Process: 189/2014-T

Date: July 31, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

This arbitration decision (Process 189/2014-T) addresses a fundamental question in Portuguese vehicle taxation: who bears IUC liability when vehicles are sold but registration records remain unchanged. Company A challenged Motor Vehicle Tax assessments totaling €1,398.81 for four vehicles covering tax years 2009-2012, arguing it had sold all vehicles before the respective assessment periods. The sales occurred between 2007 and 2011, supported by invoices, yet IUC assessments continued to be issued in the company's name. The claimant requested annulment under Article 3 of the IUC Code, claiming violation of subjective tax incidence requirements, plus reimbursement and compensatory interest under Article 43 of the General Tax Law (LGT). The Tax Authority defended the assessments based on literal, systemic, and teleological interpretation of Article 3, arguing that the registered owner remains the taxable person regardless of actual ownership transfers. The TA contended that invoices alone cannot prove vehicle transfer and that the claimant's interpretation undermines legal certainty and the unity of the tax system. The tribunal was constituted under the Legal Regime for Arbitration in Tax Matters (RJAT) and deemed a hearing unnecessary. The central legal dispute involves interpreting whether Article 3 of the IUC Code establishes tax liability based on registered ownership or actual ownership at the moment the tax becomes due. This case has significant implications for vehicle fleet management companies and the broader question of when tax liability transfers in vehicle transactions under Portuguese law, particularly regarding the evidentiary requirements for proving ownership changes and the allocation of tax responsibility between transferors and transferees.

Full Decision

ARBITRAL DECISION

I – Report

1.1. A.., Lda., (hereinafter referred to as the "claimant"), in its capacity as the incorporating company of company B…, S.A., having been notified of the Motor Vehicle Tax assessments nos. 2009 ..., 2010 ..., 2011 ..., 2009 ..., 2010 ..., 2011 .., 2012 ... and 2011 ..., relating to the years 2009 to 2011, presented, on 26/2/2014, a request for constitution of an arbitral tribunal and for an arbitral decision, in accordance with the provisions of Article 10, No. 2, of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as "LRAT"), in which the Tax and Customs Authority (TA) is summoned, with a view to "the request for annulment of the Motor Vehicle Tax assessments [in question and above] identified, due to violation of the provisions of Article 3 of the Motor Vehicle Tax Code, as regards the requirements for subjective tax incidence, and the consequent reimbursement of the amount [...] of tax paid improperly, as well as the payment of compensatory interest for the deprivation of the said amount, in accordance with Article 43 of the General Tax Law".

1.2. On 12/5/2014 the present Singular Arbitral Tribunal was constituted.

1.3. In accordance with Article 17, No. 1, of the LRAT, the TA was summoned, as the respondent party, to present its defence, in accordance with the said article. The TA presented its defence on 18/6/2014, arguing that the claimant's request was wholly unfounded.

1.4. By order of 7/7/2014, the Tribunal considered, in accordance with Article 16, clause c), of the LRAT, that the hearing provided for in Article 18 of the LRAT was unnecessary and that the case was ready for decision. The parties were notified of the contents of this order, with a view to expressing themselves. The respondent expressed itself on 11/7/2014, agreeing with the said waiver.

1.5. The Arbitral Tribunal was duly constituted, is materially competent, the case does not suffer from defects that would invalidate it, and the Parties have legal personality and capacity and are thus legitimate.

II – Reasoning: The Factual Matters

2.1. The claimant alleges, in its initial petition, that: a) "it is not a taxpayer of Motor Vehicle Tax relating to the registrations in question in any of the years on which the official assessments were made"; b) "it was not the owner of the vehicle at the moment when the taxable event occurred and the respective taxability or due date"; c) "on the date when the tax became due, the Claimant was no longer the owner of the vehicles in question [...], whereby the taxpayer should be the new owner of each vehicle"; d) "the vehicles with registrations ..-..-.., ..-..-.. and ..-..-.. were sold in a year prior to the period of assessment in question. With regard to the vehicle with registration ..-..-.. [...], it was sold on 5 July 2011, whereby its registration is dated 4 August - thus, regarding the 2011 assessment period, the ownership of the vehicle had been transferred [...] one month before the date when the Motor Vehicle Tax became due."

