Process: 232/2014-T

Date: December 9, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

CAAD Decision 232/2014-T addresses the liability for Imposto Único de Circulação (IUC - Unique Circulation Tax) on vehicles subject to financial leasing contracts. The applicant, a Portuguese credit institution engaged in automotive financing, challenged multiple IUC assessments on vehicles registered in its name but leased to third parties under financial leasing agreements (locação financeira). The company had acquired these leasing contracts through incorporation of a dissolved branch's assets and liabilities. The central legal question concerns whether the lessor (leasing company as legal owner) or the lessee (user with economic possession) should be liable for IUC payments. Under Article 3 of the IUC Code, the taxable person is typically the vehicle owner. In financial leasing arrangements, the lessor retains legal ownership until the lessee exercises the purchase option, creating tension between legal ownership and actual vehicle use. The applicant paid the contested assessments under the exceptional regime of Decree-Law 151-A/2013, avoiding compensatory interest, while challenging the principle of lessor liability through CAAD arbitration. The case was processed under the Legal Regime of Arbitration in Tax Matters (RJAT - DL 10/2011), with a singular arbitral tribunal constituted on May 12, 2014. This decision represents significant jurisprudence on the interpretation of IUC liability in the context of financial leasing contracts, where vehicles remain registered to financial institutions but are in continuous possession and use by lessees throughout the taxation period.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 232/2014 – T

Subject: IUC – Financial Leasing

I – REPORT

A, S.A., a legal entity [tax identification number omitted], with registered office at [address omitted], Lisbon (hereinafter "Applicant"), filed a petition for the constitution of an arbitral tribunal in tax matters and a request for an arbitral award, 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 Regime of Arbitration in Tax Matters, hereinafter abbreviated as RJAT), petitioning for a declaration of illegality of the following assessments of Unique Circulation Tax: [assessment numbers omitted].

The petition for the constitution of the arbitral tribunal was filed on 06-03-2014 and accepted by the President of CAAD, and automatically notified to the Tax and Customs Authority on 07-03-2014.

Pursuant to the provisions of article 6, no. 2, a) and article 11, no. 1, b), of RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed the undersigned as arbitrator of the singular arbitral tribunal, who communicated the acceptance of the appointment within the applicable deadline.

On 23-04-2014 both parties were duly notified of this appointment, and did not manifest an intention to refuse the appointment of the arbitrator, pursuant to the combined provisions of article 11, no. 1, a) and b) of RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision of article 11, no. 1, c) of RJAT, as amended by article 228 of Law No. 66-B/2012, of 31 December, the singular arbitral tribunal was constituted on 12-05-2014.

Notified to that effect, the Tax and Customs Authority filed a defense, arguing that the petition should be judged unfounded.

Given that none of the purposes legally assigned to it were present in this case, the parties waived the holding of the meeting provided for in article 18 of RJAT, which was thus dispensed with.

Both parties being notified to that effect, the Applicant submitted arguments, reiterating and developing the substance of its initial petition, while the TCA chose not to submit arguments.

The TCA filed a Motion attaching to the record two arbitral awards issued by tribunals constituted in CAAD, and the Applicant exercised the right to reply, which was granted to it.

The arbitral tribunal was duly constituted and is materially competent, in accordance with the provisions of articles 2, no. 1, a), and 30, no. 1, of DL No. 10/2011, of 20 January.

Thus, since the parties have standing and capacity, are legitimate and properly represented (arts. 4 and 10, no. 2, of the same act and article 1 of Portaria No. 112-A/2011, of 22 March), and the proceedings are not vitiated by any defects, we must render

III. DECISION

A. FINDINGS OF FACT

A.1. Facts Found to be Proved

1- The acts of IUC assessment which are the subject of these proceedings were directed at A, holder of NIPC [tax identification number omitted], previously designated as "B".

2- That entity was a branch in Portugal which was dissolved, and whose registration was consequently cancelled on 10.01.2007.

3- The set of assets and liabilities which was held by that branch was, however, prior to its dissolution, incorporated into the present Applicant, which thus assumed the position of lessor in all leasing contracts which were then in force in the legal sphere of A, including those relating to vehicles to which the IUC assessments which are the subject of the present proceedings refer.

4- By virtue of the described incorporation, the identified financial leasing contracts which related to the said vehicles became part of the Applicant's asset portfolio - which acquired all rights and obligations inherent to the position of financier and lessor, namely, but without limitation, the right to receive all amounts owed by the purchasers, both due and due in the future, and by the lessees of the contracts to the respective lessor, as rental payments, residual value and any other amounts which, by virtue of the contracts, should be paid to the lessor.

