Process: 229/2014-T

Date: November 12, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

Arbitral Decision 229/2014-T addresses the subjective incidence of Portugal's Imposto Único de Circulação (IUC) in long-term vehicle leasing contexts. Company A, as successor to dissolved company B (a credit institution specialized in automotive financing through financial leasing), contested IUC assessments for 2010-2012 issued in B's name after its liquidation on 31-12-2008. The core dispute centered on who bears IUC liability when leasing contracts terminate and vehicles transfer to lessees but remain registered to the lessor in the Motor Registry. The applicant argued that actual ownership, not registry records, determines tax liability, asserting that once vehicles left their legal sphere through contract termination, they ceased being taxpayers despite the absence of registry updates. The Tax Authority countered that Article 3(1) of the IUC Code establishes a deliberate legislative policy making registered owners liable, not merely creating a rebuttable presumption. The TCA emphasized this interpretation aligns with the systematic and teleological elements of the IUC Code, which bases taxation on Motor Registry records to ensure legal certainty and administrative efficiency. The Authority also questioned whether the evidence provided sufficiently proved the vehicles' transfer, noting invoices alone may not constitute conclusive documentation. This case illustrates the tension between formal registry requirements and actual ownership changes in determining IUC liability, with significant implications for financial institutions engaged in vehicle leasing operations and the procedural standing of successor companies challenging tax assessments of dissolved entities.

Full Decision

ARBITRAL DECISION

A – REPORT

  1. A..., SA., legal entity no. ..., with registered office at Rua ..., …, came to request the establishment of an arbitral tribunal, pursuant to the provisions of art. 2, no. 1, a) and 10, no. 1 and 2 of the Legal Framework for Tax Arbitration, provided for in DL 10/2011, of 20 January, hereinafter designated "LFTA" and of articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March, with a view to the declaration of illegality of the acts of assessment of the Unique Circulation Tax, relating to the years 2010 to 2012, and the recognition of the right to compensatory interest, with the Tax and Customs Authority being requested (hereinafter designated as "TCA").

  2. The request for establishment of a singular arbitral tribunal being admitted, and the applicant not having opted for the designation of an arbitrator, pursuant to the provisions of subparagraph a) of no. 2 of article 6 and of subparagraph b) of no. 1 of article 11 of the LFTA, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as arbitrator.

    The parties were notified of this appointment, and did not manifest any intention to refuse the designation of the arbitrator, pursuant to the combined provisions of article 11, no. 1, subparagraphs a) and b) of the LFTA and of articles 6 and 7 of the Code of Ethics, having, in accordance with the provisions of subparagraph c) of no. 1 of article 11 of the LFTA, as amended by article 228 of Law no. 66-B/2012, of 31 December, the arbitral tribunal been constituted on 15-04-2014.

  3. Having been notified, the TCA came to submit a reply in which it raised no exception.

  4. The meeting provided for in art. 18 of the LFTA was dispensed with, by agreement of the parties.

  5. Submissions were presented by both parties.

  6. The applicant requests that the illegality and consequent annulment of the assessment acts for the Unique Circulation Tax relating to the years 2010 to 2012 be declared, with the consequent restitution of the tax paid, increased by compensatory interest, alleging in summary:

    a) The assessments in question were made in the name of company B..., SA, taxpayer ..., which was dissolved and liquidated, following a resolution of the applicant here, as its sole shareholder, on 31-12-2008.

    b) At the date of assessment, all financial leasing contracts in which the said B... appeared as the lessor entity had already terminated.

    c) The disputed assessments relate to motor vehicles that were the subject of the aforementioned financial leasing contracts, terminated on 31-12-2008.

    d) Since B... is extinct, it falls to the applicant, as the parent company and responsible for its dissolution and liquidation, to respond for debts of a fiscal nature that are imputed to it following its extinction, whereby it has procedural standing to contest the assessments in dispute.

    e) The applicant, like B..., is a credit institution with strong presence in the national market.

    f) Among its areas of activity, particular relevance is assumed by financing to the automotive sector which is reduced to the conclusion of financial leasing contracts.

    b) The motor vehicles to which the disputed assessments relate were given in ALD by B..., with the respective customers acquiring the respective motor vehicles at the end of the contracts.

    c) The applicant was notified to proceed with the payment of the UCT to which the assessments in dispute relate, and proceeded with its payment.

