Process: 216/2014-T

Date: September 18, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

This arbitration case (216/2014-T) addresses the critical issue of subjective incidence in IUC taxation when vehicle registration records are outdated. The claimant company received IUC assessments totaling €1,887.00 for tax years 2009-2012 regarding a vehicle it had sold in 1997. Despite the actual sale to another company and subsequent transfer, the IMTT registration database still listed the claimant as owner, triggering automatic tax assessments. The core legal question concerns whether the presumption established in Article 3.º No. 3 of the IUC Code—that the registered owner is the taxpayer—is rebuttable. The claimant argued that Article 6.º No. 1 of the IUC Code bases the taxable event on actual ownership, not mere registration, and that irrebuttable presumptions violate constitutional principles of taxpaying capacity under Article 4.º of the General Tax Law. Citing precedent from arbitral decision 26/2013-T, the claimant presented accounting records and sale documentation to prove it was no longer the owner. The case challenges the Tax Authority's reliance solely on IMTT databases for IUC assessments without considering contrary evidence. Key issues include: whether taxpayers can rebut the registration presumption with civil law proof of transfer; the validity of compensatory interest when underlying tax obligations are contested; and the burden on taxpayers to correct administrative records they did not create. This decision has significant implications for determining when actual economic ownership, rather than formal registration, should govern IUC liability, particularly affecting companies with historical vehicle transactions where administrative registration updates were never completed.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 216/2014 – T

Subject: Unique Vehicle Circulation Tax (IUC)

I REPORT

A... S.A., Legal Entity No. …, with registered office at Rua …, hereby, in accordance with the provisions of articles 2.º No. 1 a) and 10.º No. 1 a) of Decree-Law No. 10/2011, of 20 January, and articles 1.º and 2.º of Ordinance No. 112-A/2011, of 22 March, submits a request for arbitral pronouncement, requesting:

a) the annulment of the IUC tax assessments and compensatory interest relating to the years 2009, 2010, 2011 and 2012;

b) the condemnation of the Tax Authority to payment of indemnificatory interest, calculated on the amounts paid as a result of these assessments, until full and complete reimbursement;

c) the condemnation of the Respondent to reimburse the Claimant for expenses resulting from the litigation.

The Claimant bases its request by attributing to the assessment acts the defects of violation of law and error in the factual assumptions.

To this end, the Claimant alleges:

  1. The Claimant received the following assessments of Unique Vehicle Circulation Tax (IUC) and Compensatory Interest (JC) relating to the years 2009, 2010, 2011 and 2012, respectively, concerning the vehicle ..-..-..:

  • No. ..., dated 26.10.2013, in the amount payable of €536.12 – being €461.00 relating to IUC and €75.12 relating to compensatory interest;

  • No. ..., dated 26.10.2013, in the amount payable of €522.18 - being €465.00 relating to IUC and €57.18 relating to compensatory interest;

  • No. ..., dated 26.10.2013, in the amount payable of €514.41 - being €475.00 relating to IUC and €39.41 relating to compensatory interest; and

  • No. …, dated 26.10.2013, in the amount payable of €506.77 – being €486.00 relating to IUC and €20.77 relating to compensatory interest (doc. No. 1).

  1. On 4-12-2013, the Claimant proceeded to make full payment of said IUC assessments (doc. No. 2).

  2. The Claimant is not liable for any tax, since in 2009, 2010, 2011 and 2012, it was no longer the owner of the said vehicle.

  3. Since 31.07.1997 the Claimant was no longer the owner of the said vehicle, as on that date - 31.07.1997 it sold this vehicle to company B..., SA, Legal Entity No. … and,

  4. … the latter, on 17.02.1998, sold the said vehicle to C..., Lda, Legal Entity No. … (doc. No. 3),

  5. The Claimant has even taken steps with the Institute for Mobility and Land Transport, I.P (IMTT) to obtain seizure of the vehicle documents (doc. No. 4).

  6. Under article 6.º No. 1 of the IUC Code "the taxable event is constituted by ownership of the vehicle".

  7. The present tax act subjects the alleged ownership of a good that does not belong to the Claimant, violating article 4.º No. 1 of the General Tax Law, which establishes that taxes are based on the taxpaying capacity revealed by ownership of certain goods – which is not the case.

  8. Similarly, the Claimant does not know, nor is it obliged to know, the data contained in the IMTT databases, nor does it have the obligation to ascertain why it appears therein, incorrectly, as the owner of the vehicle in question.

  9. In order to carry out the taxation in question, the Tax Authority presumes the ownership of goods in the Claimant's legal sphere as the criterion for the incidence of IUC, whereas in tax law irrebuttable presumptions are not admissible at the level of tax incidence[1].