5- The Applicant is a credit institution with a strong presence in the national market.

6- Among its areas of activity is the financing of the automotive sector.

7- A substantial part of its activity is comprised of the conclusion - among others - of financial leasing contracts intended for the acquisition, by companies and individuals, of motor vehicles.

8- These contracts generally follow a common script, typical of this type of financing: the Applicant, after being contacted by the customer - who, at that stage, has already chosen the type of vehicle he wishes to acquire, its characteristics (make, model, accessories, etc.), and even its price - acquires the vehicle from the supplier indicated by the customer, and then proceeds to its delivery to said customer - who thus assumes the status of lessee.

9- During the period to be stipulated in the contract, that lessee maintains the temporary enjoyment of the vehicle - which remains the property of the Applicant - by paying remuneration to the Applicant in the form of rental payments; and may acquire the vehicle, for itself or for a third party, at the end of the contract, by payment of a residual value, or during its term, on the terms that may be provided for.

10- The motor vehicles to which the assessments which are the subject of this case refer, with the registrations [registration numbers omitted], were, in the taxation periods to which those assessments refer, registered in the name of the Applicant.

11- The vehicles above identified, in the periods of the assessments which are the subject of this case, were always leased to third parties, by the Applicant, under a financial leasing regime, pursuant to validly concluded contracts.

12- The Applicant proceeded, in a timely manner, to the payment of the assessments which are the subject of this case.

13- By having proceeded to pay them under the exceptional regime instituted by Decree-Law 151-A/2013, the Applicant only paid the amount due (and set forth in the said assessment acts) as tax, and was exempted from the payment of the corresponding compensatory interest.

A.2. Facts Found Not to be Proved

With material relevance to the decision, there are no facts that should be considered as not proved.

A.3. Basis for the Findings of Fact Proved and Not Proved

With respect to the findings of fact, the Tribunal does not need to rule on everything that was alleged by the parties, its duty being rather to select the facts which are material for the decision and to distinguish the facts proved from those not proved (cf. art. 123, no. 2, of CPPT and article 607, no. 3 of CPC, applicable ex vi article 29, no. 1, a) and e), of RJAT).

In this way, the facts pertinent to the judgment of the case are chosen and delimited according to their legal relevance, which is established in view of the various plausible solutions of the question(s) of law (cf. previous article 511, no. 1, of CPC, corresponding to the current article 596, applicable ex vi of article 29, no. 1, e), of RJAT).

Thus, taking into account the positions assumed by the parties and the documentary evidence attached to the record, the following facts were considered proved, with material relevance to the decision, which moreover were consensually recognized and accepted by the parties.

The substance of article 24 of the initial petition was not found to be proved or not proved, given its conclusive nature.

B. ON THE LAW

The issue in this case is to determine whether the Applicant should, or should not, be considered a taxable person for IUC with respect to vehicles which it acquired and with respect to which it entered into financial leasing contracts, in the context of which those vehicles were in the possession of third parties, during the entire taxation period to which the assessments which are the subject of these proceedings refer.

The matter in question has already been the subject of several decisions within the scope of arbitral tribunals functioning in CAAD[1], most of them upholding the respective petitions, and to whose grounds, in general, we adhere, waiving, as unnecessary and tedious, their reproduction, given that no innovative arguments were advanced in this case, with only the following clarifications being made.

Article 3 of the IUC Code provides:

"1- Taxable persons of the tax are the owners of vehicles, being considered as such the natural or legal persons, of public or private law, in whose name the same are registered.

2 - Financial leasing lessees, purchasers with retention of title, as well as other holders of purchase option rights by virtue of leasing contracts are equated with owners."

Article 4 of the same Code states:

"1 - Unique Circulation Tax is annual in nature, being due in full in each year to which it relates.

2 - The taxation period corresponds to the year which begins on the date of registration or on each of its anniversaries, with respect to vehicles of categories A, B, C, D and E, and to the calendar year, with respect to vehicles of categories F and G."

Finally, article 6, also of the IUC Code, states:

"1 - The taxable event of the tax is constituted by the ownership of the vehicle, as attested by registration in territory. (...)

3 - The tax is considered due on the first day of the taxation period referred to in no. 2 of article 4."

From the combination of the aforementioned rules, and taking into particular consideration no. 3 of article 6, it is concluded that IUC is an annual tax, which becomes due on the first day of the taxation period, with the taxable person being the owner of the vehicle, or whoever is equated with the owner.

In concrete terms, it is verified that, in the first group of cases in question, the owner of the vehicle was the Applicant.

However, it is equally verified that the vehicles in question, in the period which now concerns us, were leased to third parties, pursuant to financial leasing contracts.