    d) At the moment when the UCT became exigible, the motor vehicles had already left the legal sphere of the applicant, as it was no longer their owner.

    e) From the circumstance that the transfer of the vehicles to their former lessees was not registered with the Motor Registry Authority, there does not result any responsibility for the applicant to proceed with the payment of the UCT, whose assessment is contested.

    f) Although the absence of registration does not affect the acquisition of the quality of owner - since registration is not a condition of validity of the contract of sale, nor a condition for the production of the transferative effect thereof – it prevents its full effectiveness but not as regards all entities.

    g) Not falling the TCA within the concept of third party for the purposes of registration, since it does not acquire from the same transferor rights totally or partially incompatible with the rights of the buyer, it cannot shield itself in the absence of registration of the transfer to demand payment of the tax due to the previous owner, whether this be a lessor or any other person.

  7. For its part, the respondent came in reply to allege, in summary:

    a) There exists an exclusive responsibility of only one of the taxpayers which, as a rule, will be the owner, by force of no. 1 of art. 3 of the UCT Code.

    b) The applicant's claim is based on a misunderstanding, which results, not only from a skewed reading of the letter of the law, but also from the adoption of an interpretation that does not take account of the systematic element, violating the unity of the regime enshrined in the entire UCT Code and, more broadly, in the entire legal-fiscal system, and lastly, derives from an interpretation that ignores the ratio of the regime enshrined in the article in question, and likewise, in the entire UCT Code.

    c) The tax legislator, in establishing in article 3, no. 1 who are the taxpayers of the UCT, expressly and intentionally established that these are the owners (or in the situations provided for in no. 2, the persons there listed), being considered as such the persons in whose names the same are registered.

    d) It emphasizes that the legislator did not use the expression "it is presumed", as it could have done, for example, in the following terms: "the taxpayers of the tax are the owners of the vehicles, being presumed as such the natural or legal persons, of public or private law, in whose names the same are registered."

    e) The fiscal rule is replete with provisions analogous to that enshrined in the final part of no. 1 of article 3, in which the fiscal legislator, within its freedom of legislative shaping, expressly and intentionally, enshrines what must be considered legally, for purposes of incidence, of income, of exemption, of determination and of periodization of taxable profit, for purposes of residence, of location, among many others.

    f) In view of the wording of the rule it is not manifestly possible to invoke that it is a presumption, as the applicant argues. It is, rather, a clear option of legislative policy adopted by the legislator, whose intention, within its freedom of legislative shaping, was that, for the purposes of UCT, those registered as such in the motor registry should be considered owners.

    g) In light of a teleological interpretation of the regime enshrined in the entire UCT Code, the interpretation advocated by the applicant to the effect that the taxpayer of the UCT is the owner or the financial lessee (even if the registration of such quality does not appear in the motor registry) is manifestly erroneous, in that it is the proper ratio of the regime enshrined in the UCT Code that constitutes clear proof that what the fiscal legislator intended was to create a Unique Circulation Tax based on the taxation of the owner of the vehicle as it appears in the motor registry.

    h) The interpretation conveyed by the applicant is shown to be contrary to the Constitution.

    i) The evidence presented by the applicant is not, by itself, sufficient to effect conclusive proof of the transfer of the vehicles in question here.

    j) The invoices, by themselves, do not constitute a suitable document to prove the sale of the vehicles in question, since they are nothing more than documents unilaterally issued by the applicant. The invoices are not apt to prove the conclusion of a bilateral contract, as is the case of purchase and sale, since those documents do not by themselves reveal an indispensable and unequivocal declaration of intent on the part of the presumed purchaser.

    k) It argues that the tax acts in dispute are valid and legal, because they comply with the legal regime in force on the date of the tax facts, whereby, in the present case, there occurred no error attributable to the services.

    l) Moreover, it argues that, in no circumstance, are the legal requirements met that confer the right claimed to compensatory interest.

    m) Arguing for the condemnation, in any circumstance, of the applicant for payment of the costs arising from the present request for arbitral ruling, since it was not the respondent who gave rise to the deduction of the same.

  1. The Arbitral Tribunal was regularly constituted and is materially competent.

    The parties enjoy legal personality and capacity and are legitimate (arts. 4 and 10, no. 2, of the same statute and art. 1 of Ordinance no. 112-A/2011, of 22 March), resulting in the legitimacy

    Legitimacy of the applicant which, given the immediate distribution to which B... was subject, derives from the responsibility incumbent upon it for the payment of fiscal debts, as its sole shareholder, mindful of, from the outset, the provision of no. 2 of art. 147 of the Commercial Companies Code.

