IUC Subjective Incidence: Financial Leasing Liability CAAD 46/2014-T

Process: 46/2014-T

Date: September 4, 2014

Tax Type: IUC

Summary

Process 46/2014-T addresses the subjective incidence of IUC (Single Vehicle Tax) in the context of financial leasing and long-term rental agreements. The claimant, a credit institution specializing in automotive financing, challenged 249 official IUC assessments totaling €17,316.23 for tax years 2009-2012. The dispute centered on whether the lessor (financial institution maintaining legal ownership) or the lessee (customer with temporary enjoyment and obligation to purchase) bears IUC liability. The vehicles were provided under long-term rental contracts where customers selected vehicles, the institution acquired them from suppliers, and lessees paid rent while retaining use until contract termination when they were legally obliged to purchase the vehicle at residual value. The arbitral tribunal, constituted under CAAD (Administrative Arbitration Centre) jurisdiction per Decree-Law 10/2011, accepted the cumulative challenge of multiple assessments given the identity of tax type, common factual circumstances, and application of identical legal rules across all 249 cases. This consolidation aligns with Article 3(1) of LITA and Article 104 of CCPT. The case exemplifies critical questions in Portuguese tax law regarding subjective tax incidence when legal ownership diverges from economic enjoyment and beneficial use of assets. The determination of the proper taxpayer in leasing arrangements directly impacts both financial institutions' operational costs and administrative efficiency in vehicle taxation. The tribunal's analysis required examination of IUC Code provisions on taxpayer identification, the legal nature of financial leasing contracts, and whether tax authority correctly identified the liable party when assessing circulation tax during the leasing period versus post-acquisition.

Full Decision

ARBITRAL DECISION

I REPORT

A) The Parties and the Constitution of the Arbitral Tribunal

A..., sa, Legal Entity No. ..., with registered office at Rua …, in Lisbon, hereinafter referred to as "Claimant", submitted a request for the constitution of a single arbitral tribunal, pursuant to the provisions of Article 10 and subparagraph a), of No. 1, of Article 2, of the Legal Framework for Tax Arbitration, approved by Decree-Law No. 10/2011, of 20 January, hereinafter referred to as "LITA" and of Articles 1 and 2 of Ordinance No. 112 – A/2011, of 22 March, to review the dispute between it and the Tax and Customs Authority, hereinafter designated as "Respondent" or "TA", with a view to annulling, on grounds of illegality, 249 acts of official assessment of Single Vehicle Tax (SVT), relating to the years 2009 to 2012, in the total amount of €17,316.23, and concerning motor vehicles identified by their respective license plate numbers in the respective assessments and as per the table attached as Annex A, contained in the request for arbitral pronouncement, which is hereby deemed to be fully reproduced herein.
The request for constitution of the Arbitral Tribunal, submitted on 22 January 2014, was accepted by His Excellency the President of CAAD and automatically notified to the Tax and Customs Authority on 23 January 2014. The Claimant chose not to appoint an arbitrator, whereby, pursuant to the provisions of No. 1, of Article 6 of LITA, the undersigned was appointed by the Ethics Council of the Administrative Arbitration Centre as arbitrator of the single arbitral tribunal. The appointment was accepted and the parties, notified of the acceptance, on 10 March 2014, did not refuse the designation, in accordance with the terms provided in subparagraphs a) and b), of No. 1, of Article 11, of LITA, in conjunction with the provisions of Articles 6 and 7 of the Ethics Code.

Thus, in accordance with the provisions of subparagraph c), of No. 1, of Article 11, of Decree-Law No. 10/2011, of 20 January, with the amendments introduced by Article 228, of Law No. 66-B/2012, of 31 December, the single arbitral tribunal was constituted on 25 March 2014.

On 26 March 2014, Respondent "TA" was notified to submit a reply within the legal period, in accordance with the provisions of Nos. 1 and 2, Article 17, of LITA. On 5 May 2014, TA attached to the record its Reply and the attached documents designated as PA (administrative file).

On 29 May 2014, at 14:00 hours, the meeting provided for in Article 18 of LITA was held, of which a record was drawn up and is attached to the record, hereby deemed to be fully reproduced herein. At the meeting held, the Claimant presented and requested the attachment to the record of the following documents: copy of the revocation act and respective application submitted in arbitral case No. 129/2014-T and copies of accounting extracts evidencing payments of some invoices attached to the record, in random fashion, and remaining available to attach to the record all other payment vouchers which it presented to the Tribunal, in a total of 600 pages, whose attachment does not immediately require so as not to burden the case with potentially unnecessary excess documentation but which the Claimant makes available to attach to the record if and when the Tribunal deems it necessary for the decision. The Claimant delivered a copy of the documents whose attachment it requested, which was granted. A viewing period of 20 days was set for TA to comment. The parties expressed a preference for submitting their arguments in writing, whereby a period of twenty days was determined, to run from the end of the viewing period granted, running simultaneously, for the parties to submit their arguments. At the conclusion of the meeting, a date was also set for rendering the arbitral decision by 5 September 2014.

After the viewing period set for analysis and comment on the documents attached to the record by the Claimant expired, Respondent TA did not comment on the documents attached to the record by the Claimant. It did not revoke the act, similarly to what occurred in arbitral case No. 129/2014-T. The Claimant submitted its written arguments within the set period.

B) Procedural Prerequisites

The Arbitral Tribunal is regularly constituted and materially competent, pursuant to Article 2, No. 1, subparagraph a) of Decree-Law No. 10/2011, of 20 January.

The Parties enjoy legal personality and capacity, are legitimate and are legally represented (See Articles 4 and 10, No. 2, of DL No. 10/2011 and Article 1, of Ordinance No. 112/2011, of 22 March).

As regards the cumulation of claims, since the joint review of the legality of 249 SVT assessments relating to the years 2009 to 2012 is sought, although they constitute autonomous acts, the requirements provided for in No. 1, of Article 3, of LITA and Article 104 of CCPT being met, cumulation must be admitted. Thus, in the same arbitral request, the cumulation of requests for declaration of illegality of all tax acts of SVT assessment and the respective compensatory interest associated therewith is accepted, given the identity of the tax and the review of the tax acts in question depending on the review of the same factual circumstances and the application of the same legal rules.

The case does not suffer from nullities that would invalidate it and no exceptions were raised that would prevent judgment on the merits of the case, whereby the Tribunal is in a position to render the arbitral decision.

C) THE CLAIM FORMULATED BY THE CLAIMANT

The Claimant formulates the present request for arbitral pronouncement seeking the illegality and consequent annulment of the acts of assessment of Single Vehicle Tax and the respective Compensatory Interest, relating to the years 2009 to 2012, in the total amount of €17,316.23, with reference to two hundred and forty-nine vehicles, identified by their respective license plate numbers in the list contained in the request for arbitral pronouncement (Annex A), which is hereby reproduced, as well as in the notes demonstrating the assessment of tax and the respective compensatory interest, all attached to the record and which is hereby deemed to be fully reproduced herein.

It bases its claim on the illegality of the tax assessments and the respective interest, alleging in summary the following:

a) The Claimant is a credit institution with a strong presence in the national market, with financing to the automotive sector being one of the areas of activity with particular relevance;

b) A substantial part of its activity amounts to the execution, among others, of financial leasing and long-term rental (LTR) contracts, intended for the acquisition, by companies and individuals, of motor vehicles;

c) These contracts comply, as results from their own legal configuration, with a common framework, typical of this type of financing: the Claimant, after being contacted by the customer – who, at that stage, has already chosen the type of vehicle he wishes to acquire, its characteristics (make, model, accessories, etc.), and even its price – acquires the vehicle from the supplier indicated to it by the customer, and then proceeds to deliver it to the said customer – who assumes, therefore, the status of lessee;

d) During the period to be stipulated in the contract, this lessee retains temporary enjoyment of the vehicle – which remains property of the Claimant – through remuneration to be delivered to the Claimant in the form of rent;

e) Being legally obliged to, at the end of the contract, acquire the vehicle through payment of a residual value;

f) The motor vehicles identified in the list attached to the Claim as ANNEX A (whose license plate is in column B) were given in LTR by the Claimant to the customers also identified therein (column I);

g) All these customers acquired, at the end of the respective contract, the motor vehicle on which it was based, through payment of the corresponding residual value (as results from the sales invoices attached as documents Nos. 2 to 498 identified in the table attached as ANNEX A to the Claim);

h) In the case of motor vehicles identified in rows 34 (license plate ..-..-..), 40 (license plate ..-..-..), 51 (license plate ..-..-..), 147 (license plate ..-..-..), 189 (..-..-..), 205 (license plate ..-..-..), 206 (license plate ..-..-..), 233 (..-..-..) and 244 (..-..-..), their acquirers were not the previous lessees, but third parties to whom the latter indicated that the vehicles be transferred and the corresponding residual values be invoiced;

i) Which in no way alters the factual position of the Claimant, given that, during the term of the contracts, it was merely a lessor; once the term ended, it ceased to be the owner of these vehicles;

j) Recently the Claimant was notified to proceed with payment of the SVT assessments contained in the present arbitral request (Annex A), and made payment as per the vouchers attached to the record;

k) The demand for payment of the SVT in question, relating to the years 2009 to 2012, occurred even knowing the TA – or ought to know – that the motor vehicles in question were no longer the property of the Claimant at the moment (in the year) in which the tax should have been paid;

l) Because, on the dates to which the tax facts that gave rise to the SVT assessments in question refer, the Claimant was no longer the owner of the vehicles to which the same refer;

m) It exemplifies with assessment No. ..., a factual scenario which, it alleges, is repeated in relation to all the other 248 tax acts identified in the table attached to the Claim.

