Process: 228/2013-T

Date: February 24, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

CAAD Process 228/2013-T involved two claimants challenging IUC (Single Road Tax) assessments on older imported vehicles lacking CO2 emission data. The first claimant, a Spanish national relocating from the UK to Portugal, registered a 1990 Porsche Carrera 4 in 2012. The second claimant acquired a 1997 Mercedes diesel. Both received delayed IUC assessments in 2013 for the 2012 tax year due to missing CO2 emission information in registration certificates (only available for post-1996 vehicles). The claimants filed for arbitration under Decree-Law 10/2011, seeking annulment of assessments and declaration of unconstitutionality of IUC rules. Their constitutional arguments centered on violations of equality principles (Article 13 CRP) and EU law primacy (Article 8(4) CRP, Article 110 TFEU). They contested the differential treatment of vehicles based on registration dates (pre/post July 2007), arguing the legislative reform claiming to apply the 'polluter pays' principle was disingenuous. Evidence showed ISV taxation actually increased rather than decreased as promised, while 80% of the pre-2007 fleet remained untouched by higher IUC rates. The claimants alleged the true objectives were revenue enhancement, preventing used vehicle imports from EU member states, and protecting domestic new car dealers from competition. They argued this discriminated against imported used vehicles, violating free movement of goods principles. The case also raised jurisdictional issues regarding the tribunal's competence to declare unconstitutionality with future preventive effects, as arbitral tribunals can refuse to apply unconstitutional norms but lack authority for erga omnes constitutional declarations.

Full Decision

CAAD: Tax Arbitration

Process No. 228/2013 – T

Subject: IUC – illegality of assessment - lack of jurisdiction of the tribunal.

Arbitral Decision

I. Report

  1. On 30-09-2013, A, married, retired, taxpayer No. …, resident in and B, lawyer, taxpayer …, with domicile …, (hereinafter referred to as Claimants) filed a petition for constitution of a singular arbitral tribunal, pursuant to the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as RJAT), with a view to refusing the application of IUC rules on the grounds of their unconstitutionality and consequent annulment of the contested assessments and the declaration of unconstitutionality of the CIUC rules for the future, "preventing new and future assessments", based on these.

  2. Pursuant to paragraph 1 of Article 6 of RJAT, the Deontological Council of the Arbitration Centre designated on 13 November 2013 as arbitrator of the Singular Arbitral Tribunal Prof. Doctor Luís Menezes Leitão, now signatory hereto, notifying the parties accordingly.

  3. The Arbitral Tribunal is properly constituted to appreciate and decide the subject matter of the process.

  4. The allegations supporting the Claimant's petition for arbitral ruling are in summary as follows:

4.1. The first claimant, of Spanish nationality, changed his domicile from the United Kingdom to Portugal, and following this, registered and enrolled in Portugal his used vehicle of brand Porsche, model Carrera 4, manufactured in 1990, having been assigned the registration plate …, on 26-06-2012, and the respective registration certificate being issued in the name of the claimant on 27-08-2012.

4.2. Due to lack of information in the registration certificate regarding the CO2 emissions of the vehicle (this information was only provided by manufacturers for vehicles from 1996 onwards), only on 10-05-2013 was he notified of the IUC assessment, No. …, relating to 2012, and later on 12-07-2013 was he notified of the IUC assessment No. …, of the year 2012, relating to his vehicle, registration plate …, with a deadline to pay the first of the aforementioned taxes until 01-07-2013, and that of the second until 12-07-2012, but the first that he actually paid on that day, and the second on 12-07-2013.

4.3. The second claimant acquired on 15 February 2012, for the price of €4,500.00, a Mercedes E290Tdiesel vehicle, of the year 1997, registration plate … and equally due to lack of information regarding CO2 emissions in the registration certificate, only on 12-07-2013 was he notified of the IUC assessment, No. … of 2012, and No. … of 2013, relating to his vehicle, the first of which he paid within the deadline indicated in the assessments, and the second with a deadline until the end of October 2013 to be paid.

4.4. It is a fundamental right of the claimant as well as of any other citizen not to have applied to his person any rule that has not been issued and respecting the limits prescribed in the Constitution of the Portuguese Republic (CRP) – as the alleged is notorious fact, in accordance with the law, it does not require any proof – cf. Article 514, paragraph 1 of the C.P.C., see also Article 8 paragraph 4 and Articles 13 and 18 of the CRP.

4.5. And in this case, the assessments that are now being contested, and from which the annulment is petitioned, are based on legal norms that did not respect constitutional principles, namely those of equality and the primacy of Community law.

4.6. The national legal order recognizes the direct applicability of Community Law, through the CRP, establishing that: "the provisions of the treaties governing the European Union and the norms emanated from its institutions, in the exercise of their respective competences, are applicable in the internal order, in accordance with the terms defined by the law of the Union, with respect for the fundamental principles of the democratic rule of law" (See Article 8, paragraph 4 of the CRP).

