Process: 271/2018-T

Date: November 29, 2018

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 271/2018-T) addresses the subjective incidence of IUC (Imposto Único de Circulação - Vehicle Circulation Tax) in financial leasing contracts and the impact of vehicle transfers occurring before the tax triggering event. The claimant, A... (incorporating B... Financial Credit Institution through merger), challenged IUC assessments arguing that B... was not the taxable person on the tax exigibility dates. The central issue concerns who bears IUC liability when vehicles are subject to financial leasing agreements or have been sold before the tax becomes due. Under Article 3 of the IUC Code, liable persons include vehicle owners, financial lessees, purchasers with reservation of ownership, and holders of purchase option rights on the exigibility date (registration date or anniversaries). The claimant contended that B... had either (1) leased vehicles with purchase options to third parties, or (2) already sold the vehicles before the tax exigibility dates, as evidenced by sales invoices. The tribunal first addressed a procedural exception raised by the Tax Authority regarding timeliness, ruling that taxpayers may request official revision within the 4-year period under Article 78(1) of the General Tax Law (LGT) when errors are attributable to tax services, consistent with Supreme Administrative Court jurisprudence. The substantive determination focuses on whether ownership or lease arrangements existing at the precise moment of tax exigibility determine liability, and whether prior transfers evidenced by invoices exclude the financial lessor from IUC obligations. This decision clarifies critical aspects of IUC subjective incidence in complex financial transactions involving vehicle ownership and leasing arrangements.

Full Decision

ARBITRAL DECISION

The arbitrator Raquel Franco, appointed by the Deontological Council of the Administrative Arbitration Centre to form the Arbitral Tribunal constituted on 06-08-2018, decides in the following terms and on the following grounds:

1. Report

On 29-05-2018, A... BRANCH IN PORTUGAL ("Claimant", hereinafter), legal entity no..., domiciled in Rua ..., ..., Lisbon, area of the ... Lisbon Tax Authority, filed, pursuant to the provisions of articles 2º no. 1 a) and 10º no. 1 a) of Decree-Law no. 10/2011, of 20 January (which approved the RJAT), and of articles 1 and 2 of Ministerial Order no. 112-A/2011, of 22 March, in its capacity as incorporating entity, through merger, of the company, meanwhile dissolved, B... – FINANCIAL CREDIT INSTITUTION, SA ("B...", hereinafter), former legal entity no..., which had its registered office at the same address, a request for the constitution of an arbitral tribunal with appointment of the Arbitrator by the Deontological Council of the Administrative Arbitration Centre, in accordance with the provisions of articles 6º no. 1 and 11 of the aforementioned statute, with the grounds set forth in the initial petition attached.

The request for constitution of the arbitral tribunal was accepted by the Most Excellent President of CAAD and automatically notified to the Tax and Customs Authority.

Pursuant to the provisions of subparagraph a) of no. 2 of article 6 and subparagraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council appointed the signatory as arbitrator of the single arbitral tribunal and notified the parties of this appointment on 16-07-2018.

Thus, in accordance with the provision of subparagraph c) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December, the single arbitral tribunal was constituted on 06-08-2018, followed by the pertinent legal procedures.

2. Preliminary Determination

The arbitral tribunal was regularly constituted, in accordance with the provision of articles 2, no. 1, subparagraph a), and 10, no. 1, of DL no. 10/2011, of 20 January, and is competent.

The Parties are duly represented, are legitimate and possess legal personality and capacity (all in accordance with articles 4 and 10, no. 2, of the same statute and article 1 of Ministerial Order no. 112-A/2011, of 22 March).

The proceedings are not affected by any nullities.

The Respondent raised the exception of untimeliness of the claim, and the Claimant was notified to comment thereon, which it did. Following this comment, the Tribunal issued an order with the following content:

(i) The Respondent had raised this exception alleging that the period for filing a request for official revision of the acts of Motor Vehicle Tax (IUC) assessment was 120 days after the end of the period for the respective voluntary payment, which would already have expired on the date of submission of the official revision request;

(ii) The Claimant contends that the period applicable to the submission of the official revision request is the 4-year period provided for in no. 1 of article 78 of the LGT, considering that there was an error attributable to the services in determining the facts and applicable law relating to tax assessment;

(iii) The Supreme Administrative Court (STA) has repeatedly held that, whilst the Tax Authority (AT), on its own initiative, may proceed with the official revision of the tax act within a 4-year period after assessment or at any time in case the tax has not yet been paid, on the basis of an error attributable to the services (pursuant to article 78, no. 1 of the LGT), the taxpayer may also, within that period, request official revision on the basis of an error attributable to the services. On the other hand, an error in the factual and legal premises should be considered an error attributable to the services, and such attributability to the services is independent of demonstrating fault on the part of the officials involved in issuing the act affected by the error (see, among others and with extensive case law references, the judgment of the Tax Litigation Section of the Supreme Administrative Court of 6 February 2013, handed down in case no. 839/11, published in the Appendix to the Official Gazette of 11 March 2014, pp. 587 to 601).

(iv) Applying the aforementioned case law to the present case, it appears that the Claimant submitted the request for official revision of the IUC assessment acts within the 4-year period provided for in article 78, no. 1 of the LGT.

(v) On 20.02.2018, the AT issued an order rejecting the request for official revision, and the Claimant filed a request for arbitral determination, the object of which is said act of rejection, within the legal period of 90 days for this purpose.

It is thus concluded that the exception of untimeliness raised by the AT is not well-founded.

(...)."

