Process: 499/2017-T

Date: March 6, 2018

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 499/2017-T) addresses the critical issue of subjective incidence in IUC (Single Vehicle Circulation Tax) assessments involving a financial leasing company. The petitioner, a leasing company, challenged IUC assessments for 2012-2014 on vehicles that remained registered in its name despite being transferred to lessees at the end of financial leasing contracts. The company filed requests for official revision arguing it was not the taxable subject since vehicles had been transferred to third parties before the tax events occurred. The Tax Authority rejected these requests as untimely. The core legal dispute centers on whether the registered owner or the actual owner bears IUC liability when ownership has transferred but registration remains unchanged, and whether the four-year deadline under Article 78(1) of the General Tax Law applies when assessments allegedly result from tax administration errors. The case involves €27,092.63 in contested IUC payments and raises fundamental questions about the relationship between vehicle registration, actual ownership, and tax liability in Portuguese tax law. The decision examines procedural aspects of official tax act revision, particularly the applicability of extended deadlines for errors attributable to tax authorities, alongside substantive questions of who constitutes the passive subject of IUC obligations in leasing transfer scenarios.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. A…, S.A., legal entity no. …, with registered office in …, …, …-… …, requested the constitution of an arbitral tribunal in tax matters, filing a request for arbitral decision against decisions of the Tax and Customs Authority (AT) rejecting various requests for official revision of a tax act and, consequently, against the acts of assessment of the Single Vehicle Circulation Tax (IUC) relating to the years 2012 and 2014 and the vehicles identified by their respective registration numbers in articles 22 and 25 of the petition, the annulment of which it requests. As a consequence of the said annulment, it requests that the inherent consequences be drawn, namely the ordering of the Tax Authority to refund the amount of €27,092.63, which it considers wrongfully paid.

  2. As grounds for the request, filed on 06-09-2017, the Petitioner alleges, in summary, that having submitted requests for official revision of the IUC assessments in question, these were rejected on the grounds of their untimeliness, a fact which, in its understanding, does not obtain since the questioned assessments result from an error attributable to the tax administration services and the revision requests were submitted within the four-year period provided for in the second part of no. 1 of article 78 of the General Tax Law. Furthermore, regarding the status of passive subject of the tax obligation to which those assessments relate, the Petitioner invokes the fact that it does not assume such status in relation to the tax periods and vehicles to which they refer.

  3. According to what is alleged by the Petitioner, the said vehicles, although they were registered in its name at the date to which the tax events to which those assessments refer relate, had already been transferred to third parties and therefore were not its property at the date of the taxable event and enforceability of the tax in question.

  4. In response to the request, the Tax and Customs Authority (AT) ruled on the lack of merit of the present request for arbitral decision, with the tax acts challenged remaining in the legal order, and accordingly, for the dismissal of the respondent entity.

  5. The request for constitution of the arbitral tribunal was accepted by the President of the CAAD and automatically notified to the Tax and Customs Authority on 22-09-2017.

  6. Pursuant to the provisions of subparagraph a) of no. 2 of article 6 and subparagraph b) of no. 1 of article 11 of Decree-Law no. 10/2011, of 20/01, as amended by article 228 of Law no. 66-B/2012, of 31/12, the Deontological Council designated the undersigned as arbitrator of the sole arbitral tribunal, who communicated acceptance of the assignment within the applicable period, and notified the parties of this designation on 08-11-2017.

  7. Duly notified of this designation, the parties did not manifest a will to challenge the designation of the arbitrator in accordance with the combined terms of article 11, no. 1, subparagraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code.

  8. Thus, in accordance with the provisions of subparagraph c) of no. 1 of article 11 of the RJAT, as amended by article 228 of Law no. 66-B/2012, of 31/12, the sole arbitral tribunal was constituted on 28-11-2017.

  9. Regularly constituted, the arbitral tribunal has material jurisdiction, in light of the provisions of article 2, no. 1, subparagraph a), of the RJAT.

