Process: 597/2016-T

Date: June 20, 2017

Tax Type: IUC

Source: Original CAAD Decision

Summary

In Process 597/2016-T, the CAAD arbitral tribunal addressed the critical question of subjective incidence for Portugal's IUC (Imposto Único de Circulação). The claimant company challenged €11,236.11 in IUC assessments across multiple tax periods (December 2013 through May 2016), arguing it should not be liable for vehicles under six distinct circumstances: retention of ownership clauses, vehicles sold under financial leasing or long-term rental agreements, total loss due to insured events, vehicles in default with ongoing litigation, and a vehicle returned due to defects. The company contended that actual ownership, not registry registration, should determine IUC liability. The Tax Authority (AT) mounted a robust defense on both procedural and substantive grounds. Procedurally, AT argued against claim joinder due to disparate factual situations involving different vehicles, transfer dates, and grounds. Substantively, AT maintained that Article 3 of the CIUC establishes a definitive rule—not a rebuttable presumption—that the registered owner bears IUC liability. AT emphasized this reflects deliberate legislative policy prioritizing registry records for tax system efficiency and legal certainty. The Authority further argued that the claimant failed to comply with Article 19 CIUC's declarative obligations regarding ownership changes. AT contended that accepting the claimant's interpretation would violate constitutional principles including good faith, legal certainty, proportionality, and tax system efficiency. Regarding retention of ownership specifically, AT asserted that such arrangements must be registered to affect IUC liability under Article 3/3 CIUC. This case exemplifies fundamental tensions in Portuguese tax law between formal registry records and economic substance, with significant implications for leasing companies, financial institutions, and vehicle fleet operators navigating IUC compliance obligations.

Full Decision

ARBITRAL DECISION

The Arbitrator Raquel Franco, appointed by the Deontological Council of the Administrative Arbitration Center (CAAD) to form the single arbitral tribunal constituted on 20 December 2016, decides as follows:

I. REPORT

1. On 04-10-2016, the company "A…, S.A.", NIPC…, filed a request for constitution of the single arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter referred to only as RJAT), in which the Tax and Customs Authority (AT) is the Respondent.

2. The request for constitution of the Arbitral Tribunal was accepted by the Illustrious President of CAAD and automatically notified to the AT on 17.10.2016.

3. Pursuant to the provisions of subparagraph (a) of paragraph 2 of article 6 and subparagraph (b) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed as arbitrator of the single arbitral tribunal the undersigned, who communicated acceptance of the corresponding mandate within the applicable time frame.

4. The parties were duly notified of this appointment and did not manifest their will to refuse the appointment of the arbitrator pursuant to the combined provisions of article 11, paragraph 1, subparagraphs (a) and (b) of the RJAT and of articles 6 and 7 of the Deontological Code.

5. Thus, pursuant to the provisions of subparagraph (c) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of 20 January, as amended by Law No. 66-B/2012, of 31 December, the arbitral tribunal was constituted on 20.12.2016.

6. In the present arbitral proceedings, the Claimant seeks that the Arbitral Tribunal declare the illegality of acts of refusal and acts of ex officio assessment of the single vehicle circulation tax (IUC) relating to the month of December 2013, the years 2014 and 2015 and the months of January, February, March, April and May 2016, in accordance with the table contained in article 3 of the initial petition, the total amount of which reaches € 11,236.11, as well as the payment of compensatory interest in accordance with the provisions of article 43 of the LGT.