  10. The Claimant is aware of a recent arbitral decision of 19.07.2013 (case No. 26/2013-T) which addresses matters identical to those of the present case, (which is attached as doc. No. 5) which states that the presumption in No. 3 of the IUC Code is a rebuttable presumption, in accordance with general principles and, in particular, by virtue of the provision in article 73.º of the General Tax Law and, even though the means of proof presented have in their favor the presumption of veracity conferred upon them by article 73.º No. 1 of the General Tax Law and are suitable to rebut the presumption upon which the IUC assessments are based.

  11. In that arbitral decision it is stated that: "37. It is in accordance with the legal concept of presumption and in respect of the constitutional principles of equality and taxpaying capacity that the legislator attributed full effect to the presumption derived from the vehicle registration, adopting it as such in the definition of the subjective scope of this tax established in No. 1 of article 3.º of the IUC Code. Thus, it cannot fail to be understood that the expression 'considering them as such' contained in the said rule constitutes a legal presumption, and that this is rebuttable, in accordance with general principles and, in particular, by virtue of the provision in article 73.º of the General Tax Law which determines that presumptions enshrined in the rules of tax incidence always admit proof to the contrary." (emphasis ours)

  12. The said arbitral decision further states: "45. From the elements provided by the claimant it is extracted that at the date of the tax liability to which the assessments in question relate, it was not the owner of the vehicles identified therein, as their respective transfers had already previously taken place in accordance with the provisions of civil law. (…) The means of proof presented by the claimant, consisting of copies of the respective accounting records and supporting documents have in their favor the presumption of veracity conferred upon them in accordance with No. 1 of article 75.º of the General Tax Law which, thus, appear suitable and with sufficient force to rebut the presumption upon which those assessments are based and which, for this reason, should be subject to annulment with the consequent restitution of the tax improperly collected from the Claimant." (emphasis ours)

  13. In the case at hand, the Tax Authority, for the purpose of tax assessments, uses the IMTT database and in that database the Claimant appears as the owner.

  14. As a result of the assessments in question, the Claimant knows that it still appears as the owner of the vehicles, insofar as the current owners have not yet registered them in their names.

  15. However, as is of elementary clarity, the issue is not the elements contained in the registration – rather the issue is that the registration does not reflect the TRUE OWNERSHIP of the good, and the Claimant cannot be confronted with a tax act that does not concern it, without being able to demonstrate that the concrete factual assumptions for taxation are not met.

  16. In proceeding with the assessments in question, the Tax Authority simultaneously incurred violation of law and error in the factual assumptions.

  17. Thus, since there is not, nor has there ever been, any tax default, the assessment of compensatory interest in question does not comply with article 35.º of the General Tax Law, particularly as concerns the verification of the assumptions for its assessment.

  18. As mentioned, the Claimant proceeded, within the legal time limit, to make full payment of the tax in the amount of €1,887.00, whereby, in addition to the restitution of this amount, the Claimant also has the right to the respective indemnificatory interest.

The claimant did not appoint an arbitrator, and therefore, under the provisions of article 6.º, No. 2, item a), of the Tax Arbitration Regulations, the signatory was designated by the president of the Ethics Board of CAAD to serve on this singular Arbitral Court, having accepted the appointment in accordance with the legal requirements.

On 21-4-2014 the parties were duly notified of this designation and did not manifest any desire to refuse it in accordance with the combined provisions of article 11.º, No. 1, items a) and b) of the Tax Arbitration Regulations and articles 6.º and 7.º of the Code of Ethics.

The Court was constituted on 8-5-2014 [article 11.º-1/c), of the Tax Arbitration Regulations, in the wording introduced by article 228.º of Law No. 66-B/2012, of 31-12]

The Tax and Customs Authority presented its response, defending, in essence and in summary, that the request for arbitral pronouncement should be judged without merit and that the impugned tax acts should remain in the legal order inasmuch as, in its view, the taxpayers are not or may not be the real and effective owners of the vehicle but those who appear in the registration as such, providing in support of the thesis it defends a decision of the Administrative Court of Appeal (TAF) of Penafiel handed down in case No. …/13.0BEPNF.

By order of 6-6-2014, the Court dispensed with the hearing provided for in article 18.º of the Tax Arbitration Regulations, as well as final submissions.

PROCEDURAL PRELIMINARIES/ASSUMPTIONS

The arbitral tribunal was duly constituted and is materially competent, in light of the provisions of articles 2.º, No. 1, item a), and 30.º, No. 1, of the Tax Arbitration Regulations.