2.2. The claimant concludes that: a) "the assessments now subject to request for arbitral decision should not be imputed to it, and are, as such, illegal"; b) it should be declared that "the request for annulment of the Motor Vehicle Tax assessments [in question and above] identified, due to violation of the provisions of Article 3 of the Motor Vehicle Tax Code, as regards the requirements for subjective tax incidence, and the consequent reimbursement of the amount [...] of tax paid improperly, as well as the payment of compensatory interest for the deprivation of the said amount, in accordance with Article 43 of the General Tax Law" is well founded.

2.3. For its part, the TA alleges, in its defence: a) that there is a "distorted reading of the letter of the law", since in Article 3, No. 1, of the Motor Vehicle Tax Code, "the legislator expressly and intentionally established that the following are to be considered as such [as owners or in the situations provided for in No. 2, the persons mentioned therein] the persons in whose names the same [the vehicles] are registered, because this is the interpretation that preserves the unity of the legal-fiscal system"; b) that the claimant's interpretation "does not consider the systemic element, violating the unity of the regime"; c) that the claimant's interpretation "ignores the teleological element of interpretation of the law: the ratio of the regime established in the article in question and, as well, in the entire Motor Vehicle Tax Code"; d) that "the interpretation put forward by the Claimant is contrary to the Constitution"; e) that "the evidence presented by the Claimant is not, by itself alone, sufficient to provide conclusive proof of the transfer of the vehicles in question", given that "the invoices (by themselves) do not constitute a suitable document to prove the sale of the vehicles in question". In summary, the TA sustains "the legal conformity of the acts subject to the present request, failing, consequently, the claims made by the Claimant." It concludes, finally, that "the present request for arbitral decision should be judged unfounded, with the tax assessment acts impugned remaining in the legal order and the respondent entity being absolved, accordingly, from the request."

2.4. The following facts are considered proven:

i) The claimant now carries on the activity of hiring of motor vehicles and provision of services associated with fleet management.

ii) On 2/9/2013, the claimant received several notifications for prior hearing, relating to Motor Vehicle Tax on vehicles assigned to the activity referred to above.

iii) On 26/9/2013, the claimant exercised, in writing, its respective prior hearing rights.

iv) The assessments in question, in the total amount of €1398.81 (see docs. 1 to 4 annexed to the case file), were paid by the claimant and concern the following four vehicles: 1) registration ..-..-.., Motor Vehicle Tax for the year 2009 (doc. 1 annexed to the case file); 2) registration ..-..-.., Motor Vehicle Tax for the years 2010 and 2011 (doc. 2); 3) registration ..-..-.., Motor Vehicle Tax for the years 2009 to 2012 (doc. 3); 4) registration ..-..-.., Motor Vehicle Tax for the year 2011 (doc. 4).

v) In a moment prior to the year and month of taxation of the tax in question, the vehicles in question were sold to third parties and are not, therefore, the property of the claimant, as can be observed from the reading of docs. 5 to 8. All the sales mentioned in the said lists are supported by the respective sale invoices, duly identified.

vi) In accordance with the mentioned invoices: the vehicle (with registration) ..-..-.., was sold on 23/4/2007 (doc. 5), the vehicle ..-..-.., on 1/10/2009 (doc. 6), the vehicle ..-..-.., on 30/1/2008 (doc. 7) and the vehicle ..-..-.., on 5/7/2011 (doc. 8).