B. DECISION

  1. MATTER OF FACT

1.1. PROVEN FACTS

The following facts are considered proven:

a) The assessments which are the subject of the present arbitral ruling were made in the name of company B..., SA, taxpayer ..., which was dissolved and liquidated, following a resolution of the applicant here, as its sole shareholder, on 31-12-2008.

b) In the course of the exercise of its activity the said B... concluded ALD contracts relating to the motor vehicles to which the disputed assessments relate, which had already been terminated at the time of the liquidation thereof.

c) At the end of the said ALD contracts B... sold to the customers/lessees the motor vehicles which were the subject of such contracts.

d) B... issued invoices relating to the sale of all motor vehicles to which the disputed assessments relate with dates prior to the deadline dates for payment of the UCT for the years 2010 to 2012.

e) However, the respective purchasers did not register their ownership.

g) The assessments which are the subject of the present proceedings result from official assessments made by the TCA, in which the applicant did not exercise the right to prior hearing.

h) The applicant proceeded to pay the tax to which the present proceedings relate.

i) On 06-03-2014 the applicant submitted the request for arbitral ruling which gave rise to the present proceedings.

1.2 The facts were proven on the basis of documents submitted to the proceedings by the applicant, whose authenticity was not disputed by the respondent.

1.3 UNPROVEN FACTS

   There are no facts deemed unproven with relevance for the appreciation of the request.

1.4 THE LAW

The substantive issue to be appreciated lies in the interpretation to be given to no. 1 of art. 3 of the UCT Code in order to ascertain whether the norm of subjective incidence contained therein establishes a legal presumption juris tantum – and, as such, capable of being rebutted (as the applicant argues) or, on the contrary, an express and intentional definition of personal incidence, to the effect that it is necessarily a taxpayer of the tax whoever has the motor vehicle registered in his name as owner.

Article 3, no. 1 of the UCT Code provides: "the taxpayers of the tax are the owners of the vehicles, being considered as such the natural and legal persons, of public or private law, in whose names the same are registered".

On the basis of the wording of this provision, the respondent - TCA - argues that the basis of personal incidence which it defines does not today admit any legal presumption, since it transmits in an express and intentional manner the thought of the tax legislator, to the effect that it should be considered, in an irrefutable manner, as taxpayers of the UCT the persons in whose names the motor vehicles are registered.

It adduces in support of its thesis hermeneutical reasons for the interpretation of the law, with appeal not only to its literality, but also to the systematic and teleological elements.

An invocation full of meaning, in that, in accordance with the provision of art. 11 of the General Tax Law, "in determining the meaning of tax norms and in qualifying the facts to which they apply, the general rules and principles for the interpretation and application of laws are observed". This is because, as referred to by Diogo Leite Campos, Benjamim Rodrigues, J. Lopes de Sousa – LGT 4th ed., in annotation to such article, "… without departing from the letter of the law, which must be the principal reference and starting point of the interpreter, its automatic application is excluded, assuming that in laws there is an operative rationality that the interpreter must strive to reconstruct".

It is, therefore, within this framework of interpretation of the tax law, in the case in point art. 3, no. 1 of the UCT Code, that we must find the answer to the antagonism of positions between the applicant and the TCA.

For the TCA it is decisive for the determination of the taxpayer of the UCT the registration of ownership of the motor vehicle, so that it will be considered as such, in an irreversible manner, whoever has it registered in their name.

The registration of ownership of vehicles is, in view of the provision of art. 5, no. 1, a) and no. 2 of DL 54/75, of 12 February, mandatory, whereby any property right relating to the vehicle is subject to registration, with which the security of legal commerce is intended, as well as the publicity of the legal situation thereof.

Such registration enjoys, pursuant to the provision of art. 7 of the Property Registry Code (applicable to motor registry by force of art. 29 of the said DL 54/75), the "… presumption that the right exists and belongs to the registered holder, in the precise terms in which the registration defines it".

We therefore have that the registration of motor vehicle ownership is, also itself, a presumption that the right of ownership thereover exists in the terms contained in the registry.

That is to say, motor vehicle registration does not constitute any condition of validity of the contracts subject to it, similar to what occurs with property registration (whose regime, as we have already noted, is extensive to motor registry); registration has a merely declarative function.