In this way, the fulfillment of both no. 1 and no. 2 of article 3 of the IUC Code is verified.

The question which then arises is whether the fulfillment of no. 2 excludes or does not exclude the subjection resulting from no. 1.

Not being a question of linear solution, as arguments can be elaborated in either of the possible directions of answer, it is understood that the answer to be given should be affirmative, that is, that in the case where there exists someone "equated" with an owner, the subjection of the owner will be excluded, with only the "equated" person being the taxable person of the tax.

This answer is understood to be necessary, it is believed, essentially and above all, for reasons of coherence of the system, taking into account, in particular, that in the case of IMI (cf. article 8, nos. 2 and 3) the subjection to tax by a non-owner excludes the subjection of the owner.

Thus, notwithstanding the distinct – and, perhaps, not very felicitous – terminology used in the IUC Code, taking into account the interpretative criteria formulated in article 9 of the Civil Code, and in particular the lack of reasons for a reasonable legislator to regulate differently the equation with ownership in the cases of IUC and IMI, it is understood that, in fact, the definition of the taxable person of that tax will be made, alternatively (and not cumulatively), pursuant to no. 1 or no. 2 of article 3 of the respective Code.

This understanding is, moreover, reinforced by the obligation established in article 19 of the IUC Code, which imposes on "entities which proceed to financial leasing" the obligation "to provide to the General Tax Authority the data relating to the tax identification of users of leased vehicles." Naturally this obligation will only make sense, from the perspective that the leasing entities see their subjection excluded by virtue of the leasing, since, if this were not the case, that obligation would make no sense, as the TCA could always collect the tax in question from the lessor, an entity which will, moreover and as a rule, be more solvent than the lessee.

In this way, with the vehicles in question being under a financial leasing regime, the taxable person of the respective IUC will be the lessee, pursuant to no. 2 of article 3 of the IUC Code, and not the Applicant, as owner, pursuant to no. 1 of the same article.

This conclusion is not obstructed by the fact that the Applicant may not have given proper compliance with the provision of the aforementioned article 19 of the IUC Code. In fact – and as is to be seen – the sanction for non-compliance with any obligation that in that regard would fall or have fallen to the Applicant would always have to be sought in the context of the Tax Violations Regime, and not, naturally, in subjection to a tax.

Thus and in view of the above, the assessments to which this case refers were in error of law, and should, as such, be annulled.

The Applicant combines with the petition to annul the tax act which is the subject of these proceedings, a petition for condemnation of the TCA to pay compensatory interest on the amount paid by it following the notification of the assessments now annulled.

It is a prerequisite for the award of compensatory interest that the error which the TCA fell into be imputable to it[2].

Financial leasing contracts, in addition to being registered, must be communicated to the TCA under article 19 of the IUC Code - at the moment when the tax was due.

It happens that, in this case, nothing was ascertained either regarding the registration of the financial leasing contracts, or regarding the compliance by the Applicant with the obligation which was incumbent upon it, by virtue of article 19 of the IUC Code.

Being such facts, matters which would favor the Applicant, it should have proceeded to their timely allegation and proof. Not having fulfilled that burden of proof, and the same not resulting from any probative element available in the proceedings, they cannot be taken into account.

In this way, as it is not possible to formulate the judgment of censure indispensable to the condemnation of the TCA in compensatory interest, the corresponding petition should be disregarded.

The TCA alleges that it should not be held responsible for the costs of this arbitral proceeding, as it was the Applicant that gave cause to the action.

It appears, however, that it is not correct.

In fact, in tax arbitral proceedings the TCA is notified of the arbitral petition and may, pursuant to article 13, no. 1 of RJAT, proceed to revoke the contested tax act. At least there, the TCA had knowledge of the grounds alleged by the Applicant, and which led to the present arbitral decision, and chose to proceed with the litigation path.

For that reason it must be held responsible for the costs.

C. DECISION

On these grounds, this Arbitral Tribunal decides:

a) To declare the arbitral petition filed to be founded and, as a consequence, to annul the tax acts which are the subject of these proceedings and to condemn the TCA to refund to the Applicant the tax paid;

b) To dismiss the petition for condemnation of the TCA to pay compensatory interest;

c) To condemn the TCA in costs of the proceedings, in the amount of €612.00, taking into account the amount already paid.

D. Value of the Case

The value of the case is fixed at €3,831.78, pursuant to article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of a) and b) of no. 1 of article 29 of RJAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is fixed at €612.00, pursuant to Table I of the Regulation of Costs of Tax Arbitration Proceedings, to be paid by the Respondent, as the petition was entirely founded, pursuant to articles 12, no. 2, and 22, no. 4, both of RJAT, and article 4, no. 4, of the aforementioned Regulation.

