Process: 459/2014-T

Date: November 21, 2014

Tax Type: ISV

Source: Original CAAD Decision

Summary

This Portuguese tax arbitration case (Process 459/2014-T) addresses ISV (Vehicle Tax) exemption eligibility for vehicles imported by returning residents. The applicant, who resided in Poland for over 3 years and owned a vehicle there for more than 2 years, later moved to Spain before ultimately relocating to Portugal. The Tax Authority (AT) rejected the ISV exemption request, arguing that the vehicle should originate from the country of last residence (Spain), not a former country of residence (Poland).

The central legal dispute involves interpreting Article 60(1) of Law 22-A/2007. The applicant contends that subsection (b) grants exemption when a vehicle is acquired in 'a country where the person previously resided' (Poland), while subsection (c) requires ownership for at least 12 months before transfer of residence. The applicant argues the AT incorrectly applied these provisions jointly, confusing the 'origin of the vehicle' with the 'origin of the owner.' According to the applicant, Portuguese law clearly distinguishes these concepts, and since the vehicle was acquired and owned in Poland for the required period before any residence change, the exemption requirements are satisfied.

The AT challenged the arbitral tribunal's jurisdiction, asserting that claims seeking recognition of tax exemption rights fall outside RJAT competence under Decree-Law 10/2011. The Authority argued arbitral tribunals can only review assessment acts, not decisions recognizing rights or granting benefits. The applicant also sought compensation for being unable to use the vehicle during the five-month period when original documents were retained without replacement guides, claiming €350 daily rental equivalency damages.

This case highlights the complexity of ISV exemptions for EU citizens with multiple prior residences and raises important questions about whether Portuguese tax law requires vehicles to originate from the most recent foreign residence or whether any prior EU residence suffices, provided ownership duration requirements are met.

Full Decision

ARBITRAL DECISION

I. REPORT

A, Applicant with the TIN..., filed an application for the constitution of a singular arbitral tribunal, in accordance with the combined provisions of Articles 2 and 10 of Decree-Law No. 10/2011, of January 20th (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (hereinafter AT) is the Respondent, with the objective of obtaining the declaration of illegality of the order rejecting the request for tax benefit of Vehicle Tax (ISV) presented with respect to the vehicle of Brand..., Registration..., as well as the payment of compensation for the retention of documents without issuance of replacement guides during the period in which the Applicant had the right to use the vehicle without it being registered.

The Applicant grounds its request on the following arguments:

a) The AT made an incorrect joint application of subsections b) and c) of Article 60, paragraph 1, of Law 22-A/2007, of June 29th, since the joint application of articles does not permit modifying their text;

b) The Applicant resided in Poland for more than 3 years and owned the vehicle of Brand..., Registration..., while resident in that country for more than 2 years.

c) Now both Article 60, paragraph 1, subsection b), of Law 22-A/2007, of June 29th, "the exemption is granted when the vehicle is acquired in the country of origin or in a country where the person previously resided" and subsection c) of the same article "having been the property of the interested party in the country of origin for at least 12 months before the transfer of residence, counted from the date of issuance of the document evidencing title to the property" are uncontestable facts;

d) The vehicle was acquired in a country where the Applicant previously resided (Poland);

e) The vehicle was owned by the Applicant in that country (Poland) for more than one year before the Applicant transferred its tax residence to another country (in this case, Spain);

f) The vehicle originates from Poland (point 7 of page 1 of the original application submitted by the customs agent);

g-h) The vehicle originates from a country where the Applicant owned it for more than 12 months before changing residence;

i) The legislator in subsection c) of Article 60, paragraph 1, of Law 22-A/2007, of June 29th, clearly refers to the origin of the vehicle, and not to the origin of the owner;

j) The legislator is very clear in distinguishing and using the two terms in a concrete manner;

k) The Law does not state that the vehicle must be registered in the country of the Applicant's last residence (Spain) and this interpretation is, in the Applicant's view, incorrect due to confusion between the rules referring to the origin of the owner and the origin of the vehicle;