  10. The parties have legal personality and capacity and have standing (articles 4 and 10, no. 2, of the RJAT, and article 1 of Ordinance no. 112-A/2011, of 22/03).

  11. No nullities occur and no preliminary questions or exceptions have been raised, so nothing prevents judgment on the merits, and thus the present case is in a position for a final decision to be rendered.

  12. In light of the knowledge that derives from the procedural documents submitted by the parties, in particular from the administrative file, which is considered sufficient for the decision, the Tribunal decided to waive the hearing referred to in article 18 of the RJAT.

II. FACTUAL MATTERS

  1. With relevance to the assessment of the issues raised in the present request for arbitral decision, the following factual elements are highlighted, which, based on the documentary evidence submitted to the record, are considered proven:

13.1. The Petitioner is a company whose corporate purpose is the activity of financial leasing of motor vehicles.

13.2. In the scope of this activity, it holds, for short periods of time, the ownership of motor vehicles, registered in its name and delivered to the respective lessees under financial leasing contracts.

13.3. At the end of the leasing contracts, the lessees acquire the leased vehicles, and the Petitioner then sends them the necessary documentation so that they proceed to register the vehicles in their name.

13.4. With the vehicles registered in the name of the Petitioner, the Tax and Customs Authority assessed the IUC relating to the periods of 2012 to 2014 on various motor vehicles, issuing the corresponding assessment notices with payment due dates in various months of those years.

13.5. The Petitioner challenged such assessments through requests for official revision of a tax act filed under article 78 of the General Tax Law, alleging that at the date of the corresponding tax event, the vehicles in question were no longer its property as they had been transferred to the respective lessees, in accordance with the terms of the respective financial leasing contracts. To substantiate its allegation, the Petitioner attached to the revision requests copies of debit notes issued to the lessees/purchasers (Docs. 1 and 2).

13.6. To the said requests, submitted to the Finance Service of Oeiras-… on various dates in 2016, the numbers …2016…, …2016…, …2016…, …2016…, …2016…, …2016…, …2016… were assigned, all from 2016.

13.7. By decisions of the Assistant Finance Director of the Finance Department of Lisbon, issued in exercise of delegated authority, dated 25 and 29 June 2017, the revision requests were rejected, on the grounds of their untimeliness, and the decisions were notified to the Petitioner through letters dated 2 and 30 June 2017.

  1. There are no facts relevant to the decision that have not been proven.

III. JOINDER OF CLAIMS

  1. The present request for arbitral decision relates to various IUC assessments. However, taking into account the identity of the tax facts, the court competent to decide and the factual and legal grounds invoked, the tribunal considers that nothing prevents, in light of the provisions of articles 3 of the RJAT and 104 of the CPPT, the joinder of claims.

IV. LEGAL MATTERS

  1. In the request for arbitral decision, the Petitioner submits to the assessment of this tribunal the legality of acts of express rejection of various requests for official revision of a tax act and, consequently, the legality of the acts of IUC assessment relating to the periods of 2012 and 2014 and the vehicles it identifies in articles 22 and 25 of the respective petition. To this end, it invokes the circumstance that, at the date to which the tax events originating them relate, those vehicles were already transferred to third parties, at the end of and in accordance with the respective financial leasing contracts, and consequently did not assume the status of passive subject of the tax that was assessed against it.

  2. The requests filed by the Petitioner were subject to reports from the tax services, drawn up in identical terms, of which the following is transcribed:

"III. PRELIMINARY QUESTIONS

...

III.B) SUITABILITY OF THE REMEDY AND TIMELINESS OF THE REQUEST FOR OFFICIAL REVISION

1.1. The first part of no. 1 of article 78 of the LGT establishes that "the revision of tax acts by the entity that performed them may be carried out at the initiative of the passive subject, within the period of administrative complaint and on the grounds of any illegality" (underlining ours).

