Process: 186/2014-T

Date: October 16, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitration case (186/2014-T) addresses the subjective incidence of IUC (Imposto Único de Circulação) on vehicles under financial leasing and ALD contracts. The Applicant, a Portuguese credit institution, challenged IUC assessments totaling €133,763.26 for fiscal years 2009-2012 on vehicles registered in its name but leased to third parties. The bank argued it was not the IUC taxpayer under Articles 3 and 19 of the IUC Code, contending that: (1) certain vehicles had been disposed of before the taxable event occurred; and (2) for vehicles under active leasing contracts, it had properly communicated lessee data to the Tax Authority pursuant to Article 19, thereby transferring tax liability to the lessees who possessed and used the vehicles. The Tax Authority maintained that registration as vehicle owner established tax liability regardless of leasing arrangements. The case raises fundamental questions about IUC taxpayer identification in financial leasing contexts, where legal ownership (lessor/bank) diverges from actual possession and use (lessee). Central to the dispute is interpreting Article 19's procedure for designating lessees as taxpayers and whether proper communication to AT effectively transfers IUC liability from lessor to lessee. The arbitration tribunal accepted jurisdiction and deemed the cumulation of claims appropriate given the identical legal and factual grounds across all challenged assessments involving the same tax and interpretative issues.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 186/2014 – T

Subject: IUC – subjective scope of application

I REPORT

"A", S.A., Public Company, with registered address at Street …, No. …, in Porto (…-…), registered at the Commercial Registry Office of Porto under single registration number and collective person number …, with share capital of € … (… euros), falling within the territorial jurisdiction of the Tax Services Office of Porto – …, hereinafter referred to as "Applicant", pursuant to the provisions of paragraph a) of section 1 of Article 2, paragraph a) of section 3 of Article 5, and paragraph a) of section 1 of Article 10, all of the Legal Framework for Arbitration in Tax Matters (RJAT) approved by Decree-Law No. 10/2011, of 20 January, came to present a request for arbitral decision seeking a declaration of illegality of IUC assessments (Single Circulation Tax) and compensatory interest "(…) on the vehicles registered in the name of the Applicant, covering the fiscal years 2009 to 2012, substantiated in the collection documents detailed in Tables I and II which constitute Document No. 1, in the total amount of € 133,763.26 (€ 115,952.73 + 17,810.53) (…)".

The Applicant bases its request on the following grounds, in essence and summary:

a) The Applicant is a credit institution, subject to supervision by the Bank of Portugal, heading Group "A", a financial group, multi-specialized, centered on banking activity, equipped with a complete range of financial services and products for corporate, institutional and private customers.

b) The corporate purpose of the Applicant consists in carrying out the operations described in section 1 of Article 4 of the General Framework for Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92, of 31 December[1], among which stands out, as far as this case is concerned, credit operations and financial leasing operations;

b) Within the scope of solutions for the acquisition of motor vehicles, the Applicant makes available to its customers the modalities of credit contract with retention of title, financial leasing contract, and leasing contract.

c) In the exercise of its activity, the Applicant entered into financial leasing contracts having as their object the vehicles identified in Document No. 1 attached.

d) As is typical of Leasing and ALD contracts, the Applicant assumes the position of lessor and, pursuant to the terms and conditions of the respective contracts, acquires the vehicles from third-party suppliers, immediately handing them over for use and enjoyment of the lessees, who are obliged to pay the respective rent.

e) Thus, throughout the duration of the Leasing and ALD contracts, the Applicant is the owner of the acquired vehicles, appearing as such in the vehicle register, collecting rents from the lessees for the transfer (leasing) of the assets.

f) At the end of Leasing contracts, the lessee is granted the possibility to, through payment of an additional amount (residual value), acquire the asset from the lessor.

g) In the case of an ALD contract, the lessee is obliged to acquire ownership of the vehicles at the end of the contract.

h) In August 2013 the Applicant was notified for prior hearing on the official IUC assessments on the vehicles in question, which were based on the fact that the Applicant was registered as owner of the vehicles in question (as per notifications attached as Document No. 2).

