Process: 535/2017-T

Date: January 26, 2018

Tax Type: IUC

Source: Original CAAD Decision

Summary

In Process 535/2017-T, a financial leasing company challenged IUC (Single Motor Vehicle Tax) assessments for 2015 before CAAD arbitration. The central dispute concerned subjective tax incidence under Article 3 of the IUC Code. The claimant argued that vehicles were under active financial leasing contracts, making lessees liable under Article 3(2), which assimilates financial lessees to owners for IUC purposes. The Tax Authority contended that leasing contracts had expired by the tax event date, reverting liability to the registered owner (the leasing company) under Article 3(1). A critical evidentiary issue emerged: the claimant alleged tacit contract extensions without written proof, while the TA argued that financial leasing contracts require written form for validity, including extensions. The tribunal analyzed whether the phrase 'considering as such' in Article 3(1) creates a legal presumption and applied Civil Code Article 9 interpretation principles—literal, historical, rational, and systematic elements. The decision addresses the procedural pathway from hierarchical appeals to CAAD arbitration under the LRATM (Decree-Law 10/2011), establishing important precedent on taxpayer qualification in leasing arrangements and evidentiary requirements for proving contract status at the tax event date.

Full Decision

ARBITRAL DECISION

REPORT

A…, S.A. (hereinafter briefly designated as Claimant), a legal entity…, with registered office at Street…, No...., ...-, in Lisbon, came, under the terms of article 10, no. 2, of Decree-Law no. 10/2011, of January 20 (Legal Regime for Arbitration in Tax Matters, hereinafter only designated LRATM), to request the constitution of a single Arbitral Tribunal, in which the Tax and Customs Authority, hereinafter TA or Respondent, is summoned, with a view to the declaration of illegality of the decisions dismissing the hierarchical appeals filed and consequent annulment of the tax assessment acts for the Single Motor Vehicle Tax identified in the case files.

The request for the constitution of the Arbitral Tribunal was accepted by the Honorable President of CAAD and automatically notified to the TA on October 3, 2017.

Pursuant to article 11, no. 1 of the LRATM, as amended by article 228 of Law no. 66-B/2012, of December 31, the single Arbitral Tribunal was constituted on December 14, 2017.

The TA responded, arguing that the claim should be judged unfounded.

In view of the content of the matter contained in the case files, the meeting referred to in article 18 of the LRATM was dispensed with and the presentation of final arguments was waived.

The Arbitral Tribunal is regularly constituted and is materially competent, under article 2, no. 1, letter a) of the LRATM.

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

No nullities, exceptions or preliminary issues occur that would prevent the immediate consideration of the merits of the case.

STATEMENT OF FACTS

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

  • The Claimant is a credit financial institution that may carry out all financial operations permitted by the legal and regulatory provisions applicable to its activity, including the activity of financial leasing of motor vehicles;

  • Within the scope of the financial leasing contracts it enters into with its customers, the respective lessees may, at the end of the contract or in advance, proceed with the acquisition of the leased assets by exercising the purchase option provided for in such contracts;

  • Within the scope of its activity, the Claimant was notified of several Single Motor Vehicle Tax assessment acts and respective interest, relating to the year 2015;

  • The Claimant filed hierarchical appeals against the Single Motor Vehicle Tax assessment acts identified in the case files;

  • By order dated September 4, 2017, June 28, 2017, July 21, 2017, September 4, 2017 and June 28, 2017, the Claimant was notified of the dismissal orders of the hierarchical appeals filed regarding the Single Motor Vehicle Tax assessment acts nos. …, …, …, …, …, in the amount of €225.30;

  • The vehicles corresponding to the Single Motor Vehicle Tax assessment acts identified above were subject to financial leasing contracts.

The Tribunal did not consider the following facts proven:

The vehicles…, …, …, …, … were subject to financial leasing contracts in 2015.

This tribunal established its conviction based on the consideration of the documents attached to the case files.

LEGAL MATTERS

The main question raised in these proceedings concerns whether the Claimant should be qualified as a Single Motor Vehicle Tax taxpayer regarding the Single Motor Vehicle Tax assessment acts that are subject to the financial leasing contracts identified in the case files.