The legal basis of the request for arbitral pronouncement rests, summarily, on the following:

a. The Claimant cannot be considered a taxpayer for SVT purposes, even though, in the year to which the SVT in question refers, the transfer of the said vehicles was not duly registered with the Motor Vehicle Registry Office;

b. Despite the tax acts not expressly mentioning the reasons that led to the issuance of the assessments, which constitutes a defect of lack of reasoning, the Claimant infers that the reason underlying the assessments is the fact that the transfer of property by the lessees, in accordance with the provisions of their respective contracts, was not registered with the Motor Vehicle Registry Office;

c. Registration, or the lack thereof, cannot be considered a determining element of the Claimant's tax liability;

d. It is essentially necessary to decide on a single issue: whether the fact that the transfer of the vehicles identified in the table attached as ANNEX A to their previous lessees (or, in the specific cases identified above, to third parties indicated by the latter), at the end of the LTR contract, was not registered with the Motor Vehicle Registry Office, renders that transfer opposable to the TA for the purposes of collecting the tax from its former owner;

e. Responsibility for paying the SVT whose assessment is contested does not belong, nor ever belonged, to the Claimant, and is, therefore, intrinsically illegal – for lack of substantive legitimacy of the Claimant – the assessment made by the TA.

f. As jurisprudence (particularly arbitral) has emphasized, not even during the term of a financial leasing contract should the lessor entity be considered a taxpayer for SVT purposes; even less so after the leasing contract has ended and the lessee entity has exercised its right to acquire the asset at the residual value;

g. The lessee also becomes the owner of the vehicle in question, and the provisions of No. 1 of Article 3 of SVTC then apply to it;

h. It further invokes, in summary, the provisions of Articles 408, No. 1 and 874 of the Civil Code, the regime resulting from Decree-Law No. 54/75 of 12 February, as well as the jurisprudence resulting from various arbitral decisions already rendered on identical cases and, finally, attaches an Opinion by Professor Doctor Agostinho Cardoso Guedes.

It concludes by petitioning for the declaration of illegality and consequent annulment, both of the acts of assessment relating to the SVT concerning the 249 vehicles identified by their respective license plate numbers in the list attached as ANNEX A, and of the acts of assessment of compensatory interest associated therewith, as well as the refund of the amount of € 17,316.23, relating to the tax and compensatory interest unduly paid by the Claimant, and the payment of indemnificatory interest for the deprivation of the said amount of € 17,316.23, in accordance with Article 43 of the General Tax Law.

D) THE RESPONDENT'S REPLY

The Respondent alleges in its reply, in summary, that the Claimant is not right, whose understanding incurs a skewed reading of the letter of the law, an interpretation that does not heed the systematic element, that violates the unity of the regime established throughout the SVTC and, more broadly, throughout the entire legal-tax system which ignores the ratio legis of the regime established in the SVTC". It bases its argument on the provisions of Nos. 1 and 2, of Article 3 of the SVTC, which determine, respectively, that "The taxpayers of the tax are the owners of the vehicles, considered as such the natural or legal persons, of public or private law, in whose name the same are registered" and that the taxpayers of the SVT are "the owners (or in the situations provided for in No. 2, the persons therein mentioned), considered as such the persons in whose name the same are registered".

The Respondent alleges that the legislator did not use the expression "are presumed", as it could have done, indeed similarly to what occurs in other legal provisions, exemplifying some situations provided for in the law; the Respondent believes that in cases where the tax legislator uses the expression "are considered", it is not establishing a presumption; it lists, merely by way of example, various provisions contained in different tax codes that use the expression "are considered". To understand that the legislator established a presumption here is based on an interpretation against the law, since "the clear option of the legislator was to consider that, for purposes of SVT, those who appear as such in the motor vehicle registry are considered owners;" it invokes, in defence of this understanding, the decision handed down in the context of Case No. 210/13.0BEPNF, by the Administrative and Tax Court of Penafiel.

It concludes that this is the interpretation that heeds the systematic element and preserves the unity of the legal-tax system, and besides that, any other interpretation would be to ignore the teleological element of interpretation of the law, the ratio of the regime established in the article in question, and throughout the SVTC.

Moreover, the failure to update the registration, in accordance with the provisions of Article 42 of the Regulation of Motor Vehicle Registration, will be attributable within the legal sphere of the taxpayer of the VET and not in that of the State, as the active subject of this tax; any other understanding would cast the TA into the most absolute uncertainty. It reinforces this understanding by invoking the parliamentary debates surrounding the approval of DL No. 20/2008, of 31 January, from which it transcribes excerpts, to conclude that the legislator intentionally wanted to establish a solution from which it results that SVT is due by persons appearing in the registry as owners of the vehicles. It also invokes Recommendation No. 6-B/2012, from the Ombudsman, which it attached as document No. 2 attached to the reply, addressed to the Secretary of State for Public Works, Transport and Communications.

In addition to all this, the Respondent alleges that the interpretation conveyed by the Claimant is contrary to the Constitution, since the principle of taxpaying capacity is not the only nor the principal principle that informs the tax system; on the other side of this, 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. In the view of the Respondent, "the interpretation proposed by the Claimant, which devalues the registral reality to the detriment of an 'informal reality' and not susceptible to minimal control by the TA, is offensive of the fundamental principle of trust and legal certainty that must inform any legal relationship, including here the tax relationship.

Finally, in view of the rules of burden of proof, it further alleges the lack of proof of the transfer of ownership of the vehicle, given that invoices are not, in the view of the TA, by themselves documents apt to prove the execution of a synallagmatic contract such as a purchase and sale.

It concludes that the SVT assessment acts do not suffer from illegality nor are the legal prerequisites for condemnation to indemnificatory interest met. And, also regarding responsibility for arbitral costs, the Respondent understands that, since the transfer of ownership of motor vehicles is not within its control, the SVT is assessed in accordance with registral information timely transmitted by the Institute of Registries and Notaries; that is, the SVT is not assessed in accordance with information generated by the TA itself. Thus, it was not the TA that gave rise to the submission of the request for arbitral pronouncement, but rather the Claimant itself which, moreover, only now provided documentary proof regarding the transfer of ownership, which did not occur in the course of a prior administrative procedure, whereby the Claimant should be condemned to payment of the arbitral costs arising from the present request, in accordance with Article 527/1 of the New Code of Civil Procedure, ex vi Article 29/1 – e) of LITA, in line, moreover, with a similar issue decided in the context of case No. 72/2013-T, which proceeded in the terms of this arbitration centre.

It concludes, for the dismissal of the arbitral request, arguing for the legality of the impugned tax acts and for the absolution of the Respondent in the claim.

II. ISSUES TO BE DECIDED

In view of the positions of the Parties assumed in the arguments presented, the Tribunal must decide the following issues:

1st) The defect of lack of reasoning;

2nd) The subjective incidence of SVT, the effects of motor vehicle registration and the possible existence or non-existence of a rebuttable presumption in this matter;

3rd) Proof of transfer of ownership of vehicles and the rebuttal of the presumption;

4th) The right to payment of indemnificatory interest.

5th) Responsibility for payment of arbitral costs.

III. FACTUAL BASIS

A) Proven Facts

As a matter of fact relevant to the decision to be rendered, the Tribunal takes as established the following facts:

1st) The Claimant is a credit institution whose substantial activity consists of financing to the sector through the execution, among others, of financial leasing contracts and long-term rental (LTR), intended for the acquisition, by companies and individuals, of motor vehicles;

2nd) The Claimant was notified to proceed with payment of two hundred and forty-nine assessments of single vehicle tax, relating to the years 2009 to 2012, as well as the respective compensatory interest, relating to vehicles with license plates duly identified in the SVT assessments attached to the record as documents Nos. 1 to 498 attached to the arbitral request, all duly itemized in the table attached to the Claim as annex A, which are hereby deemed to be fully reproduced;

3rd) All motor vehicles referenced in the SVT assessments were acquired by their respective lessees (customers of the Claimant) at the end of the contract, as results from the content of the invoices mentioned in the aforementioned list [2nd)], except for motor vehicles identified with license plates ..-..-.., ..-..-.., ..-..-.., ..-..-.., ..-..-.., ..-..-.., ..-..-.., ..-..-.., ..-..-..,;

4th) These latter vehicles were acquired, not by the previous lessees, but by third parties to whom the latter indicated that the vehicles be transferred and the corresponding residual values be invoiced;

5th) The tax assessments were issued and notified, with a payment deadline of 29.10.2013, which total the global amount of €17,316.23;

6th) The Claimant made payment of all the tax assessments impugned herein, which is proven by the documents attached to the record by the Claimant and which constitute document No. 1 attached to the Claim;

7th) As of the date of the tax facts, the motor vehicles referenced in the SVT assessments here impugned were registered in the motor vehicle registry under the ownership of the now Claimant, in the capacity of owner;

8th) As of the date of the tax facts, the vehicles identified in the impugned assessments were in the possession and use of the respective lessees and/or had been disposed of, on differentiated dates, as appears in the table attached to the Claim as Annex A;

9th) The acquirers of the vehicles in question herein did not proceed with the timely registration, whereby in the databases of the Motor Vehicle Registry Office, the Claimant continued to be listed as the owner thereof;

10th) To prove the facts described above, the Claimant attached to the record copies of invoices relating to payment of the residual value provided for in the financial leasing contracts as a condition for acquisition of ownership of the vehicles identified in each of the tax assessments impugned herein, contained in the documents attached to the Claim, parts 1 to 5, in a total of 747 documents.