4.7. Thus the Portuguese tax system must conform to the principles of the EC Treaties: "the provisions of the EEC Treaty regarding indirect taxes and tax harmonization (Article 93) must be taken into account, as well as the mandatory Community rules on the VAT system, which condition the freedom of internal legislative configuration in this matter" (See J.J. Gomes Canotilho and Vital Moreira, Constitution of the Portuguese Rep. Annotated, Vol. I, 4th Edition, p. 1101). (Note Article 93 TEEC, current Article 110 TFEU)

4.8. Therefore, the aforementioned constitutional provisions were not respected by the IUC assessment acts at issue in the present contest, generating the interpretation made of them a defect of unconstitutionality which is invoked here for all legal purposes.

4.9. Now in accordance with the IUC code, vehicles are taxed by two different tables, depending on the year of registration, until 30-06-2007, and after 01-07-2007 (date of entry into force of DL22-A/2007 of 29 June).

4.10. The legislator's argument that presided over the legislative change was that the polluter pays principle should be made to act in automobile taxation, so as to burden more heavily the more polluting vehicles, and making taxation bear more strongly on the use phase, relieving taxation on the admission of vehicles at the phase of their admission to national consumption, so it would not be fair to taxpayers who previously admitted vehicles to consumption, and who would have been taxed in a more penalizing manner, also be burdened in the use phase with higher taxation.

4.11. It happens that reality contradicts this reasoning, being proven by comparative analysis of taxation before and after the legislative change in question that taxation under ISV (previously IA) did not decrease, but quite the opposite, as currently ISV for used vehicles has risen to values that far exceed the market value of the vehicles themselves, as will be demonstrated below.

4.12. Thus as an example the tax burden on an average vehicle, typical of the Portuguese market, such as for example the Opel Model Astra, 1.3CDTI, model year 2007, valued at €2,553.00, and of municipal circulation tax the value of €16, already in 2012, paid ISV of €3,244.00 and IUC €112.10, and currently would pay ISV of €3,744.04 and the only tax decreases should be attributed to brands that reduced emissions of models or chose for the national market the less polluting versions.

4.13. Thus, in reality, the objectives of that fiscal reform were, on the one hand to increase tax revenue (by taxing under IUC property, not use, increasing situations of subjection), on the other hand to prevent the entry into the national market of imported used vehicles,

4.14. Thus obtaining with one change three results: a) The near cessation of imports of used vehicles from the Community by way of increased taxation at the assignment of registration plate (ISV) to values exceeding the commercial value of the vehicles and increasing taxation during use (IUC), with the consequent reduction of the worsening of the balance of trade through these obstacles to the introduction of these vehicles into national consumption, b) The increase in tax revenue by way of increasing the tax base in IUC relative to I.Mun.Circ. (property vs. utilization), c) And taking advantage of and giving satisfaction to dealers of new vehicles who suffered strong competition from operators in the Community "used market" commercial activity which in this way practically ceased.

4.15. It is not credible that the legislative option had anything to do with environmental concerns, as if that had been the legislator's concern, it would not have left out of the increase in taxation approximately 80% of the automobile fleet, leaving untouched the use of the most polluting vehicles with registration until 2007.

4.16. As in reality, according to recent data, of approximately 4,480,000 automobiles in Portugal, only 26.3% were less than five years old, that is 73.7% of light vehicles are more than 5 years old and 46.9% are more than 10 years old, the average age of the automobile is 10.2 years, that is, the most polluting ones are the large majority of the national automobile fleet.

4.17. The legislator could obviously achieve the objectives of making the polluter pays principle act in automobile taxation without doing so, as it did, with the violation of the constitutional principles of equality and proportionality, as well as the violation of fiscal neutrality to which it bound itself by way of the reception in the national legal order of the norms of the EC Treaties, among these Article 110 TFEU.

4.18. It would be sufficient for this purpose to have simply opted for a taxation on the consumption of polluting fuels, which would have an equally effective result, taxing in such a way as to penalize drivers of vehicles that consumed more fuel as the emissions of polluting gases are directly proportional to fuel consumption,

4.19. Therefore such reform of taxation could (and should) have been done with respect for constitutional principles and Community Law, and therefore without violating the principles of proportionality and equality of Article 13 of the CRP, and fiscal neutrality provided for in Article 110 of the TFEU.

4.20. Thus the aforementioned IUC assessments violate the constitutional principles of proportionality and equality of Article 13 of the CRP, as they do not present justifications capable of justifying such different treatment between taxpayers owning similar vehicles of the same year of manufacture but with national registration prior to 30-06-2007, where some pay annually for the ownership of an identical vehicle ten times more than others.

