Process: 479/2017-T

Date: January 10, 2018

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 479/2017-T) addresses the critical issue of subjective incidence of Portugal's Vehicle Circulation Tax (IUC) on vehicles under financial leasing contracts. A leasing company challenged IUC assessments for the 2016 tax period, arguing it had transferred vehicles to third parties after leasing contracts ended, thus ceasing to be the legal owner. The Tax Authority maintained the assessments, relying on Article 3(1) of the IUC Code, which establishes that taxpayers are those in whose name vehicles are registered. The AT argued that vehicle registration creates a determinative presumption of ownership for tax purposes, and that the claimant failed to comply with Article 19 obligations or update vehicle registrations. The claimant contended that AT incorrectly treated registration as an absolute presumption, ignoring evidence of ownership transfer through sale invoices. The case highlights the tension between formal registration requirements and actual ownership in determining IUC liability. Key issues include: whether registration alone determines tax liability, the evidentiary value of sale invoices in proving ownership transfer, the obligation to update vehicle registrations under Decree-Law 54/75 and the Road Code, and compliance with Article 19 of the IUC Code regarding notification obligations in financial leasing. This decision has significant implications for financial institutions engaged in vehicle leasing operations and clarifies the interplay between civil ownership rights and tax liability determination in the IUC framework.

Full Decision

ARBITRAL DECISION

REPORT

A..., S.A. (hereinafter briefly designated as Claimant), a legal entity..., with registered office at Avenue ..., ..., in Lisbon, came, pursuant to article 10, no. 2, of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter only designated as RJAT), to request the establishment of a single Arbitral Tribunal, in which the Tax and Customs Authority is summoned, hereinafter AT or Respondent, with a view to declaring the illegality of the decision denying (partially) the administrative appeal no. ...2017... and the consequent annulment of the tax acts assessing the Unique Tax on Circulation identified in the case file.

The request for establishment of the Arbitral Tribunal was accepted by the Honorable President of CAAD and automatically notified to the AT on 23 August 2017.

Pursuant to no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31 December, the single Arbitral Tribunal was established on 21 November 2017.

The AT responded, arguing that the request should be dismissed as unfounded.

In view of the content of the matters contained in the case file, the meeting referred to in article 18 of the RJAT and the submission of final arguments were dispensed with.

The Arbitral Tribunal is regularly established and is materially competent, pursuant to paragraph a) of no. 1 of article 2 of the RJAT.

The parties have legal personality and legal capacity, are legitimate and are represented (article 4, and no. 2 of article 10 of the RJAT and article 1 of Ordinance no. 112/2011, of 22 March).

There are no nullities, exceptions or preliminary issues that prevent the immediate examination of the merits of the case.

STATEMENT OF FACTS

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

  • The Claimant is a credit financial institution that may carry out, pursuant to no. 2 of article 4, all financial operations permitted by the legal and regulatory provisions applicable to its activity, including the financial leasing activity of motor vehicles;

  • Under the financial leasing contracts it concludes with its customers, the respective lessees may, at the end of the contract or in advance, proceed to acquire the leased assets, by exercising the purchase option provided for in such contracts;

  • In the course of its activity, the Claimant was notified of several tax assessment acts for IUC and respective compensatory interest, relating to tax periods commenced between 1 and 30 September 2016;

  • The Claimant submitted an administrative appeal against several IUC assessment acts;

  • By a decision dated 22 May 2017, the Claimant was notified of the partial denial of the administrative appeal submitted regarding the IUC assessment acts no. 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., in the amount of €3,710.43;

  • The vehicles corresponding to the IUC assessment acts identified above were subject to financial leasing contracts.

The Tribunal did not consider the following facts proven:

  • The vehicles ..., ..., ..., ..., ..., ..., ..., ..., ... were transferred by the Claimant to third parties in 2016.

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

LEGAL MATTERS

The main questions posed in the present case concern whether the Claimant should be qualified as a taxpayer liable for IUC, in relation to the IUC assessment acts identified in the case, which are subject to financial leasing contracts.