11th) As of the date of the tax assessment acts, the TA had sufficient information elements about the contractual situation of the vehicles in question herein, namely, those contained in the accounting of the Claimant which the TA could not be unaware of and those which were communicated to it already in the context of the present request for arbitral pronouncement.

B) FACTUAL BASIS FOR THE PROVEN FACTS

The decision on the facts in the terms described above is based on the documentary evidence that the Parties attached to the present case, particularly the Claimant, attached to the request submitted and the TA in the reply and PA. The Tribunal particularly considered that the factual reality underlying the business situations relating to the various vehicles, proven by the documents attached to the arbitral request as well as by the documents subsequently attached to the record at the meeting of 29 May 2014 (accounting extracts evidencing payments of invoices attached to the Claim), relating to the vehicles subject of the impugned assessments. Such documentary evidence was not questioned by the Respondent, but only its legal relevance for purposes of proof of the transfer of ownership, and this is a legal issue to be decided by the Tribunal.

C) UNPROVEN FACTS

There are no other facts taken as unproven, since all facts relevant to the review of the claim were taken as proven.

IV – LEGAL BASIS

The facts having been established, it is necessary to address the legal issues indicated above, corresponding, in summary, to the illegality issues raised by the Claimant in the present arbitral request. Let us then examine the first issue to be decided.

1st - The Alleged Defect of Lack of Reasoning

The Claimant alleges violation of the duty of reasoning, given that "the tax acts did not expressly mention the reasons that led to the issuance of the assessments which constitutes a defect of lack of reasoning".

Immediately thereafter, however, the Claimant states that "it infers that the reason underlying the assessments is the fact that the transfer of property by the lessees, in accordance with the provisions of their respective contracts, was not registered with the Motor Vehicle Registry Office". This sums up the allegation of the defect of lack of reasoning by the Claimant.

There is no doubt that reasoning is a requirement of tax acts in general, being a constitutional requirement (Article 268 of the CRP) and legal (Article 77 of the GTL). It can be said, succinctly, that it is a settled understanding among us, both in doctrine and in jurisprudence, that the reasoning legally required must meet a minimum set of characteristics.

Reasoning is the strict initiative and obligation of the administration (power/duty), being understood as official, with reasonings upon request not being admissible and it must accompany the performance of the act, making no sense for reasonings a posteriori. The reasoning must also be clear, that is, understandable by an average recipient, avoiding polysemous or deeply technical concepts and must contain all the essential elements that were determinative in the decision taken, indicating the legal norms and the motivation for the act.

Despite the above, it is known that reasoning may also be express or tacit, by reference to prior opinions, information or proposals, as indeed results expressly from the provisions of No. 1, of Article 77 of the GTL.

That said, it must be noted that, since the tax act is an act of notable onerousness in the legal sphere of its addressee, it must be carefully reasoned so as to convince the taxpayer of the underlying legality and of the criteria that presided over its quantification.

However, it is also now settled, for doctrine and jurisprudence that reasoning must be expressed through brief exposition of the factual and legal grounds, equating to lack of reasoning the adoption of grounds which, by obscurity, contradiction or insufficiency do not specifically clarify the motivation of the act.[2]

In the case of the present record, in each of the impugned tax acts there is duly identified, with indication of the tax in question (SVT), the periods to which the tax relates, as well as the amount determined in the respective assessment and deadline for payment.

Precisely for this reason, the Claimant understood perfectly (or inferred), as the addressee of the tax acts, the entire factual and legal situation underlying, understood its content. To which is added that the reasoning is to be assessed in accordance with "the concrete circumstances, among which stand out those of the type of act, those of the taxpayer's participation in the procedure and its extent (…)"[3]. Now, in the present record the Claimant, as the owner which it was of the vehicles in question, party to the financial leasing contracts referenced herein and duly documented, was in a position to identify the concrete circumstances underlying the procedure which led to the impugned assessments, in terms sufficient to understand them clearly.

In this respect, it cannot be left unsaid that, the quality of the Claimant, as a reference financial institution in the market, naturally reinforces its aptitude to understand the succession of facts that reveal the reasoning of the act that was notified to it, as indeed it understood, which it abundantly revealed in the arbitral request it submitted.[4]

The Claimant reveals, therefore, a complete understanding of the grounds underlying the tax acts, with which it disagrees, but fully aware of their scope. From the confrontation of all elements contained in the arbitral request itself, based on the content of the tax acts notified to the Claimant as addressee, it is possible to conclude that it properly understood the grounds thereof, as results evidenced in the arguments adduced.

Understanding, therefore, that it results sufficiently perceptible to an average recipient, placed in the position of the concrete addressee, what the reasoning of the tax acts impugned in the present record is, the allegation of the defect of lack of reasoning should be dismissed.

Thus, we are faced with the second issue to be decided in the present record and which is to know whether the Claimant should or should not be considered as a taxpayer for SVT purposes in light of the applicable legal framework. It is important, therefore, to decide whether the Claimant should be qualified as a taxpayer of the Single Vehicle Tax assessed in relation to the years 2009 to 2012 for the vehicles identified in the request for arbitral pronouncement.

As the Claimant itself refers in the arbitral request, the fundamental issue to be decided is "whether the fact that the transfer of the vehicles identified in the table attached as ANNEX A, to its previous lessees (or, in the specific cases identified above, to third parties indicated by the latter), at the end of the LTR contract, was not registered with the Motor Vehicle Registry Office, renders that transfer unopposable to the TA for the purposes of collecting the tax from its former owner."

The decision of this issue implies assessing the terms of the configuration of the subjective incidence of SVT in light of the provisions of Article 3 of the Single Vehicle Tax Code (SVTC), namely, the issue of whether the subjective incidence is strictly based on the registration of vehicle ownership in the Motor Vehicle Registry, or whether the registry operates only as a presumption of tax incidence, rebuttable, in accordance with the provisions of Article 73 of the General Tax Law. On this matter there is already abundant and well-defined jurisprudence in various decisions mentioned by the parties and in some others rendered subsequently to the submission of the present request for arbitral pronouncement, which will be referred to opportunely.

2nd - The Subjective Incidence of SVT, the Effects of Motor Vehicle Registration and the Possible Existence or Non-Existence of a Rebuttable Presumption

The fundamental legal framework applicable in this matter is provided for in Articles 1 to 6 of the SVTC, approved by Law No. 22-A/2007, of 29 June.

Article 1 of the SVTC defines the objective incidence of the tax, distinguishing vehicles by specified categories, a provision which appears clear and without difficulties of application. However, the same is not the case with the provision on subjective incidence contained in No. 1, of Article 3 of the SVTC, which is at the origin of the present dispute and is thus an issue to be decided in the case under review.

The analysis of both provisions (Articles 1 and 3) allows one to conclude that in the functioning of SVT, the motor vehicle register plays a fundamental role. What is important, therefore, is to determine the meaning and scope of the provision on subjective incidence contained in Article 3, No. 1, of the SVTC and the possible existence or non-existence of a rebuttable presumption, connected with the issue of the legal effects of motor vehicle registration, raised by the Claimant.

On this issue, the positions of the parties are summarized as follows:

for the Claimant it cannot be considered a taxpayer for SVT purposes, even though, in the year to which the SVT in question refers, the transfer of the said vehicles was not duly registered with the Motor Vehicle Registry Office, since registration, or the lack thereof, cannot be considered a determining element of the Claimant's tax liability;
for the Respondent Article 3, No. 1, of the SVTC establishes a rule of tax incidence and not mere rebuttable presumption.

Let us therefore see what results from the legal regime in force and its application to the concrete case herein.

Article 3 of the SVTC provides:

"ARTICLE 3

SUBJECTIVE INCIDENCE

1 – The taxpayers of the tax are the owners of the vehicles, considered as such the natural or legal persons, of public or private law, in whose name the same are registered.

2 – Equivalent to owners are financial lessees, acquirers with retention of ownership, as well as other holders of purchase option rights by virtue of the leasing contract".

Article 11, No. 1, of the GTL establishes:

"In the determination of the meaning of tax norms and in the qualification of the facts to which they apply, the general rules and principles of interpretation and application of laws are observed".