i) At the hearing stage, the Applicant expressed its disagreement with the projected IUC assessments on the grounds that, in accordance with Article 3 of the IUC Code, it was not the taxpayer of the tax.

j) In fact, with respect to the vehicles listed in Table I of Document No. 1, these had been disposed of at a time prior to the date of occurrence of the taxable event, so the Applicant was no longer their owner, and the single circulation tax was not required to be paid with respect to those vehicles.

k) Regarding the vehicles identified in Table II of Document No. 1, these, being property of the Applicant on the date of occurrence of the taxable event, were transferred to their respective lessees within the scope of the financial leasing contracts entered into, and the lessees' data were communicated to the Tax and Customs Authority (AT), as provided for in Article 19 of the IUC Code, through the procedure established in the Finance Portal.

l) Furthermore, with respect to the 24 vehicles highlighted in gray in Table II, these, having been subject to assessments relating to different years, were, with respect to certain assessments, in a financial leasing situation, with the respective lessee being notified as part of the procedure mentioned in the preceding article, and with respect to the remaining assessments, were no longer property of the Applicant, as they had been transferred to the lessee before the occurrence of the taxable event.

m) Such facts were not, however, taken into consideration by the AT, which maintained the decision to officially assess IUC on the vehicles in question, notified to the Applicant through the collection documents attached as Document No. 3).

n) The Applicant paid the amounts of tax assessed, as evidenced by the documents attached as Document No. 4.

o) However, the Applicant does not accept the aforementioned IUC assessments, as, in accordance with Articles 3 and 19 of the IUC Code, it is not the taxpayer in the tax relationship set forth in each of the IUC assessments above listed.

The claimant did not proceed with the appointment of arbitrators, so, pursuant to Article 6, section 2, paragraph a), of the RJAT, the undersigned were designated by the president of the Ethics Council of CAAD to compose this Collective Arbitral Tribunal, having accepted in accordance with legal provisions.

On 11-4-2014 the parties were duly notified of this designation, and did not express any will to refuse it in accordance with Article 11, section 1, paragraphs a) and b) of the RJAT and Articles 6 and 7 of the Ethics Code.

The Tribunal was constituted on 5-5-2014 [Article 11, section 1, paragraph c), of the RJAT, in the wording introduced by Article 228, of Law No. 66-B/2012, of 31-12]

On 12-5-2014, the Tax and Customs Authority presented its response and attached the administrative files, contending that the request for arbitral decision should be judged unfounded and that the impugned tax acts should remain in the legal order.

By order of 9-6-2014, the Tribunal dispensed with the meeting provided for in Article 18 of the RJAT.

Both parties waived the presentation of final arguments, oral or written.

Preliminary Ruling / Procedural Requirements

The arbitral tribunal was regularly constituted and is materially competent, in accordance with Articles 2, section 1, paragraph a), and 30, section 1, of the RJAT.

Given that it is the same tax (IUC) and considering the identity of the factual and legal grounds in all challenges to the assessments, the requirements provided for in Articles 104 of the CPPT and 3 of the RJAT are met for the cumulation of the claims.

The parties have legal standing and capacity and are legitimate (Articles 4 and 10, section 2, of the same statute and Article 1 of Ordinance No. 112-A/2011, of 22 March).

The proceedings are free from defects and no issues have been raised that could prevent consideration of the merits of the case.

II REASONING

The Proven Facts[2]

The following is the essential factual framework established to legally and lawfully frame the issues raised:

a) The Applicant is a credit institution, subject to supervision by the Bank of Portugal, heading Group "A", a financial group, multi-specialized, centered on banking activity, equipped with a complete range of financial services and products for corporate, institutional and private customers.

b) The corporate purpose of the Applicant consists in carrying out the operations described in section 1 of Article 4 of the General Framework for Credit Institutions and Financial Companies, approved by Decree-Law No. 298/92, of 31 December[3], among which stands out, as far as this case is concerned, credit operations and financial leasing operations;

c) Within the scope of solutions for the acquisition of motor vehicles, the Applicant makes available to its customers the modalities of credit contract with retention of title, financial leasing contract, and leasing contract.

