Process: 534/2017-T

Date: June 1, 2018

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 534/2017-T) addresses the subjective incidence of the Unique Circulation Tax (IUC) in finance leasing scenarios. The claimant, a leasing company, challenged two IUC assessment acts for 2012 and 2015 totaling €168.17, arguing that tax liability should fall on lessees rather than the legal owner. The central legal question examines who qualifies as the IUC taxpayer when vehicles are subject to finance lease contracts. The claimant argued that IUC is an environmental tax designed to burden those with actual vehicle use potential, not merely legal ownership. Since finance lease contracts transfer exclusive use rights to lessees, the leasing company contended it cannot be the taxpayer, as it lacks use potential during the contract period. The claimant emphasized that IUC aims to tax based on environmental and road costs according to actual usage capacity, citing the tax code's environmental configuration including CO2-based rates and electric vehicle exemptions. The Tax Authority was fully aware of the lease arrangements through mandatory registry notifications and data provision requirements under Article 19 of the IUC Code. The dispute highlights the distinction between legal ownership and effective use potential in determining tax liability, questioning whether Article 3(1) of the IUC Code's reference to vehicle owners should be interpreted strictly or functionally. The case proceeded through hierarchical appeal dismissal before reaching CAAD arbitration, where the tribunal dismissed witness evidence requests based on documentary proof requirements under Article 395 of the Civil Code.

Full Decision

ARBITRAL DECISION

I - Report

  1. A..., S.A., collective person no. ..., with registered office at Rua ... no. ..., ...-... Lisbon (hereinafter referred to as "Claimant"), submitted, on 03-10-2017, a request for arbitral determination, pursuant to article 2, no. 1, paragraph a) and article 10, nos. 1 and 2 of the Legal Regime for Tax Arbitration, provided for in Decree-Law no. 10/2011, of 20 January, as amended by article 228 of Law no. 66-B/2012, of 31 December (hereinafter abbreviated as "LRTA") and articles 1 and 2 of Ordinance no. 112-A/2011, of 22 March.

  2. The Claimant seeks a determination from the Arbitral Tribunal in order to declare the illegality of two acts of assessment of the Unique Circulation Tax (UCT), relating to the years 2012 and 2015, in the amount of €161.04 (one hundred sixty-one euros and four cents), increased by compensatory interest totalling €7.13 (seven euros and thirteen cents), thus totalling €168.17 (one hundred sixty-eight euros and seventeen cents), relating to two motor vehicles and also of the acts of dismissal of hierarchical appeals that dismissed the administrative complaints presented by the Claimant regarding the aforementioned assessment acts and consequently the reimbursement of the amount improperly paid plus indemnity interest calculated at the legal rate.

  3. The Tax and Customs Authority (hereinafter referred to as "Respondent") is the respondent.

  4. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority on 06-10-2017.

  5. Pursuant to paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the LRTA, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council of CAAD designated as arbitrator of the sole arbitral tribunal His Excellency Dr. Olívio Mota Amador who, within the applicable deadline, communicated acceptance of the appointment.

  6. The Claimant was notified, on 21-11-2017, of the designation of the arbitrator, having expressed no intention to challenge the designation, pursuant to the combined provisions of article 11, no. 1, paragraphs a) and b) of the LRTA and articles 6 and 7 of the Deontological Code.

  7. In accordance with the provisions of paragraph c) of no. 1 of article 11 of the LRTA, as amended by article 228 of Law no. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 14-12-2017.

  8. The Respondent, duly notified through an arbitral order of 15-12-2017, submitted its Reply on 25-01-2018.

  9. The Arbitral Tribunal, by order of 25-01-2018, requested that the Claimant indicate the facts regarding which it intended to examine the two witnesses listed in the request for arbitral determination. The Claimant, on 31-01-2018, indicated the facts set forth in the initial petition regarding which it sought examination of the witnesses.

  10. The Respondent, on 01-02-2018, requested the inadmissibility of the production of witness evidence sought by the Claimant.