In this regard, the Claimant argues, in summary, as follows:

  • All motor vehicles that gave rise to the assessment acts that are the subject of the present arbitration petition were acquired by the Claimant with a view to concluding financial leasing contracts with its customers whose termination or resolution, as the case may be, occurred well before the beginning of the 2016 tax period;

  • The existence and validity of such contracts were not questioned at any time by the Tax Authority (AT);

  • Likewise, the Claimant demonstrated, through the presentation of the corresponding invoices, that, after the end of the financial leasing contract, within the contractually fixed period or in advance, or upon the resolution of the contracts, in cases where the lessees defaulted, it sold the motor vehicles in question to third parties, who became their legal owners;

  • Notwithstanding these facts, the AT merely annulled the IUC assessment relating to the motor vehicle registration no. ..., identified in no. 41 of the memorandum on which the denial of the administrative appeal was based, which is the subject of the present arbitration petition, maintaining all the others, on the ground that the subjective incidence of IUC is determined exclusively as a function of the vehicle registration, which, for tax purposes, would constitute an absolute presumption of ownership of the registered vehicles.

The AT argues, for its part, in summary, as follows:

  • The Claimant is not justified in claiming the illegality of the IUC assessments (for violation of article 3, no. 2 of the IUC Code) relating to vehicles that are subject to concluded financial leasing contracts;

  • In the first place, even if it were concluded that we are dealing with financial leasing contracts granted by the Claimant, it was still incumbent on the latter to demonstrate that it had complied with the ancillary obligation imposed by article 19 of the IUC Code;

  • In this endeavor, that is, since the Claimant did not comply with that obligation, it must be concluded that it is the taxpayer liable for the tax;

  • The Claimant also argues that the tax acts sub judice are based on an error regarding their assumptions, in that it was no longer the owner of the motor vehicles at issue at the times when the obligation to assess the respective IUC became due, despite the vehicle registration indicating the Claimant as the owner thereof;

  • The second copies of the invoices are not suitable to prove the conclusion of a bilateral contract such as a sale and purchase, as such documents do not in themselves reveal an essential and unequivocal declaration of intent (i.e., acceptance) by the alleged purchasers;

  • Now, since the Claimant did not take care of updating the vehicle registration, as it could and was incumbent on it to do [article 5, paragraph 1-a) of Decree-Law 54/75, of 12 February, and article 118, paragraph 4 of the Road Code], and did not order the cancellation of the registrations of the vehicles in question, it must be concluded that the Claimant did not proceed with the diligence that was required of it;

  • And by not proceeding with the diligence required of it, it inevitably led the Respondent to do no more than fulfill the legal obligations to which it is bound and, in parallel, to follow the registration information that was provided to it by the competent authority;

  • Therefore, it was not the Respondent who gave rise to the submission of the arbitration petition, but rather the Claimant itself;

  • Consequently, the Claimant should be condemned to pay the arbitration costs arising from the present arbitration petition, pursuant to article 527, paragraph 1, of the CPC by virtue of article 29, paragraph 1, letter e) of the RJAT, in line, moreover, with a similar question decided in the context of a case that, under no. 72/2013-T, was heard in this arbitration center.

Let us see what should be understood.

On the Interpretation of no. 1 of article 3 of the IUC Code

Article 3 of the IUC Code provides as follows:

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

2 – Financial lessees, acquirers with reservation of ownership, as well as other holders of purchase option rights by virtue of the leasing contract are equated with owners."

It follows from article 11 of the General Tax Law (LGT) that the interpretation of tax law must be carried out in accordance with the general principles of interpretation.

The main general principles of interpretation are established in article 9 of the Civil Code (CC), in the following terms:

"1. The interpretation should not be confined to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances in which the law was drawn up and the specific conditions of the time in which it is applied.

  1. However, the interpreter cannot consider legislative intent that does not have a minimum of verbal correspondence in the letter of the law, even if imperfectly expressed.

  2. In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most appropriate solutions and was able to express his intent in adequate terms."

