Process: 353/2014-T

Date: October 20, 2014

Tax Type: IUC

Source: Original CAAD Decision

Summary

This arbitration case (Process 353/2014-T) addresses the critical question of IUC (Unique Circulation Tax) liability when vehicle ownership transfers are not properly registered. The claimant sold a vehicle in December 2008, delivering the invoice, Form 2 transfer documentation, and physical possession to the buyer. However, the ownership registration was never updated, leading the Tax Authority to continue assessing IUC to the original registered owner for the years 2008-2012. The claimant argued that the purchase contract and transfer of possession should constitute the vehicle transfer, making IUC assessments illegal. The Tax Authority countered that Article 3(1) of the CIUC establishes a legal definition, not a mere presumption: passive subjects are owners "considered as such" those in whose name vehicles are registered. The Authority emphasized that the legislator intentionally used "are considered" rather than "are presumed," creating a constitutive requirement where only registered situations generate tax obligations. The Authority further argued that registration serves as the authentic public record for tax purposes, and non-update of registration is imputable to the taxpayer, not the State. Additionally, the Tax Authority raised a procedural defense regarding the timeliness of the arbitration request, noting that the only evidence provided were enforcement citations, suggesting the voluntary payment deadline had long expired. This case highlights the fundamental tension between civil law property transfer principles and specific tax law requirements, where special tax legislation may derogate general norms to establish registration as the determinative factor for tax liability.

Full Decision

Process 353/2014

Arbitral Decision

I. Report

  1. On 23-04-2014, A… – …, LDA, taxpayer no. …, with registered office at Rua … Guarda, filed a request for constitution of a single arbitral tribunal, in accordance with the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as RJAT), with a view to the annulment of the assessment acts relating to the Unique Circulation Tax (hereinafter referred to as IUC), of the vehicle with registration number ...-...-..., for the years 2008 to 2012 and the reimbursement of the amount of IUC previously paid, interest and penalties relating to the tax and to the compensatory interest unduly paid.

  2. Under article 6, paragraph 1 of the RJAT, the Deontological Council of the Arbitration Center designated the undersigned arbitrator, notifying the parties.

  3. The tribunal is regularly constituted to hear and decide upon the subject matter of the proceedings.

  4. The allegations supporting the claimant's request for arbitral pronouncement are, in summary, as follows:

4.1. On 28 December 2008, the claimant sold to Society B..., Lda, legal entity no. ..., the vehicle with registration number ...-...-..., including the respective trailer, with the respective invoice being subject to accounting treatment and processed for tax purposes.

4.2 On the same date, the respective form 2 was also delivered for the registration of ownership in the name of the purchaser, duly completed and signed.

4.3 On the same date, the vehicle was delivered to the purchaser, with the claimant never again having any possession, ownership or control over the said vehicle.

4.4 After verifying that the transfer of ownership had not been registered in the name of the purchaser, the claimant requested, from the authorities, the seizure of the vehicle and the cancellation of the respective registration.

4.5 However, and despite the evident illegality of the assessment of IUC in the name of the claimant, the Tax Service continues, annually, to issue the aforementioned assessments which were notified to the claimant on the dates noted in the respective citation documents.

4.6 Now, as is well known, what constitutes the transfer of a vehicle is the contract of purchase and sale and the transfer of possession, regardless of the act of registration.

  1. For its part, the Respondent Tax and Customs Authority presented its response, in which it defended itself in the following terms:

5.1 The Claimant provides no proof of the dates of notification of the tax assessments, or even of the dates fixed for voluntary payment of the same.

5.2 However, and considering that the only documents attached to the proceedings, and relating to the contested assessments, are citations from tax enforcement proceedings, we can conclude that the deadline for voluntary payment of the tax had long since passed, and therefore the request for constitution of the Arbitral Tribunal should, for this reason, be considered untimely.

5.3 What is at issue are the tax acts that embodied the assessment of IUC, relating to the years 2008, 2009, 2010, 2011 and 2012, and article 3, paragraph 1 of the CIUC establishes that "Passive subjects of the tax are the owners of vehicles, being considered as such natural or legal persons, of public or private law, in the name of which the same are registered."

5.4 The tax legislator, in establishing in article 3, paragraph 1 who are the passive subjects of the IUC, expressly and intentionally established that these are the owners (or in the situations provided for in paragraph 2, the persons listed there), being considered as such the persons in the name of which the same are registered.