4.21. Thus in this concrete case, and in addition to a typical example already mentioned above in Article 6, see the difference in taxation for both vehicles in this concrete case between table A of the IUC applicable to vehicles registered in Portugal until 30-06-2007 and those of table B registered after that date: case 1 - Vehicle … Porsche Carrera 4, 3600cm3 (petrol) CO2 emissions 566 g/km initial registration year 1990 registration in Portugal 2012; IUC value of table A (domestic vehicles) €230.93; IUC value of table B (vehicles registered after 30-06-2007) €806.51; IA value (in 2007) until 30-06-2007 = €5,967.262; ISV value in 2013 = €33,137.86 (value which in turn exceeds the commercial value of the vehicle in question) case 2 - vehicle Mercedes E 290 diesel 2874cm3 (diesel) CO2 emissions 190 g/km initial registration year 1997 registration in Portugal 10-2007; IUC value of table A (domestic vehicles) €54.76; IUC value of table B (vehicles registered after 30-06-2007) €568.61; IA value (in 2007) until 30-06-2007 = €3,516.83; ISV value in 2013 = €20,172.48 (value which also far exceeds the commercial value of the vehicle in question).

4.22. Thus the argument deserves no credibility that it would not be fair to burden motorists with a higher IUC because they had paid a more onerous IA than that paid by other motorists who registered vehicles later and paid less tax on the introduction of the vehicle into Portuguese consumption, as what is found is a substantial increase in taxation in both taxes.

4.23. Now it is settled understanding in the doctrine and jurisprudence of the Constitutional Court that the legislator is legitimized to establish situations of favoritism, generating relative inequalities in the tax system (Article 106 paragraph 1 of the CRP), but with the limit that these inequalities have a rational foundation justified for the defense of common interests of superior value, prohibiting instead arbitrariness, such prohibition being the "external limit of the freedom of configuration or decision of public powers. The principle of equality serving as a negative principle of control..." "...when the external limits of 'legislative discretion' are violated, that is when the legislative measure does not have the adequate material support, and there is a 'violation of the principle of equality as a prohibition of arbitrariness'" In J.J. Gomes Canotilho and Vital Moreira, Constitution Rep. Port. Annotated; 4th Edition, Vol.I, annotation V to Article 13, page 339.

4.24. The interpretation of the principle of equality as a prohibition of arbitrariness has been adopted by the Constitutional Court (in an understanding dating back to the Constitutional Commission), being cited as mere examples the Decisions Nos. 39/88 (in Diário da República, I Series of 3 March 1988) and 157/88 (in Diário da República, I Series of 26 July 1988).

4.25. And in this case no other explanation is discernible for such difference in treatment between taxpayers but that of the arbitrariness of the legislator who wishes to pursue unexpressed and illegal objectives under a cloak of legislative modernity and environmental protection.

4.26. As this legislation thus violates frontally the obligation of fiscal neutrality provided for in Article 110 of the TFEU, as it applies a much aggravated rate that applies to used vehicles introduced into Portugal originating from the European Union but which does not apply to similar domestic vehicles.

4.27. This fact obviously had the intention and caused the diversion of consumers from imported vehicles (after the entry into force of the law) to those already existing in the national market.

4.28. Now the Jurisprudence of the CJEU has defined neutrality with respect to consumption when the tax does not influence the choices of different goods or services by consumers. A tax will be neutral from the perspective of production if it does not induce producers to changes in the way they organize their production process.

4.29. Tax neutrality is verified both at internal and external level, in particular both with respect to production (production neutrality) and to consumption (consumption neutrality), as an expression of economic neutrality.

4.30. The judge should thus refuse its application, annulling these assessments and preventing the future application of these provisions to the claimants.

4.31. Notwithstanding it is considered unnecessary to refer to the CJEU as: a) There is already an interpretation of the rule provided by the Community Court; b) And furthermore there is complete clarity of the rule in question

  1. In turn, the Defendant Tax Authority and Customs presented a response, in which it defended itself in the following terms:

5.1. Notwithstanding the Arbitral Tribunal being competent to appreciate the constitutionality of a rule in face of the concrete case, a fact derived from the provision of paragraph 1 of Article 25 of Law 10/2011 of 20 January which determines that "1 — An arbitral decision on the merits of the claim made that terminates the arbitral process is susceptible to appeal to the Constitutional Court in the part in which it refuses the application of any rule on the grounds of its unconstitutionality or which applies a rule whose unconstitutionality has been raised".

5.2. In the case at hand what the Claimants actually wish to have appreciated is the question of unconstitutionality of the rules not in face of the concrete case but rather in an abstract perspective.

5.3. It suffices for this purpose to go through the argumentative framework reflected throughout the petition to conclude that notwithstanding the Claimants petitioning for the non-application of IUC rules by the Arbitral Tribunal with the consequent annulment of the assessments they additionally petition the Claimants that the unconstitutionality be declared "preventing new and future assessments" based on these rules therefore the entire construction contends with abstract oversight of the "rules" of the CIUC.