It is thus established that there are three elements of interpretation of the Law, namely: the literal element, the historical and rational element and the systematic element.

Having regard to the literal element of the rule here in discussion, it will be important, in the first place, to reconstruct the legislative intent through the words of the law. It is stated in no. 1 of article 3 of the IUC Code that "the taxpayers liable for the tax are the owners of vehicles, being considered as such the natural or legal persons of public or private law, in whose name the same (vehicles) are registered."

According to the AT, the expression "being considered" does not constitute a legal presumption, it being the intention of the legislator to establish expressly and intentionally that the persons in whose name the same (vehicles) are registered are to be considered as such (as owners), since this is the interpretation that preserves the unity of the tax legal system.

However, from a literal point of view, it is found that the expression "being considered" or "is considered" is often used with a meaning equivalent to the expression "being presumed" or "is presumed".

Thus, by way of example, see article 191, no. 6, of the CPPT, among other articles noted in the arbitral decisions handed down in cases nos. 14/2013-T, 27/2013-T, 73/2013-T or 170/2013-T.

In this way, it can be said that the expression "being considered" has "a minimum of verbal correspondence, even if imperfectly expressed", and it should be recognized in such a word a current and normal correspondence to that presumptive sense (See arbitral decision handed down in case no. 286/2013-T).

Nevertheless, and as is pointed out by the AT, the word "considering" is also used outside presumptive contexts.

For this reason, it is important to submit to the control of the other logical elements of interpretation no. 1 of article 3 of the IUC Code.

Thus, having regard to the historical element of interpretation, it is important to consider that bill no. 118/X, of 7.03.2007, underlying Law no. 22-A/2007, of 29.06 establishes "as a structuring and unifying element (…) the principle of equivalence, making it clear that the tax, as a whole, is subordinated to the idea that the taxpayers must be burdened to the extent of the cost they cause to the environment and the road network, this being the reason for existence of this tax figure."

In this context, it seems clear to us that the legislator intended to tax the real and actual taxpayer causing road and environmental damage and not any holder of a vehicle registration.

As has been repeatedly emphasized in various arbitral decisions, the principle of equivalence aims to internalize the negative environmental externalities resulting from the use of motor vehicles, and was established as a fundamental principle of the taxation of motor vehicles in circulation.

As Sérgio Vasques argues, in "Special Consumption Taxes", Almedina, Coimbra, 2001, p. 122, "Thus, a tax on automobiles based on a rule of equivalence will be fair only if those who cause the same road wear and the same environmental cost pay the same tax; and those who cause different road wear and environmental cost, pay different taxes as well", adding that the implementation of that principle "(…) dictates other requirements also with regard to the subjective incidence of the tax (…)".

Taking into account the rationale underlying the creation of the current IUC Code, in particular, the emergence of the principle of equivalence as a structuring and unifying principle of the taxation of vehicles in circulation, it seems to us that no. 1 of article 3 of the IUC Code cannot be interpreted as a closed command, but rather as a rebuttable presumption, which is based on the assumption that in reality the agent responsible for environmental damage is, as a rule, the registered owner of the automobile. An assumption that cannot be disregarded if in reality it is another agent responsible, that is, the taxpayer liable for IUC.

From a systematic point of view, it is important to reiterate that in article 1 of the IUC Code it is established that "The unique tax on circulation is subject to the principle of equivalence, seeking to burden the taxpayers to the extent of the environmental and road cost that they cause, in implementation of a general rule of tax equality."

As A. Brigas Afonso and Manuel T. Fernandes argue, in "Tax on Vehicles and Unique Tax on Circulation, Annotated Codes", pp. p. 183, "the legislator seeks to legitimize the taxation of motor vehicles on the basis of the negative externalities they cause (in public health, the environment, road safety, congestion of communication routes and urban landscape) demystifying the idea that vehicle taxation is very high in Portugal."