  11. The Arbitral Tribunal, by order of 05-04-2018, determined: (i) taking into account the provisions of article 395 of the Civil Code and the fact that the articles which the Claimant indicates for the testimony of the two witnesses listed correspond to matters of fact that require documentary evidence, the request for production of witness evidence is dismissed; (ii) to dispense with the holding of the meeting provided for in article 18 of the LRTA, pursuant to the principle of the Tribunal's autonomy in the conduct of proceedings and in order to promote speed, simplification and informality thereof (articles 19 and 29, no. 2, of the LRTA), given that no procedural exceptions were raised or questions raised that would prevent the consideration of the merits of the claim; (iii) should the parties wish to make written submissions, these shall be produced within 15 days, counting from the date of the taking of evidence, granting the Respondent the option to, if it so wishes, submit its submissions in succession to those produced by the Claimant; (iv) to set 25 May 2018 as the final deadline for the rendering of the arbitral decision.

  12. The Claimant and the Respondent did not submit submissions.

  13. The Arbitral Tribunal, by order of 24-05-2018, extended the final deadline for the rendering of the arbitral decision to 1 June 2018.

  14. The position of the Claimant, in accordance with the provisions of the request for constitution of the Arbitral Tribunal, is, in summary, as follows:

14.1. The vexata quaestio underlying these arbitral proceedings essentially resides in determining who assumes the status of taxpayer of the UCT owing during the validity of a finance lease contract: whether the lessee, or the leasing entity (even if owner). Through the aforementioned additional assessment acts, the Tax Authority came to require payment of the missing UCT from the Claimant, even knowing – or ought to have known – that these particular motor vehicles were subject to finance lease contracts, and even knowing the identity of the lessees. Consequently, and as will be argued below, the Claimant cannot assume the status of taxpayer of the tax that was assessed against it.

14.2. The UCT is the tax that aims to burden taxpayers for the environmental and road cost associated with them, in a logic of tax equivalence and equality (art. 1 of the Unique Circulation Tax Code – hereinafter abbreviated as UCT Code). Thus, regarding this tax, the legislator chose to burden the taxpayer not according to (and to the extent of) their wealth – excluding the principle of tax capacity – but rather in the fair measure of the cost to the environment and road infrastructure that that taxpayer, through the use of motor vehicles, may generate. Underlying this rule of incidence is the assumption of the potential for the use of motor vehicles.

14.3. This environmental concern is reflected in the very configuration of the tax. The rate applicable to each vehicle in this category is determined according to its respective engine displacement bracket and CO2 bracket (grams per kilometre). And, furthermore, the law grants an exemption from this tax for vehicles "exclusively electric or powered by non-combustible renewable energies" (see paragraph d) of no. 1 of article 5 of the UCT Code). Thus, from the rules for determining the taxable base, to the applicable rate, including the exemptions provided for, a common thread is recognized throughout the UCT Code: the intention to tax the vehicle in the fair measure of its pollutant potential.

14.4. Hence, the corresponding burden falls, in the first place, to the person or entity that has the potential for use of said automobile; that is, which has the potential to produce the pollution that one intends, precisely, to discourage. In most cases, it will be the owner of the automobile – which appears, for this very reason, as the taxpayer "of first line" in no. 1 of article 3 of the UCT Code.

14.5. But there are cases in which the potential for vehicle use falls not to its owner, but to a third entity. Sometimes the owner, by force of the contract it entered into, is even prevented from using the vehicle, since it assigned the right to its exclusive use to such third entity. There may be situations in which the owner did not have, does not have, and will never have – while the contract is in force – the potential for use of that vehicle, which falls, thus, exclusively, to a third party. Third party that, moreover, is perfectly identified to the Tax Authority and other public entities – not only by force of the registration, with the Motor Vehicle Registry Office, of the existence of a finance lease contract, but also by virtue of the duty incumbent on leasing entities, pursuant to article 19 of the UCT Code, to provide the "(...)General Tax Directorate with data relating to the tax identification of users of leased vehicles" (article 19 of the UCT Code).

14.6. In the cases referred to above, it will make little sense, in light of the purpose that runs through this tax, for the owner to be burdened with the duty to pay the UCT. It is therefore not surprising that, in such cases, the legislator departed from the general rule of ownership – that is, the rule that makes the person obligated for the tax coincide with the owner of the vehicle – in favour of greater adherence to the economic substance of the situation. Thus, it chose to set aside the criterion of legal ownership – assigning relevance to the mere circumstance of holding a motor vehicle – deciding instead – and, in the Claimant's opinion, rightly – to regard economic ownership.

