Process: 228/2014-T

Date: October 20, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

CAAD Case 228/2014-T addressed the critical issue of IUC (Unique Vehicle Circulation Tax) subjective incidence when financial leasing contracts terminate through vehicle sale to lessees. A financial institution challenged three IUC assessments totaling €114.83 for 2011-2012, arguing it was no longer the taxpayer after selling previously leased vehicles to former lessees, despite failing to update vehicle registration records. The core dispute centered on Article 3 of the IUC Code's legal presumption mechanism and whether economic ownership should prevail over registered legal ownership. The Claimant contended that lessees, having exclusive vehicle enjoyment, qualify as taxpayers under Article 3's equating provision, and that sale contract validity should not depend on registration vis-à-vis the Tax Authority. The institution argued registration failure only affects third-party enforceability, a status the Tax Authority cannot claim. The Tax Authority countered that Article 3 establishes an ownership fiction rather than mere presumption, making registered owners liable regardless of underlying economic reality. The Authority maintained that IUC assessment must rely exclusively on registration data, as unregistered changes cannot bind the tax administration, and that invoices constitute insufficient unilateral proof of ownership transfer. This arbitration raised fundamental questions about the balance between formal registration requirements and economic substance in tax law, the probative standards for ownership transfer, and whether Article 19's registration obligations create strict liability for financial institutions. The case exemplifies common challenges facing leasing companies in vehicle tax administration when operational realities and registration formalities diverge, testing the limits of legal fictions in determining tax incidence.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case no. 228/2014 – T

Subject Matter: IUC; subjective incidence; legal presumption.

I. REPORT

A, S.A., a company with registered office at …, … Lisbon, holder of the unique registration number and identification number of legal entity …, hereinafter simply designated as the Claimant, filed a request for the constitution of an arbitral tribunal in tax matters and a request for an arbitral decision, pursuant to the provisions of articles 2 no. 1 a) and 10 no. 1 a), both of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, briefly designated as RJAT), petitioning the annulment of 3 (three) tax assessment acts relating to the Unique Vehicle Circulation Tax (IUC) for the tax years 2011 and 2012, in the total amount of € 114.83, as well as reimbursement of the same amount, relating to tax paid, further petitioning payment of corresponding compensatory interest.

To substantiate its request, it alleges, in summary:

a) The Claimant is a credit institution, and within the scope of its activities, it provides financing to the automobile sector;

b) At the date of the tax assessment, the Claimant was no longer the owner of the 3 (three) vehicles originally subject to financial leasing;

c) These having been sold to the former lessees, albeit the respective property registration was not updated;

d) For which reason, the Claimant cannot assume the status of taxpayer in respect of the tax;

e) However, even if this were not the case, the Claimant could never be considered a taxpayer of the IUC, since the vehicles in question were subject to financial leasing contracts, which implies that the lessee is the taxpayer and, consequently, responsible for payment of the tax;

f) The Tax Authority considers that the Claimant, as the lessor entity of the vehicles, is responsible for payment of IUC;

g) Under article 3 of the IUC Code, the lessee is equated to the owner of the vehicle to be considered a taxpayer of IUC;

h) The failure to register does not affect the validity of the purchase and sale contracts concluded but only their effectiveness, and even this, only against third parties in good faith, a qualification that the Tax Authority does not assume;

i) The Tax Authority cannot be considered a third party for purposes of registration, by virtue of the fact that the purchase and sale contracts and financial leasing contracts would be inapposable to it;

j) The legislator chose to privilege the criterion of economic ownership, to the detriment of legal ownership;

k) Under no. 2 of article 3 of the IUC Code, as the lessees have the exclusive enjoyment of the vehicle, they also have the obligation to pay the tax;

l) In the case of the 3 assessments in question, the Claimant is not a taxpayer of IUC;

m) The assessments are not substantiated.

The Claimant filed 3 annexes (A, B and C) and 6 documents, having called two witnesses.