l) It should also be considered that the spirit of the law is that persons who, like the Applicant, have resided in another country and acquired a vehicle there, may, without incurring significant loss, bring that property when they definitively return to Portugal. This rule is also in line with agreements signed to facilitate the freedom of movement of persons and goods in the EU;

m) The Applicant requests the recognition of the right to the tax benefit in question for the vehicle... registration...;

n) During the proceedings, the original vehicle documentation was delivered on April 29th, 5 months after the Applicant's transfer of residence, which prevented the Applicant from using the vehicle during all that time.

o) As a consequence, the Applicant requests compensation equivalent to renting a replacement car of identical class, that is, the award of compensation of 350 euros/day, which should be multiplied by the days between the day of retention of the documents and the day when use of the vehicle is restored.

The application for constitution of the arbitral tribunal was accepted by the Honorable President of CAAD on 04.07.2014 and notice was given to the AT on 07.07.2014.

In accordance with the provision of subsection c) of Article 11, paragraph 1, of the RJAT, the singular arbitral tribunal was constituted on 08.09.2014.

The AT responded, defending the extinction of the arbitral proceeding, based on the exception of incompetence of the tribunal or, if that is not upheld, the lack of merit of the request, alleging, in summary, the following grounds:

a) The request for arbitral pronouncement is based on the notice to the Applicant of the decision rejecting the request for ISV exemption that it filed;

b) The act being challenged in these proceedings is the act of rejection by the Director of the Tobacco Warehouse Customs, of 18.06.2014, relating to the admission of a motor vehicle into the national territory;

c) Now, in accordance with Article 2 of Decree-Law No. 10/2011, of January 20th (RJAT), the competence of arbitral tribunals includes, among others, the examination of claims relating to "the declaration of illegality of acts of tax assessment, self-assessment, withholding at source and payments on account" – cf. paragraph 1, subsection a);

d) In this context, and having regard to the provision of Article 10, paragraph 2, subsection b) of the RJAT, the application for constitution of the arbitral tribunal must include the "identification of the tax act or acts which are the subject of the request for arbitral pronouncement", which clearly does not occur in the present case.

e) For in truth, what the Applicant seeks is to be granted an ISV exemption or, possibly, to have the right to the same exemption recognized, as well as the payment of an amount corresponding to expenses incurred, which appears to constitute a claim for compensation;

f) Now, such claims cannot, under the law, be submitted to this arbitral tribunal because the arbitral process only covers acts susceptible to judicial challenge, that is, those covered by Article 2, paragraph 1, of the RJAT;

g) In fact, within the scope of the competence of arbitral tribunals, constituted under the RJAT, it does not include the possibility of examination of claims aimed at the recognition of rights in tax matters or of other acts relating to tax matters that do not involve the examination of the legality of the assessment act.

h) Not arising from paragraph 1 of Article 2 of Decree-Law No. 10/2011, of January 20th, which defines the types of claims that can be examined by arbitral tribunals in tax matters, the competence to review the acts that have now been submitted to this tribunal.

i) On the other hand, having regard to the provision in the Legislative Authorization Law (paragraph 2 and subsection b) of paragraph 4 of Article 124 of Law No. 3-B/2010, of April 28th), under which tax arbitration was instituted, which states that "The tax arbitral process must constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters" (paragraph 2), it is concluded, in light of what was established in the RJAT, that the legislator effectively chose not to include in it the possibility of examination of claims aimed at the recognition of rights in tax matters.

j) There are thus no doubts, also considering the provision in subsections d) and p) of paragraph 1 of Article 97, and paragraph 2, of the Code of Tax Procedure and Process (CPPT), which establishes a general rule as to the challenge of administrative acts in tax matters in the tax judicial process, through judicial challenge or administrative action, depending on whether such acts involve or do not involve the examination of the legality of administrative assessment acts, that the arbitral tribunal is incompetent to examine the claims that have now been submitted to it.