However, art. 5, no. 1 of the Property Registry Code, imposes that "the facts subject to registrations only produce effect against third parties after the date of their respective registration". From which it seems to result that this would be sufficient for the TCA to invoke the absence of registration to immediately bring article 3, no. 1 of the UCT Code into effect, demanding the payment of the tax from whoever has the vehicle registered in their name, as being the taxpayer of the tax.

It happens that no. 4 of art. 5 of the Property Registry Code restricts such understanding, by determining that "third parties, for purposes of registration, are those who have acquired from a common author rights incompatible with each other". Whence it results that, by that means, the TCA would never be authorized to invoke the absence of registration, in as much as it does not meet the concept of third party.

Having set this out in general terms, it must be ascertained whether, notwithstanding what has just been referred to, no. 1 of art. 3 of the UCT Code contains, or does not contain, a legal presumption.

It all comes down, in summary, to determining whether the expression "being considered", used there, has the nature of a legal presumption.

As a starting point, the answer appears to us to be negative.

It appears offensive to the unity of the legal-legal system – and even, with due adaptations, in opposition to nos. 2 and 3 of art. 11 of the General Tax Law - that an individual should come to be considered as not an owner of a good for civil purposes and necessarily be so for tax purposes.

To which is added the fact that the TCA must guide its activity by observance of the principles of legality, the inquisitorial and discovery of material truth, inherent to the constitutional dictum of contributory capacity.

Be that as it may, it seems evident that, both from the systematic and teleological point of view, the expression "being considered", adopted in no. 1 of art. 3 of the UCT Code contemplates a true presumption, to which the apparent literality of the expression does not oppose, nor does the tax system.

To this regard, Diogo Leite Campos, Benjamim Rodrigues, J. Lopes de Sousa – LGT 4th ed., refer in annotation to art. 73, pag. 651: "presumptions in matters of tax incidence can be explicit, revealed by the use of the expression "it is presumed" or similar, as happens, for example, in nos. 1 to 5 of art. 6, in subparagraph a) of no. 3 of art. 10, in art. 19 and 40, no. 1, of the CIRS. However, presumptions can also be implicit in norms of incidence, in particular of objective incidence, when certain values of movable or immovable property are considered as constituting taxable matter, in situations where it is not impractical to ascertain the real value …", then enumerating a set of examples.

We understand that it is precisely this case that art. 3, no. 1 of the UCT Code contemplates: an implicit presumption. A presumption, moreover, that has always existed in the domain of the motor vehicle circulation tax, despite previously being defined in an explicit manner.

On the other hand, in compliance with the principles - with consecration in our community order - of the polluter-pays and equivalence, the UCT Code entails concerns of an environmental and energy nature, intending that the costs arising from the environmental damage caused by the use of motor vehicles be borne by the real owners (and not by the presumed owners).

It is therefore necessary to conclude that art. 3, no. 1 of the UCT Code establishes a presumption of subjective incidence.

Now, no. 2 of art. 350 of the Civil Code establishes that legal presumptions can be rebutted by proof to the contrary, except in cases expressly provided for in the law.

And, with regard to the rebuttal of presumptions, we hold to be good the doctrine to which the Supreme Court of Justice resorted in the foundation of Settlement no. 1/91 of 03-04-1991 (Official Gazette no. 114, of 18 May) - to classify as juris tantum a presumption established in a labor statute - defended by Vaz Serra [Evidence (substantive evidentiary law), BMJ 110-112, pag. 35], as well as by Mário de Brito (Annotated Civil Code, pag. 466) and Mota Pinto (General Theory of Civil Law, pag. 429): "… presumptions juris tantum constitute the rule, with presumptions jure et de jure being the exception. In case of doubt, the legal presumption is juris tantum, as it should not be considered, except for a reference in the law, that it was intended to prevent the production of proof to the contrary, imposing a formal truth to the detriment of the real proved".

In turn, in the field of tax law, art. 73 of the General Tax Law provides that "the presumptions enshrined in the norms of tax incidence always admit proof to the contrary". Which means that all presumptions in matters of tax incidence, such as that which no. 1 of art. 3 of the UCT Code establishes, are juris tantum and, as such, rebuttable.