5.5 Note that the legislator did not use the expression "are presumed", as it could have done, for example, in the following terms: Passive subjects of the tax are the owners of vehicles being presumed as such natural or legal persons, of public or private law, in the name of which the same are registered.

5.6 On the other hand, the tax regulation is full of provisions analogous to that enshrined in the final part of paragraph 1 of article 3, in which the tax legislator, within his freedom of legislative configuration, expressly and intentionally, establishes what should be considered legally, for purposes of incidence, of income, of exemption, of determination and of apportionment of taxable profit, for purposes of residence, of location, among many others.

5.7 To understand that the legislator enshrined a presumption here would unequivocally be to carry out an interpretation contra legem.

5.8 The systematic element of interpretation of the law also demonstrates that the solution advocated by the Claimant is untenable, and the understanding supported by it finds no support in the law, because this results not only from the aforementioned paragraph 1 of article 3 of the CIUC, but also from other provisions enshrined in the said Code.

5.9 From the articulation between the scope of the subjective incidence of IUC and the constitutive fact of the corresponding tax obligation, it follows unequivocally that only legal situations subject to registration (without prejudice, to the permanence of a vehicle in national territory for a period exceeding 183 days, provided for in paragraph 2 of article 6) generate the birth of the tax obligation.

5.10 For its part, paragraph 3 of the same article provides that "the tax is considered exigible on the first day of the taxation period referred to in paragraph 2 of article 4", that is, the moment from which the tax obligation is constituted has a direct relationship with the issuance of the registration certificate, in which must appear the facts subject to registration. See the provisions of paragraph 2 of article 4 and paragraph 3 of article 6, both of the CIUC, in paragraph 1 of article 10 of Decree-Law no. 54/75, of 12 February and in article 42 of the Regulation of Vehicle Registration.

5.11 Such position is also evident in the circumstance that the Vehicle Registration to which the Tax Administration has or may have access, and the certificate in which must appear the acts subject to registration, whose exhibition may be required by the same Tax Administration from the interested party, contain all the elements intended for the determination of the Passive Subject, without the need for access to contracts of a private nature that confer such rights, listed by the CIUC as constitutive of the Legal Situation of Passive Subject of this Tax.

5.12 In the absence of such registration, naturally, the Owner will be notified to fulfill the corresponding tax obligation, since the Tax Administration, taking into account the current configuration of the Legal System, will not have to proceed with the assessment of the Tax based on elements that do not appear in records and public documents and, as such, authentic.

5.13 In these terms, the non-update of the registration, in accordance with the provisions of article 42 of the Regulation of Vehicle Registration, will be imputable in the legal sphere of the Passive Subject of IUC and not in that of the State, as the active subject of this Tax.

5.14 Even admitting that, from the point of view of the rules of civil law and property registration, the absence of registration does not affect the acquisition of the quality of owner and that registration is not a condition of validity of contracts with real effect, in accordance with what is established in the CIUC (which in the case in question constitutes special law, which, in accordance with the general rules of law, derogates the general norm), the tax legislator wanted expressly and intentionally that those persons in the name of which [the vehicles] are registered should be considered as owners, lessees, acquirers with reservation of ownership or holders of the right of purchase option in long-term rental.

5.15 The exigibility of the tax is considered verified on the first day of the taxation period referred to in article 4, paragraph 2 of the CIUC, that is corresponding to the year that begins on the date of registration or on each of its anniversaries with respect to vehicles of categories A, B, C, D and E, being due by the owner in the name of which the same are registered, whether in the IMT or in the Vehicle Registration Office, at the time of fulfillment of the tax obligation, determined in paragraph 2 of article 4 of the CIUC.

5.16 Thus, according to the information contained in the administrative proceedings, the ownership of the vehicle with registration number ...-...-... was registered in the name of the Claimant, in an active situation, and therefore in accordance with articles 1 to 6 of the CIUC, all the elements of objective, subjective and temporal incidence, constitutive fact of the tax and exigibility for the assessment of IUC for the years 2008, 2009, 2010, 2011 and 2012, of the said vehicle in the legal sphere of the Claimant are present.

5.17 In addition to all the above, it is also worth mentioning that the interpretation conveyed by the Claimant is contrary to the Constitution.