2.5. There are no material facts not proven relevant to the decision of the case.

III – Reasoning: The Legal Matters

In the present case, there are four disputed questions of law: 1) to know whether, as the TA concludes, there is, in the case here under analysis, a "distorted reading of the letter of the law"; 2) to know whether, as the TA alleges, the claimant's interpretation "does not consider the systemic element, [and violates] the unity of the regime", and also whether, as the TA also alleges, such interpretation "ignores the teleological element of interpretation of the law: the ratio of the regime established in the article in question and, as well, in the entire Motor Vehicle Tax Code"; 3) to know whether there was "interpretation contrary to the Constitution"; 4) to know whether, in the present case, compensatory interest is owed to the claimant.

Let us then examine these.

  1. and 2) The first two questions of law converge in the direction of the interpretation of Article 3 of the Motor Vehicle Tax Code, whereby it proves necessary: a) to know whether the rule of subjective tax incidence, contained in the said Article 3, establishes or does not establish a presumption; b) to know whether, when considering that such rule establishes a presumption, such violates the "unity of the regime", or disregards the systemic element and the teleological element; c) to know - admitting that the presumption exists (and that the same is iuris tantum) - whether the same was successfully rebutted.

a) Article 3, Nos. 1 and 2, of the Motor Vehicle Tax Code, has the following wording, which is reproduced here:

"Article 3 – Subjective Tax Incidence

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

2 - Financial lessees, purchasers with reservation of title, as well as other holders of purchase option rights by virtue of the lease contract are assimilated to owners".

The interpretation of the cited legal text is, naturally, essential for the resolution of the case under analysis. In that measure, it appears necessary to resort to Article 11, No. 1, of the General Tax Law, and, by its reference, to Article 9 of the Civil Code.

Now, in accordance with the said Article 9 of the Civil Code, interpretation departs from the letter of the law and aims, through it, to reconstruct the "legislative thought". This is to say (regardless of the objectivism-subjectivism debate) that literal analysis is the basis of the interpretative task and the systemic, historical or teleological elements are guides for the direction of the said task.

The literal apprehension of the legal text in question does not generate - even though the separation of this from the ascertainment, however minimal, of its meaning is very questionable - the notion that the expression "considered as" means something different from "presumed as". Indeed, it would be very difficult to find authors who, in a task of pre-understanding of the said legal text, would instinctively reject the identity between the two expressions.

Confirming the non-distinction (both literal and in meaning) of the words "considered" and "presumed" (presumption), see, for example, the following articles of the Civil Code: 314, 369 No. 2, 374 No. 1, 376 No. 2, and 1629. And, with special interest, the case of the expression "is considered", contained in Article 21, No. 2, of the Corporate Income Tax Code. As noted by Diogo Leite Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, with respect to that article of the Corporate Income Tax Code: "beyond the fact that this norm shows that what is at issue in the taxation of capital gains is to ascertain the real value (that of the market), the limitation to the ascertainment of real value derived from the rules for determining the taxable value provided in the tax code cannot fail to be considered as a presumption regarding tax incidence, whose rebuttal is permitted by Article 73 of the General Tax Law" (General Tax Law, Annotated and Commented, 4th ed., 2012, pp. 651-2).

b) These are only some examples that allow the conclusion that it is precisely for reasons related to the "unity of the legal system" (the systemic element) that one cannot affirm that only when the verb "presume" is used is there a presumption, since the use of other terms or expressions (literally similar) may also serve as the basis for presumptions. And, among these, the expressions "is considered as" or "considering as" assume, as seen, prominence.

If literal analysis is only the basis of the task, it appears, naturally, essential to evaluate the text in the light of the other elements (or sub-elements of the so-called logical element). Indeed, the TA also alleges that the claimant's interpretation "ignores the teleological element of interpretation of the law: the ratio of the regime established in the article in question and, as well, in the entire Motor Vehicle Tax Code".

It is therefore justified to ascertain whether the interpretation that considers the existence of a presumption in Article 3 of the Motor Vehicle Tax Code collides with the teleological element, i.e., with the purposes (or with the sociological relevance) of what was intended with the rule in question. Now, such purposes are clearly identified at the beginning of the Motor Vehicle Tax Code: "The motor vehicle tax follows the principle of equivalence, seeking to burden taxpayers in the measure of the environmental and road cost that they cause, in implementation of a general rule of tax equality" (see Article 1 of the Motor Vehicle Tax Code).