The Parties were further notified of the dispensation with the meeting referred to in article 18 of the RJAT, as well as of the deadline for submitting written arguments, which they subsequently submitted.

3. Positions of the Parties

Claimant

The order rejecting (the request for official revision) and the IUC and JC assessments in question suffer from an error in the factual premises and a defect of violation of law, and therefore the illegality of all of them must be declared, with their consequent annulment. The error invoked is based on the following arguments:

  • On the dates of the exigibility of the IUC relating to the vehicles in question, B... either (1) had leased those vehicles to third parties, or (2) was not even the owner of the vehicles in question, having already sold them to the lessees or to third parties;

  • Pursuant to the provisions of article 3 of the CIUC, those responsible for payment of the IUC are the owners of the vehicles on the date of exigibility of the IUC, that is, on the date of registration or on the anniversary dates in relation to the date of registration (no. 1 of article 3 of the CIUC), and also the "(…) financial lessees, acquirers with reservation of ownership, as well as other holders of purchase option rights by virtue of the lease contract" on the same date, since these are legally treated as equivalent to vehicle owners – see no. 2 of article 3 of the same legal statute.

  • Consequently, in the periods in question, and for the vehicles targeted by the assessments now being challenged, it appears that B... was not the owner thereof on the date of exigibility of the tax, or alternatively, was on the same date merely the financial lessor or lessor in long-term lease (ALD) contracts with promise of sale;

  • The sales by B... to third parties occur precisely on the date of issuance of invoices by B... to those third-party purchasers – invoices that therefore evidence the sales of the vehicles. The Claimant attached the invoices for the sale of the vehicles to the respective acquirers, which document and demonstrate precisely the sale of the vehicles at a moment prior to the date of exigibility of the IUC - the date of registration or respective anniversary dates.

  • In cases where B... leased the vehicles to third parties and granted them the option to purchase those vehicles by virtue of the lease contracts, B... was not the liable subject for the IUC. Indeed, after the termination of such contracts, B... proceeds to transfer ownership of the respective vehicles to the corresponding lessees or to third parties for a residual value, which are identified in a table attached to the arbitration request. Such transfers of ownership occurred by mere effect of the aforementioned contracts, being duly supported by the respective sales invoices, which form part of the files relating to each of the registrations in question, which were attached to the arbitration request.

The transfer of motor vehicle ownership occurs by mere effect of the contract, not being dependent on any subsequent act for it to be constituted or for it to become effective, legal and juridical, such as the delivery of the thing or its registration.

  • Pursuant to no. 1 of article 1 of Decree-Law no. 54/75, of 12 February, amended by Law no. 39/2008, of 11 August, the registration of the acquisition of a motor vehicle has no constitutive value, insofar as it merely aims to publicize the legal situation of the vehicle, and the absence of registration cannot affect the quality of owner, nor the full efficacy of motor vehicle purchase and sale contracts.

  • Pursuant to article 29 of the same legal statute, by virtue of article 7 of the Land Registry Code, "Definitive registration constitutes a presumption that the right exists and belongs to the registered holder, in the precise terms in which the registration defines it", which means that the registration of the motor vehicle by the acquirer is nothing more than a presumption that the right of ownership belongs to the subject who registered it. However, such presumption is rebuttable.

  • On the other hand, it is important to note that, pursuant to no. 1 of article 5 of the Land Registry Code, facts subject to registration only produce effects against third parties after the date of their respective registration. Now, according to no. 4 of article 5 of the said Code, the definition of third parties for registration purposes involves those who have acquired from a common author rights incompatible with one another. Consequently, given the legal notion of third parties, and insofar as the legal requirements inscribed in that notion are not met, the AT cannot be qualified as such, and therefore cannot invoke the absence of registration to justify the ineffectiveness of the purchase and sale contracts of the vehicles in question.

  • Even in situations where the purchaser (new owner of the vehicle) does not arrange for the registration of his right of ownership, it is presumed that that right continues to belong to the seller, but such presumption may nevertheless be rebutted by proof to the contrary.

  • Pursuant to article 1 of the CIUC, the "Equivalence Principle" applies to this tax, according to which "The single motor vehicle tax is subject to the equivalence principle, seeking to burden taxpayers in accordance with the environmental and road cost that they cause, in implementation of a general rule of tax equality."

  • The tax in question presupposes the actual use of the vehicles and the "environmental and road cost" caused by such use - taxing the user of the vehicles, who derives benefit from such use, with the said social costs. Thus, it is obvious that the IUC does not aim to tax specialized financial institutions in motor vehicle credit, such as B..., for the simple reason that it is not and was not the user of the vehicles that the IUC sought to burden – insofar as B..., as a specialized financial institution in motor vehicle credit, does not produce any "environmental and road cost", and is not the "polluter - payer" that the legislator sought to tax.

  • The sales invoices and lease invoices (rental invoices) were accounted for by B... as income, as is also within the official knowledge of the AT - as they were declared in the respective income statements for purposes of Corporate Income Tax (IRC) and in successive declarations of Financial Entity Statements (IES) presented. As such, these sales and leases (rents) were taxed under Corporate Income Tax, in the sphere of B... . Now, by imperative of the unity of the fiscal legal system (article 9 of the Civil Code), the same sales invoice or lease rental invoice cannot constitute income taxed under Corporate Income Tax, but already not serve to evidence and demonstrate the same sales or leases for purposes of IUC.

