1, 2003.

Note that, as results from Article 9, subsection 3, of the Civil Code, in determining the meaning and scope of the law, the interpreter should presume that the legislator enshrined the most correct solutions and knew how to express its thinking in appropriate terms.

One should thus presume that the law intended to effectively restrict official cancellation to vehicles registered after January 1, 1980, not being thus covered by this cancellation vehicles registered before that date.

But, even if it were understood that the letter of the law raised some type of doubt as to its meaning and scope, and one should thus resort to other elements of legal interpretation – which we do not argue – the tribunal will always advance that it does not have elements to discern in the law any other meaning than that expressly enshrined.

Indeed, from the analysis of the rational, systematic, and historical elements, it is not possible for the tribunal to determine with any type of certainty that in the wording of the cited Article 5, subsection 3, the legislator said, as the Claimant argues, less than it intended.

To the contrary, the law interpreted in accordance with these elements, it seems possible to conclude that the law intended to effectively exclude from official cancellation vehicles registered before January 1, 1980, which, moreover, appears to be understood as a sanction for the omissive conduct of the owners.

In light of the foregoing and, above all, in light of the clarity of the law, the tribunal cannot understand, as the Claimant seeks, that official cancellation would also apply to vehicles registered before January 1, 1980.

Indeed, even if this were not so and one could argue that the said provision applies also to vehicles registered before January 1, 1980, it would always be said that the Claimant's claim could never succeed by the fact that it has not been demonstrated in the proceedings the fulfillment of the second requisite provided for in Article 5, subsection 3, of Decree-Law 78/2008, of May 6th, for official cancellation of registration plates, that is, the absence of compulsory periodic inspection after January 1, 2003.

Indeed, regarding this second requisite, nothing was alleged by the Claimant and, consequently, it did not form part of the list of established facts.

Therefore, even if the said Article 5, subsection 3, applied to registration plates before 1980, the registration plates of the vehicles in question in the present proceedings could never be considered cancelled by virtue of the fact that it has not been demonstrated the absence of compulsory periodic inspection after January 1, 2003.

The Claimant further argues, in support of its thesis, that, if only Article 5, subsection 3, of Decree-Law 78/2008, is to apply to vehicles registered after January 1, 1980, and no longer to vehicles registered before, such provision would always be unconstitutional, by violation of the principle of equality.

The perception of the existence of any violation of the principle of equality by the legislator implies the complete and profound understanding of the purposes envisioned by the legislator with the solution adopted.

In the case at hand, as already explained, it is not possible for this tribunal to determine with the necessary certainty the purpose envisioned by the legislator with the solution adopted.

And, not being possible to determine the objective of the legislator in excluding from official cancellation registration plates before 1980, this tribunal cannot argue that the solution found by the legislator is unconstitutional, by violation of the principle of equality.

Indeed, as is known, the principle of equality requires equal treatment for equal factual situations and differentiated treatment for different factual situations.

Notwithstanding it is evident the existence, in the present case, of differentiated treatment between vehicles registered before and after January 1, 1980, this is not sufficient to qualify as unconstitutional, by violation of the principle of equality, the norm contained in Article 5, subsection 3, of Decree-Law 78/2008. This is because, as is plain to see, this differentiated treatment can be determined by the difference in fact existing between vehicles with registration before or after January 1, 1980, in which case the differentiated treatment does not determine any violation of the principle of equality, being instead precisely required by such principle.

The Claimant further alleges that the same constitutional defect afflicts Article 2, subsection 1, paragraphs c) and d), of the CIUC, in distinguishing between light passenger automobiles and goods automobiles, taxing the latter and excluding from taxation light passenger automobiles registered before January 1, 1981.

Once again, no violation of the principle of equality is discerned in the said provision.

This is because, in this situation, there exists, in fact and in a clear manner, a difference between the situations covered by the norm: light passenger automobiles and goods automobiles.

And, for different situations, different treatments, as required by the constitutional principle of equality.

No unconstitutionality is thus discerned either of Article 5, subsection 3, of Decree-Law 78/2008, of May 6th, nor of Article 2, subsection 1, paragraphs c) and d), of the CIUC.

Finally, the Claimant argues that the vehicles in question in the present proceedings are not subject to IUC by the fact that they are not intended for the particular transport of goods, transport for own account, or rental without driver possessing these purposes.

To this end, it alleges that, being the Claimant a company engaged in the business of automobiles, not being authorized to conduct any other type of activity, it is evident the vehicles in question are not assigned to the said purposes.

To this end, Article 2, subsection 1, paragraph c), of the CIUC provides that Category C includes goods automobiles and mixed-use automobiles weighing over 2500 kg, assigned to particular goods transport, transport for own account, or rental without driver possessing these purposes.