1.2. "(...)with in the CPPT, in article 68 et seq., an administrative complaint of the assessment act, called 'gracious complaint', it shall be its legal period that should be understood as the 'period of administrative complaint (...)'.

1.3. In this sense, it is found that the request made by petition, which is considered submitted on 2016-10-14 (fls.1) appears manifestly UNTIMELY.

2.1. The second part of no. 1 of article 78 of the LGT establishes that "at the initiative of the tax administration within the four-year period following the assessment or at any time if the tax has not yet been paid, on the grounds of an error attributable to the services (underlined and bold ours).

2.2. Since the IUC was assessed in accordance with the information that the tax administration had available as per the grounds below in V-ANALYSIS OF THE REQUEST, there is no evidence that there is any error of fact or law attributable to the services, so it does not appear that the second part of no. 1 of article 78 of the LGT applies.

3.1. No. 4 of article 78 of the LGT establishes that "the head of the service may exceptionally authorize, in the three years following the year of the tax act, the revision of the taxable matter determined on the grounds of serious or notorious injustice, provided that the error is not attributable to negligent conduct of the taxpayer"

3.2. Therefore, the procedure of no. 4 aims at the alteration of the taxable matter, in order to resolve situations of grave injustice, which does not occur in the present case, insofar as what is intended is the exclusion of the rule of subjective scope in the context of IUC. Thus, being at issue the act of IUC assessment and, taking into account article 7 of the CIUC and the specific nature of the IUC, the taxable matter is based on the elements provided for in the various subparagraphs of this article"."

  1. On each of the reports relating to the revision requests, all of them drawn up in identical terms to that from which the above excerpt is extracted, decisions were issued by the Assistant Finance Director, also in identical terms: "In light of the opinions that precede, the information below and with the other elements of the file I consider that the request does not merit approval since, as reported, the legal requirements for the requested revision are not met and this is a matter sanctioned at a higher level in the sense of rejecting the request..."

  2. It being extracted from the documentary elements that make up the administrative file that all the challenged assessments had as the voluntary payment period various months of the years 2012, 2013 and 2014 and the requests for official revision were, all of them, filed in 2016, therefore already after the expiration of the administrative complaint period provided for in the first part of no. 1 of article 78 of the General Tax Law, it is important to know if, nevertheless, the requests could fall within the period provided for in the second part of the same article.

  3. From the information and decision transcribed above, it is understood that the understanding contained in them, and which grounds the rejection decisions, goes in the direction that, in the cases to which the requests for official revision relate, the error, of fact or law, attributable to the services, that would justify the four-year period referred to in that provision, does not occur.

  4. The non-existence of an error attributable to the services, according to the reports on which the rejection decisions are grounded, is based on the fact that, as follows from the applicable law, the challenged assessments were made by the AT in light of elements made available by the Motor Vehicle Registry and the IMTT.

  5. A different understanding is that sustained by the Petitioner. After reaffirming that the error attributable to the services encompasses both factual and legal error, the Petitioner states that "there is, in the present case, an error attributable to the services embodied in a legal error, insofar as there is a misapplication of the rules of the IUC Code, in particular article 3 of this legal instrument".

  6. This understanding is based on the fact that, as the Petitioner alleges, "it always made efforts to alert the AT to the illegality of the amount of the tax that was being assessed against it", in particular because "it attached to the requests for revision of a tax act that it filed various debit notes proving that it was owed amounts due by the subjects with whom it had concluded financial leasing contracts."

  7. As grounds for the assessments and support for the decisions rejecting the requests for official revision, the AT invokes the rule of article 3 of the IUC Code which, as worded at the date of the facts, establishes the subjective scope of the tax in the following terms:

"1- Are passive subjects of the tax the owners of the vehicles, considering as such the natural or legal persons, of public or private law, in whose name they are registered.

2 - Are equated to owners the financial lessees, the purchasers with reservation of ownership, as well as other holders of purchase option rights by virtue of the leasing contract."