  • The order rejecting the Request for Official Revision dispensed with the right to prior hearing. In doing so, it violated articles 60 no. 1 b) and no. 5 of the LGT, and 267 no. 5 of the CRP, and therefore, also for this reason, the order of rejection here being challenged must be annulled.

  • Provided that IUC is not due, for the reasons mentioned above, no compensatory or accessory interest dependent on the IUC is likewise due, on the basis of which they are assessed and upon which they depend.

  • Given that the assessments have been paid, in addition to the refund of the IUC and compensatory interest improperly paid, the Claimant is entitled to indemnificatory interest, counted from the date of payment, due to an error of fact and law by the AT, in accordance with articles 43 and 100 of the LGT. Without waiving this, it considers it has, at minimum, the right to indemnificatory interest from the date of the (illegal) rejection of the Request for Official Revision.

Respondent

  • As regards assessments relating to vehicles subject to financial lease or a long-term rental contract with promise of sale, even if we were to conclude that we are dealing with financial lease contracts granted by the Respondent, it would still be incumbent on the latter to demonstrate that it had complied with the ancillary obligation imposed by article 19 of the CIUC.

  • The application of article 3 of the CIUC must be combined with the provisions of article 19 of the same code, which establishes that "for the purposes of article 3 of this code (…), entities that proceed with financial lease, operational lease or long-term rental of vehicles are obliged to provide to the Tax Directorate the data relating to the identification of the users of the leased vehicles." Thus, following the thesis advocated by the Claimant regarding the fact that article 3 of the CIUC establishes a rebuttable presumption, it is then necessary to conclude that the functioning of that article (i.e., the rebutting of the presumption) equally depends on compliance with what is established in article 19 of the CIUC, as can be inferred from its literal element ("for the purposes of article 3 of this code (…)")

  • As regards assessments relating to vehicles transferred before the exigibility of the tax, the understanding advocated by the Claimant not only incurs a biased reading of the letter of the law, but also the adoption of an interpretation that does not heed the systematic element, violating the unity of the regime established throughout the CIUC and, more broadly, throughout the entire fiscal legal system and further derives from an interpretation that ignores the rationale of the regime established in the article in question, and likewise throughout the CIUC.

  • The tax legislator, by establishing in article 3, no. 1 who the liable subjects of the IUC are, expressly and intentionally established that these are the owners (or in the situations provided for in no. 2, the persons listed therein), these being considered as the persons in whose name they are registered.

  • Note that the legislator did not use the expression "are presumed", as it could have done, for example, in the following terms: the liable subjects of the tax are the owners of the vehicles, and are presumed to be the natural or legal persons, of public or private law, in whose name they are registered. In contrast, the fiscal norm is full of provisions analogous to that established in the final part of no. 1 of article 3, in which the tax legislator, within his freedom of legislative configuration, expressly and intentionally, establishes what should be considered legal, for the purposes of incidence, of income, of exemption, of determination and of periodization of taxable profit, for the purposes of residence, of location, among many others. Therefore, if it were understood that by using the expression "is considered" the tax legislator would have established a presumption, practically all norms of incidence under Corporate Income Tax would be set aside precisely because accounting prescribes solutions different from those of the Corporate Income Tax Code, and this is precisely the aim of the legislator to set aside such accounting rules.

  • Also the systematic element of interpretation of the law demonstrates that the solution advocated by the Claimant is intolerable, finding the understanding supported by it any support in the law. Even admitting that, from the point of view of the rules of civil law and land registry, the absence of registration does not affect the acquisition of the quality of owner and that registration is not a condition for the validity of contracts with real effect, pursuant to what is established in the CIUC (which in the case in question constitutes special legislation, which, under general rules of law, derogates the general norm), the tax legislator wanted intentionally and expressly that they be considered as owners, lessees, acquirers with reservation of ownership or holders of the purchase option right in long-term rental, the persons in whose name the vehicles are registered.

  • In light of a teleological interpretation of the regime established throughout the CIUC, the interpretation advocated by the Claimant that the liable subject of the tax is the effective owner, regardless of whether that quality appears in the motor vehicle registration, is manifestly wrong. And it is a wrong interpretation insofar as it is the very rationale of the regime established in the CIUC that constitutes clear proof that what the tax legislator intended was to create a tax based on the taxation of the vehicle owner as it appears in the motor vehicle registration. And this is precisely because the new regime for taxation of the IUC substantially altered the previous regime for motor vehicle taxation, with the liable subjects of the tax now being owners appearing in the ownership registry, regardless of the circulation of vehicles on the public road.

  • As regards the documents submitted to the proceedings by the Claimant to prove its claims, the Respondent contends that the invoices and copies of motor vehicle rental contracts without driver are insufficient. Invoices are not suitable to prove the conclusion of a synallagmatic contract such as purchase and sale, since such documents do not by themselves reveal an essential and unequivocal declaration of intent (i.e., acceptance) on the part of the purported acquirers. The unequivocal declaration of intent of the purported acquirers could be evidenced by submitting a copy of the said official form for registration of motor vehicle ownership, as it is a document signed by the parties involved. However, the Claimant did not submit copies of the said official form for registration of motor vehicle ownership when it could and should have done so, that is, in the petition for the arbitration request, and is now precluded from doing so at a later time. Furthermore, the lack of synallagmatic character of the invoices could be made up by proof of receipt of the price therein stated by the Claimant. The Claimant did not submit documentary proof of receipt of the price when it could and should have done so, that is, in the petition for the arbitration request, and is now precluded from doing so at a later time, as per