14.7. Thus, after establishing the general rule that the obligation to pay tax falls "[t]o the owners of the vehicles, being considered as such the natural or legal persons, of public or private law, in whose name the same are registered", the tax legislator made them equivalent to, immediately thereafter, "financial lessees, purchasers with reservation of ownership, as well as other holders of purchase option rights by force of a lease contract", thereby recognizing that it is not always the owners who are the taxpayers of the UCT. In these cases – of finance lease, purchase with reservation of ownership, etc. – the legislator chose, thus, and (in the Claimant's opinion) rightly, to burden with the obligation of tax not the owners, but the individuals to whom falls the enjoyment (potential for use) exclusive of the automobiles: the financial lessees, purchasers with reservation of ownership or lessees with purchase option.

14.8. Now, in a finance lease contract, there is no doubt that the right to use the asset is withdrawn from the respective owner – who, here, is assumed to be the lessor – to be incorporated into the sphere of the lessee. Indeed, in finance lease contracts, and as mentioned above, it is the lessee who has the exclusive enjoyment of the leased asset. Moreover, the very notion of "finance lease", enshrined in the legal statute that regulates this type of contract in our legal system, presupposes such exclusive enjoyment.

14.9. Note that article 1 of Decree-Law no. 149/95, of 24 June (amended by Decree-Laws 265/97, of 2 October, and 30/2008, of 25 February) defines finance lease as "the contract by which one of the parties undertakes, in exchange for remuneration, to grant to the other the temporary enjoyment of a thing, movable or immovable, acquired or constructed at the indication of the latter, and which the lessee may purchase, after the agreed period, at a price determined therein or determinable by mere application of the criteria set out therein". Thus, it is stipulated as an obligation of the lessor to "grant enjoyment of the asset for the purposes for which it is intended" (see paragraph b) of no. 1 of article 9 of Decree-Law no. 149/95, as amended by Decree-Law no. 30/2008), while in no. 2 of article 10 of the same statute, the lessee is granted the right to "use and enjoy the leased asset".

14.10. Within the scope of lease contracts, this ownership is merely instrumental: not only does the lessor become owner with the purpose, assumed ab initio, of granting enjoyment of the asset, but it is the lessee, and not the lessor, who exercises the typical powers of ownership. The latter holds the economic ownership of the asset, so to speak, the lessor having nothing more than its legal ownership. Thus, in these cases, the legal qualification of lessor – while it includes, certainly – clearly goes beyond the qualification of owner: the lessor is a merely instrumental owner, whose rights and duties are quite distinct from those typically associated with the legal figure of ownership.

14.11. The same applies, moreover, to the purchaser with reservation of ownership – who exercises the faculties and powers inherent in the condition of owner, including the right to use the asset with exclusivity, practically without limits – and, also, to the lessee with purchase option, to whom likewise the exclusive enjoyment of the leased asset is granted.

14.12. In view of the foregoing, the Claimant is not a taxpayer of UCT regarding the finance lease contracts of which it is a party, and therefore the additional assessment acts against it are absolutely illegal.

  1. The position of the Respondent, expressed in the reply, may be summarized as follows:

15.1. No. 1 of article 3 of the UCT Code establishes that "The taxpayers of the tax are the owners of the vehicles, being considered as such the natural or legal persons, of public or private law, in whose name the same are registered." The tax legislator, in establishing in article 3, no. 1, who are the taxpayers of the UCT, expressly and intentionally established that these are the owners (or in the situations provided for in no. 2, the persons mentioned therein), being considered as such the persons in whose name the same are registered. Note that the legislator did not use the expression "presumed", as it could have done, for example, in the following terms: the taxpayers of the tax are the owners of the vehicles, being presumed as such the natural or legal persons, of public or private law, in whose name the same are registered.

15.2. In these terms, it is imperative to conclude that, in the case of the present arbitral determination proceedings, the legislator expressly and intentionally established that those are to be considered as such (as owners or in the situations provided for in no. 2, the persons mentioned therein) the persons in whose name the same (the vehicles) are registered, because this is the interpretation that preserves the unity of the tax legal system. To understand that the legislator has established here a presumption would be unequivocally to interpret against the law.

15.3. In face of this wording it is plainly not possible to invoke that it is a presumption, as the Claimant argues. It is, rather, a clear option of legislative policy adopted by the legislator, whose intention, within its freedom to shape legislation, was that, for purposes of UCT, those be considered owners who appear as such in the motor vehicle registry.

15.4. Also the systematic element of interpretation of the law demonstrates that the solution proposed by the Claimant is untenable, with the understanding endorsed by the latter finding no support whatsoever in the law. This results not only from the aforementioned no. 1 of article 3 of the UCT Code, but also from other provisions enshrined in said Code. In these terms, and in the same sense, article 6 of the UCT Code establishes, under the heading "Taxable Event and Accrual", in its no. 1, that: "The taxable event of the tax is constituted by the ownership of the vehicle, as attested by the registration or record in national territory."