What can be inferred from this Article 1? It can be inferred that the close link of Motor Vehicle Tax to the principle of equivalence (or principle of benefit) does not permit the exclusive association of the "taxpayers" mentioned therein with the figure of owners but rather with the figure of users (or economic owners). As well noted in Administrative Decision No. 73/2013-T: "in truth, the ratio legis of the tax [Motor Vehicle Tax] instead points in the direction that the users of the vehicles should be taxed, the «economic owner» in the words of Diogo Leite de Campos, the actual owners or financial lessees, because they are these who have the polluting potential causing environmental costs to the community."

Indeed, if the said ratio legis were otherwise, how could one understand, for example, the obligation (on the part of entities that proceed to lease vehicles) - and for purposes of the provisions of Article 3 of the Motor Vehicle Tax Code and of Article 3, No. 1, of Law No. 22-A/2007, of 29 June - of provision to the Tax Authority of data regarding the fiscal identification of the users of the said vehicles (see Article 19)? Should where one reads "users", one should instead read, disregarding the systemic element, "owners with registration in their name"...?

c) From the foregoing it is concluded that limiting the taxpayers of this tax only to the owners of the vehicles in whose names the same are registered - ignoring the situations in which these no longer coincide with the real owners or the real users of the same - constitutes a restriction which, in the light of the purposes of Motor Vehicle Tax, does not find a basis of support. And, even if one invokes Article 6 of the Motor Vehicle Tax Code, as the TA does, to allege "that only the legal situations which are subject to registration [...] generate the birth of the tax obligation", it is necessary to bear in mind that such registration generates only a rebuttable presumption, i.e., a presumption that may be set aside by means of evidence to the contrary (evidence that the registration no longer reflects, at the moment of the tax obligation, the material truth that would have given it origin).

It would, moreover, be unjustified to impose a kind of irrebuttable presumption, since, without an apparent reason, one would be imposing a (admittedly debatable) formal truth to the detriment of what could actually have been and was proven; and, on the other hand, it would be setting aside the duty of the TA to comply with the principle of ex officio investigation established in Article 58 of the General Tax Law, i.e., the duty to carry out the necessary steps for a correct determination of the factual reality on which its decision should be based (which means, in the present case, the determination of the current and actual owner of the vehicle).

Furthermore, if the seller were not permitted to rebut the presumption contained in Article 3 of the Motor Vehicle Tax Code, one would be benefiting, without a plausible reason, the purchasers who, in possession of correctly completed and signed acquisition contract forms, and enjoying the advantages associated with their condition as owners, would attempt to exempt themselves, by means of a "registral formalism", from the payment of tolls or fines.

In this regard, it should also be noted that the registration of vehicles does not have constitutive effect, functioning, as stated before, as a rebuttable presumption that the holder of the registration is, effectively, the owner of the vehicle. In this sense, see, for example, the Decision of the Supreme Court of Justice of 19/2/2004, case 03B4639: "The registration does not have constitutive effect, since it is intended to give publicity to the registered act, functioning (only) as a mere presumption, rebuttable (a presumption «iuris tantum») of the existence of the right (Articles 1, No. 1 and 7, of the Portuguese Constitution and 350, No. 2, of the Civil Code) as well as of the respective ownership, all in accordance with what is contained therein."