Being the same tax (IUC) and considering the identity of the factual and legal grounds in all challenges to the assessments, the assumptions provided for in articles 104.º of the Code of Tax Procedure and Process and 3.º of the Tax Arbitration Regulations are met for the joinder of claims.

The parties have legal personality and capacity and are legitimate (articles 4.º and 10.º, No. 2, of the same statute and article 1.º of Ordinance No. 112-A/2011, of 22 March).

The process is not affected by nullities and no issues have been raised that could prevent consideration of the merits of the case.

II REASONING

The Proven Facts

The essential factual framework is as follows, established to legally and lawfully frame the issues raised:

a) The Claimant received the following assessments of Unique Vehicle Circulation Tax (IUC) and Compensatory Interest (JC) relating to the years 2009, 2010, 2011 and 2012, respectively, concerning the vehicle ..-..-..:

  • No. ..., dated 26.10.2013, in the amount payable of €536.12 – being €461.00 relating to IUC and €75.12 relating to compensatory interest;

  • No. ..., dated 26.10.2013, in the amount payable of €522.18 - being €465.00 relating to IUC and €57.18 relating to compensatory interest;

  • No. ..., dated 26.10.2013, in the amount payable of €514.41 - being €475.00 relating to IUC and €39.41 relating to compensatory interest; and

  • No. ..., dated 26.10.2013, in the amount payable of €506.77 – being €486.00 relating to IUC and €20.77 relating to compensatory interest (doc. No. 1).

b) The Claimant proceeded to make full payment of said IUC assessments in the total amount of €1,887.00 on 04.12.2013 (doc. No. 2).

c) Since 31.07.1997 the Claimant was no longer the owner of the said vehicle, as on that date - 31.07.1997 it sold it to company B..., SA, Legal Entity No. 502 572 77 and,

d) … the latter, on 17.02.1998, sold the said vehicle to C..., Lda, Legal Entity No. 501 700 862 (doc. No. 3),

e) In February 2012, the Claimant took steps with the Institute for Mobility and Land Transport, I.P (IMTT) to obtain seizure of the vehicle documents (doc. No. 4).

f) At the time of the assessments, it appeared in the IMTT databases and the Motor Vehicle Registration Office that the claimant was the owner of the said motor vehicle.

There are no other essential facts, proven or unproven.

Reasoning

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

That is: there are no divergences between the parties on this matter.

The divergence concerns the interpretation and application of legal norms and, concretely, what concerns the understanding of the concept of taxpayer for purposes of taxation in light of the Unique Vehicle Circulation Tax Code and, more specifically, whether, the owner not being the one who appears as such in the IMTT and in the Motor Vehicle Registration Office, this person can or cannot demonstrate this divergence in order, achieving it, to exempt himself from the IUC assessment made on the basis of data existing in those bodies.

That is: this is fundamentally a matter of divergent understandings regarding the interpretation of article 3.º of the IUC Code [Unique Vehicle Circulation Tax Code].

II REASONING (CONTINUED)

The Law

Given the positions of the Parties assumed in the arguments presented, it constitutes a central decisive question to know whether, at the date of the occurrence of the taxable events [article 3.º-1 of the IUC Code[2]] the owners of the vehicles are not those who appear in the registration, whether despite this it will be these who will always be considered the taxpayers of the IUC, with the result that the ownership revealed by the registration is not considered a rebuttable presumption or, stated another way, whether the rule governing subjective tax incidence contained in article 3.º No. 1 of the IUC Code establishes or does not establish a presumption.

It should be noted that the matter which is the subject of the present case has already been abundantly dealt with in Tax Arbitration Jurisprudence [see various CAAD decisions published at www.caad.org.pt, particularly those handed down in cases Nos. 14/2013, 26/2013, 27/2013, 73/2013, 170/2013 and 294/2013[3]].

The general and unanimous sense of such jurisprudence is to consider that article 3.º-1 of the IUC Code establishes a rebuttable presumption of ownership regarding the mentions or registrations contained in the Motor Vehicle Registration Office and/or in the IMTT database at the time of the taxable event.

That is: where IUC is assessed on the basis of registration entries or in accordance with elements contained in the IMTT databases, the taxpayer may exempt himself from payment by demonstrating the non-correspondence between reality and those entries and elements upon which the Tax Authority relied in proceeding with the assessments.

There are no reasons to overturn or alter the essential sense of this jurisprudence.

Let us then examine the question again, more carefully:

Article 3.º of the IUC Code (Unique Vehicle Circulation Tax Code) provides:

Article 3.º

Subjective Tax Incidence

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

2 – Financial lessees, buyers with reservations of ownership, as well as other holders of purchase option rights by force of lease contracts are equated to owners".