15.5. From the articulation between the scope of the subjective incidence of the UCT and the fact constitutive of the corresponding tax obligation, it flows unequivocally that only legal situations subject to registration (without prejudice to the continued presence of a vehicle in national territory for a period exceeding 183 days, provided for in no. 2 of article 6) generate the birth of the tax obligation. In turn, no. 3 of the same article provides that "the tax is deemed accrued on the first day of the tax period referred to in no. 2 of article 4". Thus, the moment from which the tax obligation arises has a direct relationship with the issuance of the registration certificate, on which the facts subject to registration must appear (See articles 4/2 and 6/3 of the UCT Code, article 10/1 of Decree-Law 54/75, of 12 February, and article 42 of the Motor Vehicle Registry Regulation).

15.6. If the position defended by the Claimant were to be accepted (that article 3 of the UCT Code can never be interpreted in the sense of intending to tax only those who appear in the registry as owner, because the registry is a mere appearance of reality), the Respondent would have to proceed to assess UCT regarding that other person identified by the person listed in the motor vehicle registry to whom it had previously assessed the UCT (or not, since the latter would suffice to exclude their status as taxpayer on the date of the taxable event).

15.7. It is further important to demonstrate that in light of a teleological interpretation of the regime enshrined throughout the UCT Code, the interpretation advocated by the Claimant in the sense that the taxpayer of the tax is the effective owner, regardless of whether such status does not appear in the motor vehicle registry, is manifestly wrong. And it is a wrong interpretation insofar as it is the very ratio of the regime enshrined in the UCT Code that constitutes clear proof that what the tax legislator intended was to create a tax based on the taxation of the owner of the vehicle as it appears in the motor vehicle registry. Because the UCT came to be owed by the persons who appear in the registry as owners of the vehicles.

15.8. The Claimant came to instruct its request for arbitral determination by attaching copies of the finance lease contracts (See Documents 3 and 4 attached to the initial petition). From this the following question arises: do the finance lease contracts constitute sufficient proof to undermine the (supposed) legal presumption established in article 3 of the UCT Code? In other words: do such contracts demonstrate that, on the date of the taxable events of UCT, the vehicles in question were (still) subject to finance leases entered into by the Claimant? The answer can only be negative for the reasons that will be set out below.

15.9. It results clearly and unequivocally from "Document 4, that the finance lease contract relating to the vehicle with registration no. ... came to an end on 2015-05-05 (= 2008-06-05 + 83 months). This meaning that on the date of the taxable event of UCT at issue here (that is, June 2015 – see Document 2 attached to the initial petition) the aforementioned finance lease contract had already terminated.

15.10. In addition, if it were concluded that we were dealing with a finance lease contract executed by the Claimant, it still fell to the latter to demonstrate having complied with the ancillary obligation imposed by article 19 of the UCT Code. Indeed, it is important to recall that the application of article 3 of the UCT Code must be combined with the provisions of article 19 of the same code, in which it is established that "for purposes of article 3 of this code (...), entities proceeding to finance leasing, operational leasing or long-term rental of vehicles are obliged to provide the General Tax Directorate with data relating to the identification of users of the leased vehicles." In this aim, that is, the Claimant not having complied with that obligation, it must be concluded that it is the taxpayer of the tax.

15.11. As is known, the law determines deadlines for the attachment of documents intended to serve as evidence, with article 423 of the new Code of Civil Procedure establishing that these shall be presented with the pleading in which the corresponding facts are alleged. Thus, the Claimant not having complied with the burden of proof imposed upon it and now verifying non-compliance with the declarative obligation required by article 19 of the UCT Code, two consequences (intra and extra-procedural) must necessarily be drawn from its omissive conduct. First, its liability for the arbitral costs relating to the present request for arbitral determination, given that the failure to supply the data inexorably gave rise to the issuance of the assessments sub judice, in the terms better explained in a separate chapter. And second, to the finding of its liability in terms of contraventions in light of article 117, combined with article 26/4, both of the General Regime for Tax Offences, punishable by a fine of €300.00 to €7,500.00 for each of the finance lease contracts.