The interpretation and application of the legal norm presupposes the carrying out of an interpretive activity, which must be objective, balanced, and in conformity with the letter and spirit of the law. Any text, and the law is no exception, contains multiple meanings and frequently contains ambiguous or obscure expressions. For this reason, although the letter of the law is "the thread" of the interpreter, it must be interpreted taking into account the underlying objectives, "the ratio" or the motivation of the legislator in establishing the provision under analysis.[5]

To these elements is added another according to which the interpretation of the legal norm must respect the "unity of the legal system", its coherence and intrinsic logic. Article 9 of the Civil Code (CC) provides the rules and fundamental elements for the interpretation of the legal norm, to which the interpretation of tax law must also obey, which begins by stating that interpretation should not be limited to the letter of the law, but reconstruct from it the "legislative thought".[6]

To these general principles are added the principles contained in the GTL, namely in Article 73, which establishes that presumptions contained in rules of tax incidence always admit proof to the contrary.

As regards the issue under review, it is important to highlight the contribution of arbitral decisions already rendered in cases Nos. 14/2013-T, of 15 October, 26/2013-T of 19 July, 27/2013-T, of 10 September, 217/2013-T of 28 February and, more recently, in decisions rendered in cases 286/2013-T, of 2 May 2014 and 293/2013-T, of 9 June 2014, among others, revealing a refined reflection on the fundamental issue under review, establishing a uniform understanding on this same issue. It is thus in this framework, using the fundamental hermeneutical principles just mentioned, adopted by the jurisprudence of our higher courts, that we must seek to find the appropriate interpretation of the provisions in question.

Thus, as to the question of knowing, in view of the literal wording of the provisions of No. 1, of Article 3 of the SVTC, what is the scope of the expression "considered as such", given that in the current version the legislator did not use the term "are presumed" (which was contained in the extinct Motor Vehicle Tax Regulation), the Tribunal understands that it can only be the following: the legislator presumes (considers) that the owners are the persons in whose name the vehicles are registered. This means that such presumption, implicit, is naturally rebuttable in accordance with the provisions of Article 73 of the GTL.

The presumption established in Article 3, No. 1, of the current SVTC was already enshrined in the earlier versions of the codes abolished with the entry into force of the SVTC. Already Article 3 of the Motor Vehicle Tax Regulation (approved by Decree-Law No. 143/78) provided that: "the tax is due by the owners of the vehicles, presumed as such, until proof to the contrary, the persons in whose name the same are registered or matriculated". Similarly, Article 2 of the Circulation Tax and Trucking Tax Regulation (approved by Decree-Law No. 116/94) provided that: "the taxpayers of circulation tax and trucking tax are the owners of the vehicles, presumed as such, until proof to the contrary, the natural or legal persons in whose name the same are registered".

In fact, in the current version of the Code only the verb changed, the legislator now opting for the expression "considered as such". What is certain is that between the earlier legislative versions and the current one, the GTL entered into force, which expressly established the principle contained in Article 73, from which it results that any presumption in the matter of tax incidence admits proof to the contrary. Therefore, it becomes indifferent whether an express or implicit presumption is adopted, since one as the other are equally rebuttable.

Thus, it is understood that the fact that the legislator, in the current version of the SVTC, opted for an implicit presumption (using the expression "considered as such") instead of an express presumption (resorting to the expression "presumed", as occurred previously, does not translate a substantial change as regards the subjective incidence of the tax. It is not, therefore, the ownership listed in the motor vehicle registry a condition, by itself, determinative of tax incidence in the matter of SVT, but a rebuttable presumption.

Moreover, contrary to what has been alleged by the Respondent, we can easily point out several examples, extracted from the tax legal order, in which the legislator opted for the use of the verb "consider", with a presumptive meaning. Besides which, as has been said above, being a provision of tax incidence, it would never be admissible to establish an irrebuttable presumption. As state, Diogo Leite Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, in the annotation to No. 3, of Article 73 of the GTL, "presumptions in matters of tax incidence may be explicit, revealed by the use of the expression presumed or similar (…). However, presumptions may also be implicit in provisions of incidence, particularly of objective incidence, when certain values of movable or immovable property are considered as constituting taxable matter, in situations where it is not impracticable to ascertain the real value". And there are many examples of provisions in which the verb "consider" is used to establish rebuttable presumptions, as occurs with the provisions of No. 2 of Article 21 of the ICITC, in Article 89-A of the GTL or in Article 40, No. 1 of the CIRS among others. The Respondent alleges, however, in the reply submitted, that this same word "considered as such" is also normally used by the tax legal order to define situations distinct from presumptions. Now, such appears to be normal, particularly in the case of other tax provisions in which the legislator used the formula "consider" or "are considered", but assigning it another meaning, since these are expressions that, depending on the context, can assume a plurality of meanings, without from this the conclusion which the Respondent intends can be extracted.
Taking into account that the legal system must form a coherent whole, the examples referred to above, as well as the doctrine and jurisprudence indicated, allow one to conclude that it is not only when the verb "presume" is used that we are faced with a presumption, but also the use of other terms or expressions, such as the term "are considered" can serve as a basis for presumptions. And, as was referred to above, the literal element being the first instrument of interpretation of the legal norm, in search of legislative thought, it is important to confront it with the other elements of interpretation, namely the rational or teleological element, the historical element and the systematic one.

And also in this line of reflection the Tribunal cannot follow the argument adduced by the Tax Authority. As to the historical element, it must be mentioned that since the origin of the circulation tax, with the entry into force of Decree-Law No. 599/72 of 30 December, a presumption was explicitly established with respect to the taxpayers of the tax as being those in whose name the vehicles were registered or matriculated. That version of the law used the literal expression "presumed as such".

However, in view of the purposes of the tax in question, it must be recognized that the use of the expression "considered as such", in the current version, contemplates an expression with an effect similar to that, embodying, equally, a presumption. The same occurs in the formulation contained in No. 1, of Article 3 of the SVTC, in which a presumption was established, revealed by the use of the expression "considered as such", of similar meaning and equivalent value to the expression "presumed", in use since the creation of the tax in question. The use of the expression "considered as such" is justified only by appearing more in harmony with the emphasis given to the ownership of the vehicle, which came to constitute the taxable event of the tax, in accordance with the provisions contained in Article 6 of the SVTC.

Therefore, in light of the literal element of interpretation, nothing prevents the understanding that the provision of No. 1, of Article 3 of the SVTC, establishes a rebuttable presumption.

Thus, as to the subjective incidence of the tax, it is to be concluded that no changes have occurred in relation to the situation previously in force under the Municipal Vehicle Tax, Circulation Tax and Trucking Tax, as is widely recognized by doctrine, continuing to be valid a rebuttable presumption in this matter.[7]

This understanding is, furthermore, 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 real and effective owner and not one who, by circumstances of diverse nature, is sometimes merely an apparent and false owner, by appearing in the registry.

For this reason, the person registered in the motor vehicle registry must be allowed the possibility of presenting evidentiary elements sufficient to demonstrate that the effective owner is, in fact, a person different from the one appearing in the registry, and who initially, and in principle, was presumed to be the true owner. Otherwise, one would accept the supremacy of the formal truth of the registry over material truth, and would be admitting gross violation of the fundamental fiscal principles enunciated and, furthermore, of the principle contained in Article 73 of the GTL according to which there are no irrebuttable presumptions in the matter of fiscal incidence.

All of which would be added thereto the violation of the principles of legality, proportionality and justice, as well as that of the inquisitorial principle, established, respectively, in Articles 55 and 58 of the GTL.

Furthermore, it is possible to extract another argument from the provision of Article 7 of the Real Property Registry Code (which constitutes the fundamental legal basis in matters of property registration), which provides 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". In light of the principle of uniformity and intrinsic coherence of the legal system, no reasonable foundation appears acceptable for the principle prevailing in property registration in general to suffer an inflection or even an unjustified "trampling" in matters of motor vehicle registration.

But, if any doubt persisted, it would always be said that, as to elements of interpretation of a rational or teleological bent, the explanatory memorandum of Legislative Proposal No. 118/X of 07/03/2007, underlying Law No. 22-A/2007, of 29/06, is quite expressive in clarifying that the reform of motor vehicle taxation is implemented through the displacement of part of the tax burden from the moment of acquisition of vehicles to the circulation phase and aims to "form a coherent whole" which, although intended for the collection of public revenue, intends that the same be collected in "the measure of the environmental costs that each individual causes to the community", adding, regarding the tax in question and the different types and categories of vehicles, that "as a structuring and unifying element (…) the principle of equivalence is established, thus making clear that the tax, as a whole, is subject to the idea that taxpayers should be burdened in the measure of the cost they cause to the environment and to the road network, and this is the reason for being of this tax figure", also referring to being "(…) this principle that dictates the burden of vehicles based on their respective ownership and up to the moment of scrapping (…)".