5.18 The always repeated principle of contributive capacity is not the only nor the main fundamental principle that informs the tax system.

5.19 Alongside this principle we find others with the same constitutional dignity, such as the principle of trust and legal certainty, the principle of efficiency of the tax system and the principle of proportionality.

5.20 It is therefore necessary that in the task of interpreting article 3 of the CIUC the principle of contributive capacity be articulated, or if you prefer, tempered, with those other principles.

5.21 Now, the interpretation proposed by the Claimant, an interpretation that essentially devalues the registered reality in detriment of an "informal reality" and incapable of minimal control by the Respondent, is offensive to the basic principle of trust and legal certainty that must inform any legal relationship, including here the tax relationship.

5.22 Similarly, the interpretation given by the Claimant is offensive to the principle of efficiency of the tax system, insofar as it translates into an obstruction and increase in the costs of the competencies assigned to the Respondent, with obvious prejudice to the interests of the Portuguese State of which both the Claimant and the Respondent are part.

5.23 Finally, the arguments conveyed by the Claimant represent a violation of the principle of proportionality, insofar as it completely disregards it in comparison with the principle of contributive capacity, when in reality the Claimant has the necessary and appropriate legal mechanisms to safeguard that capacity (e.g., vehicle registration), without, however, having exercised them in due time.

5.24 With due respect, the evidence presented by the Claimant – a mere invoice for the sale of the vehicle – is not, by itself, sufficient to provide conclusive proof of its transfer.

5.25 This is because invoices (by themselves) do not constitute an appropriate document to prove the sale of the vehicles in question, since the same is nothing more than a document unilaterally issued by the Claimant.

5.26 Invoices, by themselves, are not apt to prove the conclusion of a reciprocal contract such as purchase and sale, as that document does not reveal by itself an essential and unequivocal declaration of intent (i.e., acceptance) on the part of the alleged purchaser.

5.27 Indeed, there are many cases of invoice issuance relating to transfers of goods and/or provision of services that never came to fruition.

5.28 The rules of vehicle registration have not (yet) reached the point where an invoice unilaterally issued by the Claimant can replace the Vehicle Registration Request, which is moreover a document approved by official form; moreover, the request for seizure of the vehicle that was received at the IMT was only delivered in the middle of 2013.

5.29 It is therefore not possible, even with what we do not agree with, the condemnation of the TA for the reimbursement of any amounts, when the interested party, who alleges this right, did not prove, as he should have, to have made any of the payments he contests.

5.30 On the other hand, the arbitral process, in accordance with the provisions of article 2 of the RJAT, has as its nuclear object the declaration of illegality of tax acts.

5.31 Now, a fine applied in the context of a tax administrative offence procedure is not a tax act, and therefore the Arbitral Tribunal does not have competence to hear and decide on the legality of the application of tax fines, which is why that part of the request should not even be considered by the learned Arbitral Tribunal.

5.32 The competence for vehicle registration is not in the sphere of the Respondent, but rather assigned to various external entities, namely to the Institute of Records and Notaries to whom it falls to transmit to the Respondent the changes that may occur regarding the ownership of motor vehicles.

5.33 On the other hand, the transfer of ownership of motor vehicles is not capable of being controlled by the Respondent, since there is no declarative obligation concerning this matter, contrary to the control that can be carried out, for example, through the prior payment of Municipal Tax on Transfer of Real Estate regarding the transfer of property.

5.34 Consequently, the Claimant should be condemned to pay the arbitral costs arising from this request for arbitral pronouncement, in accordance with article 527, paragraph 1 of the New Civil Procedure Code ex vi of article 29, paragraph 1(e) of the RJAT, in line, moreover, with a similar issue decided within the framework of proceedings numbered 72/2013-T, which took place in this arbitration center.

5.35 No reimbursement of any amount is due as indemnificatory interest not only because no proof was made of its assessment or its payment, but because the TA did not commit any error in the tax assessments that may be considered attributable to it, since it is not its competence, nor its responsibility the possible outdating of the elements contained in the vehicle registration record.

  1. In view of the exception raised by the Tax Authority in its response, relating to the untimeliness of the request for constitution of the Tribunal, and in order to better ensure the exercise of the right to be heard, the Tribunal invited on 19 September 2014 the Claimant to pronounce itself in writing on the same within a period of 10 days, but the Claimant did not submit any response in relation to that exception.