To this end, the Claimant argues, in summary, the following:

  • The motor vehicles identified in the list attached as ANNEX A (whose registration appears in column D) were given on financial lease by the Claimant to the customers also identified in column M) – cf. the respective Financial Leasing Contracts, which are attached as DOCS. NOS. 6 to 10, as identified in ANNEX A;

  • That leasing which was in force in the year (or, more specifically, in the relevant month of the year) in which the obligation to pay the Single Motor Vehicle Tax associated with the respective vehicle fell due (cf. termination dates of the Financial Leasing Contracts attached as DOCS. NOS. 6 to 10);

  • In some cases, because that date – relevant for Single Motor Vehicle Tax purposes – fell within the initial period of validity of the contract, established therein; in others, because, as a result of various circumstances, the term of the contract ended up being extended by tacit agreement between the parties, thus encompassing the date on which the Single Motor Vehicle Taxes now in question should have been paid;

The TA argues, in turn, in summary, as follows:

  • The financial leasing contracts attached to the case files by the Claimant had already terminated at the date of the tax event of the Single Motor Vehicle Tax in question;

  • The Claimant alleges that those contracts were extended tacitly, without however providing any proof of that fact;

  • Now, financial leasing contracts must always observe written form and having the initial contracts to observe such form, naturally any alleged extension will have to observe, at minimum, that same written form;

  • Consequently, the Claimant's argument is not well-founded when it alleges the illegality of the Single Motor Vehicle Tax assessments (for violation of article 3, no. 2 of the Single Motor Vehicle Tax Code) relating to the vehicles subject to the financial leasing contracts entered into;

Let us see what should be understood.

On the Interpretation of article 3, no. 1 of the Single Motor Vehicle Tax Code

Article 3 of the Single Motor Vehicle Tax Code establishes the following:

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

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

It follows from article 11 of the General Tax Law (GTL) that the interpretation of tax law must be carried out having regard to the general principles of interpretation.

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

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

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

  2. In determining the meaning and scope of the law, the interpreter shall presume that the legislator adopted the most correct solutions and was able to express its 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 norm here under discussion, it will be important, first of all, to reconstruct the legislative intent through the words of the law. It is stated in article 3, no. 1 of the Single Motor Vehicle Tax Code that "the taxpayers of the tax are the owners of the vehicles, considering as such natural or legal persons of public or private law, in whose name the same are registered."

According to the TA, the expression "considering as" does not constitute a legal presumption, it being the legislator's intent to establish expressly and intentionally that they are considered as such (as owners) the persons in whose name the same (vehicles) are registered, insofar as this is the interpretation that preserves the unity of the legal-fiscal system.

It happens that, from the literal point of view, it is noted that the expression "considering as" or "consider" is often used with a meaning equivalent to the expression "presuming" or "is presumed".

Thus, by way of example, see article 191, no. 6 of the ATCP, among other articles pointed out in the arbitral decisions rendered in case nos. 14/2013-T, 27/2013-T, 73/2013-T or 170/2013-T.

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

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

Therefore, it is important to submit article 3, no. 1 of the Single Motor Vehicle Tax Code to the scrutiny of the other elements of interpretation of a logical nature.

Thus, having regard to the historical element of interpretation, it is important to consider that the bill no. 118/X, of March 7, 2007, underlying Law no. 22-A/2007, of June 29, enshrines "as a structuring and unifying element (…) the principle of equivalence, thus making it clear that the tax, as a whole, is subject to the idea that the Claimants must be burdened to the extent of the cost they cause to the environment and to the road network, this being the raison d'être of this tax."

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

Just as has been pointed out several times in various arbitral decisions, the principle of equivalence aims to internalize the negative environmental externalities resulting from the use of motor vehicles, and was elevated to 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 equal only if those who cause the same road wear and the same environmental cost pay the same tax; and those who cause different wear and environmental cost, pay different tax as well", adding that the implementation of said principle "(…) dictates other requirements still with regard to the subjective incidence of the tax (…)".

Taking into account the underlying grounds for the creation of the current Single Motor Vehicle Tax 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 article 3, no. 1 of the Single Motor Vehicle Tax 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 fail to be disregarded if in reality it is another the responsible agent, that is, the Single Motor Vehicle Tax taxpayer.

