Process: 423/2018-T

Date: February 5, 2019

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 423/2018-T) addresses the critical issue of IUC (Single Motor Vehicle Circulation Tax) liability for vehicles under leasing and long-term rental (ALD) contracts in Portugal. A financial institution challenged IUC assessments on vehicles it had leased or sold to third parties, arguing it should not be the taxable person since ownership had transferred. The institution also contested the Tax Authority's decision to dispense with prior hearing rights during the ex officio review process. The core legal dispute centers on Article 3 of the IUC Code, which designates vehicle owners as taxable persons based on registration records. The claimant argued that registration is not determinative of ownership, citing invoices and contracts as proof of transfer. The Tax Authority countered that the legal framework establishes a clear presumption: the registered owner is liable for IUC, and this presumption can only be rebutted with conclusive documentary evidence, including proof of payment. The case highlights the tension between registration-based taxation and actual ownership, a recurring issue in Portuguese tax arbitration. The tribunal examined whether invoices alone suffice to prove ownership transfer for IUC purposes, and whether the AT properly applied Article 60 of the General Tax Law (LGT) when dispensing with prior hearing. This decision is significant for financial institutions engaged in vehicle leasing, clarifying evidentiary requirements for challenging IUC assessments and procedural safeguards in review proceedings.

Full Decision

ARBITRAL DECISION

REPORT

A... (the "Claimant"), a legal entity no. ..., domiciled at ..., Lisbon, in the area of the ... Lisbon Tax Office, domiciled at ..., hereby, in accordance with Article 10, paragraph 2, of Decree-Law no. 10/2011, of 20 January (Legal Regime for Tax Arbitration, hereinafter referred to solely as LRTA), requests the constitution of a Single Arbitral Tribunal, in which the Tax and Customs Authority is requested as defendant, hereinafter AT or Respondent, with a view to declaring illegal and consequently annulling the tax assessment acts for the Single Motor Vehicle Circulation Tax (IUC) identified in the case file and the act of partial dismissal of the request for ex officio review, in the amount of €25,137.69.

In accordance with paragraph 1 of Article 11 of the LRTA, as amended by Article 228 of Law no. 66-B/2012, of 31 December, the Single Arbitral Tribunal was constituted on 13 November 2018.

The AT replied, arguing that the request should be judged as not well-founded.

Given the nature of the matter contained in the case file, the meeting referred to in Article 18 of the LRTA was dispensed with and the parties were given the opportunity to present final submissions.

The Arbitral Tribunal is duly constituted and is materially competent, in accordance with subparagraph a) of paragraph 1 of Article 2 of the LRTA.

The parties have legal personality and capacity, have legal standing and are represented (Article 4 and paragraph 2 of Article 10 of the LRTA and Article 1 of Regulation no. 112/2011, of 22 March).

The proceedings do not suffer from any nullities.

STATEMENT OF FACTS

Based on the elements contained in the case file and the administrative file attached to the records, the following facts are considered proven:

  • A... is a financial institution that, within the scope of its business activities, carries out operations permitted to Banks, concluding with its clients contracts for long-term vehicle leasing (ALD) and financial leasing contracts (leasing) of motor vehicles;

  • The motor vehicles identified in document no. 3 attached to the case file were given in leasing or ALD by the Claimant to third parties;

  • Under the contracts concluded, the motor vehicles identified above could or could not be acquired by the lessees and/or prospective purchasers;

  • The Claimant issued invoices for the sale value with respect to the motor vehicles, subject to the IUC assessment acts contested;

  • The Claimant submitted a request for ex officio review of the said IUC assessment acts;

  • The Claimant was dispensed with the right to prior hearing before the decision on partial approval of the request for ex officio review submitted regarding the IUC assessment acts;

  • The Claimant paid the IUC assessment notices identified in the case file.

This tribunal formed its conviction based on the documents attached to the case file.

STATEMENT OF LAW

The main issues raised in these proceedings concern whether the Claimant could have been dispensed with the right to prior hearing and whether it should be qualified as a taxable person for IUC purposes regarding the IUC assessment acts identified in the case file.