15.12. In addition to all the above, it should also be noted that if the interpretation put forward by the Claimant were to be accepted, it would be contrary to the Constitution, insofar as such interpretation results in the violation of the principle of trust, the principle of legal certainty, the principle of tax system efficiency and the principle of proportionality.

15.13. The UCT is not assessed based on information generated by the Respondent itself. Now, the Claimant not having ensured the updating of the motor vehicle registry, as it could and should have done [article 5/1-a) of Decree-Law 54/75, of 12 February, and article 118/4 of the Highway Code], and not having ordered the cancellation of the registrations of the vehicles in question, it must be concluded that the Claimant did not proceed with the care required of it. Thus, it was not the Respondent who gave rise to the deduction of the request for arbitral determination, but the Claimant itself. But even if it were understood otherwise – which is not conceded – that the tax is not owed by the Claimant because it is not the taxpayer of the tax obligation, still, and as was decided by the already cited Arbitral Tribunal constituted within the framework of process no. 26/2013-T, it is undeniable that the Respondent merely complied with article 3/1 of the UCT Code, which imputes such status to the persons in whose name the vehicles are registered, whereby also here it must necessarily lack recognition of the right to payment of indemnity interest.

II - Sanction

  1. The parties have legal personality and capacity, are properly represented, and are legitimately interested (articles 4 and 10, no. 2, of the LRTA and article 1 of Ordinance no. 112-A/2011, of 22 March).

The tribunal is competent and is properly constituted.

The proceedings do not suffer from nullities.

No exceptions were raised.

No other circumstances exist that would prevent consideration of the merits of the case.

Accordingly, the Arbitral Tribunal is properly constituted to examine and decide the subject matter of the proceedings.

III - Merits

III.1. Facts

  1. Proven Facts

17.1. With relevance for the examination and decision of the questions raised, the following facts are established and proven:

  • The Claimant is a credit institution that, within the scope of its activity, engages in the financing of the automotive sector, proceeding with the execution – among others – of finance lease contracts intended for the acquisition, by companies and individuals, of motor vehicles.

  • With regard to the vehicle with registration no. ... (Month: January; Year: 2008), the Claimant was notified to proceed with the payment of UCT, relating to the year 2012, (Assessment Notification no. 2012...) resulting from the act of assessment made on 18-10-2005, in the amount of €31.00, increased by compensatory interest, for the period from 01-02-2012 to 18-10-2015, in the amount of €4.61, totalling €35.61 (as per Document no. 1 attached to the request for arbitral determination and which is given as fully reproduced for all legal purposes).

  • The Claimant, on 20-11-2015, effected the voluntary payment of the UCT referred to in the previous paragraph (see Document no. 1 attached to the request for arbitral determination).

  • The vehicle identified in the previous paragraph constitutes the asset that is the subject of the finance lease contract (no. 2008...) executed on 24-01-2008, between the Claimant, in the capacity of lessor, and B... Lda., as lessee (as per Document no. 3 attached to the request for arbitral determination and which is given as fully reproduced for all legal purposes).

  • The finance lease contract identified in the previous paragraph had a duration of 49 months (see no. 2 of the Special Clauses of the finance lease contract attached as Document no. 3 to the request for arbitral determination).

  • With regard to the vehicle with registration no. ... (Month: June; Year: 2008), the Claimant was notified to proceed with the payment of UCT, relating to the year 2015 (Assessment Notification no. 2012...), resulting from the act of assessment made on 24-12-2005, in the amount of €130.04 increased by compensatory interest, for the period from 01-07-2015 to 24-12-2015, in the amount of €2.52, totalling €132.56 (as per Document no. 2 attached to the request for arbitral determination and which is given as fully reproduced for all legal purposes).

  • The Claimant, on 28-01-2016, effected the voluntary payment of the UCT referred to in the previous paragraph (see Document no. 2 attached to the request for arbitral determination).

  • The vehicle identified in the previous paragraph constitutes the asset that is the subject of the finance lease contract (no. 2008...) executed on 05-06-2008, between the Claimant, in the capacity of lessor, and C..., as lessee (as per Document no. 4 attached to the request for arbitral determination and which is given as fully reproduced for all legal purposes).

  • The finance lease contract identified in the previous paragraph had a duration of 83 months (see no. 2 of the Special Clauses of the finance lease contract attached as Document no. 4 to the request for arbitral determination).