In the request for an arbitral decision, the Claimant chose not to designate an arbitrator, and therefore, in accordance with the provisions of article 6 no. 2 a) of the RJAT, the undersigned was designated by the Ethics Council of the Centre for Administrative Arbitration, such designation having been accepted in accordance with legal provisions.

The arbitral tribunal was constituted on 12 May 2014.

Notified in accordance with the terms and for the purposes of the provision of article 17 of the RJAT, the Respondent submitted its answer, alleging, in summary, the following:

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

b) Article 3 of the IUC Code does not establish any presumption of ownership, but a true fiction of ownership – the legislator does not say that they are presumed to be owners but that they are considered owners;

c) Although the Claimant alleges that it was not the owner of the vehicles at the date of the tax events to which the disputed assessments refer, the truth is that the evidence presented by it does not permit the conclusion that the necessary transfer of the vehicles took place;

d) The invoices attached do not constitute suitable documents to prove the sale of the vehicles in question, since they are nothing more than documents unilaterally issued by the Claimant;

e) The failure to register in the property register the changes of ownership or leasing situations has the consequence that the obligation to pay IUC falls on the registered owner, and the Tax Authority cannot assess the tax based on elements not registered;

f) IUC is owed by persons who appear in the register as owners of the vehicles;

g) The failure to comply with the obligation provided for in article 19 of the IUC Code makes the Claimant liable for arbitral costs.

The Respondent filed a copy of the administrative file, having called no witnesses.

Given the position assumed by the parties and the absence of any need for additional production of evidence, it was determined that the meeting referred to in article 18 of the RJAT would not be held, as well as the waiver of submission of arguments, similarly waiving the examination of the witnesses called by the Claimant.

II. QUESTIONS TO BE DECIDED

Given the positions assumed by the Parties, set forth in the arguments submitted, it is necessary:

a. To determine who is the taxpayer of IUC when, on the date of the occurrence of the taxable event, the motor vehicle originally subject to a financial leasing contract has already been alienated;

b. To determine the legal value of vehicle registration for purposes of IUC, particularly for purposes of the subjective incidence of the tax;

c. To determine whether the failure to update vehicle registration permits considering, as taxpayers of IUC, the persons in whose names the vehicles are registered;

d. To determine the probative value of the invoices filed by the Claimant;

e. To determine the consequences of non-compliance with the provision of article 19 of the IUC Code.

III. FACTS

a. Established Facts

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

  1. The Claimant is a financial credit institution;

  2. Within the scope of its activities, the Claimant provides its clients with financing for the acquisition of motor vehicles;

  3. Said financing is, most of the time, formalized through the execution of financial leasing contracts and long-term rental contracts;

  4. During the period of execution of such contracts, the Claimant maintains the legal position of lessor;

  5. The Claimant was notified of three IUC tax assessment acts relating to the years 2011 and 2012, in the total amount of € 114.83;

  6. None of the three vehicles to which the assessments now in question refer belong to categories F or G, referred to in article 4 of the IUC Code;

  7. The three assessments refer to vehicles in relation to which, on the date of the occurrence of the taxable event, an invoice of sale to a third party had been issued by the Claimant;

  8. The Claimant paid the tax assessed by the Respondent and reflected in the assessments now challenged; it did so under the Exceptional Regime for Regularization of Tax Debts and Social Security, established by Decree-Law no. 151-A/2013.

b. Unproven Facts

With interest for the proceedings, no other fact was proven.

c. Substantiation of the Facts

The conviction regarding the facts established as proven was formed on the basis of the documentary evidence filed by the Claimant, indicated in relation to each of the points, and whose adherence to reality was not questioned.

IV. CUMULATION OF REQUESTS

Given the significant number of vehicles and the volume of documentation necessary to prove the facts alleged, the Claimant, invoking the principle of procedural economy, seeks a judgment of illegality that encompasses the three tax assessment acts now in question.