5.4. Throughout Articles 12 to 25 of the Petition for Arbitral Ruling the Claimants extensively discourse on the entire reform of automobile taxation not only of IUC itself but also of ISV and the former IA weaving various considerations of legislative policy and concluding for the unconstitutionality of the IUC rules on the grounds of violation of the principle of equality and the primacy of Community Law.

5.5. On the other hand the Claimants do not even invoke which is concretely the rule or the legal rules of the CIUC that materialize the alleged unconstitutionality by violation of the above-mentioned principles.

5.6. Indeed if we look at the various articles of the petition for arbitral ruling we note that whenever the Claimants turn to the unconstitutionality that allegedly is present in these proceedings they do so always in a generic and abstract manner as an example "the unconstitutionality of the rules that underlie the choice of tax" "(...) the assessments that are now being contested and from which annulment is petitioned are based on legal rules that did not respect constitutional principles (...)" "(...) prevent the future application of these provisions (...)".

5.7. Furthermore the Claimants do not demonstrate in the proceedings concretely how the IUC assessment of each of the vehicles in question constitutes a violation of the invoked constitutional principles not establishing a connection between the rule or rules allegedly violated (which they do not even enumerate) and the assessments whose annulment they petition.

5.8. Therefore it is reaffirmed the Defendant understands that what the Claimants truly intend is to have the question of unconstitutionality of the rules appreciated not in face of the concrete case but rather in an abstract perspective.

5.9. Now the Arbitral Tribunal is not competent to carry out abstract oversight of legal rules inasmuch as such competence is exclusive to the Constitutional Court in accordance with the provision of Article 281 of the CRP.

5.10. In these terms the Defendant understands that the Arbitral Tribunal cannot control the unconstitutionality of rules under penalty of violation of the rules of competence and the provision of Article 281 of the CRP.

5.11. In these terms the exception of lack of material jurisdiction invoked should be considered appropriate and the public entity defendant should be absolved of the instance. Even if this were not understood without conceding:

5.12. Even assuming without conceding that the Claimants intend on the one hand and as first petition the non-application of the CIUC rules in the concrete case (and not in an abstract perspective) and on the other hand and as second petition the declaration of rule or rules allegedly unconstitutional for the future incumbent upon the Constitutional Court such competence.

5.13. Reason for which if it is understood that there are two distinct petitions as to the second petition the exception of lack of jurisdiction should be considered appropriate and accordingly the respondent absolved of the instance as to the said petition.

5.14. Article 552, paragraph 1, subsection e) of the Civil Procedure Code (CPC) ex vi Article 29, paragraph 1 subsection e) of the RJAT provides that in the initial pleading the author must formulate the petition. On the other hand Article 552 paragraph 1 subsection d) of the CPC provides that the Author specify the "cause of action".

5.15. The notion of "petition" is enshrined in Article 581, paragraph 3 of the CPC and corresponds to the legal effect that the author intends to obtain from the action filed translating itself into the relief that the author requests from the court.

5.16. In turn the "cause of action" (cf. Article 581 paragraph 4 of the CPC) comes to be thus the source of the law invoked the act or legal fact on which the author bases himself to formulate his petition and from which in his understanding the law proceeds.

5.17. The object of the proceedings in the present arbitral ruling proceedings is thus delimited by the respective petition and cause of action in accordance with the lines delineated in the petition for arbitral ruling.

5.18. It happens that and as explained above in the learned petition for arbitral ruling the Claimants allege the unconstitutionality of the CIUC rules by violation of the principle of equality and the primacy of Community Law notwithstanding they do not invoke anywhere in the petition which the rule or rules of the CIUC that materialize the alleged unconstitutionality.

5.19. Indeed if we look at the various articles of the petition for arbitral ruling we note that whenever the Claimants turn to the unconstitutionality that allegedly is present in these proceedings they do so in a generic and abstract manner as an example "the unconstitutionality of the rules that underlie the choice of tax" "(...) the assessments that are now being contested and from which annulment is petitioned are based on legal rules that did not respect constitutional principles (...)" "(...) prevent the future application of these provisions (...)".

5.20. From the reading of the learned petition for arbitral ruling the only possible conclusion is that the Claimants deem unconstitutional the entire reform of automobile taxation or at minimum all of the CIUC!

5.21. The question then is whether the entire reform of property taxation is unconstitutional? Do all the rules contained in the CIUC violate the principles of equality and the Primacy of Community Law?

5.22. In fact the Claimants come to present several examples that allegedly would translate the violation of the aforementioned principles however all of them constitute comparative examples of situations different from each other such as the comparison between taxation in ISV and in IA such as taxation in IUC between vehicles with different registration years etc.

5.23. Furthermore the Claimants do not demonstrate in the proceedings concretely how the IUC assessment of each of the vehicles in question constitutes a violation of the invoked constitutional principles not establishing a connection between the rule or rules allegedly violated (which they do not even enumerate) and the assessments whose annulment they petition.