  • As regards indemnificatory interest and costs, the AT contends that the same are not due or are not its responsibility insofar as the IUC is assessed in accordance with the registration information duly transmitted by the Registry and Notary Institute and not in accordance with information generated by the Respondent itself. Now, since the Claimant has not taken care to update the motor vehicle registration, as it indeed could and was competent to do [article 5/1-a) of Decree-Law 54/75, of 12 February, and article 118/4 of the Road Code], and has not mandated the cancellation of the registrations of the vehicles here in question, it is necessary to conclude that the Claimant did not proceed with the care that was required of it. And by not having proceeded with the care required of it, it inexorably led the Respondent to limit itself to giving effect to the legal obligations to which it is bound and, in parallel, to follow the registration information that was provided to it by the appropriate party. Consequently, the Claimant should be condemned to pay the arbitration costs resulting from the present request for arbitral determination, pursuant to article 527/1 of the CPC by virtue of article 29/1-e) of the RJAT, in line, moreover, with a similar issue decided in the context of proceedings under no. 72/2013-T conducted at this arbitration centre. The same reasoning applies with respect to the request for condemnation to payment of indemnificatory interest formulated by the Claimants.

4. Joinder of Claims

Given the existence of a direct relationship between the tax assessments whose legality is questioned in the present proceedings, nothing prevents the joint examination of the tax acts in question, given that, in light of what has been alleged and the documentation submitted, it appears that, essentially, the possible success of the claim depends on the same factual circumstances and the interpretation and application of the legal norms relating to the subjective scope of the IUC. Thus, it is essentially a matter of the examination of the same factual circumstances and the application of the same legal norms concerning the subjective scope of the IUC, and the joinder of claims is legal, in accordance with article 3 of the RJAT and 104 of the CPPT.

5. Factual Matter

5.1. Proven Facts

The following facts are considered proven:

  • B... is a Financial Institution that, within the scope of its business purpose, carries out operations permitted to Banks, with the exception of the receipt of deposits, concluding with its clients contracts for Long-Term Rental (ALD) and Financial Lease contracts for motor vehicles.

  • The Claimant incorporated B... through cross-border merger, with global transmission of the assets (assets and liabilities) of B..., allocation of the same assets to the Claimant (branch in Portugal) and consequent dissolution of B... (document 1 attached with the arbitration request - PPA).

  • Within the scope of its commercial activity, B... has been concluding contracts of diverse nature with its clients, among which stand out contracts for motor vehicle rental without driver with promise of sale, financial lease contracts and financing contracts.

  • The Claimant acquires new motor vehicles from national importers C... and D... and normally carries out leasing (financial lease) or ALD (long-term rental) of those same vehicles to third parties.

  • After the termination of such contracts, B... proceeds to transfer ownership of the vehicles to the corresponding lessees or to third parties for a residual value.

  • In exceptional cases, B... grants credit/financing to third parties for motor vehicle acquisition, however reserving ownership of the vehicles.

  • Among the challenged assessments, one part concerns situations in which the tax event occurred during the pendency of financial lease contracts (as per the list contained in document 8 attached with the PPA);

  • The other assessments concern situations in which the tax event occurred after ownership of the vehicle in question had been transferred (as per the list contained in document 8 attached with the PPA);

  • The Claimant was notified of the IUC assessments that are the subject matter of the present proceedings, relating to the tax years 2009 to 2011, and which are contained in document 3.

  • The Claimant submitted a request for official revision whose object was the assessments mentioned above on 02.02.2017 (document 4 attached with the PPA).

  • The request was rejected by means of an order of 20.02.2018 (document 2 attached with the PPA).

  • The assessments that are the subject of the proceedings have been paid (document 3 attached with the PPA).

5.2. Facts Not Proven

There are no facts with relevance to the decision that have not been considered proven.

5.3. Grounds for Determination of Factual Matter

The facts were considered proven based on the documents attached with the request for arbitral determination, on the administrative proceedings and on facts stated by the Parties in their respective procedural documents as to which there is no controversy.

Regarding the factual matter, the Tribunal does not have to pronounce on everything alleged by the Parties, but rather has the duty to select the facts that matter for the decision and to distinguish between the proven and unproven matters (cf. article 123, no. 2, of the CPPT and article 607, no. 3 of the CPC, applicable by virtue of article 29, no. 1, subparagraphs a) and e) of the RJAT).

The facts are selected according to their legal relevance, which is determined in function of the various possible solutions for the cause (cf. the former article 511, no. 1, of the CPC, current 596, applicable by virtue of article 29, no. 1, subparagraph e) of the RJAT).

Taking into account the positions assumed by the Parties, the facts mentioned above are considered proven and those also mentioned above as not proven.

6. Issue to be Determined

The substantive issue in the present proceedings consists in determining whether the facts alleged by the Claimant constitute grounds for exclusion from the subjective scope of the tax and whether, consequently, the challenged acts should be considered to suffer from an error regarding the factual premises of the tax event, which would constitute a defect of violation of law resulting in their respective annulment, with the due legal consequences.

7. Legal Grounds

The Claimant bases its claim on the argument that the conditions for subjective incidence provided for in article 3 of the CIUC are not met.