d) In the exercise of its activity, the Applicant entered into financial leasing contracts having as their object the vehicles identified in Document No. 1 attached to the initial petition;

e) As is typical of Leasing and ALD contracts, the Applicant assumes the position of lessor and, pursuant to the terms and conditions of the respective contracts, acquires the vehicles from third-party suppliers, immediately handing them over for use and enjoyment of the lessees, who are obliged to pay the respective rent.

f) Thus, throughout the duration of the Leasing and ALD contracts, the Applicant is the owner of the acquired vehicles, appearing as such in the vehicle register, collecting rents from the lessees for the transfer (leasing) of the assets.

g) At the end of Leasing contracts, the lessee is granted the possibility to, through payment of an additional amount (residual value), acquire the asset from the lessor.

h) In the case of an ALD contract, the lessee is obliged to acquire ownership of the vehicles at the end of the contract.

i) In August 2013 the Applicant was notified for prior hearing on the official IUC assessments on the vehicles in question, which were based on the fact that the Applicant was registered as owner of the vehicles in question (as per notifications attached as Document No. 2 attached to the initial petition).

j) At the hearing stage, the Applicant expressed its disagreement with the projected IUC assessments on the grounds that, in accordance with Article 3 of the IUC Code, it was not the taxpayer of the tax.

k) The vehicles listed in Table I of Document No. 1 attached to the initial petition had been disposed of, and the requesting Bank was no longer their owner.

l) Regarding the vehicles identified in Table II of Document No. 1 attached with the initial petition, these, being property of the Applicant on the date of occurrence of the taxable event, were transferred to their respective lessees within the scope of the financial leasing contracts entered into, and the lessees' data were communicated to the Tax and Customs Authority (AT), as provided for in Article 19 of the IUC Code, through the procedure established in the Finance Portal.

l) Furthermore, with respect to the 24 vehicles highlighted in gray in Table II, these, having been subject to assessments relating to different years, were, with respect to certain assessments, in a financial leasing situation, with the respective lessee being notified as part of the procedure mentioned in the preceding article, and with respect to the remaining assessments, were no longer property of the Applicant, as they had been transferred to the lessee before the occurrence of the taxable event.

m) Such facts were not, however, taken into consideration by the AT, which maintained the decision to officially assess IUC on the vehicles in question, notified to the Applicant through the collection documents attached as Document No. 3 attached with the initial petition.

n) The Applicant paid the amounts of tax assessed, as evidenced by the documents attached as Document No. 4.

Motivation

The facts mentioned are documentally proven or were not specifically challenged.

In particular, the dates of registration of the vehicles mentioned are documented in the administrative files attached by the AT.

The respondent did not challenge the documents, alleging, in particular, their falsity.

II REASONING (continued)

The Law

Given the positions of the Parties assumed in the arguments presented, the central decisive issues are:

A - Whether, on the date of the occurrence of the facts giving rise to the tax [Article 3, section 1, of the CIUC[4]], the owners of the vehicles are not those appearing in the register, will it nevertheless be these (those appearing in the register) who will always be considered the taxpayers of the IUC, such that the presumption of ownership revealed by the register cannot be rebutted, or, stated differently, whether the provision concerning the subjective scope of application contained in Article 3, section 1 of the CIUC, establishes or does not establish a presumption; and

B – Whether the owner of the vehicle on the date of the taxable event (registration or anniversary of the vehicle[5]) who transferred it within the scope of a financial leasing contract will nonetheless be a taxpayer of IUC.

These issues have already, in essence, been addressed in various decisions of the CAAD, some of which have already been published at www.caad.org.pt and others are in the process of publication [See, e.g., decisions delivered in cases Nos. 14/2013, 26/2013, 27/2013, 73/2013, 170/2013, 294/2013 and 154/2014].

There are no grounds to reverse or alter the essential direction of this case law.