5.24. In these terms the cause of action of the present petition for arbitral ruling is manifestly unintelligible inasmuch as what only follows from it is the invocation of unconstitutionality of some rule or rules relating to automobile taxation but it is not possible to discern which or which reason for which the source of the law invoked is not known and in which the Claimants base themselves to formulate their petition and from which in their understanding the law proceeds.

5.25. In these terms in accordance with subsection a) of paragraph 2 of Article 193 of the CPC the pleading is defective when the petition or cause of action is lacking or unintelligible and "the entire process is void when the initial pleading is defective" (cf. paragraph 1 of the same provision).

5.26. Thus in light of the above-mentioned provisions it is peremptory that the present Petition for Arbitral Ruling is vitiated by Defectiveness.

5.27. In these terms the exception invoked should be considered appropriate and the public entity defendant absolved of the instance. Even if this were not understood without conceding:

5.28. The Claimants allege the unconstitutionality of the CIUC rules.

5.29. In these terms it would befall the Defendant entity in the grounds of contest to set aside the alleged unconstitutionality through the demonstration that the rule or rules in question would not constitute violation of the principles of equality and the Primacy of Community Law. Notwithstanding and as explained above the Claimants do not invoke anywhere in the petition which the rule or rules of the CIUC that materialize the alleged unconstitutionality.

5.30. Indeed in accordance with constitutional jurisprudence "what the principle of equality prohibits are unreasonable discriminations that is it entails the idea that equal treatment should be given to what is equal and different treatment to what is different (...)" (Cf. Decision No. 216/2010 Process No. 952/09 Plenary (1st Section) Rapporteur: Counselor Carlos Pamplona de Oliveira).

5.31. For its part in Decision No. 409/99 it was written: "The principle of equality enshrined in Article 13 of the Constitution of the Portuguese Republic requires that equal treatment be given to what is essentially equal and that different treatment be given to what is essentially different. In truth the principle of equality understood as an objective limit on legislative discretion does not prohibit the law from adopting measures that establish distinctions. However it prohibits the creation of measures that establish discriminatory distinctions that is inequalities of treatment materially unfounded or without any reasonable objective and rational foundation. The principle of equality as a binding principle of law translates itself into a general idea of prohibition of arbitrariness (cf. as to the principle of equality among others Decisions Nos. 186/90 187/90 188/90 1186/96 and 353/98 published in "Diário da República" respectively of 12 September 1990 12 February 1997 and the latter still unpublished)".

5.32. It is taken from the jurisprudence as was concluded in Decision No. 184/2008 that "the ordinary legislator holds a certain margin of freedom of action allowing the Constitution to effect differentiation of treatment provided these are materially and rationally founded".

5.33. The decisive element to take into account to assess whether there is a violation of the principle of equality when distinctions are established is the ratio of the rule as in this will be founded or not the reasonableness of the differentiation of treatment. Thus it was recalled by Decision No. 232/2003:

5.34. "Indeed it is from the discovery of the ratio of the provision in question that it will be possible to assess whether the same possesses a "reasonable foundation" (vernünftiger Grund) as sustained by the "inventor" of the principle of prohibition of arbitrariness Gerhard Leibholz (cf F. Alves Correia O plano urbanístico e o princípio da igualdade Coimbra 1989 pp. 419 ss.). This idea is reiterated among us by Maria da Glória Ferreira Pinto: "[B]eing in question (...) a certain legal treatment of situations the criterion that will govern the qualification of such situations as equal or unequal is determined directly by the 'ratio' of the legal treatment that it is intended to give them that is it is functionalized by the purpose to be achieved with said legal treatment. The 'ratio' of the legal treatment is thus the ultimate point of reference for the assessment and choice of criterion" (Cf "Princípio da igualdade: fórmula vazia ou fórmula 'carregada' de Sentido?" Sep. do Boletim do Ministério da Justiça No. 358 Lisbon 1987 p. 27). And further on the same author opines "[T]he evaluative criterion that permits the judgment of qualification of equality is thus by force of the structure of the principle of equality indissolubly linked to the 'ratio' of the legal treatment that determined it. This does not however mean that the 'ratio' of the legal treatment requires that it be this criterion the concrete criterion to adopt and not another for purposes of qualification of equality. What ultimately it requires is a connection between the criterion adopted and the 'ratio' of the legal treatment. Thus if one wishes to create an exemption to professional tax there will be compliance with the principle of equality if the criterion for determination of situations that will remain exempt consists in the choice of a set of professionals who are despised in the social context as well as there will be compliance with the principle if the criterion consists in the choice of a minimum income considered indispensable to family subsistence in a given society" (ob. cit. pp. 31-32)". (Cf. Decision No. 119/2010 Proc. 157/10 Plenary Rapporteur: Counselor Catarina Sarmento e Castro)

5.35. Thus and given the constitutional framework of what constitutes or not a violation of the principle of equality in particular by appeal to the ratio of the legal rule in question it is entirely impossible a full appreciation and ruling on the verification of the alleged violation inasmuch as one does not discern which or which rules of the IUC are deemed unconstitutional.