Two types of situations are at issue:

I. Assessments in which the tax event allegedly occurred at a moment when the Claimant had already proceeded to sell the vehicle, at the end of a financial lease contract or long-term rental contract;

II. Assessments in which the tax event occurred during the pendency of financial lease contracts;

I) Vehicles allegedly transferred before the date of exigibility of the tax

With respect to these assessments, the Claimant alleges that the vehicles on which the IUC is imposed had already been transferred on the date the tax event occurred, seeking to prove such facts through elements it submits under the designation "file for each vehicle" and which contain the following categories of documents:

  • invoices;

  • internal documents designated as "list of terminated contracts", containing the client, the registration plate, the delivery date, the end date, the financed amount, the invoiced amount and the residual value in euros and escudos;

  • copies of promise contracts for purchase and sale of motor vehicles and respective bank debit authorizations;

  • copies of motor vehicle rental contracts without driver;

  • copies of motor vehicle rental contracts without driver and provision of services;

  • declarations of delivery of vehicles;

  • declarations of waiver of the reflection period associated with motor vehicle purchase and sale contracts;

  • letters indicating the receipt of incomplete rental contracts;

  • payment references via ATM for contract amounts;

  • certificates of accession to replacement vehicles;

  • standardized information sheets in the matter of consumer credit (pre-contractual information);

  • provisional receipts relating to the provision of collateral (contracts V..., V..., V..., V..., V..., V..., V..., V..., V...).

From the invoices appear the following alternative indications: "valid as receipt after good collection" or "document produced by computer so it does not require signature. Valid as receipt after good collection. Settlement of the present invoice should be made to A... (Portugal), ..., ...-... ..., assignee of this debit" or "we ask you to note that on this date we made the following debit entry in your Current Account, relating to the vehicle in question. Settlement of this document should be made to B... – Branch Portugal, ..., ..., ...-... Lisbon, assignee of this debit" or "document produced by computer so it does not require signature. Valid as receipt after good collection. Used vehicle sold in the condition it is in and without warranty" or "we ask you to note that on this date we made the following debit entry in your Current Account, relating to the vehicle in question. Settlement of this document should be made to E..., S.A., ..., no..., ... Lisbon, assignee of this debit" or "we ask you to note that on this date we made the following debit entries in your Current Account. Settlement of this document should be made to A... – Branch Portugal, ... ..., ...-... Lisbon, assignee of this debit".

The AT contends that the invoices are not suitable to prove the conclusion of a synallagmatic contract such as purchase and sale, since such documents do not by themselves reveal an essential and unequivocal declaration of intent (i.e., acceptance) on the part of the purported acquirers.

The Claimant invokes the provision of article 3 of the CIUC, which, in its view, establishes an implicit presumption of ownership of the vehicles in favor of those in whose name they are registered, a presumption which, by virtue of the application of the general rule provided for in article 73 of the General Tax Law, may be rebutted by proof to the contrary. For the Respondent, article 3 of the CIUC does not establish any implicit presumption, but a true, irrebuttable legal fiction.

This matter has been extensively dealt with by arbitral case law over recent years (cf. the decisions handed down in proceedings 286/2013-T, of 2 May 2014, 293/2013-T, of 9 June 2014, 46/2014-T of 5 September, 246 and 247/2014 T, of 10 October, among others), and has further been the subject of the judgment of the Central Administrative Court of the South handed down on 19-03-2015, case no. 08300/14. Following this court closely the line of case law delineated in the proceedings indicated above, only its most significant features will be indicated here.

At the date of the tax events resulting from the assessments at issue, no. 1 of article 3 of the CIUC established that:

"The liable subjects of the tax are the owners of the vehicles, these being considered as the natural or legal persons, of public or private law, in whose name they are registered."

The issue discussed with respect to this norm is as follows: should the expression "is considered" be understood as the legislator could have used the expression "is presumed" or, on the contrary, did the legislator intend to establish a legal fiction, precluding the possibility of presenting proof to the contrary?

Pursuant to article 349 of the Civil Code, "presumptions are the inferences which the law or the judge draws from a known fact to establish an unknown fact." On the other hand, no. 2 of article 350 of the Civil Code clarifies that legal presumptions may be rebutted by proof to the contrary, except in cases where the law prohibits it.

With respect to presumptions of tax incidence, article 73 of the General Tax Law provides that these always admit proof to the contrary.

"Legal fictions", conversely, consist of "a legal process that considers a situation or fact as different from reality in order to attribute legal consequences to it".

Now, contrary to what the Respondent contends and as has already been recognized in the arbitral and judicial decisions referred to, the analysis of the literal element, as well as the historical and teleological elements present in the norm in question lead to the conclusion that the legislator did not intend to establish any legal fiction but only and solely a presumption, rebuttable by proof to the contrary in accordance with the terms and for the purposes of article 73 of the General Tax Law. Since the norm of incidence provided for in no. 1 of article 3 of the CIUC is a norm of tax incidence, any other understanding would be clearly contrary to the principles governing the tax legal relationship.

As regards the historical element, it is worth noting that the CIUC had its genesis in the creation, through DL 599/72, of 30 December, of the motor vehicle tax, which already expressly established that the tax was due by the owners of the vehicles, and was presumed to be so in relation to the persons in whose name they were registered or recorded. On the other hand, article 2 of the Regulation of Circulation and Haulage Taxes (approved by Decree-Law no. 116/94) established that: "the liable subjects of the circulation tax and the haulage tax are the owners of the vehicles, these being presumed to be so, subject to proof to the contrary, the natural or legal persons in whose name they are registered".

It is true that, in the CIUC, the legislator substituted the expression "is presumed" for the expression "is considered", which, in the perspective of the Respondent, translated the establishment of a legal fiction, irrebuttable. We do not, however, consider this to be the case. The change of verb does not constitute a substantive alteration of the norm of incidence, which, in our view, continues to establish a rebuttable presumption by proof to the contrary – in accordance, moreover, with article 73 of the LGT.