k) Quoting Jorge Lopes de Sousa[1], regarding the scope of the competence of tax arbitral tribunals, who states: "But, even regarding the challenge of acts performed within the scope of tax procedures, the competence of these arbitral tribunals is restricted to activity connected with tax assessment acts, being outside their competence the examination of the legality of administrative acts of total or partial rejection or revocation of exemptions or other tax benefits, when dependent on recognition by the Tax Administration, as well as other administrative acts relating to tax matters that do not involve examination of the legality of the assessment act, to which subsection p) of paragraph 1 of Article 97 of the CPPT refers, as well as acts of increase in collection, seizure and adoption of precautionary measures by the Tax Administration, to which the same Article 97, paragraph 1, in its subsection e) and Articles 143 and 144 of the same Code refer; Also, the recognition of rights and legitimate interests in tax matters, outside cases in which it may be underlying the declaration of legality of acts or examination of the questions indicated in paragraph 1 of Article 29 of the RJAT, is outside the competence of arbitral tribunals."

l) Moreover, the jurisprudential guidance of the Supreme Administrative Court points in the same direction when it affirms that "the use of the judicial challenge process or contentious appeal (currently special administrative action, by virtue of Article 191 of the CPTA) depends on the content of the act being challenged: if it involves examination of the legality of an assessment act, the judicial challenge process shall apply, and if it does not involve such examination, the contentious appeal/special administrative action applies". [2]

m) Which is corroborated by the jurisprudence of the arbitral tribunal that has already pronounced itself on the question of material competence of arbitral tribunals, namely in Arbitral Process No. 115/2012-T, in which it is argued that, it is stated: "Thus, outside the scope of matters susceptible to examination in arbitral forum are claims which fall under the challenge of administrative acts that do not involve examination of the legality of the assessment act (administrative act in tax matters), which have their proper forum in special administrative action, in accordance with subsection p) of paragraph 1 and paragraph 2 of Article 97 of the CPPT (in this sense, see the Decision rendered in arbitral process No. 73/2012)."

n) Therefore, the petition in the present proceedings could only have as its subject the examination of the (i) legality of one or more assessment acts, under penalty of the occurrence of the (dilatory) exception of material incompetence of the Arbitral Tribunal.

o) There exists a (dilatory) exception which, embodied in the material incompetence of the arbitral tribunal, prevents the examination of the claim, and, therefore, should result in the dismissal of the Respondent Entity from the proceeding, having regard to the provisions of Articles 576, paragraph 1 and 577, subsection a) of the Civil Procedure Code, applicable by virtue of Article 29, paragraph 1, subsection e) of the RJAT.

p) Consequently, it is also not possible to cumulate the claims that the Applicant submitted to the arbitral tribunal.

q) It also presents a defense by challenging the facts alleged by the Applicant, arguing for the complete lack of merit of the claim.

On November 7, 2014, the meeting referred to in Article 18 of the RJAT was held with the Parties, of which minutes were drawn up and are attached to the case file, and it was decided that, in view of the nature of the matter contained in the case file, testimony and final arguments are dispensed with, to which the parties agreed.

The Tribunal notified the parties that, regarding the exception invoked by the Respondent, it will decide thereupon finally in its decision.

Thus, the exception of absolute incompetence of this Tribunal on the grounds of subject matter constitutes a preliminary issue to be decided which is now examined.

II. PRELIMINARY ISSUE: ABSOLUTE INCOMPETENCE ON GROUNDS OF SUBJECT MATTER

In accordance with Articles 16 of the Code of Tax Procedure and Process ("CPPT"), 13 of the Code of Process in Administrative Courts ("CPTA") and 101 of the Civil Procedure Code ("CPC"), subsidiarily applicable by virtue of paragraph 1 of Article 29 of the RJAT, the determination of the material competence of courts is a matter of public order and its determination precedes any other matter.