7. The Claimant bases its claim, in summary, on the following grounds:

- The assessments referred to above, all of which were fully paid by the Claimant, relate to a tax whose taxable event occurred:

1. At a time when the Claimant was merely a beneficiary of a retention of ownership clause stipulated in the loan contract entered into with respect to the vehicles to which the tax refers, in the amount of € 277.86, in accordance with table no. 1 contained in article 4 of the initial petition and documents 1 to 6 attached to the initial petition):

- At a time when the Claimant had already proceeded to sell the vehicle to which the assessed tax refers, pursuant to a financial leasing contract or long-term rental agreement, in the amount of € 4,233.48, in accordance with table no. 2 contained in article 4 of the initial petition and documents 7 to 60 attached to the initial petition;

- At a time when the total loss of the vehicles to which the assessed tax refers had already occurred due to an insured loss, in the amount of € 877.37, in accordance with table no. 3 contained in article 4 of the initial petition and documents 61 to 71 attached to the initial petition;

- During the pendency of financial leasing contracts, in the amount of € 72.43, in accordance with table no. 4 contained in article 5 of the initial petition and documents 72 and 73 attached to the initial petition;

- With respect to IUC assessments on vehicles that were subject to financial leasing contracts and long-term rental agreements and that fell into default, with proceedings in litigation and without the said vehicles having been recovered, in the amount of € 5,755.92, in accordance with table no. 5 contained in article 4 of the initial petition and documents 74 to 168 attached to the initial petition;

- With respect to an IUC assessment on the vehicle with registration plate …-…-…, which was returned by the Claimant to the respective supplier due to a defect and exchanged for another, in the amount of € 19.05, in accordance with table no. 6 contained in article 5 of the initial petition and document 169 attached to the initial petition.

- The Claimant seeks that the Arbitral Tribunal pronounce on the legality of the tax assessments identified above, it being understood by the Claimant that in all of them there are facts that prevent it from being the taxable person of the tax in question.

8. In its Response, the AT alleged, in summary, the following:

8.1 By way of exception:

- First, the AT alleges that the legal requirements for the joinder of claims are not met, since although it can be assumed that the factual procedures may be transversal to all assessments, we are dealing with disparate factual situations embodied in: (i) different vehicles; (ii) with different transfer dates; (iii) different grounds for transfer; (iv) different grounds for taxation; and (v) different owners. According to the AT, this was the understanding adopted in case 691/2014-T.

8.2 By way of substantive opposition:

"The legislator expressly and intentionally established that such [as owners or in the situations provided for in paragraph 2, the persons listed therein] are the persons in whose name the same [vehicles] are registered, because this is the interpretation that preserves the unity of the tax-legal system.

To understand that the legislator established a presumption here would unequivocally be to carry out an interpretation contra legem; it is, rather, a clear choice of legislative policy whose intention was that, for the purposes of IUC, those registered as such in the motor vehicle registry should be considered owners.

Should the thesis defended by the Claimant be followed, whereby article 3 of the CIUC establishes a rebuttable presumption, then the rebuttal of the presumption depends on compliance with what is established in article 19 of the CIUC; since the Claimant has not complied with the burden of proof imposed on it, and finding that there has been non-compliance with the declarative obligation provided for in that legal provision, two consequences must be drawn: (i) the responsibility of the Claimant for the arbitration costs relating to the present request for arbitral pronouncement given that such non-compliance gave rise to the issuance of part of the assessments in question; (ii) the determination of its responsibility in terms of administrative violations in light of article 117, combined with article 26, paragraph 4, of the RGIT;

The interpretation given by the Claimant results in obstruction and increased costs of the competencies attributed to the Respondent, with obvious prejudice to the interests of the Portuguese State;

The argumentation presented by the Claimant that the taxable person of the tax is the effective owner, regardless of not appearing in the motor vehicle registry in that capacity, is erroneous in light of a teleological interpretation of the scheme established in the CIUC to the extent that the legislator intended to create a tax based on the taxation of the owner of the vehicle as it appears in the motor vehicle registry.

Should the interpretation put forward by the Claimant be accepted, then it would be contrary to the Constitution, to the extent that it results in the violation of the principle of good faith, the principle of legal certainty, the principle of tax system efficiency and the principle of proportionality.

Specifically regarding vehicles covered by a retention of ownership in favour of the Claimant, the AT understands that, in order for the Claimant to be able to benefit from the scheme of article 3/3 of the CIUC, it would be necessary for the alleged retentions of ownership to have been registered, which was not proven.