  2. On 13 October 2014, the Arbitral Tribunal issued, pursuant to article 16(c) of the RJAT, an order dispensing with the meeting provided for in article 18 of the same instrument because the subject matter of the dispute relates fundamentally to matters of law, the Claimant having already had the opportunity to pronounce itself in writing on the exception, no autonomous proof measures have been requested by the parties, and the relevant documents are on the record.

II - Proven Facts

  1. Before entering into the appreciation of the questions that need to be resolved, beginning with the procedural exception and proceeding, in the hypothesis that none of them are accepted by the Tribunal, to the merits of the case, it is necessary to present the factual matter relevant to its comprehension and decision, which, having examined the documentary evidence and the tax administrative proceedings attached, and in view of the facts alleged, is established as follows:

8.1. The claimant was cited for the following tax enforcement proceedings due to non-payment of IUC assessments of the vehicle with registration number ...-...-... in relation to the years 2008 to 2012:

Process no. …2013… - Amount: €916.00

Process no. …2014… - Amount: €964.93

Process no. …2014… - Amount: €979.30

Process no. …2014… - Amount: €1,006.23

Process no. …2013… - Amount: €961.95

8.2. On 28 December 2008, the claimant sold to Society B..., Lda, legal entity no. ..., the vehicle with registration number ...-...-..., including the respective trailer, as documented in the invoices and documents attached to the proceedings.

8.3. There are no unproven facts relevant to the decision of the case.

  1. The proven facts result from the documents attached with the initial petition.

III. On the Law

  1. It is therefore necessary to appreciate and decide. It will be necessary to first appreciate the exception relating to the untimeliness of the request for arbitral pronouncement raised by the Respondent. Only if the same is judged to be unfounded will the illegality of the acts of assessment of Unique Circulation Tax (IUC) and compensatory interest be appreciated, relating to the years between 2008 and 2012, in the total amount payable of €4,828.41 and the recognition of the right to restitution of the tax, as well as any eventual right to indemnificatory interest.

Let us analyze these questions:

A) ON THE UNTIMELINESS OF THE REQUEST FOR ARBITRAL PRONOUNCEMENT

  1. Under article 10, paragraph 1(a) of the Legal Regime for Arbitration in Tax Matters (hereinafter referred to as RJAT), "the request for constitution of an arbitral tribunal is presented within a period of 90 days, counted from the facts provided for in paragraphs 1 and 2 of article 102 of the Code of Procedure and Tax Process, as regards acts susceptible of autonomous challenge and, likewise, from the notification of the decision or the end of the legal deadline for decision of hierarchical appeal".

  2. In accordance with what is mentioned in article 102, paragraph 1 of the Code of Procedure and Tax Process, "The challenge shall be presented within the period of three months counted from the following facts:

a) End of the deadline for voluntary payment of tax obligations legally notified to the taxpayer;

b) Notification of other tax acts, even when they do not give rise to any assessment;

c) Citation of subsidiary responsible parties in tax enforcement proceedings;

d) Formation of the presumption of tacit dismissal;

e) Notification of other acts that may be the object of autonomous challenge in accordance with this Code;

f) Knowledge of acts injurious to legally protected interests not covered in the preceding paragraphs".

  1. That is, the claimant has a period of 90 days after the end of the deadline for voluntary payment of the tax obligations to request the challenge of the assessment before the Arbitral Tribunal.

  2. In the present case, however, the claimant waited for the citation for tax enforcement proceedings, which occurred on 4 April 2014, only having requested the constitution of this Arbitral Tribunal 19 days after being cited.

  3. Now, citation for tax enforcement proceedings only initiates the period for challenge in relation to subsidiary responsible parties, not in relation to the principal responsible party for payment of the tax who must react against the assessment, and in the case of self-assessment must present a prior complaint.

  4. It may therefore be concluded that the deadline for challenge had long since expired, a conclusion which moreover was accepted by the Claimant by not pronouncing itself on the exception presented by the Respondent.

  5. It is therefore proper to uphold the exception of untimeliness of the request for arbitral pronouncement, raised by the Respondent.

V – Decision

In view of the foregoing, the exception of untimeliness of the request for arbitral pronouncement is upheld, with the consequent dismissal of the action against the Tax and Customs Authority.

Value of the Case

The value of the case is fixed at €4,828.41 (value indicated and not contested).