Article 11.º No. 1 of the General Tax Law establishes, for its part, that "in determining the meaning of tax rules and in qualifying the facts to which they apply, the general rules and principles of interpretation and application of laws are observed".

Resolving the doubts that arise in the application of legal norms presupposes the performance of an interpretive activity.

It is necessary, therefore, to consider what the best interpretation[4] of article 3.º, No. 1 of the IUC Code is, in light, first, of the literal element, that is, the one in which one seeks to detect the legislative thought that is objectified in the rule, 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 registration.

The question that arises is, in the case sub judice, whether the expression "considering as such" used by the legislator in the IUC Code, instead of the expression "presuming," which was what appeared in the statutes that preceded the IUC Code, will have removed the nature of presumption from the legal provision in question.

In our view and contrary to what the Tax Authority learnedly argues, the answer must necessarily be negative, since from the analysis of our legal system it is clearly drawn that the two expressions have been used by the legislator with equivalent meaning, whether at the level of rebuttable presumptions or in the context of irrebuttable presumptions, whereby nothing authorizes drawing 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 "consider," of which the following are indicated merely by way of example:

~ in the field of civil law - No. 3 of article 243.º of the Civil Code, when it establishes that "the third party who acquired the right after registration of the action for simulation is always considered to be in bad faith when such registration has taken place";

~ also in the field of industrial property law the same occurs when article 59.º, No. 1 of the Code of Industrial Property provides that "(…) inventions whose patent has been requested during the year following the date on which 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 Nos. 3 and 4 of article 89-A of the General Tax Law provide that the burden of proof falls on the taxpayer that the income declared corresponds to reality and that, if such proof is not made, it is presumed ("considered" in the wording of the Law) that the income is that which results from the table contained in No. 4 of the said article.

This conclusion that there is complete equivalence of meanings between the two expressions, which the legislator uses indifferently, satisfies the condition established in article 9.º, No. 2 of the Civil Code, since the minimum correspondence of wording is assured for purposes of determining legislative thought.

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

Discussing the interpretive activity, Francisco Ferrara states that it "is the most difficult and delicate operation to which the jurist can dedicate himself, and demands fine treatment, refined judgment, happy intuition, much experience and perfect mastery not only of positive law but also of the spirit of a certain legislation. (…) Interpretation should be objective, balanced, without passion, daring sometimes, but not revolutionary, acute but always respectful of the law" (See. Essay on the Theory of Interpretation of Laws, translated by Manuel de Andrade, (2nd ed.), Arménio Amado, Editor, Coimbra, 1963, p. 129).

As Batista Machado states "the legal provision presents itself to the jurist as a linguistic utterance, as a set of words that constitute a text. To interpret evidently consists in drawing from that text a determined sense or content of thought.

The text contains multiple meanings (polysemy of text) and frequently contains ambiguous or obscure expressions. Even when apparently clear on first reading, its application to concrete cases in life frequently raises unsuspected and unforeseeable interpretive difficulties. Moreover, even though apparently clear in its verbal expression and bearing a single meaning, there remains the possibility that the verbal expression betrayed legislative thought – a phenomenon more frequent than will appear on first impression" (See. Introduction to Law and to 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 wished to express, but solely that which he expressed in the form of law. (…) On the other hand, the legal command has an autonomous value that may not coincide with the will of the makers and drafters of the law, and may lead to unexpected and unforeseen consequences for the legislators. (…) The interpreter should seek not what the legislator wished, but what in the law appears objectively desired: the mens legis and not the mens legislatoris (See. Francesco Ferrara, Essay, pp. 134/135).

To understand a law "is not merely to mechanically grasp the apparent and immediate meaning that results from verbal connection; it is to inquire deeply into legislative thought, to descend from 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 sense and scope of legal texts, the interpreter makes use of interpretive 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 element (or teleological), systematic element and historical element. (See. Baptista Machado, Loc. Cit., p. 181; Oliveira Ascensão, Law – Introduction and General Theory 2nd Ed., Calouste Gulbenkian Foundation, Lisbon, p. 361).

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

The text of No. 1 of article 9.º of the CC begins by saying that interpretation should not be limited to the letter of the law, but should reconstruct from it the "legislative thought".

Regarding the expression "legislative thought" Batista Machado tells us that article 9.º of the CC "did not take a position in the controversy between subjectivist doctrine and objectivist doctrine. This is proved 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 purpose of interpretive activity the discovery of 'legislative thought' (article 9.º, 1.º). This expression, deliberately colorless, means precisely that the legislator did not wish to commit itself" (loc. cit., p. 188).