While it is not a matter of a "significant number of vehicles," there is an identity of the nature of the tax events, of the factual and legal grounds invoked, and of the tribunal competent to render the decision, nothing preventing that, in accordance with article 3 of the RJAT and article 104 of the Code of Tax Procedure and Process, the requested cumulation of claims be proceeded with.

V. PRELIMINARY EXAMINATION

The Arbitral Tribunal is regularly constituted and materially competent.

The parties have legal personality and capacity, are legitimate, and are regularly represented.

The proceedings do not suffer from any defects affecting their validity, there being no exceptions or preliminary matters that prevent consideration of the merits, and which must be known ex officio.

VI. ON THE LAW

Having established the facts, it is now necessary, by reference to them, to determine the applicable law.

Having analyzed the arguments submitted by the Parties, it is readily apparent that the fundamental issue lies in the interpretation of the norm contained in no. 1 of article 3 of the IUC Code and, more specifically, in determining whether it contains or does not contain a legal presumption. This question, as moreover has been underlined in other decisions, has given rise to extensive case law – also arbitral – which will be addressed here opportunely.

Under the heading "subjective incidence," article 3 of the IUC Code provides that:

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

  1. – Financial lessees, acquirers with retention of title, as well as other holders of option rights to purchase by force of the leasing contract are equated to owners"

Indeed, clarifying doubts about the meaning and scope to be attributed to a given legal norm implies carrying out an interpretive task that allows extracting from the linguistic statement a concrete meaning or "content of thought"([1]). However, such a task can only be accomplished – thus achieving an apprehension of the vis ac potestas legis – through the use of a concrete method, which is based on literal interpretation, on the one hand, and on logical or rational interpretation, on the other.

It should also be recalled that in accordance with the provision of no. 1 of article 11 of the General Tax Law, tax norms are interpreted in accordance with the principles of legal hermeneutics commonly accepted, especially those set forth, among us, in article 9 of the Civil Code. Let us proceed.

Literal interpretation thus presents itself as the first stage of interpretive activity. As FERRARA states, "the text of the law forms the substrate from which and upon which the interpreter must begin and rely"([2]).

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

Logical interpretation, as it has been consistently understood by doctrine([3]), is based on the rational element, the systematic element, and the historical element; weighing them and deducing from them the value of the legal norm in question.

By rational element must be understood the raison d'être of the legal norm, i.e., the purpose for which the legislator instituted it. The discovery of the ratio legis thus presents itself as a factor of undoubted importance for determining the meaning of the norm.

However, a given norm does not exist in isolation; rather, it coexists with other norms and legal principles in a systematic and complex manner. Thus, it naturally becomes the case that the meaning of a concrete norm results clearly from comparing it with others. As BAPTISTA MACHADO states, "this element comprises consideration of other provisions that form the complex of norms of the institute in which the norm to be interpreted is integrated, that is, which regulate the same matter (context of the law), as well as consideration of legal provisions that regulate parallel normative problems or related institutes (parallel locations). It also comprises the systematic place that belongs to the norm to be interpreted in the global legal order, as well as its consonance with the spirit or intrinsic unity of the entire legal order."([4]).

The historical element, for its part, must refer to and include materials connected with the history of the norm, such as "the evolutionary history of the institute, the figure or legal regime in question (…); the so-called sources of law, that is the legal or doctrinal texts that inspired the legislator in the preparation of the law (…); preparatory works."

Let us then apply what has been said to the case at hand.

Having examined the arguments of Claimant and Respondent, and as regards the literal element, it is readily apparent that the focus of disagreement lies in the expression "(…) considered as such (…)," contained in no. 1 of article 3 of the IUC Code.

The question arises – as was indeed raised in the Arbitral Decision rendered in Case no. 73/2013-T([5]): "Does the fact that the legislator chose the word 'considered' destroy the possibility of there being a presumption?" The answer is no. And it should not be said that such conclusion is undermined by the circumstance that the legislator did not use the word "presumed," which was employed in the ancient Regulation on Vehicle Tax.