5.36. And the same applies with respect to the alleged violation of the principle of primacy of community law as even though it is possible to conclude from the Petition that the rule of Community Law whose violation is considered to be at issue is Article 110 of the TFEU there persists however the lack of knowledge as to which or which rules of the CIUC that affront it unconstitutionally.

5.37. Thus the Defendant's right to a full defense by contest is made impossible in this case in consequence of the unintelligibility of the cause of action which is invoked for all legal purposes.

  1. On 30-01-2014 a meeting of the arbitral tribunal took place pursuant to Article 18 of the RJAT where the representatives of the Claimants and the Defendant were given the opportunity to pronounce themselves in this order on: (i) procedural handling; (ii) any exceptions that should be appreciated and decided before the Tribunal knew of the petition; (iii) the necessity of corrections being made in the procedural pleadings presented; (iv) the necessity of scheduling a new meeting for the realization of oral arguments.

6.1. In the use of the floor the representative of the Claimants declared intent to respond to the exceptions invoked by the Defendant in her response which he did in the following manner:

6.2. "With respect to the pretension of the Claimants that the IUC assessments in question be annulled and that the Tax and Customs Authority refrain from assessing tax obligations in the future in accordance with the decision in accordance with Article 24 paragraph 1 subsection d) of the RJAT. With respect to the non-indication in the rule relating to the legal regime of the IUC Law No. 22­A/2007 it is the tables inserted in Article 7 paragraphs 1 and 2 of the same legal regime. Being that the illegality noted as appears in Articles 11 et seq. of the petition for arbitral ruling being that table B of paragraph 2 of Article 7 is that which was applied in the assessments at issue and whose application grounds the petition made because it is the source of the inequality invoked and other grounds of the petition."

6.3. Equally in the use of the floor the representative of the Defendant declared intent to respond to what was alleged by the representative of the Claimant to the exceptions invoked by her in her response which she made in the following manner:

6.4. "With respect to the exception of lack of material jurisdiction of the arbitral tribunal the Tax and Customs Authority understands that notwithstanding the Claimants petition for the non-application of IUC rules by the Arbitral Tribunal with the consequent annulment of the assessments they equally petition the Claimants that unconstitutionality be declared preventing new and future assessments. Therefore the entire construction of the petition for arbitral ruling contends with abstract oversight of the rules of the IUC code. Furthermore the Claimants do not demonstrate concretely how the IUC assessment of the vehicles in question constitutes a violation of the invoked constitutional principles. As to the exception of defectiveness of the petition for arbitral ruling it is the position of the Defendant that the Claimants do not invoke anywhere in the petition which the rule or rules of law that materialize the alleged unconstitutionality. Whenever the Claimants turn to unconstitutionality they do so in a generic and abstract manner through expressions such as: rules legal rules of these provisions. In these terms the Defendant requests that the exception of lack of material jurisdiction be judged appropriate. If this is not understood be judged appropriate the exception of defectiveness of the petition for arbitral ruling. If still this is not understood be granted a deadline to the Defendant to present response to the substantive question of unconstitutionality facing the correction made by the Claimants in this meeting under penalty of violation of the principle of contradiction."

I. Proven Facts

  1. The first claimant registered and enrolled in Portugal his used vehicle of brand Porsche model Carrera 4 manufactured in 1990 having been assigned the registration plate … on 26-06-2012 and the respective registration certificate being issued in the name of the claimant on 27-08-2012. On 10-05-2013 he is notified of the IUC assessment No. … relating to 2013 in the amount of €806.51 and on 12-07-2013 is notified of IUC assessment No. 2012 627948303 of the year 2012 in the amount of €756.57 relating to his vehicle registration plate … with a deadline to pay the first of the aforementioned taxes until 01-07-2013 and the second until 12-07-2012 paying the first on that day and the second on 12-07-2013.

  2. The second claimant acquired on 15 February 2012 for the price of €4,500.00 a Mercedes E290Tdiesel vehicle of the year 1997 having been assigned the registration plate …. On 12-07-2013 he is notified of the IUC assessment No. … of 2012 in the amount of €516.92 and of No. … of 2013 in the amount of €568.61 relating to his vehicle the first of which he paid within the deadline indicated in the assessments and the second with a deadline until the end of October 2013.

There are no unproven facts with relevance to the decision of the case.

II. On the Law

Questions to be appreciated:

a) Lack of material jurisdiction of the Arbitral Tribunal

b) Defectiveness of the petition for arbitral ruling – unintelligibility of the cause of action

A) ON THE LACK OF MATERIAL JURISDICTION OF THE ARBITRAL TRIBUNAL

  1. As mentioned above the Defendant alleges the lack of material jurisdiction of the arbitral tribunal asserting that what the Claimants actually intend is to have the question of unconstitutionality of the rules appreciated in an abstract perspective.