According to Batista Machado, in "Introduction to Law and to the Legitimating Discourse", p. 183, the systematic element "comprises the consideration of the other provisions that form the normative complex of the institute in which the norm being interpreted is integrated, that is, that regulate the same matter (context of the law), as well as the consideration of legal provisions that regulate parallel normative problems or related institutes (parallel places). It also comprises the systematic place that belongs to the norm being interpreted in the overall legal order, as well as its consonance with the spirit or intrinsic unity of the entire legal order."

This is, moreover, the fairest solution if we consider that the unity of the tax system cannot but be found in the principle of material truth and the principle of proportionality (See Saldanha Sanches, in "Principles of Tax Dispute", pp. p. 21, and Alberto Xavier, in "Concept and Nature of the Tax Act", pp. 147 et seq.).

In truth, the interpretation here defended is not only the one that best aligns with the principle of material truth, but also the only one that serves the purposes of tax justice.

Considering that tax law exists to regulate conflicts of interest between the State's claims to pursue the public interest of obtaining revenue and taxpayers' claims to maintain the integrity of their assets, the safeguarding of the State's patrimonial or financial interest should not, as a rule, serve as a criterion for interpreting the tax rule.

In sum: based on article 9 of the CC, it is considered that all elements of interpretation (literal, historical and systematic) point in the direction that article 3, no. 1, of the IUC Code, in the wording applicable as of the date of the tax facts, establishes a rebuttable presumption. This means that the taxpayers liable for IUC, being, in principle, the owners of vehicles, being considered as such the persons in whose name the same are registered, may, after all, be others, if they are effectively others the causers of environmental damage, as users of vehicles in circulation.

Having regard to the foregoing, it is understood that the provision under analysis establishes a presumption of ownership in favor of the persons in whose name the vehicles are registered.

Pursuant to article 73 of the LGT, "Presumptions enshrined in tax incidence rules always admit proof to the contrary."

As Diogo Leite Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa argue, in "General Tax Law, Annotated and Commented", pp. p. 652, 4th Edition, "what is intended "always" is to tax real income and not non-existent income and it is for this reason, wanting to always tax real values, that article 73 of the LGT always permits rebutting presumptions.

This is the interpretation that is in harmony, on the one hand, with the principle stated in article 11, no. 3, of the LGT that, in cases of doubt about the interpretation of tax rules "regard should be had to the economic substance of tax facts" and, on the other hand, with the principle of equality in the distribution of public charges, which requires that the taxation of the generality of taxpayers, whenever possible, be based on the economic reality underlying the tax facts and does not accord with the existence of special cases of taxation based on fictitious values in situations in which the real value of the tax facts is known or can be ascertained.

The Specific Case

In light of the foregoing, let us see who is the taxpayer liable for IUC in relation to the vehicles covered by the financial leasing contracts concluded by the Claimant.

The Claimant remained on the register as the owner and lessor of the vehicles ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ..., ... and therefore the AT sought to impute to it the responsibility for the payment of IUC, pursuant to article 3, no. 1, of the IUC Code.

However, the Claimant argues that, in fact, the said vehicles had already been transferred as of the date when the IUC became due, and for this purpose it attached the invoices corresponding to the alleged transfers of the vehicles.

However, the Tribunal considers that with such documents alone, the transfer of ownership of the vehicles was not demonstrated, since no proof of payment, sales declarations or other documents demonstrating the transfer of ownership were attached.

Consequently, based on the documents attached, the Tribunal is convinced that with regard to the IUC assessment acts no. 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., the responsibility for their payment is attributable to the Claimant.

DECISION

Thus, the Tribunal decides:

  • To dismiss as unfounded and unproven the request for a declaration of illegality of the decision denying the administrative appeal submitted regarding the IUC assessment acts no. 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016..., 2016...;

  • To condemn the Claimant to pay the costs of the present proceedings, as the losing party.

VALUE OF THE CASE

In accordance with article 306, no. 2 of the Civil Procedure Code, 97-A of the CPPT and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the claim is set at €3,710.43.

COSTS

Pursuant to articles 12, no. 2 of the RJAT, and article 4, no. 4 of the Regulation of Costs of Tax Arbitration Proceedings, the arbitration fee is set at €612.00, in accordance with Table I of the said Regulation, to be borne by the Claimant.