In this regard, the Claimant argues, in summary, the following:

  • On the date of the IUC assessment acts, the Claimant had already sold or leased the motor vehicles listed in document no. 3 attached to the case file to third parties;

  • As the majority arbitral case law has emphasized, not even during the validity of a long-term lease or ALD should the leasing entity be considered a taxable person for IUC purposes;

  • The registration of the acquisition of motor vehicles with the CRA is not a condition for the transfer of ownership, nor does it affect its validity, wherefore the tax acts now in dispute must be considered unequivocally illegal;

  • As for the evidentiary value of documents evidencing the transfers and which consequently rebut the presumption of motor vehicle registration with the CRA, the truth is that Article 29 of the VAT Code has always recognized the invoice as a document to which legal relevance is attributed to document and prove transactions;

  • These documents already submitted by the Claimant appear to be more than sufficient to prove the transfers of the motor vehicles in question, enjoying, moreover, as could not fail to be the case, the presumption of truthfulness addressed above;

  • In the dispatch of partial dismissal of the request for Ex Officio Review, the AT dispensed with the Claimant's right to prior hearing on the ground of Article 60 of the LGT and subparagraph a) of paragraph 3 of Circular no. 13/99, violating the provisions of Article 60, paragraph 1 b) and paragraph 5 of the LGT, and Article 267, paragraph 5 of the Constitution.

  • In light of the foregoing, and everything weighed, it is more than evident that the Claimant is not a taxable person for the IUC taxes being contested in this Request for Arbitral Determination and, as the subjective incidence of this tax is not verified, these tax acts to which it was subject are, therefore, unequivocally and absolutely illegal and, consequently and inevitably, the act of dismissal of the request for ex officio review presented.

In turn, the AT alleges, in summary, the following:

  • The Claimant is not correct when it alleges the illegality of the IUC assessments (for violation of Article 3, paragraph 2 of the IUC Code) relating to vehicles subject to financial leasing contracts concluded;

  • In fact, the legislator, in establishing in Article 3, paragraph 1 who are the taxable persons for IUC purposes, expressly and intentionally established that these are the owners (or in the situations provided for in paragraph 2, the persons enumerated therein), being considered as such the persons in whose name the same are registered;

  • Article 6 of the IUC Code, under the heading "Taxable Event and Exigibility", in its paragraph 1, establishes that: "The taxable event of the tax is constituted by the ownership of the vehicle, as attested by the registration or entry in national territory", in whose name the same are registered.

  • In the absence of such registration, naturally, the owner will be notified to comply with the corresponding tax obligation, as the Respondent, taking into account the current configuration of the legal system, will not have to proceed with the tax assessment based on elements that do not appear in public records and documents and, as such, authentic;

  • In these terms, the non-updating of the registration, in accordance with Article 42 of the Motor Vehicle Registration Regulations, shall be attributable to the legal sphere of the taxable person for IUC purposes and not to the Portuguese State, as the active subject of this Tax;

  • From all that has been set forth above, it is clear that the tax acts in dispute do not suffer from any defect of violation of law, insofar as in light of the provisions of Article 3, paragraphs 1 and 2 and Article 6 of the IUC Code, it was the Claimant, in its capacity as owner, the taxable person for IUC;

  • However, even if this were not the case – which is only admitted as a mere academic hypothesis – and accepting it to be admissible to rebut the presumption in light of the case law already established at this arbitration center, it would still be necessary to assess the documents submitted by the Claimant and their evidentiary value with a view to such rebuttal;

  • Now, the contracts submitted by the Claimant are not sufficient proof that there was a transfer of ownership of the vehicles from the Claimant to a third party on a given date, since it does not submit documentary proof of receipt of the price when it could and should have done so;

  • In these terms, the present request for arbitral determination should be judged as not well-founded, with the tax assessment acts contested remaining in the legal system and the Respondent accordingly absolved of the request.

Let us see what should be understood.

ON THE DISPENSATION OF PRIOR HEARING

The Claimant alleges that in the dispatch of partial dismissal of the request for Ex Officio Review, the AT dispensed with the Claimant's right to prior hearing on the ground of Article 60 of the LGT and subparagraph a) of paragraph 3 of Circular no. 13/99, violating the provisions of Article 60, paragraph 1 b) and paragraph 5 of the LGT, and Article 267, paragraph 5 of the Constitution.