In the same sense P. de Lima and A. Varela pronounce themselves, in annotation to article 9.º of the CC (See. Annotated Civil Code – vol. I, Coimbra ed., 1967, p. 16).

And regarding No. 3 of article 9.º of the CC, Batista Machado further states: "(…) this No. 3 thus proposes to us a model of ideal legislator that consecrated the most correct solutions (more correct, just or reasonable) and knows how to express itself in correct form. This model clearly bears objectivist characteristics, since the concrete legislator is not taken as the point of reference (so often incorrect, hasty, unfortunate) but an abstract legislator: wise, provident, rational and just" (Work and loc. cit. p. 189/190).

Soon after this eminent Master draws attention to the fact that No. 1 of article 9.º refers to three further elements of interpretation "the unity of the legal system", "the circumstances in which the law was elaborated" and "the specific conditions of the time in which it is applied" (loc. cit, p. 190).

As to "the circumstances of the time in which the law was elaborated," Batista Machado further explains that this expression "represents what is traditionally called the occasio legis: the conjunctural factors of political, social and economic order that determined or motivated the legislative measure in question" (loc. cit., p. 190).

As to "the specific conditions of the time in which it is applied" this element of interpretation "has decidedly an actualist connotation (loc. cit., p. 190) which coincides with the opinion expressed by P. de Lima and A. Varela in the annotations to article 9.º of the CC.

With regard to "the unity of the legal system" Baptista Machado considers this the most important interpretive factor: "(…) its consideration as a decisive factor would always be imposed upon us by the principle of axiological or evaluative 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 has from the outset a negative function: that of eliminating 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, in the following terms: if the text contains only one meaning, that is the meaning of the norm – with the caveat, however, that it may be concluded based on other norms that the wording of the text 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 aimed at 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 elaborated or of the political-economic-social conjuncture that motivated the legislative decision (occasio legis) constitutes a subsidy of the utmost importance for determining the meaning of the norm. Suffice it 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 these interests, the choice between them expressed by the solution that the norm expresses" (loc. cit., pp. 182/183).

With respect to the systematic element (context of the law and parallel passages), "this element comprises the consideration of the other provisions that form the complex of rules of the institution in which the rule to be interpreted is integrated, that is, that regulate the same matter (context of the law), as well as the consideration of legal provisions that regulate parallel normative problems or related institutes (parallel passages). It also comprises the systematic place that belongs to the rule to be interpreted in the global legal order as well as its harmony with the spirit or intrinsic unity of the entire legal system.

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

"(…) In particular we must take into consideration the connection of the various laws of the country, because a fundamental requirement of all sound legislation is that laws adapt to one another and not result in a congeries of disconnected provisions (Joseph Kohler, cited by Manuel de Andrade, in Essay, p. 27).

Descending to the case at hand and the legal framework that underlies it:

Through analysis of the historical element, the conclusion is drawn that, from the entry into force of Decree-Law 59/72, of 30 December, the first to regulate this matter, to Decree-Law No. 116/94, of 3 May, the last to precede the IUC Code [see Law No. 22-A/2007, as amended by Law 67-A/2007 and 3-B/2010], the presumption [highlighted] of the taxpayers of the IUC being the persons in whose names the vehicles were registered at the date of their assessment was established.

It is thus verified that tax law has always had the objective of taxing the true and effective owner and user of the vehicle, appearing indifferent the use of one or another expression which, as we have seen, have in our legal order a coinciding meaning.

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

In fact, the current and new framework of vehicle taxation establishes principles aimed at subjecting vehicle owners to bear the prejudices from damages caused by road and environmental harms caused by these, as is understood from the tenor of article 1.º of the IUC Code.

Now the consideration of these principles, particularly the principle of equivalence, which merit constitutional protection and consecration in community law, and are also recognized in other branches of the legal system, determines that the said costs be borne by the real owners, the causers of the said damages, which entirely removes an interpretation aimed at preventing the presumed owners from providing proof that they are no longer owners because the ownership is in the legal sphere of another[5].

Thus, also, from the interpretation made in light of elements of a rational and teleological nature, considering what the rationality of the system guarantees and the purposes aimed at by the new IUC Code, it is clear that No. 1 of article 3.º of the IUC Code establishes a rebuttable legal presumption.

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

On the other hand, article 73.º of the General Tax Law establishes that "(…) presumptions enshrined in the rules of tax incidence always admit proof to the contrary, whereby they are rebuttable (…)".