As DIOGO LEITE CAMPOS, BENJAMIM SILVA RODRIGUES and JORGE LOPES DE SOUSA state, in the annotation to no. 3 of article 73 of the LGT, "presumptions in matters of tax incidence may be explicit, revealed by the use of the expression 'is presumed' or similar (…). However, presumptions may also be implicit in incidence norms, namely 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 actual value".

In sum, in matters of tax incidence, presumptions may be revealed by the expression "is presumed" or by similar expression. By way of example, JORGE LOPES DE SOUSA notes that in article 40, no. 1, of the Personal Income Tax Code (CIRS), the expression "is presumed" is used, whereas in article 46, no. 2 of the same Code the expression "is considered" is used, with no difference between one and the other expression, both meaning, after all, the same thing: a legal presumption.

As regards the teleological element, it is worth noting that the structuring principle of the motor vehicle tax reform is precisely that of the incidence of taxation on the actual user of the vehicle, and this principle is not consonant with a "blind" reading of the letter of the law, which could ultimately lead to taxing someone who is not the owner and, in that way, someone who is not the subject causing the "environmental and road cost" produced by the vehicle, to which article 1 of the CIUC alludes.

Thus, as regards the subjective scope of the tax, it may be concluded that there are no alterations with respect to the situation previously in effect within the scope of the Municipal Tax on Vehicles, Circulation Tax and Haulage Tax, as is, moreover, widely recognized by doctrine, with a rebuttable presumption continuing to apply in this matter. This understanding is, further, the only one that appears adequate and in accordance with the principle of material truth and justice, underlying tax relationships, with the objective of taxing the actual and effective owner and not one who, by circumstances of diverse nature, is often nothing more than an apparent and false owner, by appearing in the motor vehicle registry.

In this conformity, considering the elements of interpretation of the law referred to, we are led to the conclusion that the expression "is considered" has exactly the same meaning as the expression "is presumed", and must therefore be understood to mean that article 3, no. 1, of the CIUC, establishes a true presumption of ownership and not any fiction, and is therefore rebuttable. For this reason, the person registered in the motor vehicle registry must be afforded the opportunity to present sufficient evidence to demonstrate that the actual owner is, after all, a different person from the one appearing in the registry.

Finally, it is necessary in the present analysis to consider the legal value of motor vehicle registration. Thus, pursuant to no. 1 of article 1 of DL 54/75, of 12 February, which established the Motor Vehicle Ownership Registry, "the registration of motor vehicles has essentially the purpose of giving publicity to the legal situation of motor vehicles and their respective trailers, with a view to ensuring the safety of legal commerce". Article 7 of the Land Registry Code further adds that "definitive registration constitutes a presumption that the right exists and belongs to the registered holder, in the precise terms in which the registration defines it". The registration of motor vehicle ownership does not, therefore, have a constitutive nature, but merely a declarative one, allowing only the inscription in the registry to presume the existence of the right and its ownership. Hence, the presumption resulting from the registry may be rebutted by proof to the contrary. And this is so precisely because, pursuant to article 408 of the Civil Code, except for the exceptions provided by law, the constitution or transfer of real rights over a determined thing occurs by mere effect of the contract, not being its validity dependent on the inscription in the registry.

In sum, motor vehicle registration, in the economy of the CIUC, represents merely a rebuttable presumption of the liable subjects of the tax. In the case of a purchase and sale contract of a motor vehicle, where the law provides no exception for the same, the contract has real effect, with the purchaser becoming its owner, regardless of the registry; similarly, the person registered in the registry will cease to be the owner, notwithstanding the fact that he may continue, for some time or even a long time, to appear in the registry as such.

It should further be noted that the transfers made are opposable to the Respondent, notwithstanding the provision of no. 1 of article 5 of the Land Registry Code, which provides: "facts subject to registration only produce effects against third parties when registered." The notion of third parties for purposes of registration is established in no. 4 of the same article 5: third parties, for purposes of registration, are those who have acquired from a common author rights incompatible with one another, which is manifestly not the case of the AT. Thus, the AT is not a third party for purposes of registration.

As a consequence of the foregoing, the registered owner of a motor vehicle may prove, for purposes of taxation under IUC, that he is no longer the actual owner of the vehicle in question, namely by having proceeded to its sale. For this purpose, it is important to bear in mind that we are dealing with purchase and sale contracts that, relating to movable property and not being subject to any special formalities under article 219 of the Civil Code, operate the corresponding transfer of real rights in accordance with no. 1 of article 408 of the same code. On the other hand, proof of the existence of a purchase and sale contract may be effected by any means, with an invoice being a suitable accounting document for this purpose, as for many others, including fiscal ones. Invoices evidence sales, transactions or provision of services and, insofar as issued in the legal form, constitute elements supporting accounting entries systematized in accounting maintained in accordance with commercial and fiscal legislation, and the data contained therein are covered by the presumption of veracity referred to in article 75, no. 1, of the LGT. In this sense, it is not accepted that their probative force be questioned solely for the purpose of proof of transmission of vehicle ownership, on pain of falling into the legal absurdity of, from the same document, recognizing that the transaction existed for purposes of income tax incidence, but did not exist for purposes of IUC. But, since it is a presumption, nothing prevents demonstration of its falsity or inadequacy in light of the legal requirements established in article 36 of the VAT Code. This too is a rebuttable presumption, and the burden of proof falls on the AT.[1] However, the AT did not challenge, nor did it raise doubts about the transactions evidenced by the invoices presented by the Claimant, having limited itself to questioning the capacity of the same to evidence sales and provide proof thereof.