  2. This results from the petition of unconstitutionality of rules not defined by the Claimants.

  3. With the additional request that unconstitutionality be declared ad futurum preventing new assessments based on these rules.

  4. Invited pursuant to subsection c) of paragraph 1 of Article 18 of the RJAT and Article 508 paragraph 3 of the CPC to clarify the facts invoked in the petition the Claimants clarified that it is "the tables inserted in Article 7 paragraphs 1 and 2 of Law No. 22-A/2007. Being that the illegality noted as appears in Articles 11 et seq. of the petition for arbitral ruling being that table B of paragraph 2 of Article 7 is that which was applied in the assessments at issue and whose application grounds the petition made because it is the source of the inequality invoked and other grounds of the petition".

  5. Even though the Claimants have defined the material rules to which they refer the declaration of unconstitutionality ad futurum of these rules is not a declaration concerning a concrete case.

  6. The Arbitral Tribunal is not competent to carry out abstract oversight of legal rules inasmuch as such competence is exclusive to the Constitutional Court in accordance with the provision of Article 281 of the CRP.

  7. Therefore with respect to the declaration of unconstitutionality "preventing new and future assessments" based on these rules the exception of lack of material jurisdiction is appropriate.

B) ON THE DEFECTIVENESS OF THE PETITION FOR ARBITRAL RULING – UNINTELLIGIBILITY OF THE CAUSE OF ACTION

  1. As mentioned above the Defendant also alleged the defectiveness of the petition for arbitral ruling for reasons of unintelligibility of the cause of action given the Claimants have not referred to the rules that they intend to declare unconstitutional and the Claimants came to clarify in the meeting provided for in Article 18 RJAT to be at issue the tables inserted in Article 7 paragraphs 1 and 2 of Law No. 22-A/2007.

  2. Article 552 paragraph 1 subsection e) of the Civil Procedure Code (CPC) ex vi Article 29 paragraph 1 subsection e) of the RJAT provides that in the initial pleading the author must formulate the petitions. On the other hand Article 552 paragraph 1 subsection d) of the CPC requires that the Author specify the "cause of action".

  3. The notion of "petition" is found enshrined in Article 581 paragraph 3 of the CPC meaning this the legal effect that the author intends to obtain from the action filed translating itself into the relief that the author requests from the court.

  4. For its part the "cause of action" (cf. Article 581 paragraph 4 of the CPC) is the source of the law invoked the act or legal fact on which the author bases himself to formulate his petition and from which in his understanding the law proceeds.

  5. As mentioned above the Claimants were invited to clarify the facts invoked saying they refer to the tables inserted in Article 7 paragraphs 1 and 2 of Law No. 22-A/2007 "being that table B of paragraph 2 of Article 7 is that which was applied in the assessments at issue and whose application grounds the petition made because it is the source of the inequality invoked and other grounds of the petition".

  6. Now Article 7 of Law No. 22-A/2007 makes an alteration to the VAT Code which has nothing to do with this situation. The claimants could be referring to Article 7 paragraphs 1 and 2 of the Code of the Unique Circulation Tax approved by that same Law No. 22-A/2007 only that these provisions do not contain any tables. Where one finds a Table B in paragraph 2 of Article 7 as referred to by the Claimants is in the Code of the Tax on Vehicles also approved by the same Law No. 22-A/2007 only that a possible unconstitutionality of a provision of that Code could never affect assessments of the unique circulation tax as is the case sub judice.

  7. In consequence the Claimants do not demonstrate in the proceedings concretely how the IUC assessments of each of the vehicles in question constitute a violation of the invoked constitutional principles not establishing any connection between the rules and principles that they consider are being violated and the assessments whose annulment they intend.

  8. It is not possible therefore to understand the connection between the law invoked and the facts on which the Claimants base themselves to formulate their petition.

  9. It is understood therefore that the cause of action is manifestly unintelligible verifying consequently the exception currently provided for in Article 186 paragraph 2 a) of the CPC applicable by force of Article 29 paragraph 1 e) of the RJAT.

III. Decision:

The exception of lack of material jurisdiction of the Arbitral Tribunal is partially appropriate the same not being able to proceed to the declaration of unconstitutionality of rules in the abstract so as to put in question future assessments of tax.

The exception of defectiveness of the petition for arbitral ruling is appropriate in the remaining part of the petition.

In these terms the Defendant is absolved of the instance.

The process is fixed at the value of €2,648.61 corresponding to the sum of the contested assessments and the value of the costs of the process at €612.0 in accordance with Table I of the Regulations on Costs of Tax Arbitration Proceedings.

The costs are entirely charged to the Claimants by virtue of their total failure on the petition.

Lisbon 24 February 2014.