Thus, with article 3.º, No. 1 of the IUC Code establishing a presumption juris tantum [and, therefore, rebuttable], the person who is registered as the owner of the vehicle and who, for that reason was considered by the Tax Authority as a taxpayer of the tax, may present evidence aimed at demonstrating that the person holding the title of ownership, at the date of the taxable event, is another person, to whom the ownership has been transferred.

Having analyzed the elements brought to the proceedings and the proven facts, the conclusion is drawn that the claimant was not the owner of the vehicles which the assessments in question concern at the date of the respective taxable events, because, in the meantime, it had already transferred ownership of the vehicle in question in accordance with civil law.

These operations of transfer of ownership are opposable against the Tax and Customs Authority, because, although facts subject to registration only produce effects against third parties when registered, in light of the provision in article 5.º, No. 1 of the Code of Land Registry [applicable by reference in the Code of Motor Vehicle Registration], the Tax Authority is not a third party for registration purposes, since it does not find itself in the situation provided for in No. 2 of the said article 5.º of the Code of Land Registry, applicable by force of the Code of Motor Vehicle Registration, that is: it did not acquire from a common source rights incompatible with one another.

Summary Conclusion:

For the assessment of IUC, the Tax and Customs Authority may only avail itself of the registered reality or that contained in the IMTT database if the obsolescence of the legal situation is not proven, particularly as concerns ownership of the vehicle.

Motor vehicle registration, in the economy of the IUC Code, thus represents mere rebuttable presumption of the taxpayers of the tax.

In these circumstances, the necessary assumptions for granting the request for annulment of the assessments, on the grounds of illegality and error in the assumptions are met.

Request for Indemnificatory Interest

The Claimant, on 4-12-2013, proceeded to make full payment of said IUC assessments.

And it requests reimbursement of these undue amounts, increased by indemnificatory interest at the legal rate, in accordance with article 43.º of the General Tax Law and 61.º of the Code of Tax Procedure and Process.

In accordance with the provision in item b) of article 24.º of the Tax Arbitration Regulations, the arbitral decision on the merits of the claim to which no appeal or impugnation lies binds the tax administration from the end of the period provided for appeal or impugnation, and the latter must, in the exact terms of the procedural result in favor of the taxpayer and until the end of the period provided for the voluntary execution of sentences of tax judicial courts, "restore the situation that would exist if the tax act which is the subject of the arbitral decision had not been practiced, adopting the acts and operations necessary for this purpose," which is in harmony with what is provided in article 100.º of the General Tax Law [applicable by force of the provision in item a) of No. 1 of article 29.º of the Tax Arbitration Regulations] which establishes that "the tax administration is obliged, in case of complete or partial granting of a claim, judicial impugnation or appeal in favor of the taxpayer, to the immediate and complete restoration of the legality of the act or situation which is the subject of the litigation, including the payment of indemnificatory interest, if applicable, from the end of the period for execution of the decision".

Although article 2.º, No. 1, items a) and b) of the Tax Arbitration Regulations uses the expression "declaration of illegality" to define the competence of arbitral courts operating in CAAD, making no reference to declaratory decisions, it should be understood that the competencies of such courts include the powers that in judicial impugnation proceedings are attributed to tax courts, this being the interpretation that harmonizes with the sense of the legislative authorization on which the Government based itself to approve the Tax Arbitration Regulations, in which it proclaims, as the first guiding principle, that "the tax arbitration process should constitute an alternative procedural means to the judicial impugnation process and to the action for recognition of a right or legitimate interest in tax matters".

The judicial impugnation process, despite being essentially a process of annulment of tax acts, admits the condemnation of the Tax Administration to payment of indemnificatory interest, as is inferred from article 43.º, No. 1 of the General Tax Law, in which it is established that "indemnificatory interest is due when it is determined, in a gracious claim or judicial impugnation, that there was error attributable to the services resulting in payment of the tax debt in an amount greater than that legally due" and from article 61.º, No. 4 of the Code of Tax Procedure and Process (in the wording given by Law No. 55-A/2010, of 31 December, which corresponds to No. 2 in the initial wording), that «if the decision recognizing the right to indemnificatory interest is judicial, the period for payment is counted from the beginning of the period of its voluntary execution».

Thus, No. 5 of article 24.º of the Tax Arbitration Regulations, in stating that "payment of interest is due, regardless of its nature, in the terms provided in the general tax law and in the Code of Tax Procedure and Process" should be understood as permitting recognition of the right to indemnificatory interest in the arbitration process.

In the case at hand, it is manifest that, as a result of the illegality of the assessment acts, there is grounds for reimbursement of the tax, by force of the cited articles 24.º, No. 1, item b) of the Tax Arbitration Regulations and 100.º of the General Tax Law, as this is essential to "restore the situation that would exist if the tax act which is the subject of the arbitral decision had not been practiced".