Thus, the logic and rationality of the new system of motor vehicle taxation presupposes and aims at a taxpayer coinciding with the owner of the vehicle, on the assumption that it is that person, and not another, the real and effective subject causing environmental damage, as results from the principle of equivalence inscribed in Article 1 of the SVTC. This principle of equivalence, which informs the current single vehicle tax, has underlying it the polluter-pays principle, and concretizes the idea inscribed in it that whoever pollutes should, for this reason, pay. It is, after all, about achieving the negative environmental externalities that result from the use of motor vehicles, are assumed by their owners and/or by the users, as costs that only they should bear.

To this point, the position set forth in the recent Arbitral Decision No. 286/2013-T of 2 May 2014, is quite clarifying in affirming that:

"It is this principle (of equivalence) that dictates the burden of vehicles based on their respective ownership and up to the moment of scrapping, the common use of a specific tax base, the revision of the framework of existing tax benefits and the allocation of a portion of the revenue to the municipalities of their respective use.

Now, to claim, as the Respondent does, that the legislator, in Article 3, No. 1 of the SVTC, fixed, whatever the underlying technical means, the subjective incidence of the tax in persons in whose name the vehicles are registered, with total independence from whether or not, in the relevant tax period, they hold the right to use the vehicle, let alone its ownership, would imply disregarding that purpose which presides over the tax normativity, well manifested in the objective incidence and in the tax base associated with the various categories of vehicles (cf. Articles 2 and 7 of the SVTC). For a registration registration, without correspondence with the underlying ownership, has no value to give satisfaction and fulfillment of such purpose, for it is not the persons in whose name the vehicles are registered when they are not holders of rights over their use that cause environmental and road costs, but rather such environmental and road costs are caused by the effective users of the vehicles, in accordance with the relevant substantial legal situations, even if they do not appear, as they should, in the motor vehicle registry. The registry, in fact, in no way testifies to or serves as to the principle of equivalence established in Article 1 of the SVTC. Indeed, to assume that the determinative element of subjective tax incidence is simple and exclusively the motor vehicle registry also does not allow affirming a connection to any relevant manifestation of taxpaying capacity, which, as a rule, in taxes not strictly commutative, is indispensable, since there must exist, without prejudice to requirements of practicability, some effective link between the tax and an economically relevant assumption capable of founding the tax. The reason for being of the tax figure thus removes the idea that the incidence thereof is tied strictly and exclusively to the very registral inscription of the ownership of the taxable vehicles and not to the substantial situations attributive of the right to use the vehicles (Article 3, Nos. 1 and 2 of the SVTC) to which the registry is intended to give publicity (cf. Article 1 and Article 5 of Decree-Law No. 54/75, of 12 February, with subsequent amendments, which regulates motor vehicle registration)."[8]

This is also the position of the arbitral tribunal in the present record, endorsing the positions already previously set forth in the various arbitral decisions above mentioned, whereby it is understood that the rebuttable presumption inscribed in No. 1, of Article 3 of the SVTC, corresponds to the interpretation most adjusted to the pursuit of the objectives sought by the legislator.

Any other understanding would imply accepting the possibility of taxing natural or legal persons without responsibility in the production of any environmental damage, while the real causers of such damage would not be subject to the tax, completely frustrating the regulatory purposes of the law itself, that is, its true ratio legis.

For all that has been set forth, nor can the understanding contained in the judgment handed down by the Administrative and Tax Court of Penafiel, in the context of case No. 210/13.0BEPNF, invoked by the Tax and Customs Authority in the present record, be endorsed, namely, when it states that "the property and effective possession of the vehicle is irrelevant to the verification of the subjective and objective incidence and the taxable event of the tax". A judgment which, as the Claimant well notes, is far from representing a settled understanding on this issue.

In summary, after reviewing all relevant elements of interpretation, all point to the direction that the expression "considered as such" has a meaning equivalent to the expression "presumed". Consequently, the provision of No. 1, of Article 3 of the SVTC results in the establishment of a legal presumption, which, in view of the provision of Article 73 of the GTL, can only be understood as rebuttable. This presumption may be rebutted or set aside if, in the course of the ongoing assessment procedure, it is demonstrated that the person is not the true owner of the vehicle, the taxpayer for the tax in question. It may be said that the legislator, in the new SVTC, did not feel the need to maintain in the new provision of incidence an express and rebuttable presumption, since after the entry into force of the General Tax Law (1999) "the presumptions established in the provisions of incidence always admit proof to the contrary". Therefore, in view of the content of Article 73 of the GTL, it would be technically incorrect to use the expression "presumed as such, until proof to the contrary", contained in the previous version in force.

In light of the new provision of incidence, the taxpayer for SVT is the owner or the financial lessee or, furthermore, the acquirer with retention of ownership, even if they do not appear in the motor vehicle registry, provided that sufficient proof is made to rebut the legal presumption arising from the registry, by force of the principle of equivalence legally established.

Still within the scope of this second issue to be decided, it is important to assess the specificities of the rule of subjective incidence of SVT during the term of a financial leasing contract. This issue was already dealt with in detail in Arbitral Decision No. 14-2013 T of 15 October, from which we highlight in summary the following conclusions, to which this tribunal adheres, namely:

"(…) during the term of a financial leasing contract, although the lessor continues to be the owner of the asset in question, only the lessee has exclusive enjoyment of the leased asset, using it as if he were the true owner. (…) It is true that the financial lessee is equated to owner for purposes of No. 1 of Article 3 of the SVTC, the same is to say to be a taxpayer for SVT (See No. 2 of Article 3). (…) Thus, as it is, since the lessor does not have, by legal and contractual imposition, the potential for use of the vehicle and the lessee has exclusive enjoyment of the automobile, we reaffirm the conclusion to which we had already arrived that, in our understanding, the ratio legis of the SVTC commands that in accordance with the aforesaid No. 2 of Article 3 of this Code, it is the lessee who is responsible for payment of the tax, since he is the one who has the potential for use of the vehicle and causes the road and environmental costs inherent thereto. The same conclusion is reached when the importance given to the users of leased vehicles in Article 19 of the SVTC is verified. Indeed, in accordance with the provisions of this article, entities that proceed, in particular, to the financial leasing of vehicles are obliged to provide to the TA (formerly DGCI), the tax identification of the users of the leased vehicles for purposes of the provision of Article 3 of the SVTC (subjective incidence), as well as of No. 1 of Article 3 of the Law of its approval, since in accordance with this provision of Law No. 22-A/2007, if the revenue generated by the SVT is incident on vehicles subject to long-term rental or operational leasing, it must be allocated to the municipality of residence of the respective user (underlined our own).

(…)

Here arrived, we are of the opinion that if on the date of occurrence of the taxable event a financial leasing contract is in force which has a motor vehicle as its object, the taxpayer for the tax is not the lessor but rather, in light of No. 2 of Article 3 of the SVTC, the lessee, which, in our view, makes perfect sense, given that it is this one that has enjoyment of the vehicle and, as such, the inherent polluting potential, regardless of whether the registration of the property right remains in the name of the lessor, as subsequently explained in greater detail."

And concludes:

"(…) One of the obligations of the lessor is to sell the asset to the lessee if the latter wishes. It is clear that with the execution of the purchase and sale contract the until then lessee becomes the full owner, coming to be covered directly by No. 1 of Article 3 of the SVTC."

Considering now the case under review in the present record, the matter of fact considered as proven and all that has been set forth above, it is to be concluded that the Claimant cannot be considered a taxpayer for the tax in any of the impugned tax acts, because as of the date of the tax facts, either it was no longer the owner of the vehicles because it had disposed of them in favor of the respective lessees or third parties indicated by the latter or, still was the owner with the same being used by the respective lessees by force of the leasing contracts in force.

It is certain that it was proven in the present record that of the two hundred and forty-nine vehicles referenced in the tax assessments here impugned, with reference to the periods in question (years 2009 to 2012), two hundred and forty were acquired in accordance with the contractually provided terms by the respective lessees and the remaining nine by third parties indicated by the latter, on the dates mentioned in the table attached to the Claim as Annex A, against payment of the respective residual value, as per invoices attached to the record (see Points 3, 4 and 8 of the proven facts).

Thus, it is established that the Claimant as of the date of the facts was not a taxpayer for SVT with reference to the vehicles mentioned in the tax assessments impugned herein, in light of the principles legally contained in Nos. 1 and 2 of Article 3 of the SVTC, already referred to above.

That is, this tribunal understands, in harmony with what was already decided in prior arbitral decisions, of which the decision 14/2013 T stands out, that while the leasing contracts were in force the Claimant was not a taxpayer for the tax, but rather the respective lessees, by force of the provision of No. 2 of Article 3 of the SVTC; after having disposed of the vehicles, whether such disposal occurred in favor of the previous lessees or occurred in favor of third parties indicated by the latter, nor could it be by force of the provision of No. 1 of Article 3 of the SVTC.

The TA itself reached this conclusion, in an identical factual and legal situation, in the context of arbitral case No. 129/2014-T, having opted for the revocation of the SVT assessment acts, by recognizing that the same should have been issued in the name of the lessees, as per document attached to the record by the Claimant.

Here we must now analyze the issue of whether, in the present record, the Claimant presented sufficient proof to rebut the presumption, proving the transfer of ownership of the vehicles, given that the respondent alleges lack of sufficient proof presented by the Claimant.