Let us examine:

Article 3 of the CIUC (Single Circulation Tax Code) provides:

"Article 3

Subjective scope of application

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

2 – Equivalent to owners are financial lessees, purchasers with retention of title, as well as other holders of option to purchase rights by virtue of a leasing contract".

Article 11, section 1 of the LGT [General Tax Law], on the other hand, provides that "in the determination of the meaning of tax norms and in the qualification of the facts to which they apply, the general rules and principles of interpretation and application of laws are observed".

To resolve the doubts that may arise in the application of legal norms presupposes the carrying out of an interpretative activity.

It is thus necessary to consider the best interpretation[6] of Article 3, section 1 of the CIUC, in light, first of all, of the literal element, that is, the one through which it is intended to detect the legislative thought which is embodied in the norm, to verify whether the same contemplates a presumption, or whether it determines, definitively, that the taxpayer of the tax is the owner who appears in the register.

The question that arises is, in the case before this Tribunal, whether the expression "being considered as" used by the legislator in the CIUC, instead of the expression "being presumed", which was contained in the statutes preceding the CIUC, will have removed the nature of presumption from the legal provision in question.

In our view, and contrary to what the AT skilfully contends, the answer must necessarily be negative, since from the analysis of our legal system it is clear that the two expressions have been used by the legislator with equivalent meaning, whether at the level of rebuttable presumptions or within the framework of irrebuttable presumptions, such that nothing entitles one to draw the conclusion sought by the Tax Authority for a mere semantic reason.

In fact, this occurs in various legal norms that establish presumptions using the verb "to consider", of which the following are indicated merely by way of example:

~ In the field of civil law - section 3 of Article 243 of the Civil Code, when it provides that "a third party who acquired the right after registration of the action for simulation is always considered to be in bad faith, when this occurs";

~ Also in the field of industrial property law the same occurs, when Article 59, section 1 of the Industrial Property Code provides that "(…) inventions whose patent was applied for during the year following the date when the inventor left the company, are considered to have been made during the execution of the employment contract (…)";

~ And, finally, in the field of tax law, when sections 3 and 4 of Article 89-A of the LGT provide that the burden of proof is on the taxpayer that the declared income corresponds to reality and that, if such proof is not made, it is presumed ("is considered" in the letter of the Law) that the income is that which results from the table contained in section 4 of the aforementioned article.

This conclusion that there is total equivalence of meaning between the two expressions, which the legislator uses indifferently, satisfies the condition established in Article 9, section 2 of the Civil Code, since the minimum verbal correspondence is assured for purposes of determining legislative thought.

It is important, subsequently, to submit the provision in question to the other elements of logical interpretation, namely, the historical element, the rational or teleological element, and the element of systematic order.

Discussing the interpretative activity, FRANCESCO FERRARA says that this "is the most difficult and delicate operation to which the jurist can devote himself, and demands fine tact, refined sense, happy intuition, much experience and perfect mastery not only of positive material, but also of the spirit of a certain legislation. (…) Interpretation must be objective, balanced, without passion, sometimes daring, but not revolutionary, acute, but always respectful of the law" (See Essay on the Theory of Interpretation of Laws, translation by MANUEL DE ANDRADE, (2nd ed.), Arménio Amado, Publisher, Coimbra, 1963, p. 129).

As BAPTISTA MACHADO states, "the legal provision presents itself to the jurist as a linguistic utterance, as a set of words that constitute a text. Interpretation consists evidently in extracting from that text a certain meaning or content of thought.

The text comprises multiple meanings (polysemy of the text) and frequently contains ambiguous or obscure expressions. Even when apparently clear upon first reading, its application to concrete cases of life often gives rise to unforeseen and unpredictable interpretation difficulties. Moreover, even though apparently clear in its verbal expression and conveying only one meaning, one must still account for the possibility that the verbal expression has betrayed the legislative thought – a phenomenon more frequent than might appear at first sight" (See Introduction to Law and Legitimizing Discourse, pp.175/176).