Let notice be given.

Lisbon, 10 January 2018

The Arbitrator

Magda Feliciano

(The text of this decision was prepared on computer, in accordance with article 131, no. 5, of the Civil Procedure Code, applicable by reference to article 29, no. 1, paragraph e) of Decree-Law no. 10/2011, of 20 January (RJAT), governed by the pre-1990 Orthographic Agreement spelling.)

Frequently Asked Questions

Automatically Created

Who is liable for IUC payment on vehicles under a financial leasing contract in Portugal?
Under Article 3 of the IUC Code, the primary taxpayer is the registered owner of the vehicle. In financial leasing contracts, Article 3(2) specifies that financial lessees are also liable for IUC. However, when the leasing contract ends and the lessee exercises the purchase option or the vehicle is sold to a third party, liability depends on updating the vehicle registration. Until the registration is transferred to the new owner, the entity listed in the registration (typically the leasing company) remains the taxpayer for IUC purposes. The lessor must comply with Article 19 notification obligations and ensure timely registration updates to avoid continued tax liability.
Can a leasing company challenge IUC tax assessments through arbitration at CAAD?
Yes, leasing companies have the right to challenge IUC tax assessments through the Tax Arbitration Court (CAAD). The procedure requires first filing an administrative appeal (reclamação graciosa) with the Tax Authority. If this appeal is denied or partially denied, the company can then request arbitration under the RJAT (Legal Framework for Arbitration in Tax Matters - Decree-Law 10/2011). This case demonstrates the process: the claimant filed an administrative appeal against multiple IUC assessments, which was partially denied in May 2017, then proceeded to arbitration in August 2017. CAAD has material jurisdiction over IUC disputes under Article 2(1)(a) of RJAT.
What is subjective incidence (incidência subjectiva) in the context of Portuguese Vehicle Circulation Tax (IUC)?
Subjective incidence (incidência subjectiva) in IUC refers to the determination of who is the taxpayer liable for the tax - essentially identifying the taxable person. Article 3(1) of the IUC Code establishes that subjective incidence is determined by vehicle registration: taxpayers are those in whose name vehicles are registered. This creates a legal presumption linking registration to tax liability. The dispute in this case centered on whether this registration-based rule constitutes an absolute or rebuttable presumption, particularly when actual ownership has transferred but registration has not been updated. The Tax Authority argued registration determines liability definitively, while the claimant argued that actual ownership should prevail over formal registration.
How does the exercise of the purchase option in a vehicle leasing contract affect IUC liability?
The exercise of the purchase option in a vehicle leasing contract theoretically transfers ownership from the lessor (leasing company) to the lessee, which should shift IUC liability to the new owner. However, for tax purposes, the critical factor is updating the vehicle registration. Under Article 3 of the IUC Code, the registered owner remains the taxpayer until the registration is formally transferred. Additionally, Article 19 of the IUC Code imposes notification obligations on parties to financial leasing contracts. If the lessor fails to update the registration or comply with Article 19 requirements, they remain liable for IUC even after the purchase option is exercised. The lessor has the obligation under Article 5(1)(a) of Decree-Law 54/75 and Article 118(4) of the Road Code to ensure registration updates.
What is the procedure for filing a gracious complaint (reclamação graciosa) against IUC tax assessments in Portugal?
The procedure for challenging IUC assessments in Portugal follows a two-stage process. First, taxpayers must file a gracious complaint (reclamação graciosa) or administrative appeal with the Tax Authority within the statutory deadline from notification of the assessment. The Tax Authority reviews the case and issues a decision granting or denying the appeal. If the taxpayer disagrees with this decision (whether full or partial denial), they can escalate to arbitration by filing a request with CAAD (Centro de Arbitragem Administrativa) under the RJAT framework within 90 days of notification of the administrative decision. The arbitration tribunal is then constituted to decide the matter. This administrative appeal stage is generally a prerequisite before accessing tax arbitration, ensuring the Tax Authority has an opportunity to reconsider the assessment before judicial review.