  • With regard to the vehicle identified in the previous paragraph B), on 21-07-2017, was dismissed, by order of the Director of Central Services, pursuant to a delegation of authority, the hierarchical appeal filed by the now Claimant on 27-12-2016, against the dismissal of the administrative complaint, issued through an order of the Head of the Division of Tax Management and Assistance of the Large Taxpayers Unit of the act of assessment of UCT for the year 2012 (see Annex B attached to the request for arbitral determination).

  • With regard to the vehicle identified in the previous paragraph F), on 28-06-2017, was dismissed, by order of the Director of Central Services, pursuant to a delegation of authority, the hierarchical appeal filed by the now Claimant on 27-12-2016, against the dismissal of the administrative complaint, issued through an order of the Head of the Division of the Central Service of the Large Taxpayers Unit of the act of assessment of UCT for the year 2015 (see Annex C attached to the request for arbitral determination).

17.2. There are no other facts with relevance for the examination of the merits of the case that have not been proven.

17.3. Basis for the Facts

As regards the facts given as proven, the conviction of the Arbitral Tribunal was based on the free assessment of the documentary evidence attached to the proceedings.

The Respondent challenges as a means of evidence the two finance lease contracts, relating to the vehicles above identified, presented by the Claimant as Documents nos. 3 and 4 attached to the initial petition (see no. 79 of the Respondent's Reply).

The said contracts constitute suitable means of evidence. There are, in fact, no elements that permit understanding that the data inscribed in these contracts do not correspond to the contractual truth, and this Tribunal sees no reason to challenge them. Moreover, as said contracts are private documents, it fell to the Respondent to challenge the authenticity of the signature and handwriting, but it did not do so.

By the foregoing, the documents presented by the Claimant (see no. 17.1, paragraphs D) and H) below) have full probative force. Thus, taking into account the matter under examination in the proceedings, the Tribunal considered clearly irrelevant the examination of the two witnesses listed by the Claimant, as was duly decided (see no. 11 above).

17.4. Cumulation of Claims

The present request for arbitral determination relates to two UCT assessments, as well as to two decisions of dismissal issued in the course of hierarchical appeal, following the express dismissal of two administrative complaints.

Considering the provisions of article 3 of the LRTA and article 104 of the Tax Procedure Code, and taking into account the identity of the taxable events and the identical grounds of fact and law invoked, the tribunal considers that nothing prevents the cumulation of the present claims.

III.2. Law

  1. The question to be decided consists in determining whether the Claimant, in the capacity of lessor, should be qualified or not as taxpayer of the UCT, regarding the acts of assessment of UCT on the vehicles identified in the present arbitral proceedings, given in finance lease.

It falls to examine this.

  1. It is important to note that article 3 of the UCT Code, in its nos. 1 and 2, in the wording in force on the date of the facts to which the present request refers, provides as follows:

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

  1. Equated to owners are financial lessees, purchasers with reservation of ownership, as well as other holders of purchase option rights by force of lease contract."

  2. The subjective incidence of the UCT has been the subject of numerous decisions in the arbitral tribunals functioning under CAAD, to the effect of considering that the above-cited provision contains a legal presumption that admits proof to the contrary.

In this regard, Arbitral Decision no. 145/2017-T (to which reference is hereby made) states:

"On this question, that is, whether the norm of subjective incidence contained in no. 1 of article 3 of the UCT Code, establishes a presumption, it should be noted that the jurisprudence established at CAAD points in the direction that said norm establishes a rebuttable legal presumption. Indeed, from the first Decisions issued on this matter, in 2013, among which may be mentioned in particular those handed down in the context of Processes nos. 14/2013-T, 26/2013-T and 27/2013-T, to the most recent ones, such as the Decisions handed down in Processes no. 69/2015-T, no. 191/2015-T and no. 202/2015-T, passing through numerous Decisions handed down in 2014, of which are mentioned, by way of example only, the Decisions handed down in Processes nos. 34/2014-T, 120/2014-T and 456/2014-T, all point to the understanding that no. 1 of article 3 of the UCT Code establishes a rebuttable legal presumption.

To this end, it should also be mentioned the recent Decision of the Lisbon Tax Court, handed down on 23-01-2017, in Proc. no. 463/13.4BELRS, which considers that the '[...] claimant succeeded in rebutting the presumption established in art. 3, no. 1 of the UCT Code.'

Also to be considered is the understanding set out in the Judgment of the Central Administrative Court of the South, handed down on 19-03-2015, Process 08300/14, available at: www.dgsi.pt, which supports said jurisprudence, when therein it is expressly stated that article 3, no. 1 of the UCT Code '[...] establishes a legal presumption that the holder of the motor vehicle registry is its owner, such presumption being rebuttable by force of article 73 of the General Tax Law'."