Here too we cannot fail to emphasize what was said in that decision: "examining the Portuguese legal order, we find countless norms that establish presumptions using the verb 'consider,' many of which used in the gerund form ('considering' or even 'considered as'). Examples of this are the norms listed below: In the Civil Code, among others, articles 314, 369 no. 2, 374 no. 1, 376 no. 2, 1629 (…). Also in the tax legal order one can find the verb 'consider,' namely the term 'is considered' with a presumptive sense. And there it adds the teaching of LEITE DE CAMPOS, SILVA RODRIGUES and LOPES DE SOUSA which, for clarity of exposition, is likewise transcribed. Thus, the Authors write that 'presumptions in matters of tax incidence may be explicit, revealed by the use of the expression 'presumed' or similar (…). However, presumptions may also be implicit in incidence norms, specifically of objective incidence, when certain values of movable or immovable property are considered as constituting taxable matter, in situations in which it is not unfeasible to ascertain the real value'."

To this effect, JORGE LOPES DE SOUSA([6]) states that in no. 1 of article 40 of the Personal Income Tax Code the expression "presumed" is used, whereas in no. 2 of article 46 of the same diploma the word "considered" is used, there being no difference whatsoever between the one and the other expression, both signifying, ultimately, the same thing: a legal presumption.

And what can be said of no. 4 of article 89-A? Can any doubts remain that it is a presumption? And is such conclusion weakened by the fact that the verb 'consider' is employed there? This does not appear to us to be the case.

Thus, and to what concerns us here, it proves admissible to assimilate the verb 'consider' to the verb 'presume.' Indeed, we may be faced with a presumption even when the legislator has chosen other verbs, namely the verb 'consider.' In fact, and contrary to what is propounded by the Respondent, this is the conclusion that least belies the systematic coherence required by the legal order as a whole.

But more: also the rational element authorizes such a conclusion.

Let us invoke the explanatory memorandum of Bill no. 118/X, of 07/03/2007, which gave rise to Law no. 22-A/2007, of 29 June, since from it the ratio legis clearly emerges.

It was sought to undertake a "global and coherent reform of the taxes linked to the acquisition and ownership of motor vehicles" in light of the "imperative need to bring clarity and coherence to this area of the tax system and the even more imperative need to subordinate it to the principles and concerns of environmental and energy order that nowadays mark the discussion of automobile taxation."

Thus, "the two new taxes that are now created, the tax on vehicles and the unique vehicle circulation tax, constitute much more than the technical extension of the figures created in the 1970s and 1980s that preceded them, focused predominantly on revenue-raising, indifferent to the social cost resulting from automobile circulation. They constitute something different, figures now of the century in which we live, with which it is certainly intended to raise public revenue, but to raise it in the measure of the cost that each individual causes to the community."

In a manner consistent with that motivation, the legislator came to establish, in article 1 of the IUC Code, the principle of equivalence, making it clear "that the tax, in its entirety, is subordinated to the idea that taxpayers should be burdened in the measure of the cost they cause to the environment and the road network, this being the raison d'être of this tax figure. It is this principle that dictates the burdening of vehicles in function of their respective ownership and until the moment of disposal."

One can indeed say that environmental and energy concerns are so impressive in relation to IUC that the principle of equivalence shapes not only the tax base, but also, and above all, the subjective incidence itself, provided for in article 3.

Once again the Arbitral Decision rendered in Case no. 73/2013-T is invoked: "Having regard both to the systematic place that the principle of equivalence occupies (article 1 of the IUC Code) – systematic element – and the historical element embodied in Bill no. 118/X (source of law), and the rational (or teleological) just analyzed, all point in the direction of the preliminary conclusion reached by us during the analysis of the grammatical element, making sense only to conceive in the context of article 3 of the IUC Code the expression 'considered as such' as revealing the presence of a rebuttable presumption (…). In fact, the ratio legis of the tax rather points in the direction that those who use the vehicles should be taxed, the economic owner, in the words of DIOGO LEITE DE CAMPOS, the actual owners or financial lessees, since it is these who have the potential to pollute that causes environmental costs to the community."