With respect to indemnificatory interest, it is also clear that the illegality of the act is attributable to the Tax and Customs Authority, which, by its own initiative, practiced it without legal support.

We are faced with a vice of violation of substantive law, embodied in error of law, attributable to the Tax Administration.

Consequently, the claimant is entitled to indemnificatory interest in accordance with article 43.º, No. 1 of the General Tax Law and article 61.º of the Code of Tax Procedure and Process, calculated on the amount it paid improperly.

Thus, the Tax and Customs Authority should give execution to the present award in accordance with article 24.º, No. 1 of the Tax Arbitration Regulations, determining the amount to be reimbursed to the Claimants and calculating the respective indemnificatory interest at the legal supplementary rate of civil debts, in accordance with articles 35.º, No. 10, and 43.º, Nos. 1 and 5, of the General Tax Law, 61.º of the Code of Tax Procedure and Process, 559.º of the Civil Code and Ordinance No. 291/2003, of 8 April (or statute or statutes that succeed it).

Indemnificatory interest is due from the date of payment (4-12-2013) until that of processing of the credit note in which they are included (article 61.º, No. 5 of the Code of Tax Procedure and Process).

III – DECISION

In accordance with the foregoing, this Arbitral Court decides to judge totally well-founded the requests for annulment of the IUC assessments and, in consequence, annuls those tax acts and condemns the Tax and Customs Authority to restitution to the claimant of the respective amounts paid, with indemnificatory interest calculated at the legal rate in accordance with the terms set out above, from the date of payment (4-12-2013) until the processing of the credit note.

Value of the Proceeding

In accordance with the provisions of article 306.º, No. 2 of the Code of Civil Procedure and 97.º-A, No. 1, item a) of the Code of Tax Procedure and Process and 3.º, No. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceeding is fixed at €2,079.48.

Costs

In accordance with article 22.º, No. 4 of the Tax Arbitration Regulations, the amount of costs is fixed at €612.00 (six hundred and twelve euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the expense of the Tax and Customs Authority.

Lisbon, 18 September 2014

The Arbitrator,

(José Poças Falcão)

[1] Article 73.º of the General Tax Law.

[2] Acronym for the Unique Vehicle Circulation Tax Code.

[3] In which the signatory was also arbitrator.

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

[5] Under the heading "principle of equivalence" article 1.º of the IUC Code establishes: "The unique vehicle circulation tax obeys the principle of equivalence, seeking to burden taxpayers in the measure of the environmental and road cost that these cause, in implementation of a general rule of tax equality".

Regarding the concept of the principle of equivalence, SÉRGIO VASQUES tells us: "In obedience to the principle of equivalence, the tax must be conformed in attention to the benefit that the taxpayer derives from public activity, or in attention to the cost that he imputes to the community by his own activity" (See. Special Consumption Taxes, Almedina, 2000, p. 110).

And, further on, this Professor explains, concerning automobiles: "a tax on automobiles based on a rule of equivalence will be fair only if those who cause the same road wear and the same environmental cost pay the same tax; and those who cause different road wear and environmental cost, pay different tax also.