In this regard, it is important to note that the principle of hearing of interested parties provided for in paragraph 1 of Article 100 of the Administrative Procedure Code (APC), although not corresponding to a fundamental right, is a concretization of the model of participatory administration expressed in paragraph 5 of Article 267 of the Constitution, which requires the Public Administration to participate the parties in the formation of decisions that concern them, being one of the most flagrant manifestations of the model of open Administration.

The right or duty of prior hearing serves to ensure the guarantees of defense of the parties, so as to ensure the fairness and correctness of the final act of the procedure.

Given its importance, the right of prior hearing can only be dispensed with in legally provided situations, such as those enumerated in Article 60, paragraphs 2 and 3 of the LGT.

The AT alleges in this regard that the Claimant's right to prior hearing was dispensed with "on the basis of Article 60 of the LGT and subparagraph a) of paragraph 3 of Circular no. 13/99."

It so happens that, upon analysis of Article 60 of the LGT, we find no ground subsuming to the specific case, namely in Article 60, paragraphs 2 and 3, nor likewise upon analysis of Circular no. 13/99 and, in particular subparagraph a) of paragraph 3, can we find any legal basis for the dispensation of the right carried out.

In fact, the assessments in question were not issued by the Claimant, the decision was not upheld regarding the assessment acts contested in this proceeding, the Claimant was not notified to submit any missing statement, nor was it heard in any other procedural phase.

Subparagraph a) of paragraph 3 of Circular no. 13/99 provides that "The hearing of interested parties may be dispensed with, without prejudice to the necessary consideration of the specific case and appropriate justification, namely when: a) The tax administration, merely, assesses the facts given to it by the taxpayer, limiting itself in its decision to making the interpretation of the legal norms applicable to the case; All decisions on petitions, requests, complaints and appeals are in this situation in which the administration merely concludes, in light of the facts and arguments invoked by the taxpayer and the applicable law, on the lack of merit of its claim," not being able to include here the situation in dispute, in which the Claimant argues for an interpretation of the applicable legal norms different from that argued by the AT.

In fact, facing the same facts and on the basis of the same legal ground – Article 3 of the IUC Code – the AT argues for the Claimant's tax responsibility, whereas the Claimant claims the right to demonstrate that it is not responsible for payment of the tax.

It is therefore not considered that the dismissal decision is grounded on the understanding expressed in subparagraph a) of paragraph 3 of Circular no. 13/99, for lack of verification of the legally established prerequisites.

As a consequence, it is considered that the omission of the right to hearing of interested parties has been verified, which constitutes a defect of form, by pretermission of an essential formality.

It has been understood by the case law that it is always necessary to inquire whether the prerequisites that legitimize the preservation of the administrative act occur, that is, whether it is justified to maintain the contested decision by considering that the hearing of interested parties is entirely useless and cannot modify or influence the final decision.

Now, in the specific case, it appears clear that the possibility of the Claimant exercising the right to prior hearing before the decision of partial lack of merit could lead the AT to review the tax acts, if the Claimant presented documents or witnesses of facts relevant to rebutting the presumption of IUC taxation.

Because in the case at hand, we are facing a manifestly harmful act, the lack of hearing has an invalidating effect on the act.

Thus, and for all that has been stated above, it is considered that the Respondent was obliged to proceed with the hearing of the Claimant, in accordance with Article 60, paragraph 1 a) of the General Tax Law, a duty which, not having been fulfilled, integrates the pretermission of a legal formality, generating the annullability of such an act.

Thus, the assessment of the remaining defects invoked by the Claimant is rendered moot.

Regarding the request for payment of compensatory interest, the request is judged as not well-founded, notwithstanding the understanding that, in accordance with the provisions of paragraph 1 of Article 43 of the LGT, compensatory interest is only due when there is error as to the prerequisites of fact or error as to the prerequisites of law attributable to the services and not when the tax act is annulled for a defect of form, as occurs in the case sub judice.

As Jorge Lopes de Sousa points out, "[t]he use of the term 'error' and not 'defect' or 'illegality' to refer to the facts that may serve as the basis for the attribution of interest shows that only the defects of the annulled act to which such designation is appropriate were in mind, which are error as to the prerequisites of fact and error as to the prerequisites of law.

Indeed, there are defects of administrative and tax acts to which such a designation is not appropriate, namely defects of form and incompetence, so that the use of that term 'error' has a more restricted scope than the term 'defect'.