3rd) Proof of Transfer of Ownership of Vehicles and Rebuttal of the Presumption

The Respondent alleges "the lack of proof of the transfer of ownership of the vehicles", given that invoices are not, by themselves, documents apt to prove the execution of a synallagmatic contract such as a purchase and sale.

However, on this point too the Respondent is not right.

The Claimant attached to the record copies of invoices and, subsequently, accounting extracts identifying the entity and contract, in a total of more than 700 documents attached to the Claim and subsequently, at the meeting provided for in Article 18 of LITA. The Respondent did not raise an incident of falsity of the documents attached to the record. It did not comment on the documents attached at the said meeting, despite the viewing period that was granted to it. It did not contest the accounting value nor the consequent tax value of the invoices attached to the record.

Let us therefore examine the issue of the probative value of the documents attached for the purposes intended by the Claimant, that is, for the rebuttal of the presumption resulting from motor vehicle registration.

The transfer of ownership operates by mere effect of the contract, in accordance with the provisions of Article 408, No. 1, of the Civil Code. The contract of purchase and sale has a real nature, that is, the transfer of the ownership of the thing sold, or the transfer of the alienated right, has the contract itself as its cause. Motor vehicles are movable property whose transfer of ownership does not obey special formalism.

In Portuguese law, the fact that determines the transfer of ownership of a movable asset (even if subject to registration) is the contract expressed by the will of the parties. So much so that the buyer becomes the owner of the sold vehicle through the execution of the purchase and sale contract, regardless of the registration, which is assumed as a condition of efficacy and opposability to third-party acquirers.

Thus, proof of the existence of this contract of purchase and sale can be made by any means, and the invoice is an accounting document suitable for this purpose, as for many others, particularly tax purposes, whereby it is not accepted that its evidentiary force is questioned.

But the Claimant also attached a copy of supporting documents in significant numbers, evidencing payments of the residual values made with reference to the respective underlying financial leasing contracts for the transactions of the vehicles in question herein, whereby no doubt subsists as to the demonstration of the true acquiring owners of the vehicles, subjects to the incidence of the tax, nor as to the moment in which the transfer of ownership of the same took place.

Still regarding this issue, and for economy of means in the already lengthy exposition of reasons of the present arbitral decision, mention is made once more of the jurisprudence contained in the arbitral decisions already above mentioned, with emphasis on decision 14/2013 – T and also of the Opinion attached to the record by the Claimant issued by Professor Doctor Agostinho Cardoso Guedes. From the latter we highlight, for particular relevance to the conclusion of the present decision, as regards the effects of registration, the following excerpts:

"Once the vehicle is sold to the lessee, the latter becomes its owner, and in that case, the provision of Article 3, No. 1, of the SVTC applies.

Indeed, Article 874 of the Civil Code defines the purchase and sale contract as "the contract by which the ownership of a thing, or another right, is transferred, for a price". Similarly, Article 879 of the same provision provides as an essential effect of the purchase and sale contract the "transfer of the ownership of the thing or the ownership of the right".

We are in the domain of contracts with real efficacy, that is, contracts whose execution triggers a real effect, the transfer, constitution, modification or extinction of a real right, and which, in accordance with Article 408, No. 1, of the Civil Code, is produced "by mere effect of the contract"

(…)

The question at issue is whether, and to what extent, the subjection of motor vehicles to public registration alters the fundamental rule of our private law, contained in Article 408, No. 1, of the Civil Code, according to which the ownership is transferred by mere effect of the contract, without need for any other act or formality, prior, contemporaneous or subsequent.

On this issue, Article 1 of the CRP sets the objectives of this register as follows: "The real property register is intended essentially to give publicity to the legal situation of real property, with a view to the security of immovable property legal transactions".

Article 7 of the CRP completes this function, stating that the "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".

That is, the primary function of registration is to give publicity to the legal situation of the assets and, furthermore, the inscription in the registry of certain assets constitutes a double presumption: on the one hand, it is presumed that the right exists in the precise terms in which the registration defines it, on the other, it is presumed that that right belongs to the holder in favor of whom it is registered, once again, in the precise terms in which the registration defines it.

These presumptions are rebuttable by proof to the contrary, as expressly results from Article 350, No. 2, of the Civil Code.

There is, in fact, no provision in the CRP that suggests that registration is a condition of validity of the business transactions subject to it, or, in cases of purchase and sale, that the same is a condition of production of the respective translative effect.

(…)

In a recent amendment to the CRP, the legislator clarified what is to be understood by third party in this context. Thus, according to Article 4, No. 4, of the CRP "Third parties, for purposes of registration, are those who have acquired from a common author rights incompatible with each other"

However, the Tax Administration does not meet the legal requirements of the concept of third party for purposes of registration (provided for in Article 5, No. 4, of the CRP), reason by which it cannot require the seller to pay the tax due by the buyer (owner) from the moment in which the presumption of Article 7 is set aside by proof of the respective sale.

(…)

Proof to be made by any means, since the law does not require a written form for this contract.

Thus, and particularly, proof may be made by confession, verbal or written, by witnesses or by document. In the latter case, for example, proof may be made by presentation of a statement of sale (including the statement prepared for purposes of registration) or of an invoice/receipt for the sale of the vehicle."

It is thus verified that arbitral jurisprudence is reconciled with the best doctrine produced among us, in conformity with the principles prevailing in Portuguese law and in order of the coherence and uniformity of the legal system of which tax law is an integral part and must obey.

Given, therefore, the legal and jurisprudential notion of "third party" for purposes of registration, we consider it settled the understanding that the TA does not meet the requirements of that notion, and cannot, thus, invoke the absence of registration to justify the ineffectiveness of the contracts for purchase and sale of motor vehicles. Thus, if the new owner of the vehicle does not take steps to register his ownership right, it is presumed that this right continues to be that of the seller (former owner), but this presumption can be rebutted by proof to the contrary. In other words, provided that proof is made, by any means, of the respective sale. (See Articles 1 of DL No. 54/75, 7 of the CRP and 350, No. 2, of the CC).

Invoices constitute documents of sufficient proof for this purpose, as well as other accounting documents, such as the extracts evidencing payment of the residual values attached to the record. But clearly, the probative value of the invoice for payment of the residual value, associated with the financial leasing contract in question, is sufficient for the proof which it fell to the Claimant to make to rebut the presumption.

In these terms, the TA cannot prevail itself of the failure to update the property registration to demand payment of the tax from the former owner in whose name the vehicle remains registered if, by any means, sufficient proof of the respective sale is presented to it.[9]

According to No. 1, of Article 1, of Decree-Law No. 54/75, of 12 February (Motor Vehicle Registry Code in the last version introduced by Law No. 38/2008, of 11 August), the register is intended to give publicity to the legal situation of motor vehicles and their trailers, with a view to the security of legal transactions. Thus, registration is also a condition of opposability in relation to third-party acquirers, the same is to say that the acquirer who does not proceed with the registration remains subject to a condition of relative ineffectiveness with respect to third parties. This is because, in Portuguese law, the legislator's option was not to adopt mandatory registration as a rule. For this very reason, Article 7 of the Real Property Registry Code (CRP) provides, applicable supplementarily to the registry of automobiles, by force of Article 29 of the CAR, 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."

Once more, it is necessary to conclude that definitive registration is nothing more than a presumption that the right exists and belongs to the registered holder, in the exact terms of the registration, which is rebuttable, thus admitting proof to the contrary.

And, on this point, in view of the function legally reserved to the register of giving publicity to the legal situation of the assets, it is necessary to conclude, in the case of motor vehicles, that it only allows us to presume that there is a right over those vehicles and that the same belongs to the holder registered in the register. The register does not, therefore, have a constitutive nature of the property right, but only a declarative one, hence the registration does not constitute a condition of validity of the transfer of the vehicle from the seller to the buyer. By which, the acquirers of the vehicles thus become owners of those same vehicles through the execution of the corresponding purchase and sale contracts, by mere effect of the contract, with or without registration.

This interpretation is the only one that guarantees perfect harmony between this regime and what results from the provision of No. 1, of Article 408 of the Civil Code, according to which the transfer of real rights over things is determined by mere effect of the contract, one of such effects being the transfer of the thing or the ownership of the right (see subparagraph a) of Article 879 of the said Civil Code).

For all that has been set forth above, having rebutted the presumption provided for in No. 1, of Article 3 of the SVTC and in view of the legal regime by force of the provision of No. 1, and, in the second case, by force of the provision of No. 2, of Article 3 of the SVTC, notwithstanding the financial lessor being still in this case the owner of the vehicle in the years 2009 and 2010, it is the lessee who constitutes, exclusively, the taxpayer for SVT, given that he is "equated to owner", by which the Claimant does not assume the status of taxpayer for SVT with reference to none of the vehicles under analysis, nor for the periods of taxation in reference (years 2009 to 2012).

In consequence, the decision of the TA that led it to the issuance and collection of the tax assessments now impugned proceeded from a wrong assumption, according to which, in accordance with the provision of No. 1, of Article 3 of the SVTC, the tax was due by the person registered in the motor vehicle registry, independently of the subsequent demonstration that property belongs to a third party. Besides which, it also ignored the principle contained in No. 2, of Article 3 of the SVTC regarding lessees.