Thus, the sales alleged by the Claimant, occurring prior to the occurrence of the tax event, are considered proven. The presumption of ownership derived from motor vehicle registration provided for in article 3 of the CIUC is thus rebutted, and therefore the corresponding assessments identified in a list attached to the present request for arbitral determination should be annulled, on the ground of illegality and error in the factual premises on which they are based.

b) Vehicles covered by financial lease contracts or ALD contracts with promise of sale

The facts alleged by the Claimant were considered proven, namely that the vehicles to which the tax assessed through these assessments relates were subject to financial lease contracts on the date the tax event occurred.

The Respondent contends, however, that it was incumbent on the Claimant to demonstrate that it had complied with the ancillary obligation imposed by article 19 of the CIUC. On this point, see, by way of example, what is stated in the arbitral decision handed down in case no. 14/2013-T, of 15/10/2013: "the financial lessee is treated as equivalent to an owner for purposes of no. 1 of article 3 of the CIUC, which is to say for being a liable subject of the IUC (see no. 2 of art. 3). [...] the lessor not having, by legal and contractual requirement, the potential for use of the vehicle and the lessee having exclusive enjoyment of the motor vehicle, [and reaffirming the] conclusion reached that [...] the ratio legis of the CIUC dictates that, pursuant to no. 2 of article 3 of this Code, it is the lessee who is responsible for payment of the tax, since it is he who has the potential for use of the vehicle and causes the road and environmental costs inherent to it. The same conclusion is reached when one observes the importance given to users of leased vehicles in article 19 of the CIUC. Indeed, pursuant to the provision of this article, entities that proceed, in particular, with financial lease of vehicles are obliged to provide to the AT (ex-DGCI), the tax identification of the users of the leased vehicles for purposes of the provision of article 3 of the CIUC (subjective incidence), as well as no. 1 of article 3 of the Law of its approval, since pursuant to this norm of Law no. 22-A/2007, if the revenue generated by the IUC is incident on vehicles subject to long-term rental or operational lease, it must be allocated to the municipality of residence of the respective user (our emphasis). [...] [But, notwithstanding that obligation, such does not prevent that,] on the date of occurrence of the tax event, a financial lease contract that has as its object a motor vehicle is in effect, for the purposes of the provision of article 3, nos. 1 and 2, of the CIUC, [with the] liable subject of the IUC being the lessee even if the registration of the right of ownership of the vehicle is recorded in the name of the lessor entity, provided that the latter provides proof of the existence of the said contract."

By the foregoing, the allegation by the AT regarding article 19 of the CIUC is not well-founded, since it aims to impose a formal obligation over a substantial reality clearly demonstrative of the condition of the Claimant as a lessor entity in the underlying contracts.

Thus, also with respect to these assessments, it is considered that the Claimant is correct, and the assessment acts should be annulled, for invalidity due to an error regarding the factual and legal premises.

Regarding Indemnificatory Interest

The Claimant finally requests that recognition be given to its right to indemnificatory interest, pursuant to articles 43 and 100 of the LGT.

Article 100 of the LGT provides that "The tax administration is obliged, in case of full or partial success of complaints or administrative appeals, or of judicial proceedings in favor of the liable subject, to immediately and fully restore the situation that would have existed if the illegality had not been committed, including the payment of indemnificatory interest, in the terms and conditions provided by law."

On the other hand, pursuant to no. 1 of article 43 of the LGT, indemnificatory interest will be due "when it is determined, in an appeal or judicial challenge, that there was an error attributable to the services resulting in payment of the tax debt in an amount exceeding that legally due."

In the present case, the annulment of the assessments occurs only by means of the challenge to the rejection of the requests for official revision submitted by the Claimant on 02-02-2017, and therefore article 43, no. 3, subparagraph c) of the LGT is equally applicable to it: "3 - Indemnificatory interest is also due in the following circumstances: (…) c) When the revision of the tax act on the initiative of the taxpayer is carried out more than one year after the request thereof, except if the delay is not attributable to the tax administration."

The AT issued an order rejecting the request for revision on 20.02.2018, following which the Claimant presented itself before this tribunal. Now, as has already been decided by the STA[2], the principle of equality imposes similar treatment between the taxpayer whose request for revision is successful beyond the one-year period with the administration, and the taxpayer who obtains the same result, also beyond that period, before the court. In either case, the delay of more than one year is attributable to the administration and derives from the practice of an illegal act: either because it was tardy in agreeing with the taxpayer or because it did not agree and it subsequently became apparent that it should have. There is, therefore, in the present case, the right of the Claimant to indemnificatory interest, counted from the end of the one-year period after submission of the request for official revision and until the date of reimbursement to the Claimant of the amounts corresponding to the annulled assessments.

8. Decision

In accordance with the foregoing, this Arbitral Tribunal decides as follows:

a) To adjudge the claim for declaration of illegality of the rejection of the request for official revision well-founded, determining, as a consequence, its annulment;

b) To adjudge the claim in the request for arbitral determination well-founded with respect to the annulment of the tax assessments and compensatory interest, as regards the periods of taxation and vehicles identified in a list attached to the present request for arbitral determination;

c) To adjudge the claim well-founded as concerns the recognition of the right to indemnificatory interest that may be due from one year after submission of the request for official revision and until the date of reimbursement to the Claimant of the amounts of the annulled assessments.

d) To condemn the Respondent to pay the costs of the present proceedings.