Be it recorded and notified.

Lisbon

9 December 2014

The Arbitrator

(José Pedro Carvalho)

[1] Cf. cases 14/2013T, 26/2013T, 27/2013T, 73/2013T and 170/2013T, 256/2013T, 286/2013T, 289/2013T and 294/2013T, all available at www.caad.org.pt.

[2] Cf. article 43 of the LGT.

Frequently Asked Questions

Automatically Created

Who is liable for IUC payment on vehicles under financial leasing agreements in Portugal?
Under Portuguese tax law and Article 3 of the IUC Code (CIUC), the person liable for IUC payment is the vehicle owner as registered. In financial leasing (locação financeira) agreements, the leasing company (lessor) retains legal ownership of the vehicle during the contract term, making them technically liable for IUC. However, this creates a controversial situation since the lessee has actual possession, use, and economic benefit of the vehicle. CAAD Decision 232/2014-T examines whether this traditional ownership-based liability rule should apply when vehicles are continuously leased to third parties, with the lessor acting purely as a financier without any actual use of the vehicles.
Can a leasing company challenge IUC tax assessments through CAAD tax arbitration?
Yes, leasing companies can challenge IUC tax assessments through CAAD (Centro de Arbitragem Administrativa) tax arbitration. As demonstrated in Decision 232/2014-T, the applicant leasing company filed a petition under Articles 2(1)(a) and 10(1)(a) of Decree-Law 10/2011 (RJAT - Legal Regime of Arbitration in Tax Matters). The process involves: (1) filing a petition for constitution of an arbitral tribunal; (2) appointment of arbitrator(s) by the Deontological Council; (3) submission of defense by the Tax and Customs Authority; (4) optional hearing and arguments phase; and (5) final arbitral decision. The leasing company in this case challenged multiple IUC assessments simultaneously, having paid them under the exceptional regime of DL 151-A/2013 to avoid compensatory interest while preserving the right to contest the assessments' legality.
What is the legal basis for IUC liability in financial leasing (locação financeira) contracts?
The legal basis for IUC liability in financial leasing contracts derives from Article 3 of the IUC Code (CIUC), which establishes that the taxable person is the owner of the vehicle. In financial leasing arrangements governed by Decree-Law 149/95 (later replaced by DL 72/2008), the lessor (leasing company) acquires the vehicle from the supplier and delivers it to the lessee while retaining legal ownership. The lessee pays rental installments and may acquire ownership by exercising the purchase option at contract end or during its term by paying the residual value. Until this option is exercised, the lessor remains the registered owner, creating the legal basis for their IUC liability. However, Decision 232/2014-T questions whether this ownership criterion is appropriate when the lessor has no actual possession or use of the vehicle, acting solely as a financial intermediary.
How does CAAD arbitration process work for disputing multiple IUC tax assessments?
The CAAD arbitration process for disputing multiple IUC tax assessments, as illustrated in Case 232/2014-T, follows these steps: (1) The taxpayer files a petition identifying all contested assessment acts (in this case, multiple IUC assessments for different vehicles/periods); (2) The petition is accepted by the CAAD President and automatically notified to the Tax and Customs Authority (AT); (3) Under Article 6(2)(a) and 11(1)(b) of RJAT, the Deontological Council appoints an arbitrator for a singular tribunal; (4) Both parties are notified and may refuse the appointment within the legal deadline; (5) The tribunal is formally constituted (here on May 12, 2014); (6) AT submits its defense; (7) Parties may waive the optional hearing; (8) Written arguments are submitted; (9) The tribunal issues a decision on all assessments collectively. The taxpayer can pay the assessments under protest to avoid accumulating interest while challenging their legality.
What was the outcome of CAAD Decision 232/2014-T regarding IUC on leased vehicles?
The provided excerpt of CAAD Decision 232/2014-T does not include the complete ruling, as the text is truncated at the legal analysis section. However, the decision addresses whether a leasing company should be considered the IUC taxable person for vehicles registered in its name but continuously leased to third parties under financial leasing contracts. The arbitral tribunal established the facts that: (1) the vehicles were registered in the applicant's name; (2) they were leased to third parties throughout the taxation periods; (3) the applicant acted as lessor/financier without actual possession or use of the vehicles; and (4) the assessments were paid under DL 151-A/2013. The central legal question examined is whether Article 3 of the IUC Code's ownership criterion should apply when the owner is merely a financial intermediary, or whether the lessee with actual possession and use should bear IUC liability. This decision contributes to important CAAD jurisprudence on IUC liability in locação financeira contexts.