From the systematic point of view, it will be important to reinforce again that right in article 1 of the Single Motor Vehicle Tax Code it is established that "The single motor vehicle tax obeys the principle of equivalence, seeking to burden the Claimants to the extent of the environmental and road cost 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 Single Motor Vehicle Tax, Annotated Codes, pp. 183, "the legislator seeks to legitimize the taxation of motor vehicles on the basis of the negative externalities caused by them (in public health, in the environment, in road safety, in the congestion of roads and in the urban landscape) demystifying the idea that vehicle taxation is very high in Portugal."

According to Batista Machado, in Introduction to Law and Legitimizing 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 most just solution if we consider that the unity of the tax system cannot but be found in the principle of material truth and in the principle of proportionality (See Saldanha Sanches, in Principles of Tax Litigation, pp. 21, and Alberto Xavier, in Concept and Nature of the Tax Act, pp. 147 et seq.).

In fact, the interpretation defended here is not only that which best fits 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 claims of the State to pursue the public interest of obtaining revenues and the claims of taxpayers of maintaining the integrity of their assets, should not, as a rule, serve as an interpretive criterion of the tax norm the safeguarding of the patrimonial or financial interest of the State.

In sum: based on article 9 of the CC, it is considered that all elements of interpretation (literal, historical and systematic) point to the fact that article 3, no. 1, of the Single Motor Vehicle Tax Code, as written on the date of the tax events, establishes a rebuttable presumption. This means that the Single Motor Vehicle Tax taxpayers, being, in principle, the owners of the vehicles, considering 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 above, 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.

Under article 73 of the GTL, "The presumptions established 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. 652, 4th Edition, "what is intended "always" is to tax real income and not non-existent income, and it is for this reason of always wanting to tax real values that article 73 of the GTL always permits rebutting presumptions.

This is the interpretation that is in harmony, on one hand, with the principle stated in article 11, no. 3, of the GTL that, in cases of doubt about the interpretation of tax rules "regard must be had to the economic substance of tax events" 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 underlying economic reality of tax events and does not sit well with the existence of special cases of taxation based on fictitious values in situations in which it is known or can be determined the real value of tax events.

Of the Specific Case

In view of the above, let us see who is the Single Motor Vehicle Tax taxpayer regarding the vehicles covered by the financial leasing contracts entered into by the Claimant.

The Claimant remained on the register as owner and lessor of the vehicles …, …, …, …, …, intending, therefore, the TA to impute to it the responsibility for payment of the Single Motor Vehicle Tax, under article 3, no. 1 of the Single Motor Vehicle Tax Code.

However, the Claimant argues that in fact the said vehicles were given on financial lease by the Claimant under financial leasing contracts in force at the date of the maturity of the Single Motor Vehicle Tax, referring to this end to documents nos. 6 to 10 attached with its arbitration petition.

However, from the analysis of documents nos. 6 to 10, which constitute the financial leasing contracts entered into, it is verified that those terminated on July 18, 2010, September 1, 2010, June 24, 2003, September 9, 2010 and October 24, 2014.

Notwithstanding, the Claimant argues that the renewal of the financial leasing contracts under analysis occurred tacitly.

It happens that, under article 3 of the Legal Regime for Financial Leasing, financial leasing contracts must be reduced to writing, as they were, the contracts attached to the case files. Similarly, by virtue of the provision in article 221, no. 2 of the CC, it is understood that the extension of the term of the period of those contracts or its renewal could not fail to be realized by the same form required for the execution of the initial contract, in as much as the term of the contract and the conditions associated with the renewal of the contract and with the new purchase option constitute essential elements of the financial leasing contract regarding which is therefore required compliance with the same legal form.

Thus, taking into account that article 221, no. 2 of the CC determines that: "The stipulations after the document are only subject to the legal form prescribed for the declaration if the reasons for the special requirement of the law are applicable to them.", it is not possible to consider renewed the financial leasing contracts sub judice.

It should be noted, however, that even if written form were not required, in any case the Claimant would have had to allege and prove the material acts revealing the alleged renewal of the contracts, as for example the proofs of payment of the rents after the termination of the contracts. Which it did not do.