For all that has been set forth above, it is understood that the provision of No. 1, of Article 3, establishes a presumption, rebuttable upon the presentation of proof to the contrary, proof which the Claimant made.

Contrary to what the Respondent alleges, the Tribunal understands that the documents presented by the Claimant are means of proof sufficient to demonstrate that the ownership of the vehicles in question, as of the date of the tax facts, with reference to the years 2009 to 2012, no longer belonged to the Claimant, or, if they belonged to it, they were being used by the lessees, holders of leasing contracts, with all vehicles being acquired at the end of their respective contracts by the lessees or third parties indicated by the latter.

In any case, the Claimant demonstrated that it was never a taxpayer for the tax.

In the case herein, if the said lessees, acquirers of the vehicles (as well as the third parties indicated by them as to the nine vehicles identified in point 3 of the proven facts), as their "new" owners, did not take steps to register in their favor, it is presumed (rebuttable presumption), for purposes of No. 1, of Article 3 of the SVTC, that the vehicle continues to be property of the person who sold it and who remains as its owner in the registry, being certain that such presumption is rebuttable, whether by force of what is established in No. 2, of Article 350 of the Civil Code, or in light of the provision of Article 73 of the GTL.

Hence, from the moment in which the said presumption is set aside by proof to the contrary, the TA cannot persist in considering as a taxpayer for SVT the seller of the vehicle, who remains listed in the registry as its owner.

It is added that the provision of Article 19 of the SVTC, precisely, for purposes of the provision of Article 3, Nos. 1 and 2 of the said SVTC (that is, for purposes of subjective incidence), imposes on entities which proceed to financial leasing the obligation to provide the TA with data relating to the tax identification of the users of the leased vehicles. By which, once again, the legislator was clear regarding the legal value of the registry, requiring to know, besides that, the real users of the leased vehicles, which, indeed, is in perfect harmony with the understanding that No. 1, of Article 3 of the SVTC intends only to establish a legal presumption.

The documents presented are means of proof with sufficient force to rebut the presumption based on the registry, as established in No. 1, of Article 3 of the SVTC, because they enjoy the presumption of truthfulness provided for in No. 1, of Article 75 of the GTL. In conformity, the presumption is rebutted.

Thus, in view of what has been referred to regarding the situation of the vehicles contained in the assessments now impugned, it is concluded that the presumption contained in No. 1 is rebutted and that, for this reason, the Claimant does not constitute a taxpayer for the tax, assessed in relation to the years 2009 to 2012, for the 249 vehicles identified in the record as per table attached as Annex A attached to the Claim, which is hereby deemed to be fully reproduced.

In consequence of all that has been set forth above, it results that all the assessments impugned are illegal, suffer from the defect of violation of law, by error as to the factual and legal assumptions, whereby they should be subject to annulment, proceeding, consequently, to the refund to the Claimant of the amount unduly paid.

4th) The Claim and the Right to Payment of Indemnificatory Interest

Subparagraph b), of No. 1, of Article 24 of LITA, provides that the arbitral decision on the merits of the claim which admits of no appeal or challenge binds the tax administration from the end of the period provided for appeal or challenge, and this administration – in the exact terms of the proceeding of the arbitral decision in favor of the taxpayer and up to the end of the period provided for the execution of judgments of judicial tax courts – must restore the situation that would have existed if the tax act subject of the arbitral decision had not been carried out, adopting the acts and operations necessary for the effect.

Such provision is in harmony with the provision of Article 100 of the GTL, applicable to the case by force of the provision in subparagraph a) of No. 1, of Article 29 of LITA, in which it is established that "The tax administration is obliged, in case of total or partial success of complaints or appeals or judicial proceedings in favor of the taxpayer, to the immediate and full restoration of the situation that would have existed if the illegality had not been committed, comprehending the payment of indemnificatory interest, in the terms and conditions provided for in the law."

Article 43, No. 1, of the General Tax Law provides, for its part, that "indemnificatory interest is due when it is determined, in a gracious reclamation or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due."

From the analysis of the evidentiary elements contained in the present record, it is possible to infer that, by force of the provision of Article 19 of the SVTC, which obliges lessors to communicate to the TA (precisely for purposes of the provision of Article 3 of the said SVTC in the matter of subjective incidence of tax) the data relating to the tax identification of the entities which proceed to financial leasing of the users of the leased vehicles, it is concluded that the TA had knowledge of the factual elements, in their essential, relevant to proceed with the correct assessment of the tax. Even admitting that, from its point of view, it was necessary the attachment of some documents for greater clarification of the facts alleged by the Claimant, it should have notified it for the effect and used all the prerogatives which the inquisitorial principle affords it and imposes on it to investigate all the facts which it deemed relevant. And, finally, it also had the possibility of revocation of the illegally practiced tax acts, which it could have carried out within the period to reply to the present request for arbitral pronouncement, similarly to what it did, in an identical case, in the context of arbitral case No. 129/2013-T (as results proven by document attached to the record), however it did not do so.

There is no doubt that the TA was in the availability of sufficient informational elements about the concrete situation of the vehicles contained in the record, so that it had the possibility of correcting the error and of avoiding the practice of the harmful and illegal tax acts. And, finally, it also had the possibility of revoking them, stopping their effects, which did not occur. Therein consists the error for which it is obliged to indemnify.

Therefore, the Tribunal cannot endorse the allegation of the Respondent according to which it merely limited itself to applying the law, whereby, in the view of the TA, no error attributable to the services would result therefrom. If so, never would the administration be held responsible for the application of the law. If so, never would the administration be held responsible for such. The allegation is, therefore, improcedent.

The error exists when the TA did not make use of the information available to it, which consisted of knowledge that the vehicles in question had different owners at different times, and which should have served as the basis for the correct tax assessment, by the correct identification of the taxpayer in each tax period, in accordance with the law and the legal doctrine then prevailing, and which becomes even more clear in the jurisprudence of the arbitral tribunal herein.

By force of all that has been previously set forth, the Claimant is entitled to indemnificatory interest, in accordance with the terms and conditions of Article 43, No. 1, of the GTL, which provides that "indemnificatory interest is due when it is determined, in a gracious reclamation or judicial challenge, that there was error attributable to the services from which results payment of the tax debt in an amount exceeding that legally due."

The indemnificatory interest shall be calculated as of the date of payment of the respective tax debt until the date on which, in accordance with Article 100, No. 2 of the GTL, the restoration of the situation is verified, at the rate fixed by law for overdue tax debts, in accordance with the regulatory provisions applicable thereto.

5th) Responsibility for Payment of Arbitral Costs

The fifth and final issue to be decided concerns responsibility for payment of arbitral costs.

In the matter of arbitral costs, Article 29, No. 1, subparagraph e), of LITA provides that the rules of the Code of Civil Procedure are applicable, specifically Article 527, regarding responsibility for cost payment and the corresponding apportionment.

Article 527, No. 1, of the New Code of Civil Procedure provides as follows:

"In the absence of special provision, the losing party is condemned to payment of the costs of the proceedings, including those resulting from legal representation, unless the court considers that it would be manifestly unjust or disproportionate."

And No. 2 of the same article establishes the following:

"The party which obtains partial success may be wholly or partially absolved of the cost of the proceedings, or the costs may be apportioned equally."

And Article 527, No. 3, adds:

"When there is no losing party, the costs are borne equally by the parties."

In view of the facts established, and attending to the jurisprudence on the matter, it is clear that the Respondent was the party that lost in the present arbitral case, as the Claimant was granted substantial success on the merits of its claim. In fact, the entire material fact described by the Claimant was proven, and, in view of the law, the assessment of the SVT, in the terms impugned by the Claimant, was found to be illegal, resulting in the total annulment of all the impugned tax acts.

By force of what has been set forth herein, the Respondent should be condemned to payment of the total costs of the arbitral proceedings, in accordance with the terms of Article 527, No. 1, of the CPC.

The allegation of the Respondent that the Claimant is responsible for the arbitral costs for not having produced proof during the administrative procedure prior to the arbitration, cannot be accepted.

In fact, the production of evidence during the administrative procedure is not a condition precedent for the exercise of the right to arbitral request. Moreover, the Respondent, as the active subject of the tax relationship, had the obligation, at the moment of the issuance of the tax acts, to verify whether the Claimant was indeed the taxpayer, in accordance with the law then in force and the legal doctrine prevailing, an obligation which the TA did not fulfill.

The fact that the Claimant only presented certain proof in the context of the arbitral request does not relieve the Respondent of this obligation. The Respondent's allegation is, therefore, devoid of foundation.