  1. The position contained in the above cited Arbitral Decision merits our agreement and its reproduction is dispensed with as unnecessary in the present proceedings. Thus, concluding that the norm of subjective incidence of the UCT establishes a rebuttable presumption, it is important to verify whether the documentation presented by the Claimant in the present arbitral proceedings constitutes, or not, sufficient proof for its rebuttal. Indeed, it is necessary to establish whether the finance lease contracts presented were in force at the moment when the UCT became accrued, so that, in such case, it would fall to the lessee and not to the lessor to proceed with payment of the tax.

  2. It results from the proven facts that the Claimant, in the capacity of lessor, entered into finance lease contracts having as the leased asset the vehicles above identified (see paragraphs D) and H) of no. 17.1 below) and the respective contracts being attached to the request for arbitral determination as Documents nos. 3 and 4).

  3. The Claimant alleges that the finance lease contracts, in relation to the two vehicles identified in the present arbitral proceedings, were in force at the moment when the UCT, under examination in the proceedings, became accrued, and consequently the Claimant cannot be considered the respective taxpayer. (See nos. 29 to 39 of the request for arbitral determination).

  4. However, regarding the finance lease contract (no. 2008...) relating to the vehicle with registration no. ... (Month: June; Year: 2008) executed on 5 June 2008, with a duration of 83 months, it is verified that it terminated on 5 May 2015. It happens that only in June 2015 the corresponding UCT should be paid, pursuant to the provisions of no. 3 of article 6 and no. 2 of article 4 of the UCT Code. Thus, on the date of the taxable event generating UCT (June 2015) to which the assessment identified in the proceedings relates (see paragraph F) of no. 17.1 below), the finance lease contract no longer was in force, except if a renewal of the contract term or a renewal of said contract had occurred, which the Claimant neither even alleged nor, much less, proved.

  5. Furthermore, the Tax Authority Information no. ..., of 05-06-2017, issued in the course of the hierarchical appeal (see paragraph K) of no. 17.1 below), states that it ascertained from the Motor Vehicle Registry Office of Lisbon that "(...) a finance lease is registered for that vehicle and subsequently a request (no. .../2012) for termination of the lease accompanied by a letter of 03/12/2009, sent by the Lessee's Bank (C...) requesting the return of the leased vehicle, due to the lessee's financial non-compliance." And adds in a footnote: "On 20/03/2012, A..., SA came through its attorney to formalize in the 'Automóvel on-line' portal the act of termination of the lease of vehicle ... (no. .../2012)." The Claimant failed to present facts that contradict the above set out in the Tax Authority's Information.

  6. Regarding the finance lease contract (no. 2008...) relating to the vehicle with registration no. ... (Month: January; Year: 2008) executed on 24 January 2008, with a duration of 49 months, the Tax Authority Information no. ..., of 11-07-2017, in the hierarchical appeal (see paragraph J) of no. 17.1 below) states that it ascertained from the Motor Vehicle Registry Office: "regarding said vehicle, there was a registration of finance lease between 2008-03-12 and terminated 2011-10-12."

Faced with the facts set forth by the Tax Authority, the Claimant did not present the proof that was necessary, that such contract was in force on the date of the occurrence of the taxable event, that is, in January 2012.

  1. Moreover, said contract could have terminated before January 2012 for various reasons. It should be noted that Clause Eight of the General Clauses of the finance lease contract provided for the right of early performance by the lessee and Clause Twelve provided for the termination of the contract at the initiative of the lessor, without any formality and at any time (see Document no. 3 attached to the request for arbitral determination). Thus, the Claimant would have had to prove that, in January 2012, the finance lease contract was in force, for example, by attaching proof of payment of rent paid by the lessee on that date, but it did not do so.

  2. It is not enough to allege that the finance lease contract was in force on the date of the occurrence of the taxable event; it is necessary to prove it. In the present proceedings it was proven that the vehicles were given in finance lease on a date prior to the occurrence of the taxable event (see no. 17.1 below). But from this does not follow the proof, which was necessary, that such contracts were in force on the date of the occurrence of the taxable event. This is because said contracts could have terminated, for various reasons, before that date.