Having established the legal nature of the norm contained in no. 1 of article 3 of the IUC Code, it is now necessary to clarify the question of the subjective incidence of the tax during the period of validity of a financial leasing contract.

Before, however, and in order better to elucidate the question now before us, it should be emphasized that, during the validity of a financial leasing contract, despite the lessor retaining in its legal sphere the ownership of the leased asset, only to the lessee is the right of exclusive enjoyment of the leased asset; which results from the combined reading of article 1, subparagraph b) of no. 1 of article 9, and subparagraph a) of no. 2 of article 10, all of Decree-Law no. 149/95, of 24 June.

Now, since it is to the lessee that the potential for use of the vehicle pertains, and given the principle informing IUC – enshrined in article 1 of its Code – it is readily apparent that it is the lessee who is burdened with the tax obligation by virtue of his qualification as a taxpayer, through his equation to owner. It is this, as it concerns us here, that is the meaning to be drawn from nos. 1 and 2 of article 3 of the IUC Code.

Thus, since it is the lessee who has the potential responsibility for road and environmental costs, it is well understood that he, and only he, is responsible for payment of the tax.

In light of the foregoing and in accordance with the provision of no. 2 of article 3 of the IUC Code, there is no doubt: if on the date of the occurrence of the taxable event there is in force a financial leasing contract, whose object is a motor vehicle, the taxpayer is the lessee; never the lessor.

And what if, on the date of the occurrence of the taxable event, the motor vehicle subject to the financial leasing contract has been alienated?

It must be said, by way of preface, that the sale to the lessee is a situation that occurs frequently in the economy of the financial leasing contract, as also occurs in the present proceedings.

Now, where the purchase and sale is executed, the lessee will be instituted, ex contractu, in the position of owner, consequently ceasing to be applicable the provision of no. 1 of article 3 of the IUC Code; i.e., the new owner maintains, for purposes of IUC, the position of taxpayer of the tax, but no longer by virtue of the norm that attributed to him such quality as a lessee (no. 2 of article 3 of the IUC Code).

And such a solution is required from the moment of perfection of the purchase and sale contract not only because the IUC Code determines it – by asserting that taxpayers of the tax are owners – but also by the fact that among us the principle of consensuality prevails, which requires that the transfer of ownership occur by mere effect of the contract; as appears in the first place from no. 1 of article 408 of the Civil Code. See also, reinforcing what is said above, subparagraph a) of article 879 of that Code.

It should be noted that the understanding set forth in the preceding paragraph is unanimously advocated by Doctrine([7]) and Case Law([8]), thus requiring no additional developments.

And what has been said is relevant to sustain our position as regards the legal value of vehicle registration. Let it be recalled, however, that in accordance with the general rule seen above the transfer of the right occurs ex contractu, without need for any material act or formality([9]).

As is pacifically accepted by Doctrine and Case Law, in the face of the silence of Decree-Law no. 54/75, of 12 February, on the question of the legal value of vehicle registration, it becomes necessary to make use of the framework of property registration; an operation moreover authorized by article 29 of that Decree-Law.

Now, attending to the Property Registration Code – approved by Decree-Law no. 125/13, of 30 August – especially to its article 7, and combining this norm with article 1 of Decree-Law no. 54/75, it is readily inferred that the primary function of registration (vehicle): to give publicity to the legal situation of motor vehicles.

It can thus be stated that registration does not have a constitutive nature, but rather a merely declarative one, permitting only the presumption of the existence of the right and its ownership. Note: presumption and not fiction, being thus rebuttable by proof to the contrary.

And this is so precisely because, in accordance with the provision of article 408 of the Civil Code, and except for exceptions provided for by law, the constitution or transfer of real rights over a determined thing occurs by mere effect of the contract, not becoming its validity dependent on any subsequent act, e.g., inscription in the register.