  1. Whether it is understood that the transcribed rule establishes a rebuttable presumption, in general terms – as is unanimously understood by the case law – or whether it is considered not to be the case, it is not apparent that, with regard to the assessments to which the requests for official revision relate and, consequently, the present request for arbitral decision, there exists an error attributable to the services of the tax administration.

  2. Indeed, those assessments were made on the basis of elements available in the databases of the Motor Vehicle Registry and the IMTT. With regard to the determination of the passive subject of the tax obligation, it is thus evident that the AT carried out the assessments in strict compliance with the applicable legal rule: the vehicles to which the tax relates were registered in the name of the Petitioner, therefore, according to the rule of no. 1 of article 3 of the CIUC, it was the passive subject of the corresponding tax obligation.

  3. Bound by the principle of legality, the AT could not have proceeded differently from the way it did, that is, it could not have failed to effect the assessments and issue the corresponding assessment notices in the name of the owners of the vehicles as per their respective registration.

  4. Admitting, as is admitted, that the rule of subjective scope establishes a presumption, it is a rebuttable presumption, in general terms and, in particular, under article 73 of the General Tax Law.

  5. Thus, the Petitioner could, within the legal period, react against it, either by resorting to the contradictory procedure provided for in article 64 of the CPPT, or through administrative complaint or judicial challenge of the assessment act based on it.

  6. From the elements of the present case, it is apparent that the Petitioner did not use any of the legal remedies at its disposal to rebut the presumption of ownership of the vehicles derived from motor vehicle registration.

  7. After the periods for administrative complaint and judicial challenge had expired, the Petitioner requested official revision of the assessments under no. 1 of article 78 of the LGT.

  8. Indeed, this provision provides that "- The revision of tax acts by the entity that performed them may be carried out at the initiative of the passive subject, within the period of administrative complaint and on the grounds of any illegality, or at the initiative of the tax administration, within the four-year period following the assessment or at any time if the tax has not yet been paid, on the grounds of an error attributable to the services."

  9. Whether the administrative complaint period referred to in the first part of the transcribed provision is the 15-day period referred to in no. 3 of article 191 of the Administrative Procedure Code or the 120-day period provided for in article 70 of the CPPT, it follows from the facts shown in the case that the requests were, all of them, filed after the expiration of any of the said periods.

  10. However, at the date of submission of the revision requests to the competent finance service, the four-year period referred to in the second part of no. 1 of article 78 of the LGT was still running.

  11. As expressly provided in no. 1 of the said article, the revision of the tax act may be carried out at the initiative of the passive subject, within the period of administrative complaint, on the grounds of any illegality or at the initiative of the tax administration, within the four-year period following the assessment (or at any time if the tax has not yet been paid) on the grounds of an error attributable to the services. It is noted that, notwithstanding this latter period referring to the initiative of the tax administration, it is settled case law that such initiative may be invoked at the request of the passive subject for this purpose.

  12. In the case under analysis, it is found that the requests, clearly untimely if considered within the period provided for in the first part of no. 1 of article 78 of the LGT, were submitted within the 4-year period referred to in the second part of the same provision.

  13. In the first case, the request for revision of the act may be based on any illegality. However, under the second part of the cited provision and within the said period, official revision of assessment acts may only be carried out "on the grounds of an error attributable to the services".[1]

  14. As already concluded above, it is not found that the challenged assessments suffer from the error, of fact or law, attributable to the services of the tax administration, that would enable the extension of the period for their official revision to be carried out.

V. DECISION

On these grounds, and with the reasons set forth, the Arbitral Tribunal decides:

  • To declare the request for arbitral decision wholly unfounded and, consequently, to uphold the tax acts challenged;

  • To order the Petitioner to pay the costs of the proceedings.

Value of the matter: €27,092.63

Costs: Pursuant to article 22, no. 4, of the RJAT, and in accordance with Table I annexed to the Rules of Costs in Tax Arbitration Proceedings, I set the amount of the costs at €1,530.00, to be borne by the Petitioner.