From the evidential elements brought before the tribunal by the applicant, it will result that the applicant was not the owner of the vehicles to which the assessments which are the subject of the present request for arbitration relate, on the deadline dates for their respective payments.

At this point, the respondent challenges whether invoices entitling contracts of sale and purchase are apt to prove the actual transfer of ownership of the vehicles.

However, it does not question the truthfulness of the documents submitted. Being certain that in tax matters the presumption of truth applies to the elements contained in the taxpayer's accounts, as is the case with invoices.

We therefore have, as settled, that it has not been questioned that the transactions which the invoices submitted by the applicant represent have been realized, being certain that the contract of sale and purchase is consensual, not requiring any special form.

Having proven the transfer of ownership and since the TCA does not have legitimacy to oppose the absence of registration, as it is not for such purposes deemed a third party, it is incumbent on us to order the annulment of the UCT assessments which are the subject of the present request for arbitration.

Compensatory interest

In addition to the restitution of the tax unduly paid, the applicant requests that the right to payment of compensatory interest be declared.

This right is enshrined in art. 43 of the General Tax Law which has as a requirement that it be ascertained, in a gracious reclamation or judicial challenge - or in tax arbitration – that there was error attributable to the services from which results payment of the debt in an amount greater than legally due.

In the case in question, it seems to us indisputable that no error can be attributed to the respondent, TCA.

On the contrary, the TCA acted in the scrupulous compliance with the law, assessing tax to whoever would presumptively be the taxpayer thereof, it being incumbent, rather, on the applicant to carry out a procedure with a view to the rebuttal of such presumption.

Whereby the applicant has not the right to the claimed payment of compensatory interest.

With regard to responsibility for the payment of costs.

We understand, in summary, that art. 3 contemplates a legal presumption which, being juris tantum, is susceptible to being rebutted.

The TCA acted in the scrupulous compliance with the law, assessing tax to whoever would presumptively be the taxpayer thereof, it being incumbent, rather, on the applicant to carry out a procedure with a view to the rebuttal of such presumption.

Being indisputable that no error can be attributed to the TCA in the assessments which are the subject of the request.

In order to rebut presumptions provided for in norms of tax incidence, the interested party may resort to the proper administrative procedure provided for in art. 64 of the Code of Tax Procedure and Process, as an alternative form to gracious reclamation or judicial challenge.

The TCA did not have any elements which would have allowed it to prevent the official assessments which it carried out.

The applicant did not promote, in the context of any possible prior administrative procedure, the rebuttal of the presumption which weighed upon it, nor even made such effort in the context of the exercise of the right to prior hearing of the official assessments.

From which results that responsibility for the UCT assessments can only be attributed to the applicant.

In accordance with the provision of art. 527, no. 1 of the Code of Civil Procedure, the rule of causality constitutes the first criterion for the distribution of responsibility for the payment of procedural costs, with the advantage or procedural benefit being a subsidiary criterion. Having been the applicant who gave cause to the institution of the present request, it is it that is responsible for the payment of the respective costs.

  1. DECISION

In view of the foregoing, it is decided:

                                         a)  to rule in favor, on grounds of violation of law, the request for annulment of the tax acts which are the subject of the arbitral request corresponding to the UCT assessments relating to the years 2010 to 2012;

                                         b) to rule against the request for payment of compensatory interest, absolving the Tax and Customs Authority of the respective request;

                                         c)  to condemn the applicant to the payment of the costs of the proceedings.

VALUE OF THE PROCEEDINGS: In accordance with the provision of art. 306, no. 2 of the Code of Civil Procedure, art. 97-A, no. 1, a) of the Code of Tax Procedure and Process and art. 3, no. 2 of the Regulations on Costs in Tax Arbitration Proceedings, the proceedings is assigned the value of € 182.76 (one hundred eighty-two euros and seventy-six cents).

COSTS: Pursuant to the provision of art. 22, no. 4, of the Regulations on Costs in Tax Arbitration Proceedings, the amount of costs is fixed at € 306.00 (three hundred six euros), pursuant to Table I attached to the Regulations on Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Notice to be given.