Thus, where the law provides no exception for the contract of purchase and sale of a motor vehicle, the real effectiveness normally produces its effects, the acquirer becoming its owner, independently of registration.

Now, if independently of registration the acquirer becomes the owner, the registered holder ceases concomitantly to be so; although in the register he appears as such.

In the case at hand, and notwithstanding the lack of inscription in the register, the transfers effected are opposable to the Respondent, who cannot avail itself of the provision of no. 1 of article 5 of the Property Registration Code.

First and foremost because the Respondent is not, for purposes of the provision of that norm, considered a third party for purposes of registration.

The notion of third parties for purposes of registration is given to us by no. 4 of that same article 5: third parties, for purposes of registration, are those who have acquired from a common author rights that are incompatible with one another; wherefrom it fatally follows that this is not, manifestly, the case in the present proceedings.

And the same reasoning will apply, naturally, to cases of financial leasing, in relation to which also registration has no constitutive efficacy, being nothing more than a presumption that the right exists. A rebuttable presumption, in the same way, by proof to the contrary.

And, in the same way, the failure to register in the register the financial leasing contract does not mean that it does not exist.

Now, although on the date of the tax assessments the Claimant still appears in the register as owner of the vehicles, the truth is that it alleges not to be, on the date of the taxable event, the owner thereof, by having already alienated them.

Thus, and since the presumption resulting from registration is, as we have seen, rebuttable, let us see whether the documents filed by the Claimant are apt to fulfill such purpose.

With a view to proving that the vehicles referred to in the present proceedings were alienated by it on a date prior to the occurrence of the taxable event, the Claimant filed the respective sale invoices.

The Respondent, in turn, came to allege that "the invoices (by themselves alone) do not constitute suitable documents to prove the sale of the vehicles in question, since the same is nothing more than a document unilaterally issued by the Claimant."

It is verified, first of all, that the Claimant filed, for each of the three motor vehicles in question, a sale invoice. Moreover, as results from the established facts, none of the three vehicles in question in the present proceedings belong to categories F or G referred to in article 4 of the IUC Code, whereby the taxable event occurs on the date of their respective registration or on each of their anniversaries.

It further results from the established facts that, on the date of the occurrence of the taxable event, an invoice of sale to a third party had been issued by the Claimant, relative to each of the vehicles (in the case in question, the former lessees).

The Respondent maintains that the invoice is not a document apt to prove the execution of a synallagmatic contract such as purchase and sale, since such document does not reveal by itself an indispensable and unequivocal declaration of will on the part of the purported acquirer.

Adding that "it is not uncommon for invoices to be issued relating to transfers of goods and/or provision of services that never came to be realized."

It is true, as the Respondent invokes, that many situations exist in which invoices do not evidence any legal business. In the case at hand, however, no element permits forming the conviction that the invoices filed do not evidence any business, it being certain that their falsity was not even argued by the Respondent, who limited itself to invoking that various such situations exist, without specifically referring that the situation at hand subsumed to such.

Thus, and in the absence of any elements that permit concluding otherwise, the truthfulness of the documents filed is accepted, naturally.

Holding established the truthfulness of the invoices filed by the Claimant, as well as their content, we must consider, without need for any other inquiries, that these documents are apt to prove the alienation of the vehicles in question.

Indeed, where the law provides no specific form for the execution of a contract of purchase and sale of a movable property, it will, necessarily, have to accept as proof of said contract the invoice issued in accordance with legal terms.

We have, thus, that on the date of the taxable event (date of registration or each of their anniversaries) the Claimant had already alienated the three vehicles, although the said alienations were not reflected in the competent register.

Thus, given the fact that the presumption resulting from registration is rebuttable by proof to the contrary – proof that is considered realized through the presentation of the sale invoices – and verified that the Claimant is not, in relation to the vehicles in question, the owner thereof on the date of the occurrence of the taxable event, it becomes necessary to conclude that the Claimant cannot be considered a taxpayer of the IUC assessed.