"The purpose of interpretation is to determine the objective meaning of the law, the vis potestas legis. (…) The law is not what the legislator wished or intended to express, but solely that which he expressed in the form of law. (…) Furthermore, the legal command has an autonomous value that may not coincide with the will of the creators and drafters of the law, and may lead to unexpected and unforeseen consequences for the legislators. (…) The interpreter must seek not that which the legislator wished, but that which in the law appears objectively intended: the mens legis and not the mens legislatoris" (See FRANCESCO FERRARA, Essay, pp. 134/135).

Understanding a law "is not merely to grasp mechanically the apparent and immediate meaning that results from verbal connection; it is to inquire deeply into the legislative thought, to descend from the verbal surface to the intimate concept that the text contains and to develop it in all its possible directions" (loc. cit., p.128).

With the objective of unveiling the true meaning and scope of legal texts, the interpreter employs interpretative factors which are essentially the grammatical element (the text, or the "letter of the law") and the logical element, which, in turn, is subdivided into the rational (or teleological) element, the systematic element and the historical element. (See BAPTISTA MACHADO, loc. cit., p. 181; J. OLIVEIRA ASCENSÃO, Law – Introduction and General Theory 2nd Ed., Calouste Gulbenkian Foundation, Lisbon, p.361).

Among us, it is Article 9 of the Civil Code (CC) that provides the rules and fundamental elements for the correct and adequate interpretation of norms.

The text of section 1 of Article 9 of the CC begins by saying that interpretation must not be limited to the letter of the law, but must reconstruct from it the "legislative thought".

Regarding the expression "legislative thought", BAPTISTA MACHADO tells us that Article 9 of the CC "did not take a position in the controversy between subjectivist doctrine and objectivist doctrine. This is proven by the fact that it refers neither to the "will of the legislator" nor to the "will of the law", but rather points as the scope of the interpretative activity the discovery of "legislative thought" (Article 9, section 1). This expression, intentionally colorless, means precisely that the legislator did not wish to commit itself" (loc. cit., p. 188).

In the same sense, PIRES DE LIMA and ANTUNES VARELA speak in annotation to Article 9 of the CC (See Civil Code Annotated – vol. I, Coimbra ed., 1967, p. 16).

And regarding section 3 of Article 9 of the CC, that author states: "section 3 thus proposes to us an ideal legislator model that consecrated the most correct (most correct, just or reasonable) solutions and knows how to express itself correctly. This model clearly exhibits objectivist characteristics, since the concrete legislator (so often incorrect, precipitous, unhappy) is not taken as the point of reference, but an abstract legislator: wise, provident, rational and just" (loc. cit. p. 189/190).

Immediately after this distinguished Professor calls attention to the fact that section 1 of Article 9 mentions three more elements of interpretation: "the unity of the legal system", "the circumstances in which the law was drafted" and "the specific conditions of the time in which it is applied" (loc. cit, p. 190).

Regarding the "circumstances of the time in which the law was drafted", BAPTISTA MACHADO explains that this expression "represents what has traditionally been called the occasio legis: the conjunctural factors of a political, social and economic order that determined or motivated the legislative measure in question" (loc. cit., p.190).

Regarding the "specific conditions of the time in which it is applied", this author states that this element of interpretation "decidedly has an actualist connotation" (loc. cit., p. 190), which coincides with the opinion expressed by PIRES DE LIMA and ANTUNES VARELA in annotations to Article 9 of the CC.

With respect to the "unity of the legal system", BAPTISTA MACHADO considers this the most important interpretative factor: "its consideration as a decisive factor would always be imposed upon us by the principle of axiological or value-based coherence of the legal order" (loc. cit., p. 191).

It is also this author who tells us, regarding the literal or grammatical element (text or "letter of the law") that this "is the starting point of interpretation. As such, it immediately has a negative function: to eliminate those meanings that have no support, or at least some correspondence or resonance in the words of the law.

But it also has a positive function, as follows: if the text comprises only one meaning, it is that the meaning of the norm – with the caveat, however, that it may be concluded on the basis of other norms that the wording of the text has betrayed the thought of the legislator" (loc. cit., p. 182).