Frequently Asked Questions

Automatically Created

Who is liable for IUC when a vehicle has been sold but the registration was not updated?
Under Portuguese tax law, liability for IUC when a vehicle has been sold but registration remains unchanged depends on whether the registration presumption is rebuttable. Article 3.º No. 3 of the IUC Code creates a presumption that the registered owner is the taxpayer. However, Article 6.º No. 1 establishes that the taxable event is actual ownership of the vehicle. According to arbitral precedent (case 26/2013-T), this registration presumption is rebuttable under Article 73.º of the General Tax Law, which allows proof to the contrary for presumptions in tax incidence rules. Former owners who have genuinely transferred ownership through valid civil law transactions can rebut this presumption by presenting documentary evidence such as sale contracts, accounting records, and transfer documentation. The actual owner—the person with legal and economic ownership at the time of the taxable event—bears the liability, not necessarily the registered party. However, until the presumption is successfully rebutted through administrative or judicial proceedings, the Tax Authority may continue to assess the registered owner based on IMTT database records.
Can the tax authority charge IUC based solely on vehicle registration records?
The Tax Authority cannot lawfully charge IUC based solely on vehicle registration records when contrary evidence exists. While Article 3.º No. 3 of the IUC Code allows the Tax Authority to use IMTT registration data as a presumptive basis for identifying taxpayers, this is a rebuttable presumption, not an irrebuttable fact. Portuguese tax law, particularly Article 73.º of the General Tax Law, prohibits irrebuttable presumptions at the level of tax incidence, as they would violate constitutional principles of equality and taxpaying capacity enshrined in Article 4.º of the General Tax Law. The registration serves as an administrative convenience and creates a prima facie case for taxation, but taxpayers retain the right to prove that the actual factual circumstances differ from the registration. When taxpayers present credible evidence—such as sale contracts, accounting documentation, or civil registry transfers—showing they are not the actual owners, the Tax Authority must consider this evidence. Assessments based exclusively on outdated registration data, without regard to contrary proof, constitute both a violation of law and an error in factual assumptions, rendering such assessments subject to annulment and requiring reimbursement of amounts wrongly collected plus indemnificatory interest.
What is subjective incidence in the context of Portuguese Vehicle Circulation Tax (IUC)?
Subjective incidence in Portuguese IUC taxation refers to the determination of who is liable to pay the tax—identifying the taxpayer. Article 3.º of the IUC Code establishes the subjective incidence by defining taxpayers as vehicle owners, with Article 3.º No. 3 creating a legal presumption that persons listed in IMTT registration records are considered owners for tax purposes. However, the fundamental taxable event under Article 6.º No. 1 is actual ownership of the vehicle, not mere registration. Subjective incidence thus requires connecting the tax obligation to the person with genuine legal and economic ownership. The tension arises when registration records diverge from actual ownership due to sales, transfers, or corporate restructurings where administrative updates were never completed. Portuguese tax law resolves this through the principle that registration creates a rebuttable presumption—it shifts the burden of proof to the taxpayer to demonstrate they are not the actual owner, but does not eliminate the requirement that taxation align with real taxpaying capacity. Subjective incidence must respect constitutional principles under Article 4.º of the General Tax Law, which bases taxation on actual capacity revealed by ownership of goods. Therefore, while registration provides the initial framework for identifying potential taxpayers, subjective incidence ultimately depends on proving actual ownership at the time the tax obligation arises.
How can a former vehicle owner challenge IUC assessments issued after the sale of the vehicle?
Former vehicle owners can challenge IUC assessments issued after vehicle sale through several procedural mechanisms. First, they can file for tax arbitration under Decree-Law No. 10/2011 and Ordinance No. 112-A/2011, requesting annulment of assessments based on violation of law and error in factual assumptions. The legal basis for challenge rests on proving that the taxable event—ownership under Article 6.º No. 1 of the IUC Code—did not exist in their case. To rebut the registration presumption under Article 3.º No. 3, taxpayers must present documentary evidence including: sale contracts demonstrating transfer of ownership; accounting records showing the vehicle was removed from their assets; invoices or payment records from the transaction; and any correspondence with IMTT requesting seizure of vehicle documents or registration updates. These documents benefit from the presumption of veracity under Article 75.º of the General Tax Law. Additionally, former owners should gather evidence identifying the actual current owner and demonstrating the complete chain of ownership transfers. When filing for arbitration or administrative appeal, claimants should argue that: (1) irrebuttable presumptions violate tax law principles; (2) they lack taxpaying capacity regarding assets they do not own; (3) the Tax Authority erred in factual assumptions by relying solely on outdated databases; and (4) compensatory interest is invalid when the underlying tax obligation does not exist. Success requires comprehensive documentation proving ownership transfer occurred before the relevant tax periods.
Are compensatory interest charges valid on IUC assessments based on incorrect ownership records?
Compensatory interest charges on IUC assessments based on incorrect ownership records are not valid under Portuguese tax law. Article 35.º of the General Tax Law establishes that compensatory interest applies when there is tax default—a delay in payment of tax that was legally due. However, when the underlying tax assessment itself is illegal because the taxpayer was never the actual owner and therefore never had a tax obligation, there can be no tax default and consequently no basis for compensatory interest. The assessment of compensatory interest requires verification of its legal assumptions: (1) existence of a valid tax obligation; (2) delay in payment; and (3) fault or responsibility of the taxpayer. When IUC assessments are based on outdated registration records that do not reflect true ownership, the fundamental tax obligation does not exist—the person assessed lacks the taxpaying capacity that forms the constitutional basis for taxation under Article 4.º of the General Tax Law. Therefore, any failure to pay cannot constitute default but rather represents justified non-payment of an obligation that never existed. When arbitral or judicial proceedings annul the underlying IUC assessments due to incorrect ownership attribution, the compensatory interest automatically falls as well, being merely accessory to an invalid principal obligation. Taxpayers who paid both IUC and compensatory interest based on erroneous assessments are entitled to full reimbursement of both amounts, plus indemnificatory interest on the wrongly collected sums calculated until complete repayment.