Lisbon, 6 March 2018,

The Arbitrator, Álvaro Caneira.

[1] In this sense, STA, Decision of 4.5.2016, Case 0407/15

Frequently Asked Questions

Automatically Created

Who is the taxable subject for IUC when a vehicle has been sold but remains registered under the previous owner's name?
In Portuguese tax law, IUC liability is generally determined by vehicle registration rather than actual ownership. When a vehicle has been sold or transferred but remains registered under the previous owner's name, the registered owner typically remains the taxable subject for IUC purposes until the registration is officially transferred. In leasing scenarios, when lessees acquire vehicles at the end of financial leasing contracts but registration remains in the leasing company's name, the tax authorities assess IUC against the registered owner. However, taxpayers can challenge such assessments by demonstrating that actual ownership had transferred before the tax event date, though the burden of proof and procedural requirements remain substantial.
Can a company request an official review of IUC tax assessments based on errors attributable to tax authorities?
Yes, under Article 78(1) of the General Tax Law (Lei Geral Tributária), companies can request official revision of tax assessments when errors are attributable to tax authorities. The law provides two different deadlines: the standard administrative complaint period for general revision requests, and an extended four-year period specifically for cases involving errors attributable to tax administration services. To benefit from the four-year deadline, the taxpayer must demonstrate that the assessment resulted from an error by the tax authorities rather than the taxpayer's own actions or omissions. In this case, the leasing company argued that IUC assessments on transferred vehicles constituted tax administration errors, entitling it to the longer deadline, though the Tax Authority contested this interpretation and rejected the requests as untimely.
What is the four-year deadline under Article 78(1) of the General Tax Law for filing an official review of tax acts?
Article 78(1) of the General Tax Law establishes a four-year deadline for requesting official revision of tax acts when the error is attributable to tax administration services. This extended deadline is specified in the second part of Article 78(1) and differs from the shorter administrative complaint period. The four-year period aims to allow taxpayers adequate time to identify and challenge tax assessments resulting from administrative errors rather than taxpayer mistakes. This deadline is particularly relevant when tax authorities assess taxes based on outdated registration information or fail to account for ownership changes properly recorded in their systems. Taxpayers invoking this four-year period must prove that the assessment error was attributable to the tax administration, not to their own failure to update registrations or provide required information.
Does the transfer of vehicle ownership to third parties exempt the registered owner from IUC liability?
Transfer of vehicle ownership to third parties does not automatically exempt the registered owner from IUC liability under Portuguese tax law. IUC is assessed based on vehicle registration records, and the registered owner remains the passive subject of the tax obligation until the registration is officially transferred to the new owner. In financial leasing contexts, when lessees acquire vehicles at contract end, the leasing company must provide documentation for lessees to complete registration transfers. Until this registration is completed, the leasing company remains liable for IUC. However, taxpayers can challenge assessments by proving actual ownership had transferred before the tax event date and requesting official revision. The success of such challenges depends on demonstrating the transfer occurred, the timing relative to the tax event, and whether any assessment errors are attributable to tax administration services rather than delays in completing registration formalities.
What are the legal consequences of annulling IUC assessments for reimbursement of unduly paid tax amounts?
When IUC assessments are annulled through arbitral or judicial decisions, Portuguese tax law provides for reimbursement of unduly paid tax amounts. The annulment creates an obligation for the Tax Authority to refund amounts wrongfully collected, typically including the principal tax amount plus legally mandated compensatory interest from the payment date until reimbursement. In this case, the petitioner requested refund of €27,092.63 as an inherent consequence of the requested annulment. The reimbursement follows automatically from the annulment decision without requiring separate administrative procedures. However, obtaining such annulment and reimbursement requires successfully challenging both the assessment acts themselves and any procedural decisions (such as rejection of revision requests), demonstrating both that the taxpayer was not the proper taxable subject and that procedural requirements for challenging the assessments were met, including compliance with applicable deadlines and substantiation requirements.