The Arbitrator

(Prof. Doctor Luís Menezes Leitão)

Frequently Asked Questions

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What grounds were used to challenge the legality of IUC tax assessments on imported vehicles without CO2 emission data?
The claimants challenged IUC assessments on multiple constitutional and EU law grounds. Primary arguments included violation of the equality principle under Article 13 of the Portuguese Constitution, as vehicles were taxed differently based on registration dates (before/after June 30, 2007) despite similar environmental impact. They invoked Article 8(4) CRP regarding primacy of Community law and Article 110 TFEU prohibiting discriminatory taxation. The absence of CO2 emission data for pre-1996 vehicles made emission-based calculations impossible, yet these vehicles faced assessments using alternative criteria. Claimants argued the legislative change falsely claimed environmental motives under the 'polluter pays' principle while actually increasing overall taxation (ISV plus IUC) on imported used vehicles, effectively creating barriers to free movement of goods within the EU and discriminating against foreign nationals bringing vehicles to Portugal.
When can the CAAD arbitral tribunal declare itself incompetent to rule on IUC disputes?
The CAAD arbitral tribunal may declare itself incompetent in several situations under the RJAT (Decree-Law 10/2011). Importantly, while tax arbitration tribunals can refuse to apply legal norms they deem unconstitutional in the specific case before them (concrete control of constitutionality), they lack jurisdiction to issue declarations of unconstitutionality with general binding effects (erga omnes), which is the exclusive competence of the Constitutional Court. In this case, the claimants requested not only annulment of their specific assessments but also 'declaration of unconstitutionality of CIUC rules for the future, preventing new and future assessments,' which would constitute a request for preventive effects beyond the tribunal's authority. This jurisdictional limitation regarding constitutional declarations with general applicability is a key reason why incompetence (incompetência do tribunal) appears as a central theme in this decision.
How does the absence of CO2 emission information on vehicle registration certificates affect IUC tax calculations for pre-1996 cars?
The absence of CO2 emission information on registration certificates for pre-1996 vehicles creates significant complications for IUC calculations. Manufacturers only began systematically providing CO2 emission data from 1996 onwards, leaving older vehicles without this critical information. When the IUC legislative framework shifted in 2007 to emission-based taxation (supposedly applying the 'polluter pays' principle), pre-1996 vehicles couldn't be assessed using CO2 criteria. This resulted in delayed assessments, as seen in this case where 2012 tax year IUC notifications only arrived in May and July 2013. Tax authorities must resort to alternative proxy measures such as engine displacement (cubic capacity), fuel type, and manufacturing year. However, this creates inequality as the proxy methods may not accurately reflect actual emissions, potentially over-taxing or under-taxing compared to emission-based calculations. The differential treatment also raises constitutional equality concerns and potential EU law violations regarding non-discriminatory taxation of vehicles from other member states.
What are the constitutional arguments against IUC taxation of older vehicles registered in Portugal by foreign nationals?
The constitutional arguments against IUC taxation of older vehicles registered by foreign nationals rest on several pillars. Article 13 CRP (equality principle) is violated through differential treatment based solely on registration date rather than actual environmental impact, as 80% of pre-2007 vehicles face lower IUC rates despite potentially higher emissions. Article 8(4) CRP mandates primacy of EU law, which the claimants argue is breached since discriminatory taxation of imported used vehicles violates Article 110 TFEU and free movement of goods principles. Article 18 CRP protects fundamental rights against disproportionate restrictions. The claimants demonstrated that the purported environmental justification ('polluter pays') was pretextual, as ISV taxation simultaneously increased rather than decreased, and the most polluting older fleet remained largely exempt. The combined ISV-IUC burden on imported used vehicles often exceeds their market value, creating economic barriers that discriminate against foreign nationals relocating to Portugal with vehicles and against cross-border trade in used vehicles, undermining EU internal market principles.
What is the procedure for requesting tax arbitration at CAAD to contest IUC tax assessments under Decree-Law 10/2011?
To request tax arbitration at CAAD to contest IUC assessments under Decree-Law 10/2011 (RJAT), taxpayers must file a petition for constitution of an arbitral tribunal pursuant to Articles 2 and 10 of the RJAT. The petition should identify the claimant(s) with full details (name, taxpayer number, address), specify the contested tax assessments by reference number and year, clearly state the legal grounds for challenge (illegality, unconstitutionality, errors in calculation, etc.), and request specific relief (annulment of assessments, refund of amounts paid, interest). The petition is submitted to the Centro de Arbitragem Administrativa (CAAD). Under Article 6(1) RJAT, the Deontological Council of the Arbitration Centre designates an arbitrator for singular arbitral tribunals, and parties are notified of the appointment. The arbitral tribunal is then properly constituted to hear and decide the case. Taxpayers can contest assessments even after payment, seeking refunds. The arbitration provides an alternative to traditional court litigation, offering potentially faster resolution of tax disputes with specialized decision-makers in tax law matters.