Differently, paragraph d) of the same provision provides that the said vehicles are classified in Category "D" when assigned to public goods transport, transport on behalf of third parties, or rental without driver possessing these purposes.

For its part, subsection 2 of the same article provides that vehicles are presumed assigned to particular goods transport or transport for own account those vehicles for which it is not proven the assignment to public goods transport or transport on behalf of third parties.

It is thus verified that goods automobiles and mixed-use automobiles weighing over 2500 kg are subject to IUC, with their classification as Category "C" or "D" depending on the actual use made of them: if assigned to particular goods transport or transport for own account, they fall within Category "C"; if assigned to public goods transport or transport on behalf of third parties, they fall within Category "D".

From this it results there is no possibility these vehicles not being subject to IUC: they will always be subject to IUC, with their concrete classification depending on the actual assignment thereof.

But would it be, should the Claimant manage to demonstrate these vehicles are not assigned to any of the said activities, whether of a particular or public nature, that could be argued, as the Claimant seeks, that these vehicles are not subject to IUC, despite the concrete Category in which they fall?

We tend to respond negatively, with these vehicles always being subject to IUC, independently of their concrete assignment, which can only have relevance for their classification in one or another category.

In any case, even if this were so, it would always be said that the Claimant failed to demonstrate, as fell to it, that the said vehicles are not assigned to any of the said activities.

Note that, to this end, the Claimant alleged it was a company engaged in the commercialization of automobiles and that it was not authorized to conduct any other type of activity, being thus evident the vehicles in question are not assigned to the said purposes.

The Claimant merely alleged such fact, without however attaching or requesting any means of proof apt to its verification.

As such, it fell upon the Claimant the burden of proving that it engages only in the activity of commercialization of automobiles and not in any other activity, in particular in the activity of particular goods transport, transport for own account, or rental without driver possessing these purposes, and not having succeeded in effecting such proof, this tribunal, in light of the elements available to it, could not establish as proven that the Claimant engages only in the activity of commercialization of vehicles, to the exclusion of any other.

Moreover, the thesis advanced by the Claimant that it is not authorized to conduct any other type of activity would not hold, since such authorization is only reserved for the exercise of certain activities among which, as is well known, do not fall the activities of particular goods transport, transport for own account, or rental without driver possessing these purposes.

In light of all that has been stated, no illegality of the assessments effected is verified, which should thus be maintained in the legal order, as well as the decision of dismissal of the hierarchical appeal filed.

VII. OPERATIVE PART

In light of the foregoing, it is decided:

a) To judge inadmissible the request for revocation of the decision of dismissal of the hierarchical appeal filed;

b) To judge inadmissible the request for annulment of the impugned IUC assessment acts.

The value of the proceedings is fixed at € 5,484.52, in accordance with paragraph a) of Article 97-A, subsection 1, of the Code of Tax Procedure and Process, applicable by virtue of paragraphs a) and b) of Article 29, subsection 1, of the RJAT and Article 3, subsection 2, of the Regulation of Costs in Tax Arbitration Proceedings.

The value of the arbitration fee is fixed at € 612.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, as well as Article 12, subsection 2, and Article 22, subsection 4, both of the RJAT, and Article 4, subsection 4, of the cited Regulation, to be paid by the Claimant as the unsuccessful party.

Register and notify.

Lisbon, January 8, 2016.

The Arbitrator,

Alberto Amorim Pereira

Text prepared by computer, in accordance with Article 131, subsection 5, of the Code of Civil Procedure, applicable by referral of paragraph e) of Article 29, subsection 1, of Decree-Law no. 10/2011, of 20/01.

[1] FRANCISCO RODRIGUES PARDAL, "The use of presumptions in tax law," in Science and Tax Technique, no. 325-327, page 20.

[2] In "Code of Tax Procedure and Process Annotated and Commented," Volume I, 6th Edition, Áreas Publisher, Lisbon, 2011, p. 589.

[3] JORGE LOPES DE SOUSA, op. cit, pp. 590 et seq.

[4] Cf. HEINRICH EWALD HÖRSTER, in "The General Part of the Portuguese Civil Code," 2nd Reprint of the 1992 Edition, Almedina, p. 467

[5] JOÃO BAPTISTA MACHADO, in "Introduction to Law and the Legitimating Discourse," Almedina, 1982, p. 175.

[6] FRANCESCO FERRARA, in "Interpretation and Application of Laws," 1921, Rome; Translation by MANUEL DE ANDRADE, Arménio Amado, Publisher Successor – Coimbra, 2nd Edition, 1963, p. 138 et seq.