Thus, in view of the documents attached to the case files, the Tribunal understands that it was not demonstrated that the vehicles in question were, at the date of the occurrence of the tax event of the Single Motor Vehicle Tax, subject to financial leasing.

In consequence, based on the documents attached, the Tribunal is convinced that regarding the Single Motor Vehicle Tax assessment acts nos. …, …, …, …, …, in the amount of €225.30, the responsibility for their payment is imputable to the Claimant.

DECISION

Thus, the Tribunal decides:

  • To judge unfounded, for not proven, the petition for declaration of illegality of the dismissal decisions of the hierarchical appeals filed regarding the Single Motor Vehicle Tax assessment acts nos. …, …, …, …, …;

  • To condemn the Claimant in the costs of the present proceedings, for being the defeated party.

VALUE OF THE CASE

In accordance with the provision in article 306, no. 2 of the Code of Civil Procedure, 97-A of the ATCP and article 3, no. 2 of the Regulation on Costs in Tax Arbitration Proceedings, the value of the claim is fixed at €225.30.

COSTS

Under the provision in articles 12, no. 2 of the LRATM and article 4, no. 4 of the Regulation on Costs in Tax Arbitration Proceedings, the value of the arbitration fee is fixed at €306.00, pursuant to Table I of the aforementioned Regulation, to be borne by the Claimant.

Let notification be made.

Lisbon, January 26, 2018

The Arbitrator

Magda Feliciano

(The text of this decision was prepared using a computer, under the terms of article 131, no. 5 of the Code of Civil Procedure, applicable by reference in article 29, no. 1, letter e) of Decree-Law no. 10/2011, of January 20 (LRATM) and its wording is governed by the spelling prior to the 1990 Orthographic Agreement.)

Frequently Asked Questions

Automatically Created

Who is liable for IUC (Imposto Único de Circulação) on vehicles under a financial leasing contract in Portugal?
Under Article 3 of the IUC Code, liability depends on contract status. During an active financial leasing contract, the lessee is liable as they are 'assimilated to owners' under Article 3(2). After the contract terminates, liability reverts to the registered owner—typically the leasing company—under Article 3(1). The critical determination is whether the leasing contract was in force on the tax event date (the relevant month when IUC becomes due).
Can a financial institution challenge IUC tax assessments through CAAD arbitration proceedings?
Yes. This case demonstrates that financial institutions can challenge IUC assessments through CAAD (Administrative Arbitration Centre) under the LRATM (Legal Regime for Arbitration in Tax Matters, Decree-Law 10/2011). The procedure requires first filing hierarchical appeals against the assessments; if denied, the taxpayer may request constitution of an arbitral tribunal under Article 10(2) LRATM to seek annulment of the tax acts.
What is the subjective incidence rule for IUC on leased vehicles after the contract ends?
When a financial leasing contract ends, IUC liability reverts from the lessee to the registered owner under Article 3(1) of the IUC Code. The leasing company becomes liable as the 'owner' (registered party). Disputes arise when contract termination dates are unclear—such as alleged tacit extensions. The Tax Authority requires written proof of contract validity at the tax event date, as financial leasing contracts must observe written form under Portuguese law, including any extensions.
How does the hierarchical appeal process work before submitting a case to CAAD tax arbitration?
The hierarchical appeal is a mandatory pre-arbitration step. Taxpayers must first file hierarchical appeals (recurso hierárquico) against IUC assessments with the Tax Authority. If these appeals are dismissed—as occurred in this case through orders issued between June-September 2017—the taxpayer may then request CAAD arbitration under Article 10(2) LRATM. This two-tier system ensures administrative review before arbitration proceedings.
What are the legal grounds for annulling IUC tax assessments issued to leasing companies in Portugal?
Legal grounds include: (1) Incorrect taxpayer identification under Article 3 IUC Code—if vehicles were under active leasing, lessees should be liable per Article 3(2), not the lessor; (2) Violation of subjective incidence rules when the Tax Authority assesses the wrong party; (3) Failure to recognize valid leasing contracts. However, leasing companies bear the burden of proving contracts were active at the tax event date, requiring written documentation as financial leasing contracts must observe written form, including any extensions or tacit renewals.