On the other hand, it is customary to use the term 'defects' when one wishes to allude generically to all illegalities capable of leading to the annulment of acts, as is the case in Articles 101 (subsidiary allegation of defects) and 124 (order of examination of defects in the judgment), both of the CPTT.

Therefore, it is to be concluded that the use of that term 'error' has a restrictive scope as to the type of defects that can serve as the basis for the right to compensatory interest" (Code of Tax Procedure and Process Annotated and Commented, Áreas Editora, 6th edition, volume I, annotation 5 to Article 61, p. 531).

The same author explains the reasons why the LGT restricted the right to compensatory interest to cases of annulment for substantive defect and no longer recognized it regarding defects of form or incompetence that determine the annulment of the act: the recognition of a defect of these latter types "does not imply the existence of any defect in the tax legal relationship, that is, any judgment on the character of impropriety of the pecuniary benefit collected by the Tax Administration based on the annulled act, limiting itself to express the non-conformity with the law of the procedure adopted to declare or collect it or the lack of competence of the authority that demanded it."

In these cases, the annulment of the act does not imply that there has been an injury to the substantive legal situation and, consequently, from the annulment it cannot be concluded that there has been a harm deserving of reparation.

Therefore, it can be considered justified that, in these situations, not resulting from the annulling decision the proof of the existence of a harm, its value should not be presumed, by setting compensatory interest, but only what was received should be returned, which could already constitute a benefit for the taxpayer, given the reality of its tax situation.

As Jorge Lopes de Sousa argues, "This is a balanced solution, including in the procedural sphere. In fact, before the mere recognition of a defect of form or incompetence, doubt remains as to whether the prerequisites of fact and law on which the law makes the payment of a tax benefit depend were met; if that doubt is a sufficient reason not to require a patrimonial displacement of the taxpayer to the Public Treasury (justifying the return of the amount paid) also, by identity of reasoning, it will be sufficient support for not imposing an actual patrimonial displacement in the opposite sense (payment of compensation); truly, the applicable rule, the same in both cases, is not to impose patrimonial displacements without positive proof of the existence of a situation, at the level of the tax relationship, in which they should occur.

Thus, it is understood that the LGT, in keeping with traditional doctrine, in cases where there is an annulment of an administrative act or assessment for the prerequisites of fact or law on which it should have been based not being met, cases in which there is certainty that the patrimonial benefit was unduly demanded, assigns compensation based on presumption of damages (in this case in the form of interest) and does not make the same assignment in cases in which the judicial decision does not imply the material illegality of the demand for such a patrimonial benefit (Idem, pp. 531/532)."

Thus, following established case law (see Judgment of the Supreme Administrative Court no. 1524/13, of 2.12.2015, no. 410/12, of 30.05.2012, no. 49/16, of 10.05.2017), it is considered that when the act subject to challenge is annulled solely for a defect of form, there is no support, under the provisions of Article 43 of the LGT, for the attribution of compensatory interest to the Claimant.

DECISION

Thus, the Tribunal decides to judge the arbitral petition well-founded, in the following terms:

  • To judge verified the alleged defect of pretermission of legal formality, for violation of the duty of prior hearing in the tax procedure, annulling the act contested;

  • To judge not well-founded the request for payment of compensatory interest.

VALUE OF THE PROCEEDING

In accordance with the provisions of Article 306, paragraph 2 of the Civil Procedure Code, Article 97-A of the CPPT and Article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the request is fixed at €25,137.69.

COSTS

In accordance with the provisions of Articles 12, paragraph 2 of the LRTA, and Article 4, paragraph 4 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the arbitration fee is set at €1,530, in accordance with Table I of the said Regulation, to be borne by the Respondent.

Let notice be given.

Lisbon, 5 February 2019

The Arbitrator,

Magda Feliciano

(The text of this decision was prepared on computer, in accordance with Article 131, paragraph 5, of the Civil Procedure Code, applicable by reference to Article 29, paragraph 1, subparagraph e) of Decree-Law no. 10/2011, of 20 January (LRTA) and is written in accordance with the orthography prior to the 1990 Orthographic Agreement.)