Frequently Asked Questions

Automatically Created

Who is liable for IUC tax when a vehicle has been sold but remains registered to the original owner?
According to Article 3 of the IUC Code (CIUC), the passive subject of IUC is the vehicle owner, legally defined as the person in whose name the vehicle is registered. The Tax Authority interprets this as a legal fiction, meaning the registered owner is automatically liable for IUC regardless of actual ownership. However, taxpayers can argue this constitutes only a rebuttable presumption, allowing proof that they are not the true owner. The key issue is whether the taxpayer can successfully prove the vehicle was sold and ownership transferred, despite registration not being updated. Without proper evidence of sale (contracts, transfer documents), the registered owner typically remains liable. Vehicle importers face particular challenges as they must initially register vehicles in their name for customs purposes, creating potential tax exposure for vehicles subsequently sold if registration transfers are not properly completed.
Can a vehicle importer be required to pay IUC on cars sold over 10 years ago?
Yes, vehicle importers can be required to pay IUC on vehicles sold years earlier if the registration was never transferred from their name. In this case, the distributor was assessed IUC in 2012-2013 for vehicles sold over a decade prior. The Tax Authority's position is that registration determines tax liability, regardless of when the actual sale occurred. The burden falls on the importer to prove they are no longer the owner, which can be difficult after many years when sale documentation may no longer be retained (particularly beyond legal retention periods). Importers who initially register vehicles for customs purposes but fail to ensure proper registration transfer to buyers face ongoing IUC exposure. The solution requires either proving the sale occurred and ownership transferred, or obtaining official cancellation of the vehicle registration. This highlights the importance of vehicle importers maintaining robust documentation of all sales and ensuring buyers complete registration transfers.
How does cancellation of vehicle registration affect IUC tax obligations in Portugal?
Cancellation of vehicle registration can eliminate future IUC tax obligations, as IUC liability is tied to registered ownership. Decree-Law 78/2008 established an official cancellation system for certain vehicles (registered 1980-2000) not subjected to periodic inspection after 2003, automatically cancelling their registration. However, cancellation does not retroactively eliminate IUC obligations for prior tax periods when the vehicle remained registered. In this case, the distributor requested and obtained registration cancellations in 2010, but still faced assessments for 2009-2010 periods. The Tax Authority argued that DL 78/2008 only applies to vehicles meeting specific criteria, and the taxpayer failed to prove the vehicles qualified. The timing of cancellation is critical: IUC liability exists for each year the vehicle remains registered until cancellation is completed. Taxpayers must proactively request registration cancellation for vehicles no longer in their possession to prevent ongoing tax exposure.
Does vehicle registration in Portugal constitute proof of ownership for IUC subjective incidence?
Yes, vehicle registration constitutes proof of ownership for IUC subjective incidence, but the legal nature of this proof is contested. The Tax Authority argues Article 3 CIUC creates a legal fiction whereby the registered person is definitively considered the owner for tax purposes, making registration conclusive proof. The taxpayer position is that registration creates only a rebuttable presumption under general property law principles, allowing contrary evidence to prove actual ownership differs from registered ownership. Registration serves an administrative function but is not constitutive of ownership rights under Portuguese civil law. However, for IUC purposes, the tax code specifically defines 'owner' as the registered person, creating strong legal basis for the Tax Authority's position. Taxpayers challenging this must provide substantial evidence (sale contracts, payment proof, buyer identification) demonstrating ownership transfer despite unchanged registration. The practical effect is that registration creates a very strong, though potentially rebuttable, proof of ownership for IUC liability purposes.
What is the procedure to challenge IUC tax assessments through arbitral tribunal (CAAD) in Portugal?
To challenge IUC assessments through the Portuguese Tax Arbitration Center (CAAD), taxpayers must: (1) First exhaust administrative remedies by filing a hierarchical appeal with the Tax Authority; (2) After receiving an unfavorable decision or partial dismissal, file a request for arbitral tribunal establishment under Article 2(1)(a) and Article 10(1)(a) of the Legal Regime of Arbitration in Tax Matters (RJAT - Decree-Law 10/2011); (3) Submit a detailed request for arbitral ruling explaining the legal and factual grounds, attaching supporting documents; (4) Either designate an arbitrator or allow the CAAD's Deontological Council to make the appointment; (5) Pay the required arbitration fees. The procedure includes: tribunal constitution, notification of the Tax Authority to respond (addressing both exceptions and merits), optional response to exceptions by the claimant, potential hearing (Article 18 RJAT), and final decision. The process allows taxpayers to contest assessment legality, request refunds of amounts paid, and claim indemnificatory interest, as demonstrated in this case involving €5,484.52 across 20 IUC assessment acts.