Referring to the rational or teleological element, this author states that it consists "in the reason for being of the law (ratio legis), in the purpose pursued by the legislator in elaborating the norm. Knowledge of this purpose, especially when accompanied by knowledge of the circumstances (political, social, economic, moral, etc.,) in which the norm was drafted or of the political-economic-social conjuncture that motivated the legislative decision (occasio legis) constitutes a subsidy of the greatest importance for determining the meaning of the norm. It suffices to recall that the clarification of the ratio legis reveals to us the valuation or weighing of the various interests that the norm regulates and, therefore, the relative weight of those interests, the choice among them expressed by the solution that the norm sets forth" (loc. cit., pp. 182/183).

It is also BAPTISTA MACHADO who tells us, now with respect to the systematic element (context of the law and parallel provisions) that "this element comprises consideration of the other provisions that form the normative complex of the institution in which the norm being interpreted is integrated, that is, that regulate the same subject matter (context of the law), as well as consideration of legal provisions that regulate parallel normative problems or related institutions (parallel provisions). It also comprises the systematic place that belongs to the norm being interpreted in the global legal order, as well as its consonance with the spirit or intrinsic unity of the entire legal order.

This interpretative subsidy is based on the postulate of the intrinsic coherence of the legal order, namely on the fact that the norms contained in a codification obey, in principle, a unitary thought" (loc.cit., p. 183).

As JOSEF KOHLER teaches, cited by MANUEL DE ANDRADE "(…) In particular we must take into account the interweaving of the various laws of the country, because a fundamental requirement of all sound legislation is that the laws adjust to one another and do not result in a jumble of disconnected provisions" (Essay, p. 27).

Descending to the case before us:

Through analysis of the historical element, it is concluded that, from the entry into force of Decree-Law 59/72, of 30 December, the first to regulate this matter, until Decree-Law No. 116/94, of 3 May, the last preceding the CIUC [see Law No. 22-A/2007, with amendments of Law 67-A/2007 and 3-B/2010], the presumption [emphasized] was consecrated that the taxpayers of the IUC are the persons in whose names the vehicles were registered on the date of their assessment.

It is thus verified that tax law has always had the objective of taxing the true and effective owner (or lessee, in the case of financial leasing and ALD) and user of the vehicle, it appearing immaterial the use of one or another expression which, as we have seen, have a coincident meaning in our legal order.

The same is to be said when we resort to elements of interpretation of a rational or teleological nature.

In fact, the current and new framework of vehicle taxation consecrates principles aimed at subjecting vehicle owners to bearing the costs of damage to roads and the environment caused by these, as is evident from Article 1 of the CIUC.

Now, the consideration of these principles, in particular, the principle of equivalence, which deserve constitutional protection and establishment in community law, and are also recognized in other branches of the legal order, determines that the aforementioned costs be borne by the real owners, the causers of the aforementioned damage, which completely precludes an interpretation aimed at preventing presumed owners from proving that they are no longer such because the ownership is in the legal sphere of another[7].

Thus, also, from the interpretation carried out in light of elements of a rational and teleological nature, given what the rationality of the system guarantees and the purposes pursued by the new CIUC, it is clear that section 1 of Article 3 of the CIUC establishes a rebuttable legal presumption.

Given the foregoing, it is important to conclude that the ratio legis of the tax points in the direction that the effective owner-users of the vehicles be taxed, such that the expression "being considered as" is used in the normative provision in question in a sense similar to "being presumed", reason for which there is no doubt that a legal presumption is established.

On the other hand, Article 73 of the LGT provides that "(…) the presumptions established in the provisions concerning the scope of taxation always admit proof to the contrary, such that they are rebuttable (…)".

Thus being so, establishing Article 3, section 1 of the CIUC a presumption juris tantum [and, therefore, rebuttable], the person who is entered in the register as owner of the vehicle and who, for that reason was considered by the Tax Authority as the taxpayer of the tax, may present proof intended to demonstrate that the holder of ownership, on the date of the taxable event, is another person, to whom ownership was transferred.