Frequently Asked Questions

Automatically Created

Who is liable for IUC payment on vehicles under leasing or long-term rental (ALD) contracts in Portugal?
Under Portuguese law, the person liable for IUC payment on vehicles under leasing or ALD contracts is the registered owner according to Article 3 of the IUC Code. In this case, the financial institution remained registered as owner despite having leased the vehicles to third parties. The Tax Authority maintains that registration creates a legal presumption of ownership for IUC purposes. However, arbitral jurisprudence has established that this presumption may be rebutted with sufficient documentary evidence proving transfer of ownership, though the threshold for such evidence remains subject to interpretation. Financial institutions must provide conclusive proof including contracts, invoices, and evidence of payment to successfully challenge IUC assessments on leased vehicles.
Can the Portuguese Tax Authority (AT) dispense with the prior hearing (audição prévia) in IUC review proceedings?
The Portuguese Tax Authority may dispense with prior hearing (audição prévia) in IUC review proceedings under specific circumstances outlined in Article 60 of the General Tax Law (LGT). In this case, the AT invoked Article 60 and Circular 13/99, paragraph 3(a) to justify dispensing with the claimant's hearing rights. However, the claimant challenged this decision, arguing it violated Article 60(1)(b) and (5) of the LGT and Article 267(5) of the Portuguese Constitution. The prior hearing is a fundamental procedural guarantee that can only be waived in limited circumstances, such as when the decision fully accepts the taxpayer's position or in urgent situations. Improper dispensation of this right constitutes a procedural irregularity that may invalidate the administrative decision, making it a critical issue in tax arbitration proceedings.
What are the grounds for challenging IUC tax assessments on vehicles registered to financial institutions?
Financial institutions can challenge IUC tax assessments on vehicles registered in their name on several grounds. First, they may argue lack of subjective incidence by demonstrating they are not the actual owners due to sale or transfer to lessees under leasing or ALD contracts. The key challenge is rebutting the legal presumption created by vehicle registration, which requires substantial documentary evidence including sales contracts, invoices, and proof of payment receipt. Second, institutions may contest procedural violations, such as improper dispensation of prior hearing rights during review proceedings. Third, they can argue that registration with the CRA (Vehicle Registration Center) is not determinative of ownership for tax purposes under Portuguese civil law, as ownership transfers upon contract execution regardless of registration. The success of such challenges depends on the quality and completeness of documentary evidence presented to prove actual ownership had transferred before the IUC assessment.
How does the CAAD arbitral tribunal handle disputes over IUC subjective incidence on leased vehicles?
The CAAD arbitral tribunal handles disputes over IUC subjective incidence on leased vehicles by analyzing whether the registered owner is the actual taxable person under Article 3 of the IUC Code. The tribunal examines the presumption that registration determines tax liability and evaluates whether claimants have provided sufficient evidence to rebut this presumption. According to established CAAD jurisprudence referenced in this decision, financial institutions may not be considered taxable persons even during the validity of leasing contracts if they can prove ownership transfer. The tribunal assesses documentary evidence including leasing contracts, sales invoices, and payment records to determine actual ownership. The evidentiary standard is strict: invoices alone may be insufficient without corroborating proof of payment and effective transfer. The tribunal also reviews procedural compliance, including whether prior hearing rights were properly respected. This approach balances the administrative efficiency of registration-based taxation against taxpayer rights and substantive ownership principles.
What is the legal procedure for filing a request for official review (revisão oficiosa) of IUC tax assessments in Portugal?
The legal procedure for filing a request for official review (revisão oficiosa) of IUC tax assessments in Portugal follows the framework established in the General Tax Law (LGT). Taxpayers must submit a written request to the Tax Authority identifying the contested assessments and grounds for review, typically alleging errors in law or fact. The request should include supporting documentation such as vehicle registration changes, sale contracts, or evidence proving the taxpayer is not the correct taxable person. Upon receiving the request, the AT must conduct a review and, under Article 60 of the LGT, generally provide the taxpayer with prior hearing (audição prévia) before making a decision, allowing them to comment on proposed findings. The AT then issues a decision either granting full review, partial review, or dismissal. If the taxpayer disagrees with this decision, they may challenge it through tax arbitration under the RJAT (Legal Regime for Tax Arbitration) as demonstrated in this case, where the claimant contested both the original IUC assessments and the partial dismissal decision, seeking annulment of assessments totaling €25,137.69.