As a consequence, given that the procedural success of the exception invoked by the AT, if upheld, would prevent examination of the other issues raised, it is necessary to delimit the scope of the competence of the tax arbitral jurisdiction and determine whether the tribunal's competence covers or does not cover the act of rejection by the Director of the Tobacco Warehouse Customs, of 18.06.2014, relating to the admission of the motor vehicle into the national territory.

The question of material incompetence of arbitral tribunals has been addressed in various arbitral proceedings tried before CAAD – See in this regard the decisions rendered in Processes Nos. 48/2012, of 06.07.2012, 73/2012, of 23.10.2012 and 76/2012, of 29.10.2012, whose decisions we adopt.

Thus, first of all, it is important to note the provision in paragraph 1 of Article 124 of Law No. 3-B/2010, of April 28th, according to which the Government was authorized "to legislate in order to institute arbitration as an alternative form of judicial resolution of conflicts in tax matters", and according to paragraph 2, it should "constitute an alternative procedural means to the judicial challenge process and to the action for the recognition of a right or legitimate interest in tax matters."

Implementing the said legislative authorization, Decree-Law No. 10/2011, of January 20th, "instituted tax arbitration limited to certain matters, listed in its Article 2" and made "the binding of the tax administration dependent on a decree by members of the Government responsible for the areas of finance and justice" (see the reasoning of the arbitral decision rendered in Process No. 76/2012 mentioned above).

The scope of tax arbitral jurisdiction was thus delimited, in the first place, by the provision in Article 2 of the RJAT which sets forth, in paragraph 1, the criteria of material distribution, covering the examination of claims aimed at the declaration of illegality of acts of tax assessment (subsection a)).

Through the Binding Decree (Decree No. 112-A/2011, of April 20th), the Government, through the Ministers of State, Finance, and Justice, bound the services of the Directorate-General of Taxes and the Directorate-General of Customs and Special Consumption Taxes to the jurisdiction of arbitral tribunals functioning at CAAD, these services now corresponding to the Tax and Customs Authority, under Decree-Law No. 118/2011, of December 15th, which approves the organizational structure of this Authority, resulting from the merger of various entities.

In this Decree, additional conditions and binding limits are established having in view the specificity of the matters and the value at issue.

Article 2 of the Binding Decree provides:

Article 2

Object of Binding

The services and entities referred to in the previous article bind themselves to the jurisdiction of arbitral tribunals functioning at CAAD which have as their object the examination of claims relating to taxes whose administration is entrusted to them referred to in paragraph 1 of Article 2 of Decree-Law No. 10/2011, of January 20th, with the exception of the following:

a) Claims relating to the declaration of illegality of acts of self-assessment, withholding at source, and payments on account that have not been preceded by recourse to the administrative process in accordance with Articles 131 to 133 of the Code of Tax Procedure and Process;

b) Claims relating to acts of determination of taxable income and acts of determination of taxable matter, both by indirect methods, including decisions in revision procedures;

c) Claims relating to customs duties on imports and other indirect taxes on goods subject to import duties; and

d) Claims relating to tariff classification, origin and customs value of goods and tariff quotas, or whose resolution depends on laboratory analysis or proceedings to be carried out by another member state within the scope of administrative cooperation in customs matters."

The fact is that the claim filed by the Applicant does not concern the declaration of illegality of an act of tax assessment, as was required under the provisions of Article 2 of the RJAT.

Indeed, the matter under discussion concerns, as results from the petition presented by the Applicant, the "rejection of the request for tax benefit for the vehicle of Brand..., registration...", that is, the declaration of illegality of the act of rejection of the request for ISV exemption presented by the Applicant.

Now, the arbitral process is limited to "acts of tax assessment, including self-assessment, withholding at source and payments on account, determination of taxable matter when not giving rise to assessment, total or partial rejection of administrative review requests or applications for revision of tax acts, administrative acts which involve examination of the legality of assessment acts, acts of determination of asset values and rights or legitimate interests in tax matters."