V – FINAL DECISION

Based on all the foregoing, the Arbitral Tribunal hereby DECIDES:

To declare ILLEGAL and to ANNUL all 249 acts of assessment of Single Vehicle Tax (SVT), relating to the years 2009 to 2012, relating to the vehicles identified in the table attached as Annex A to the Claim;
To declare ILLEGAL and to ANNUL all 249 acts of assessment of Compensatory Interest associated with the SVT assessments referred to in point 1 above;
To order the Tax and Customs Authority to REFUND to the Claimant the amount of € 17,316.23, corresponding to the SVT and associated Compensatory Interest unduly paid;
To order the Tax and Customs Authority to PAY to the Claimant INDEMNIFICATORY INTEREST, calculated from the date of payment of each of the SVT assessments and corresponding Compensatory Interest, until the date on which the restoration of the situation is verified, in accordance with Article 100, No. 2, of the General Tax Law, at the rate fixed by law for overdue tax debts;
To condemn the Tax and Customs Authority to PAYMENT of the ARBITRAL COSTS.

Accordingly, the allegation of the defect of lack of reasoning is rejected as unfounded;

The allegation that the Claimant was not a taxpayer for SVT purposes is granted, in its entirety;

The allegation that the Claimant made sufficient proof to rebut the presumption is granted, in its entirety;

The allegation that the Claimant is entitled to indemnificatory interest is granted, in its entirety;

The allegation of the Respondent is rejected in its entirety.

The arbitral request of the Claimant is WHOLLY GRANTED.

Lisbon, [Date]

[Signature]

The Arbitrator

Frequently Asked Questions

Automatically Created

Who is liable for IUC (Imposto Único de Circulação) payment when vehicle ownership is disputed?

Under Portuguese IUC law, liability for tax payment depends on the legal relationship with the vehicle. According to the IUC Code, the taxpayer is generally the vehicle owner registered in the vehicle registry. However, in financial leasing and long-term rental arrangements, the law establishes that the lessee (user) rather than the lessor (legal owner) is the liable taxpayer. This distinction is crucial because in leasing contracts, while the financial institution retains legal ownership until final payment, the lessee has effective possession, use, and economic benefit of the vehicle. The subjective incidence follows economic substance over legal form, meaning the party exercising ownership rights and deriving utility from the vehicle bears the tax obligation. When ownership is disputed or unclear, tax authorities must examine the contractual arrangement, registry data, and actual vehicle possession to determine proper taxpayer identification. Courts and arbitral tribunals analyze whether the assessed party meets the legal criteria for IUC liability under Articles 2-3 of the IUC Code.

Can a taxpayer challenge multiple IUC tax assessments in a single CAAD arbitration proceeding?

Yes, Portuguese tax arbitration law explicitly permits cumulative challenges of multiple related tax assessments in a single CAAD proceeding. Article 3(1) of LITA (Legal Framework for Tax Arbitration) and Article 104 of the Tax Procedure Code authorize cumulation when certain conditions are met: identity of the tax type, common factual circumstances underlying the assessments, and application of the same legal rules across all contested acts. In Process 46/2014-T, the tribunal accepted joint review of 249 IUC assessments covering years 2009-2012 because all cases involved the same tax, similar leasing arrangements, and identical legal questions about subjective incidence. This procedural efficiency mechanism prevents multiplicity of proceedings, reduces litigation costs, ensures consistent rulings on identical legal issues, and avoids contradictory decisions. The cumulation is particularly appropriate when assessments stem from systematic administrative practice affecting multiple vehicles under the same business model. Taxpayers must still identify each contested assessment individually with specific details (amounts, reference numbers, tax periods) as demonstrated in the required annexes listing all 249 vehicles by license plate.

What is subjective incidence in Portuguese vehicle circulation tax (IUC) law?

Subjective incidence (incidência subjetiva) in Portuguese IUC law determines who is the taxpayer obligated to pay the vehicle circulation tax. This concept identifies the person—individual or legal entity—upon whom the tax obligation falls. Under the IUC Code, subjective incidence generally targets the vehicle owner as registered in the vehicle registry (Conservatória do Registo Automóvel). However, the law recognizes special situations where legal ownership diverges from tax liability. In financial leasing and long-term rental contracts, despite the lessor retaining legal ownership until contract conclusion, the lessee is designated as the taxpayer because they exercise effective possession, use the vehicle for circulation on public roads, and derive economic benefit from it. This reflects the principle that IUC taxation should burden the party actually using the vehicle rather than the entity holding bare legal title for security purposes. Subjective incidence differs from objective incidence (which defines what is taxed—the vehicle itself) and territorial incidence (where the tax applies). Correctly determining subjective incidence is essential for valid tax assessment; errors in taxpayer identification constitute grounds for annulment of assessments, as assessments must be directed to the legally liable party.

How does the CAAD arbitral tribunal process work for contesting IUC tax liquidations?

The CAAD arbitral tribunal process for contesting IUC assessments follows the procedure established in Decree-Law 10/2011 (LITA). Taxpayers initiate proceedings by submitting a written arbitration request identifying contested assessments, legal grounds, and supporting documentation within the statutory deadline. Upon acceptance, the CAAD President appoints an arbitrator (or the taxpayer may choose to select one), and the Tax Authority is notified to submit a reply within the legal timeframe, typically accompanied by the administrative file. After the written phase, Article 18 of LITA provides for a mandatory procedural meeting where parties may present additional evidence, request document production, and indicate whether they prefer oral hearings or written submissions for final arguments. The tribunal may set viewing periods for document analysis and simultaneous deadlines for final arguments. Throughout the process, parties may submit evidence, and the tribunal evaluates whether procedural prerequisites are met: material jurisdiction, party legitimacy, legal standing, and absence of nullities. The tribunal must issue its arbitral decision within six months of constitution (extendable once). The decision has the same force as a court judgment, is binding on the Tax Authority, and can be appealed to administrative courts only on limited grounds. This alternative dispute resolution mechanism offers taxpayers a faster, specialized forum versus traditional judicial courts for tax disputes.

What grounds justify the annulment of official IUC tax assessments by the Portuguese Tax Authority?

Official IUC tax assessments by the Portuguese Tax Authority can be annulled on various legal grounds. Primary grounds include: (1) Error in subjective incidence—assessing the wrong taxpayer, such as charging the lessor instead of the lessee in leasing arrangements; (2) Errors in calculating tax amount, including wrong vehicle category, engine capacity, or emission standards; (3) Procedural violations, such as failure to notify the taxpayer properly, missing mandatory legal requirements, or assessing time-barred periods; (4) Legal interpretation errors regarding applicable law, rates, exemptions, or deductions; (5) Double taxation, where the same vehicle and period are assessed multiple times; (6) Lack of factual basis, when the assessment lacks supporting documentation or contradicts verified facts; (7) Violation of legitimate expectations or principles of proportionality and equal treatment; (8) Assessment of vehicles exempt from IUC under specific legal provisions. The burden of proof varies: the Tax Authority must prove facts supporting taxation, while taxpayers must prove facts supporting exemptions or deductions. In Process 46/2014-T, the claimant argued illegality based on incorrect subjective incidence, contending that assessments wrongly targeted the financial institution rather than the lessees who acquired the vehicles. Successful annulment requires demonstrating that the assessment violates substantive or procedural tax law provisions, rendering it illegal and therefore void.

IUC Subjective Incidence: Annulment of 249 Vehicle Tax Assessments (CAAD 46/2014-T)

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I REPORT

A) The Parties and the Constitution of the Arbitral Tribunal

B) Procedural Prerequisites

C) THE CLAIM FORMULATED BY THE CLAIMANT

D) THE RESPONDENT'S REPLY

II. ISSUES TO BE DECIDED

III. FACTUAL BASIS

A) Proven Facts

B) FACTUAL BASIS FOR THE PROVEN FACTS

C) UNPROVEN FACTS

IV – LEGAL BASIS

1st - The Alleged Defect of Lack of Reasoning

2nd - The Subjective Incidence of SVT, the Effects of Motor Vehicle Registration and the Possible Existence or Non-Existence of a Rebuttable Presumption

3rd) Proof of Transfer of Ownership of Vehicles and Rebuttal of the Presumption

4th) The Claim and the Right to Payment of Indemnificatory Interest

5th) Responsibility for Payment of Arbitral Costs

V – FINAL DECISION

Frequently Asked Questions

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Table of Contents

IUC Subjective Incidence: Annulment of 249 Vehicle Tax Assessments (CAAD 46/2014-T)

Table of Contents

Summary

Full Decision

ARBITRAL DECISION

I REPORT

A) The Parties and the Constitution of the Arbitral Tribunal

B) Procedural Prerequisites

C) THE CLAIM FORMULATED BY THE CLAIMANT

D) THE RESPONDENT'S REPLY

II. ISSUES TO BE DECIDED

III. FACTUAL BASIS

A) Proven Facts

B) FACTUAL BASIS FOR THE PROVEN FACTS

C) UNPROVEN FACTS

IV – LEGAL BASIS

1st - The Alleged Defect of Lack of Reasoning

2nd - The Subjective Incidence of SVT, the Effects of Motor Vehicle Registration and the Possible Existence or Non-Existence of a Rebuttable Presumption

3rd) Proof of Transfer of Ownership of Vehicles and Rebuttal of the Presumption

4th) The Claim and the Right to Payment of Indemnificatory Interest

5th) Responsibility for Payment of Arbitral Costs

V – FINAL DECISION

Frequently Asked Questions

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Table of Contents