Lisbon, 12 November 2014

                                                                The Arbitrator







                                                   (António Alberto Franco)

Frequently Asked Questions

Automatically Created

Who is liable for paying IUC (Imposto Único de Circulação) on vehicles subject to long-term leasing agreements in Portugal?
Under Portuguese law, liability for IUC on vehicles subject to long-term leasing agreements is determined by Article 3(1) of the IUC Code, which establishes that taxpayers are those registered as owners in the Motor Registry (Conservatória do Registo Automóvel). In financial leasing contexts, the lessor company typically remains registered as owner during the contract term. Even after contract termination and vehicle transfer to the lessee, if the Motor Registry is not updated, the original registered owner (lessor) continues to be considered the IUC taxpayer according to the Tax Authority's interpretation. This represents a legislative policy choice rather than a mere presumption, creating certainty in tax collection but potentially creating liability for lessors whose clients fail to complete registry formalities after acquiring vehicles.
Can a parent company challenge IUC tax assessments issued to a dissolved subsidiary under Portuguese tax law?
Yes, a parent company can challenge IUC tax assessments issued to a dissolved subsidiary under Portuguese tax law. In Process 229/2014-T, Company A successfully demonstrated procedural standing (legitimidade processual) to contest IUC assessments originally issued to dissolved subsidiary B. When a company is dissolved and liquidated, the parent company that approved the dissolution assumes responsibility for fiscal debts imputed to the extinct entity. Article 2(1)(a) and Articles 10(1)-(2) of the Legal Framework for Tax Arbitration (Regime Jurídico da Arbitragem em Matéria Tributária - RJAT, DL 10/2011) allows such successor entities to request establishment of arbitral tribunals to contest tax assessments. The CAAD (Centro de Arbitragem Administrativa) accepted this standing, recognizing that extinguishing a subsidiary does not eliminate avenues to challenge allegedly illegal tax assessments affecting the corporate group's fiscal obligations.
How does the CAAD arbitral tribunal address subjective incidence of IUC in vehicle financial leasing cases?
The CAAD arbitral tribunal addresses subjective incidence of IUC in vehicle financial leasing cases by analyzing the interplay between actual ownership rights and Motor Registry formalities. In Decision 229/2014-T, the tribunal examined competing interpretations of Article 3(1) of the IUC Code. The central issue was whether 'owner' for IUC purposes means: (1) the person with actual ownership rights following contract termination and vehicle transfer, or (2) the person registered in the Motor Registry regardless of actual ownership changes. The Tax Authority argued for a strict registry-based approach, emphasizing that the legislative wording ('being considered as such') reflects intentional policy to base taxation on official registration rather than creating a rebuttable presumption. The applicant contended that registration absence only affects third-party effectiveness, not the Tax Authority's knowledge of actual ownership. The tribunal's analysis required balancing legislative text, systematic interpretation within the broader IUC Code structure, and teleological considerations regarding tax certainty and administrative practicality in vehicle taxation.
What happens to IUC obligations on leased vehicles after the termination of a financial leasing contract in Portugal?
After termination of a financial leasing contract in Portugal, IUC obligations remain tied to Motor Registry records rather than automatically transferring to the lessee who acquires the vehicle. In Process 229/2014-T, Company B's financial leasing contracts terminated on 31-12-2008 with vehicles transferring to lessees, but IUC assessments for 2010-2012 were still issued to the dissolved lessor company. The Tax Authority maintained that Article 3(1) of the IUC Code makes the registered owner liable regardless of contract termination or actual ownership transfer. This creates a critical obligation for parties in financial leasing transactions: the vehicle transfer must be registered with the Conservatória do Registo Automóvel to shift IUC liability to the new owner. Until registry updating occurs, the former lessor remains the legal taxpayer for IUC purposes according to the TCA's interpretation, even though the sales contract validly transferred ownership (as registration is not required for contract validity or transferative effect under civil law).
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when IUC assessments are declared illegal by the CAAD?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when IUC assessments are declared illegal by the CAAD, pursuant to Article 43 of the General Tax Law (Lei Geral Tributária). In Process 229/2014-T, Company A explicitly requested not only the declaration of illegality and annulment of IUC assessments for 2010-2012, but also recognition of the right to compensatory interest. When tax authorities collect taxes later determined to be illegally assessed, the State must compensate taxpayers for the financial loss caused by improper retention of funds. Compensatory interest accrues from the date of undue payment until restitution, calculated according to legal rates established in tax legislation. This principle ensures taxpayers are made whole when subjected to unlawful taxation, reflecting constitutional guarantees of property rights and legality in taxation. The CAAD's jurisdiction under the RJAT includes authority to order both tax restitution and compensatory interest when ruling favorably on challenges to tax assessments.