In the same sense, Administrative Decision No. 14/2013-T, in terms which are here followed, referred to this: "the essential function of vehicle registration is to give publicity to the legal situation of vehicles with the registration not having constitutive effect, functioning (only) as a mere rebuttable presumption of the existence of the right, as well as of the respective ownership, all in accordance with what is contained therein. The presumption that the registered right belongs to the person in whose name it is registered may be rebutted by evidence to the contrary. With the TA not meeting the requirements of the notion of third party for purposes of registration [a circumstance that could prevent the full effectiveness of the purchase and sale contracts concluded], it cannot avail itself of the lack of updating of the registration of the property right to put in question the full effectiveness of the purchase and sale contract and to require the seller (prior owner) the payment of the Motor Vehicle Tax due by the purchaser (new owner) as long as the presumption of the respective ownership is rebutted through sufficient proof of the sale."

Now, in the case here under analysis, it is verified that the rebuttal of the presumption (by means of "sufficient proof" of the sales) was carried out. Indeed, despite what the TA alleges in points 71 to 78 of its defence, the Tribunal sees no reason to question the invoices presented by the claimant, since they are considered clearly demonstrative that it was not, at the date of the tax, the owner of the vehicles.

As stated in the proven factual matters, it is evident from the reading of docs. 5 to 8 annexed to the case file, that: the vehicle (with registration) ..-..-.., was sold on 23/4/2007 (doc. 5), the vehicle ..-..-.., was sold on 1/10/2009 (doc. 6), the vehicle ..-..-.., was sold on 30/1/2008 (doc. 7) and the vehicle ..-..-.., was sold on 5/7/2011 (doc. 8).

Now, in this regard, and as well noted in Administrative Decision No. 27/2013-T, dated 10/9/2013, "the documents presented, particularly the copies of invoices which support, from the outset, the sales [...] of the [vehicles] referenced above, [...] embody means of proof with sufficient force and adequate to rebut the presumption based on the registration, as established in No. 1 of Article 3 of the Motor Vehicle Tax Code, documents which, moreover, enjoy the presumption of truthfulness provided for in No. 1 of Article 75 of the General Tax Law."

  1. It is concluded, in view of what was set forth above [in 1) and 2)], that there is no "interpretation contrary to the Constitution", contrary to what is alleged by the respondent in points 61 to 70 of its defence.

  2. A final note to consider, under Article 24, No. 5, of the LRAT, the request for payment of compensatory interest in favor of the claimant (Article 43 of the General Tax Law and Article 61 of the Code of Procedural Practice in Tax Matters).

In this regard, Administrative Decision No. 26/2013-T (which dealt with a situation very similar to the one now under consideration) recalled: "The right to compensatory interest to which the provision of the General Tax Law above referred to alludes presupposes that tax has been paid in an amount greater than that due and that such derives from an error, of fact or of law, attributable to the services of the TA. [...] even though it is recognized that the tax paid by the claimant is not due, because it is not the taxpayer of the tax obligation, determining, in consequence, the respective reimbursement, it is not seen that, in its origin, there is the error attributable to the services, which determines such right [to compensatory interest] in favor of the taxpayer. Indeed, in promoting the official assessment of Motor Vehicle Tax considering the claimant as the taxpayer of this tax, the TA limited itself to complying with the provision of No. 1 of Article 3 of the Motor Vehicle Tax Code, which, as above abundantly stated, imputes such status to the persons in whose names the vehicles are registered."

Considering this justification - with which full agreement is expressed - it is also concluded, as regards the present case, that the aforementioned request for payment of compensatory interest is unfounded.

IV – Decision

In view of the foregoing, it is decided:

  • To judge the request for arbitral decision as well founded, with the consequent annulment, with all legal effects, of the impugned assessment acts and the reimbursement of the amounts improperly paid;

  • To judge as unfounded the request insofar as it concerns the recognition of the right to compensatory interest in favor of the claimant.

The value of the case is fixed at €1,398.81 (one thousand three hundred ninety-eight euros and eighty-one cents), in accordance with Article 32 of the Code of Administrative Procedure and Article 97-A of the Code of Procedural Practice in Tax Matters, applicable by virtue of the provisions of Article 29, No. 1, clauses a) and b), of the LRAT, and Article 3, No. 2, of the Regulation of Costs in Tax Arbitration Proceedings.