As results from several decisions already rendered by CAAD (See, for example, decision rendered in arbitral process No. 73/2012), outside the scope of matters susceptible to examination in arbitral forum are claims which fall within the challenge of administrative acts that do not involve examination of the legality of the assessment act (administrative act in tax matters), which have their proper forum in special administrative action, in accordance with subsection p) of paragraph 1 and paragraph 2 of Article 97 of the CPPT, as is the case of the act of rejection of the ISV exemption request here under analysis.

As Jorge Lopes de Sousa teaches, in Commentary on the Legal Framework for Tax Arbitration, in Guide to Tax Arbitration, Almedina Editor, 2013, p. 105, regarding the scope of competence of tax arbitral tribunals, "the competence of these arbitral tribunals is restricted to activity connected with tax assessment acts, being outside their competence the examination of the legality of administrative acts of total or partial rejection or revocation of exemptions or other tax benefits, when dependent on recognition by the Tax Administration, as well as other administrative acts relating to tax matters that do not involve examination of the legality of the assessment act, to which subsection p) of paragraph 1 of Article 97 of the CPPT refers, as well as acts of increase in collection, seizure and adoption of precautionary measures by the Tax Administration, to which the same Article 97, paragraph 1, in its subsection e) and Articles 143 and 144 of the same Code refer;

In light of the foregoing, since the main claim filed by the Applicant concerns the declaration of illegality of the act of rejection of the request for ISV exemption, dependent on recognition by the AT, it is concluded that the exception raised by the AT is upheld, relating to the absolute incompetence of this arbitral tribunal on grounds of subject matter, thus preventing examination of the claim for compensation and the other issues invoked.

III. DECISION

In these terms, this Arbitral Tribunal decides to uphold the exception of absolute incompetence on grounds of subject matter and, consequently, to dismiss the Tax and Customs Authority from the proceeding.

IV. VALUE OF THE PROCEEDINGS

In accordance with 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 claim is fixed at €9,894.65.

V. COSTS

Under the provisions of Articles 12, paragraph 2 and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4 of the Regulation of Costs in Tax Arbitration Proceedings, the arbitration fee is fixed at €918.00, under Table I of the aforementioned Regulation, to be borne by the Applicant.

Let it be notified.

Lisbon, November 21, 2014.

The Arbitrator

Magda Feliciano

(The text of this decision was drawn up by computer, in accordance with Article 131, paragraph 5, of the Civil Procedure Code, applicable by virtue of Article 29, paragraph 1, subsection e) of Decree-Law No. 10/2011, of January 20th (RJAT), and is governed in its drafting by the spelling prior to the 1990 Spelling Agreement.)

[1] In Commentary on the Legal Framework for Tax Arbitration, in Guide to Tax Arbitration, Almedina Editor, 2013, p. 105.

[2] In the decision of 25.06.2009, rendered in Process No. 0194/09.