Let us dwell on the question raised by the Respondent, relating to article 19 of the IUC Code, which provides as follows:

"For purposes of the provision of article 3 of this code (…) entities that proceed to financial leasing, operational leasing or long-term rental of vehicles are obligated to provide to the Tax Authority the data relating to the tax identification of the users of the leased vehicles."

The Respondent, sustaining that the Claimant failed to comply with the declarative obligation arising from article 19 of the IUC Code, comes to maintain that such non-compliance should give rise to consequences within and outside the proceedings. The former would result in holding the Claimant liable for the arbitral costs inherent in the present proceedings; the latter would materialize in holding it liable on a quasi-criminal basis.

It should be noted, in the abstract, that the non-observance of the provision of article 19 of the IUC Code may indeed constitute the quasi-criminal violation provided for in article 117 of the General Tax Violations Regime. This is not, however, what is at issue in the present proceedings.

On the side, it will always be said that the cited article 19 is inscribed in Chapter III of the IUC Code, relating to ancillary obligations, inspection and quasi-criminal regime, the obligation arising therefrom being merely declarative and having no efficacy to alter the rules of subjective incidence of the tax, provided for in Chapter I under the heading "Principles and General Rules."

And that this is so results, also, from the fact that article 19 itself does not provide for such sanction for its non-compliance. Wherefrom it is drawn, without any margin for doubt, that non-compliance with this obligation does not determine, without more, that the taxpayer of the tax becomes the lessor.

In summary:

· The norm contained in no. 1 of article 3 of the IUC Code contains a presumption;

· Since such presumption is contained in a norm of tax incidence, it will always admit proof to the contrary, as results from article 73 of the General Tax Law;

· When, on the date of the occurrence of the taxable event, the motor vehicle originally subject to a financial leasing contract has already been alienated, although the right of ownership remains registered in the name of the original owner, the taxpayer of IUC is the new owner, provided that the latter rebuts the presumption resulting from the register;

· The transfer of ownership occurs by mere effect of the contract, requiring no subsequent act;

· Vehicle registration does not have a constitutive nature, but rather aims to give publicity to the situation of vehicles through rebuttable presumptions of the existence of the right and its ownership;

· The Tax Authority cannot rely on the absence of updating of the register to, questioning the efficacy of the purchase and sale contracts, attribute to the original owner the status of taxpayer of IUC and, thus, exact from him compliance with the tax obligation.

From all that has been set forth, it is clear that there is no legal foundation for the acts of IUC tax assessment, requiring their annulment, with the other legal consequences.

VII. OPERATIVE PART

In light of the foregoing, it is decided:

a. To declare well-founded, as proven, the Claimant's request for annulment of the IUC tax assessment acts referred to in the Claimant's request;

b. To annul the IUC tax assessment acts referred to above;

c. To declare well-founded the request for reimbursement of the amount of € 114.83, paid by the Claimant, plus compensatory interest at the legal rate, calculated from the wrongful payments, until full payment to the Claimant of the amounts assessed.

The value of the case is set at € 114.83, in accordance with subparagraph a) of no. 1 of article 97-A of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of no. 1 of article 29 of the RJAT and of no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

The value of the arbitration fee is set at € 306.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, in accordance with no. 2 of article 12 and no. 4 of article 22, both of the RJAT, and of no. 4 of article 4 of the cited Regulation, to be paid by the Respondent as the unsuccessful party.

Register and notify.

Lisbon, 20 October 2014.

The Arbitrator,

Alberto Amorim Pereira

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

The drafting of this decision follows the old orthography.

([1]) Cf. BAPTISTA MACHADO, JOÃO, Introduction to Law and Legitimating Discourse, Almedina, 1982, p. 175.

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

([3]) See, by all, BAPTISTA MACHADO, JOÃO, op. cit., p. 181.

([4]) BAPTISTA MACHADO, JOÃO, op. cit., p. 183.