9. Value of the Proceedings

In accordance with the provisions of articles 306, no. 2, of the Code of Civil Procedure, 97-A, no. 1, subparagraph a), of the CPPT and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 20,500.09 (twenty thousand five hundred euros and nine cents).

10. Costs

Pursuant to the provision of article 22, no. 4, of the RJAT, the amount of costs is fixed at € 1,224.00 (one thousand two hundred and twenty-four euros), in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Lisbon, 29 November 2018

The Arbitrator

(Raquel Franco)

[1] In this sense, see, among others, Arbitral Decisions of 19.7.2013, Proc. 26/2013-T, of 10.9.2013, Proc. 27/2013-T, of 15.10.2013, Proc. 14/2013-T, of 5.12.2013, Proc. 73/2013-T, of 14.2.2014, Proc. 170/2013-T, of 30.4.2014, Proc. 256/2013-T, of 2.5.2014, Proc. 289/2013-T, of 6.6.2014, Proc. 294/2013-T, of 25.6.2014, Proc. 42/2014, of 6.7.2014, Proc. 52/2014-T, of 15.9.2017, Proc. 173/2017-T of 4.10.2017, Proc. 185/2017-T.

[2] See, by way of example, the judgments handed down in cases 0890/16 and 0926/17.

Frequently Asked Questions

Automatically Created

Who is the taxable person for IUC (Imposto Único de Circulação) in financial leasing contracts under Portuguese tax law?
Under Portuguese tax law, the taxable person for IUC in financial leasing contracts is determined by Article 3 of the IUC Code. According to paragraph 1, vehicle owners on the exigibility date (registration date or anniversaries) are liable. Paragraph 2 extends this liability to financial lessees, acquirers with reservation of ownership, and holders of purchase option rights by virtue of lease contracts, who are legally treated as equivalent to owners. Therefore, in a financial leasing arrangement, the lessee with a purchase option—not the lessor/financial institution—is typically the IUC taxable person on the tax exigibility date. This reflects the economic reality that the lessee exercises ownership rights during the lease term.
Can the IUC tax liability be challenged through a request for official review (revisão oficiosa) after the voluntary payment deadline?
Yes, IUC tax liability can be challenged through a request for official review (revisão oficiosa) beyond the standard 120-day voluntary payment deadline under specific circumstances. According to the tribunal's interpretation of Article 78(1) of the General Tax Law (LGT), supported by consistent Supreme Administrative Court jurisprudence, taxpayers may request official revision within a 4-year period from assessment when there is an error attributable to tax services in determining facts or applicable law. This extended period applies independently of demonstrating fault by tax officials. The tribunal rejected the Tax Authority's timeliness exception, confirming that errors in factual and legal premises regarding tax liability constitute errors attributable to services, allowing taxpayers to invoke the longer 4-year revision period rather than being limited to the 120-day period applicable to standard challenges.
What is the deadline for filing a request for official review of IUC tax assessments at CAAD?
The deadline for filing a request for official review of IUC assessments at CAAD depends on the nature of the claimed error. For standard challenges, taxpayers have 120 days after the voluntary payment deadline. However, when invoking errors attributable to tax services (errors in factual or legal premises), the deadline extends to 4 years from the assessment date under Article 78(1) of the LGT. After the Tax Authority decides on the official revision request, taxpayers have 90 days to file an arbitration request at CAAD challenging the rejection decision. In this case, the claimant successfully argued for the 4-year period, submitted the official revision request within that timeframe, and subsequently filed the CAAD arbitration request within 90 days of the Tax Authority's rejection order dated 20 February 2018, satisfying all procedural requirements.
How does the transfer of vehicle ownership before the taxable event affect IUC subjective incidence?
The transfer of vehicle ownership before the taxable event (tax exigibility date) is determinative for IUC subjective incidence under Portuguese tax law. Article 3 of the IUC Code establishes that liability attaches to whoever holds the relevant legal status—owner, financial lessee, or purchase option holder—on the specific exigibility date (registration date or anniversaries). If ownership has been transferred to a third party before this date, the former owner is no longer liable for IUC. The claimant argued that B... had either (1) leased vehicles with purchase options to third parties (making lessees liable under Article 3(2)), or (2) sold vehicles outright before exigibility dates, as evidenced by sales invoices. The timing of transfer is crucial: sales invoices documenting transfers prior to the tax exigibility date serve as evidence that the financial institution was no longer in the legal position triggering IUC liability, thereby excluding it from tax obligations for those specific periods.
What are the legal grounds for challenging IUC assessments in Portuguese tax arbitration proceedings?
Legal grounds for challenging IUC assessments in Portuguese tax arbitration proceedings include: (1) Error in factual premises (erro sobre os pressupostos de facto) - misidentification of the taxable person or vehicle status on the exigibility date; (2) Violation of law (vício de violação de lei) - misapplication of Article 3 of the IUC Code regarding subjective incidence; (3) Errors attributable to tax services under Article 78(1) LGT - incorrect determination of facts or applicable law by the Tax Authority, allowing for official revision within 4 years; (4) Procedural irregularities in assessment or rejection of revision requests. Challenges must be supported by documentary evidence such as financial leasing contracts, sales invoices, vehicle registration documents, and proof of legal relationships existing on tax exigibility dates. The arbitration request must be filed within 90 days of the Tax Authority's decision rejecting the official revision request. The tribunal has competence under Articles 2(1)(a) and 10(1) of Decree-Law 10/2011 (RJAT) to review IUC assessments and related decisions.