Frequently Asked Questions

Automatically Created

What is the ISV tax exemption for vehicles brought to Portugal by returning residents?
The ISV tax exemption for vehicles brought to Portugal by returning residents is governed by Article 60 of Law 22-A/2007. This exemption allows individuals who transfer their residence to Portugal to import their personal vehicle without paying ISV, provided specific conditions are met. According to subsection (b), the exemption applies when the vehicle is acquired in the country of origin or in a country where the person previously resided. Subsection (c) requires that the vehicle must have been owned by the interested party in that country for at least 12 months before the transfer of residence, counted from the date of the document evidencing ownership. The underlying policy objective is to facilitate the free movement of persons and goods within the EU and prevent significant financial loss when returning residents bring their legitimately-owned vehicles to Portugal. This exemption recognizes that individuals should not be penalized for importing personal property acquired during periods of lawful residence abroad.
Can a vehicle purchased in a former country of residence qualify for ISV exemption even if the owner later moved to a third country?
This case directly addresses whether a vehicle purchased in a former country of residence (Poland) qualifies for ISV exemption when the owner subsequently moved to a third country (Spain) before relocating to Portugal. The applicant argues that Portuguese law explicitly states the exemption applies to vehicles 'acquired in the country of origin or in a country where the person previously resided' (Article 60(1)(b)). The key interpretative question is whether 'previously resided' includes any former residence or only the most recent one. The applicant contends that the law uses 'a country where the person previously resided' (singular but indefinite), not 'the country of last residence,' suggesting any prior residence qualifies. Furthermore, the applicant argues the legislator distinguishes between the 'origin of the vehicle' and the 'origin/residence of the owner,' and that requiring the vehicle to come from the last residence country improperly conflates these distinct concepts. The Tax Authority's contrary interpretation would potentially create inequities for EU citizens with multiple sequential residences.
What are the legal requirements under Article 60 of Law 22-A/2007 for ISV vehicle tax exemption?
Article 60(1) of Law 22-A/2007 establishes cumulative requirements for ISV vehicle tax exemption. Under subsection (b), the vehicle must be 'acquired in the country of origin or in a country where the person previously resided.' Subsection (c) requires that the vehicle 'having been the property of the interested party in the country of origin for at least 12 months before the transfer of residence, counted from the date of issuance of the document evidencing title to the property.' These provisions must be read together but without modifying their text through interpretation. The applicant in this case satisfied both conditions: the vehicle was acquired in Poland (a country of prior residence), and was owned there for more than 12 months (over 2 years) before the applicant transferred residence from Poland. The controversy centers on whether 'transfer of residence' means the first move from the country where the vehicle was acquired (Poland to Spain) or the final move to Portugal (Spain to Portugal), and whether subsection (c)'s reference to 'country of origin' refers to the vehicle's origin or the owner's origin country.
How does Portuguese tax law distinguish between the country of origin of the vehicle and the country of last residence of the owner?
Portuguese tax law, specifically Article 60 of Law 22-A/2007, distinguishes between the 'country of origin' of the vehicle and the country of residence of the owner through careful textual analysis. The applicant argues that subsection (c) explicitly refers to 'the country of origin' when discussing where the vehicle must have been owned for 12 months, which the applicant interprets as the origin of the vehicle itself (where it was acquired), not the origin country of the owner. The legislator's precise use of terminology—'country of origin' versus 'country where the person previously resided'—demonstrates intentional differentiation. If the legislator intended both provisions to refer to the same country, repetition would be unnecessary. The applicant contends the Tax Authority improperly conflated these concepts by requiring the vehicle to originate from the country of last residence (Spain), when the law actually permits the vehicle to come from any country where the person previously resided (Poland), provided the ownership duration requirement is satisfied there. This interpretation respects both the literal text and the purpose of facilitating EU mobility.
What happens if the Portuguese Tax Authority (AT) incorrectly denies an ISV exemption request for an imported vehicle?
When the Portuguese Tax Authority (AT) incorrectly denies an ISV exemption request, taxpayers have several remedies available. First, they may contest the decision through arbitration under the RJAT (Legal Framework for Arbitration in Tax Matters, Decree-Law 10/2011). However, as this case illustrates, jurisdictional issues may arise—the AT argued that arbitral tribunals lack competence over claims seeking recognition of exemption rights (as opposed to challenging assessment acts). Alternatively, taxpayers may pursue judicial review through administrative courts via either judicial challenge (impugnação) for assessment acts or administrative action (ação administrativa) for recognition of rights, as provided in Article 97 of the Tax Procedure Code (CPPT). In this case, the applicant also sought compensation for damages incurred during the five months when vehicle documents were retained without replacement guides being issued, preventing lawful use of the vehicle. This claim for €350 daily rental equivalency demonstrates that taxpayers may pursue not only reversal of the incorrect denial but also consequential damages resulting from the Authority's improper administrative action.