Analyzing the elements brought into the proceedings by the Applicant and the proven facts, it is concluded that the latter was not the owner of the vehicles (or that, being so, had transferred them through financial leasing) to which the assessments in question relate on the date of their respective taxable events, by having transferred ownership of the same, in accordance with civil law (or having entered into and communicated the existence and continuation of financial leasing or ALD contracts).

The operations of transfer of ownership were not challenged and are opposable to the Tax and Customs Authority, since, although facts subject to registration only produce effects in relation to third parties when registered, in light of Article 5, section 1 of the Property Registry Code [applicable by reference from the Motor Vehicle Registry Code], the Tax Authority is not a third party for purposes of registration, since it is not in the situation provided for in section 2 of the aforementioned Article 5 of the Property Registry Code, applicable by virtue of the Motor Vehicle Registry Code, that is: it did not acquire from a common author incompatible rights.

In these circumstances, the aforementioned and now impugned assessments must be annulled and, consequently, returned to the Applicant, by the Tax and Customs Authority, the respective amounts thus wrongfully collected and set forth in the aforementioned and documented assessment acts, as requested.

III – DECISION

In accordance with the foregoing, this Arbitral Tribunal decides to judge the requests for annulment of the IUC assessments under challenge as entirely well-founded and, in consequence, annuls those tax acts and condemns the Tax and Customs Authority to return to the applicant the respective amounts paid as requested.

Value of the Proceedings

In accordance with Article 306, section 2 of the CPC and Article 97-A, section 1, paragraph a) of the CPPT and Article 3, section 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned a value of € 133,763.26.

Costs

Pursuant to Article 22, section 4 of the RJAT, the amount of costs is fixed at € 3,060 (three thousand and sixty euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Let notice be given.

Lisbon, 16 October 2014

The Arbitrators,

José Poças Falcão

Alberto Amorim Pereira
Rapporteur

António Alberto Franco
Member

Text prepared by computer, in accordance with section 5 of Article 131 of the CPC, applicable by reference from paragraph e) of section 1 of Article 29 of Decree-Law No. 10/2011, of 20/01.

The drafting of this decision is governed by the old spelling.

[1] As amended by later statutes.

[2] And there are no essential proven facts.

[3] As amended by later statutes.

[4] Acronym for the Single Circulation Tax Code.

[5] CIUC - Article 4
Temporal scope of application
1 - The single circulation tax has annual periodicity and is owed in full in each year to which it applies.
2 - The taxation period corresponds to the year that begins on the date of registration or on each of its anniversaries, with respect to vehicles in categories A, B, C, D and E, and to the calendar year, with respect to vehicles in categories F and G.
3 - The tax is owed until the cancellation of registration or record due to scrapping carried out in accordance with the law. (Added by Law No. 66-B/2012, of 31 December)

[6] The genesis of the tax legal relationship presupposes the cumulative verification of the three requirements necessary for its arising, namely: the real element, the personal element and the temporal element. (In this sense see, among many other authors, Freitas Pereira, M. H., Taxation, 3rd Edition, Almedina, Coimbra, 2009).

[7] Under the heading "principle of equivalence" Article 1 of the CIUC provides: "The single circulation tax obeys the principle of equivalence, seeking to burden taxpayers in accordance with the cost of road and environmental damage that they cause, in fulfilment of a general rule of tax equality".

On the notion of the principle of equivalence, SÉRGIO VASQUES tells us: "In accordance with the principle of equivalence, the tax must be shaped with regard to the benefit that the taxpayer derives from public activity, or with regard to the cost that he imputes to the community by his own activity" (See Special Consumption Taxes, Almedina, 2000, p. 110).

And, further ahead, this Professor explains, with respect to motor vehicles: "a tax on motor vehicles based on a rule of equivalence will be equal only if those who cause the same road wear and the same environmental cost pay the same tax; and those who cause different wear and environmental cost, pay different tax as well.