  3. As this is a fact constitutive of the right invoked by the Claimant, upon it falls the respective burden of proof, which it failed to discharge. Now, since the Claimant failed to prove that the finance lease contracts were in force on the date of the occurrence of the taxable event, from this results the absence of grounds for the annulment of the disputed assessments.

  4. By the foregoing, the request for arbitral determination is dismissed as regards the question of the illegality of the assessments, whereby the payment of the tax was not undue. Given that the reimbursement and indemnity interest depend on the existence of an undue payment, as results from the provisions of article 43, no. 1, of the General Tax Law, the dismissal of the principal request relating to the annulment of the assessments implies the dismissal of the consequent requests.

IV - Decision

In view of the foregoing, the Arbitral Tribunal decides to dismiss the request for arbitral determination and, consequently, to absolve the Respondent of the claims, with the appropriate legal consequences.

V - Value of the Proceedings

Taking into account the provisions of articles 32 of the Administrative Procedure Code, 306, no. 2, of the Code of Civil Procedure and 97-A of the Tax Procedure Code, applicable by force of the provisions of article 29, no. 1, paragraphs a) and b), of the LRTA, and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), the value of the proceedings is set at €168.17 (one hundred sixty-eight euros and seventeen cents).

VI - Costs

Costs at the charge of the Claimant, in the amount of €306.00 (three hundred six euros), in accordance with Table I of the RCPAT, in compliance with the provisions of articles 12, no. 2, and 22, no. 4, both of the LRTA, as well as the provisions of article 4, no. 4, of the RCPAT.

Notify.

Lisbon, Centre for Administrative Arbitration, 1 June 2018

The Arbitrator

Olívio Mota Amador

Frequently Asked Questions

Automatically Created

Who is the taxable person liable for paying IUC (Imposto Único de Circulação) on registered vehicles in Portugal?
Under Article 3(1) of the IUC Code, the primary taxable person is the vehicle owner registered with the Motor Vehicle Registry Office. However, in finance leasing arrangements, legal doctrine and case law debate whether tax liability should transfer to the lessee who holds exclusive use rights. The IUC Code's environmental rationale suggests taxation should follow actual use potential rather than mere legal ownership, though the Tax Authority typically assesses the registered owner.
Can a vehicle owner challenge IUC tax assessments through arbitral proceedings at CAAD?
Yes, vehicle owners can challenge IUC assessment acts through CAAD arbitral proceedings under Article 2(1)(a) and Article 10 of the Legal Regime for Tax Arbitration (LRTA). Taxpayers must first exhaust administrative remedies through hierarchical appeals and gracious complaints. After dismissal of these administrative appeals, they may request arbitral determination within the statutory deadline, seeking declaration of illegality of assessment acts and reimbursement of improperly paid amounts plus indemnity interest.
What is the subjective incidence rule for IUC and how does it determine tax liability?
The subjective incidence rule for IUC primarily designates the vehicle owner as taxpayer under Article 3(1) of the IUC Code. However, this rule interacts with the tax's environmental purpose under Article 1, which aims to burden those creating environmental and road costs. In finance leasing contexts, the question arises whether the lessee with actual use potential should be considered the taxpayer instead of the owner-lessor who lacks use capacity. Article 19 requires leasing entities to provide tax identification data of vehicle users to tax authorities, suggesting legislative recognition of lessees' relevant position.
How can taxpayers contest IUC liquidation acts after unsuccessful hierarchical appeals and gracious complaints?
Taxpayers contesting IUC liquidation acts must first file gracious complaints (reclamações graciosas) with the Tax Authority, followed by hierarchical appeals (recursos hierárquicos) if unsuccessful. After exhausting these administrative remedies and receiving dismissal decisions, taxpayers may initiate arbitral proceedings at CAAD within the statutory limitation period. The arbitral request should seek declaration of illegality of both the original assessment acts and the dismissal decisions, requesting reimbursement of amounts paid plus legal interest.
Are compensatory interest and indemnity interest applicable in IUC tax disputes before CAAD arbitral tribunals?
Yes, both compensatory interest (juros compensatórios) and indemnity interest (juros indemnizatórios) are applicable in IUC disputes before CAAD. Compensatory interest accrues on late tax payments from the due date until payment. When taxpayers successfully challenge assessments, indemnity interest applies on reimbursed amounts at the legal rate, compensating for the State's retention of improperly collected funds. In this case, the claimant sought reimbursement of €161.04 in IUC plus €7.13 in compensatory interest, and additionally claimed indemnity interest on any amounts to be refunded.