Costs charged to the respondent, in the amount of €306.00 (three hundred six euros), in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, given that the present request was judged as well founded, and in compliance with the provisions of Articles 12, No. 2, and 22, No. 4, both of the LRAT, and the provisions of Article 4, No. 4, of the said Regulation.

Notify.

Lisbon, 30 July 2014.

The Arbitrator

(Miguel Patrício)

Text drawn up by computer, in accordance with the provisions of Article 138, No. 5, of the Code of Civil Procedure, applicable by reference to Article 29, No. 1, clause e), of the LRAT.

The drafting of the present decision is governed by the spelling prior to the 1990 Orthographic Agreement.

Frequently Asked Questions

Automatically Created

Who is the taxable person for IUC (Imposto Único de Circulação) when a vehicle has been sold but registration was not updated?
According to the Tax Authority's position in this case, the taxable person for IUC when a vehicle has been sold but registration was not updated remains the person in whose name the vehicle is registered. Article 3, No. 1 of the IUC Code establishes that taxable persons are those in whose names vehicles are registered, based on literal, systemic, and teleological interpretation. The TA argued this interpretation preserves legal certainty and the unity of the tax system. However, the claimant argued that the actual owner at the moment the tax becomes due should be liable, not the former registered owner, making this the central dispute requiring tribunal interpretation.
Can a company challenge IUC tax assessments through arbitration at CAAD under the RJAT framework?
Yes, a company can challenge IUC tax assessments through arbitration at CAAD (Centro de Arbitragem Administrativa) under the RJAT framework (Legal Regime for Arbitration in Tax Matters - Decree-Law No. 10/2011 of 20 January). In this case, the claimant filed a request for constitution of an arbitral tribunal on 26/2/2014 in accordance with Article 10, No. 2 of RJAT. The singular arbitral tribunal was constituted on 12/5/2014, demonstrating that tax arbitration is an available mechanism for companies to contest IUC assessments when they believe there are violations of tax law provisions.
What does Article 3 of the IUC Code establish regarding subjective tax incidence on vehicle owners?
Article 3 of the IUC Code establishes the subjective tax incidence by determining who qualifies as a taxable person for vehicle taxation purposes. According to the Tax Authority's interpretation in this case, Article 3, No. 1 expressly establishes that taxable persons are those in whose names vehicles are registered. The TA emphasized that the legislator 'expressly and intentionally' established this criterion because registration-based liability preserves the unity of the legal-fiscal system. This provision also references No. 2 which provides for specific situations regarding ownership determination. The dispute centers on whether 'owner' means the registered owner or the actual owner when these differ.
Is the former registered owner liable for IUC if the vehicle was sold before the tax assessment period?
This is the central question in the arbitration. The Tax Authority contends that the former registered owner remains liable for IUC even if the vehicle was sold before the tax assessment period, arguing that Article 3 of the IUC Code establishes liability based on registration records. The TA claimed the claimant's invoices alone do not constitute sufficient proof of vehicle transfer. Conversely, the claimant argued that since the vehicles were sold before the tax became due (supported by invoices from 2007-2011), they were no longer owners when the taxable event occurred, and therefore should not be liable. The tribunal must determine whether actual ownership or registered ownership controls for tax liability purposes.
What are the grounds for annulment of IUC assessments and entitlement to compensatory interest under Article 43 of the LGT?
The grounds for annulment of IUC assessments in this case are based on alleged violation of Article 3 of the IUC Code regarding subjective tax incidence requirements. The claimant argued the assessments were illegal because they were not the vehicle owners when the tax became due, making them not the proper taxable persons. Regarding compensatory interest under Article 43 of the LGT (General Tax Law), if the annulment is granted, the claimant would be entitled to compensatory interest for the improper deprivation of the amount paid (€1,398.81). Article 43 LGT provides for compensatory interest when taxpayers are deprived of amounts that should not have been collected, calculated from the payment date until reimbursement.