Frequently Asked Questions

Automatically Created

Who is liable for IUC payment on vehicles under leasing and ALD contracts in Portugal?
Under Portuguese IUC law, specifically Articles 3 and 19 of the IUC Code, the taxpayer liability for vehicles under financial leasing and ALD (Aluguer de Longa Duração) contracts depends on proper procedural compliance. While the lessor (financial institution) is the registered owner, Article 19 allows the lessor to communicate lessee data to the Tax Authority through the Finance Portal. When this communication is properly executed, the lessee who possesses and uses the vehicle becomes the IUC taxpayer, as they are the party benefiting from vehicle circulation. However, if the lessor fails to comply with Article 19's communication requirements, tax liability may remain with the registered owner. This reflects the principle that IUC taxes vehicle usage rather than mere ownership.
Can a financial institution challenge IUC assessments on vehicles registered in its name but used by lessees?
Yes, financial institutions can challenge IUC assessments on vehicles registered in their name but leased to third parties through CAAD tax arbitration proceedings under the RJAT (Legal Framework for Arbitration in Tax Matters). In this case, the bank successfully initiated arbitration under Articles 2(1)(a), 5(3)(a), and 10(1)(a) of the RJAT by arguing it was not the proper IUC taxpayer pursuant to Articles 3 and 19 of the IUC Code. The challenge was based on two grounds: (1) certain vehicles had been transferred before the taxable event date, making the bank no longer the owner; and (2) for active leasing contracts, the bank had communicated lessee information to the Tax Authority as required by Article 19, thereby designating lessees as taxpayers. Financial institutions must pay the contested amounts before challenging them and demonstrate compliance with procedural requirements for transferring tax liability.
What is the subjective incidence rule for IUC (Imposto Único de Circulação) on leased vehicles?
The subjective incidence rule for IUC on leased vehicles under Portuguese law is governed by Article 3 of the IUC Code, which identifies the taxpayer, read together with Article 19, which addresses financial leasing situations. The general rule establishes that the vehicle owner (registered holder) is prima facie liable for IUC. However, Article 19 creates an exception for financial leasing and ALD contracts: when the lessor (owner) properly communicates the lessee's identification data to the Tax Authority through the established procedure on the Finance Portal, the tax liability shifts to the lessee who has possession and use of the vehicle. This reflects the principle that IUC is a circulation tax targeting the party who actually uses the vehicle on public roads. The lessor must comply with specific communication formalities; otherwise, as registered owner, it remains liable for IUC even though it does not use the vehicle.
How does CAAD arbitration process work for disputing IUC tax assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for disputing IUC assessments operates under the RJAT (Decree-Law 10/2011). The process begins when the taxpayer submits an arbitration request after paying the contested tax. If the taxpayer doesn't appoint arbitrators, the CAAD Ethics Council President designates them (Article 6(2)(a) RJAT). Parties are notified and may object to arbitrator appointments within legal timeframes (Articles 6-7 Ethics Code, Article 11 RJAT). Once constituted, the tribunal notifies the Tax Authority, which submits its response and administrative files. The tribunal may dispense with hearings when appropriate (Article 18 RJAT). Parties may waive final arguments. The tribunal verifies jurisdictional requirements, party standing, and legitimacy before examining the merits. Claims involving the same tax and identical factual/legal grounds can be cumulated under Articles 104 CPPT and 3 RJAT, as occurred here where multiple IUC assessments across different fiscal years were consolidated into one arbitration proceeding.
Are compensatory interest charges valid on contested IUC liquidations for leasing companies?
The validity of compensatory interest charges on contested IUC liquidations for leasing companies depends on whether the underlying tax assessment is lawful. In this case, the €17,810.53 in compensatory interest was charged on the €115,952.73 principal IUC amount. Under Portuguese tax law, compensatory interest accrues automatically on tax debts from the payment deadline until actual payment, compensating the State for delayed revenue collection. However, if the arbitral tribunal determines the IUC assessments were illegal because the financial institution was not the proper taxpayer under Articles 3 and 19 of the IUC Code—having properly communicated lessee data or no longer owning the vehicles—then both the principal tax and associated compensatory interest would be annulled. The accessory (interest) follows the principal obligation: if the main tax debt is declared illegal and annulled, the compensatory interest charged on that debt likewise falls, and the amounts paid must be refunded to the taxpayer with due interest.