Costs

Under article 22, paragraph 4 of the RJAT, the amount of costs is fixed at €612.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Lisbon, 20 October 2014

The Arbitrator

(Luís Menezes Leitão)

Frequently Asked Questions

Automatically Created

Who is liable for IUC when a vehicle has been sold but the registration was not transferred to the buyer?
Under Portuguese IUC law, the person liable for the tax is the registered owner of the vehicle, regardless of whether the vehicle has been physically sold or possession transferred. Article 3(1) of the CIUC Code establishes that passive subjects are those "considered as such" - meaning those in whose name the vehicle is registered. This creates a legal definition rather than a rebuttable presumption. Therefore, until the vehicle registration is officially updated to reflect the new owner's name, the original registered owner remains liable for IUC assessments. The Tax Authority is not required to investigate private contracts or possession transfers; it relies on the official vehicle registration records as the authentic public document determining tax liability.
Can the registered owner challenge IUC assessments based on a prior sale contract and transfer of possession?
While a registered owner can initiate arbitration proceedings to challenge IUC assessments, the success of such challenge based solely on a prior sale contract and transfer of possession is highly unlikely under current Portuguese tax law. The CIUC Code specifically defines tax liability based on registration status, not on civil law ownership or possession. The Tax Authority's position is that registration is constitutive for IUC purposes - meaning it creates the tax obligation - rather than merely declarative. Courts have interpreted Article 3(1) as establishing that the person in whose name the vehicle is registered "is considered" the owner for tax purposes, which is a legal definition that overrides private contractual arrangements. The registered owner's remedy is to ensure proper registration transfer occurs, and potentially seek recourse against the buyer who failed to complete the registration process.
What is the legal presumption of subjective incidence in Portuguese IUC taxation?
Portuguese IUC taxation operates on a legal definition principle rather than a rebuttable presumption for determining subjective incidence. Article 3(1) of the CIUC states that passive subjects are owners, "being considered as such" those in whose name vehicles are registered. The Tax Authority emphasizes that the legislator deliberately chose the language "are considered" instead of "are presumed," which creates a constitutive legal definition. This means registration is not merely evidence of ownership that can be rebutted - it legally defines who the owner is for IUC purposes. This interpretation is supported by the systematic integration of CIUC provisions: Article 6 establishes that the tax obligation is born from registered legal situations, and Article 6(3) makes the tax exigible from the first day of the taxation period, directly linked to the registration certificate issuance. As special tax legislation, the CIUC derogates general civil law principles where ownership can exist without registration.
What are the time limits for contesting IUC tax assessments through arbitration at CAAD?
The time limits for contesting IUC tax assessments through CAAD arbitration follow the general administrative litigation rules. Taxpayers must file their arbitration request within the legal deadline after notification of the tax assessment or enforcement action. In Process 353/2014-T, the Tax Authority raised a timeliness objection, arguing that the claimant only provided enforcement citations as evidence, indicating the voluntary payment deadline had long expired. The critical issue is that arbitration must generally be requested within the statutory period following the tax assessment notification - not after enforcement proceedings have begun. Taxpayers should act promptly upon receiving IUC assessment notifications if they intend to challenge them. The specific deadline is typically 90 days from notification of the assessment act under the general procedural tax rules, though this may vary based on the specific circumstances and when the taxpayer became aware of the assessment.
Does the vehicle purchase contract override the registration record for IUC tax liability purposes?
No, the vehicle purchase contract does not override the registration record for IUC tax liability purposes under Portuguese law. The CIUC Code establishes a special tax regime where registration is constitutive of the tax obligation, meaning the tax liability is created by and depends upon the registration status. Article 3(1) legally defines owners as those in whose name vehicles are registered, and this definition takes precedence over private contractual arrangements. The Tax Authority's position, supported by the systematic interpretation of CIUC provisions, is that tax assessments are based on official registration records - which are public, authentic documents - rather than private contracts. While civil law generally recognizes that sale contracts transfer ownership independently of registration, tax law can establish different rules as special legislation. The legislator intentionally made registration the determining factor for IUC liability to provide certainty and administrative efficiency. Therefore, until the vehicle registration is officially updated, the purchase contract remains irrelevant for determining who must pay IUC, and the registered owner bears the tax obligation and the responsibility for ensuring proper registration transfer.