([5]) Cf. Arbitral Decision of 5 December 2013, rendered in Case no. 73/2013, p. 21.

([6]) Cf. LOPES DE SOUSA, JORGE, Code of Tax Procedure and Process Annotated and Commented, Vol. I, 6th Edition, Áreas Editora, Lisbon, 2011, p. 589.

([7]) See, by all, PIRES DE LIMA and ANTUNES VARELA, Civil Code Annotated, Volumes I and II, Coimbra Editora, 4th Revised and Updated Edition, Annotations to articles 408 and 79.

([8]) See, inter alios, Judgment of the Supreme Court of Justice of 3 March 1998.

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

Frequently Asked Questions

Automatically Created

Who is the taxpayer for IUC when a vehicle is under a financial leasing contract?
Under Article 3 of the IUC Code, when a vehicle is subject to a financial leasing contract, the lessee is equated to the owner for tax purposes and is considered the IUC taxpayer. The legislation privileges economic ownership over legal ownership, recognizing that the lessee has exclusive possession and enjoyment of the vehicle. The lessor (financial institution) maintains legal ownership but transfers the tax obligation to the party with effective vehicle use. However, this principle depends on proper contract registration; if the leasing arrangement is not registered, the Tax Authority may assess the registered owner.
Can the registered owner challenge IUC liability after selling the vehicle to the lessee?
The registered owner (such as a financial institution that sold a leased vehicle to the lessee) faces significant challenges when contesting IUC liability. While sale contract validity is not affected by registration failure, the Tax Authority's position is that IUC assessment must rely on registered data. The institution can challenge the assessment through CAAD tax arbitration by demonstrating that ownership transferred before the taxable event occurred. However, the probative burden is substantial—invoices alone may be deemed insufficient as unilateral documents. The failure to comply with Article 19's registration update obligation weakens the challenge and may result in liability for arbitration costs if unsuccessful.
How does the legal presumption of ownership apply to IUC subjective incidence under Article 3 of the IUC Code?
Article 3 of the IUC Code establishes what the Tax Authority characterizes as a 'fiction' rather than a mere presumption of ownership. The provision states that persons in whose names vehicles are registered are 'considered' owners, not merely 'presumed' to be owners. This creates a strong legal connection between registration and tax liability. For subjective incidence purposes, registration serves as the definitive criterion unless the taxpayer can overcome this fiction with compelling evidence of ownership transfer. The equating of lessees to owners represents an exception recognizing economic substance, but requires proper documentation and registration to be opposable to the Tax Authority.
What is the role of vehicle registration in determining IUC tax liability for leasing companies?
Vehicle registration plays a determinative role in IUC tax liability for leasing companies. The Tax Authority maintains that registration constitutes the exclusive basis for identifying taxpayers, meaning unregistered ownership changes cannot affect tax assessment. For financial institutions operating in the leasing sector, failure to update registration when contracts terminate through sale creates continued liability risk. Article 19 of the IUC Code imposes a registration update obligation, and non-compliance makes lessors vulnerable to assessment even after transferring economic ownership. Registration thus functions as a formal prerequisite for shifting tax liability, not merely an administrative formality.
Can a financial institution obtain annulment of IUC assessments and compensatory interest through CAAD tax arbitration?
Yes, financial institutions can seek annulment of IUC assessments and compensatory interest through CAAD (Administrative Arbitration Center) under Decree-Law 10/2011 (RJAT). The institution must demonstrate that it is not the proper taxpayer according to Article 3 of the IUC Code, typically by proving that on the taxable event date, either the vehicle was under a valid leasing contract (making the lessee liable) or ownership had transferred to a third party. Success requires overcoming the registration-based ownership fiction with concrete evidence of the actual legal and economic situation. If the arbitral tribunal finds the assessments illegal, it can order tax reimbursement plus compensatory interest. However, failure to comply with registration obligations under Article 19 may result in the institution bearing arbitration costs even if partially successful.