With respect to vehicles alienated on the date of the taxable event, the AT alleges that the documents attached do not relate to financial leasing contracts, but rather:

a) In the case of the commercial company B…, S.A., to "rental contracts", as appears from their heading;

b) In the case of the commercial company C…, S.A., to "contracts for the rental of vehicles without a driver", as appears from their heading.

With respect to vehicles subject to rental, the taxable person is not the lessee but rather the owner of the vehicle, pursuant to article 3, paragraph 1 of the CIUC, since from the content of those contracts no purchase option rights emerge (see decision rendered in case 244/2014-T). Hence the entire reasoning advocated by the Claimant is tainted with error, and it is not possible to rebut the legal presumption established;

Even if the Claimant presented invoices for the sale of the vehicles, these are not apt to prove the execution of a synallagmatic contract such as sale and purchase, as such documents do not reveal by themselves an essential and unequivocal declaration of will (i.e., acceptance) on the part of the alleged purchasers.

With respect to assessments relating to vehicles that were damaged or definitively lost, the Respondent understands that loss or total damage to vehicles does not, by itself or solely on that basis, determine the end of ownership of the damaged or totally lost vehicle.

Loss or total damage to a vehicle covered by motor insurance determines, rather: a) the payment of the respective indemnity by the insurer to the owner; and b) the subrogation of the insurer to act against the person responsible for the accident that caused the loss or definitive damage.

The receipt of an indemnity for loss or damage by the insured party (in this case, the Claimant) does not, without more, result in a sale of the insured object or in the transfer of ownership of the insured object to the insurer, and the Claimant did not provide proof of the alleged transfer of ownership of the damaged or totally lost automobiles in favour of the insurer(s).

With respect to assessments relating to financial leasing due to default/litigation, the Respondent understands that the documents do not relate to financial leasing contracts, but rather:

a) in the case of the commercial company B…, S.A., to "rental contracts", as appears from their heading; and,

b) in the case of the commercial company C…, S.A., to "contracts for the rental of vehicles without a driver", as appears from their heading.

Even if it were concluded that we are dealing with financial leasing contracts granted by the Claimant, it would still be incumbent on the latter to demonstrate compliance with the ancillary obligation imposed by article 19 of the CIUC, in which it is established that "for the purposes of article 3 of the present code (…), entities that proceed with financial leasing, operational leasing or long-term rental of vehicles are obliged to provide to the Tax Authority the data relating to the identification of the users of the leased vehicles."

That is, in matters of financial leasing and for the purposes of rebutting article 3 of the CIUC, it is necessary that financial lessors (such as the Claimant) comply with the obligation inherent in article 19 of that code in order to exonerate themselves from the obligation to pay the tax.

II. PROCEDURAL MATTERS

1. The Tribunal is competent and regularly constituted, pursuant to articles 2, paragraph 1, subparagraph (a), 5 and 6, all of the RJAT.

2. The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to articles 4 and 10 of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March.

3. The AT invokes the exception of improper joinder of claims, on the ground that the prerequisite would not be met that "the analysis of the tax acts in question depends on the appreciation of the same factual circumstances and the application of the same rules of law."

In its response to the exceptions presented by the Claimant, the latter defends itself by saying that "the coincidence as to the factual circumstances and the interpretation and application of the same principles or rules of law refers to the illegitimacy of the Claimant, through the transfer of ownership or the enjoyment and possession of the vehicles to third parties" and that "it is the transfer of enjoyment and possession or ownership to third parties that is the main and transversal basis to all the tax acts impugned, since it is this issue that prevents the Claimant from being the taxable person of the tax in question."

In its understanding, "although we are dealing with different causes of action, the success thereof depends, strictly speaking, on the normal exercise of the activity of A… (here Claimant) and on the interpretation of the tax incidence rules provided for in the IUC Code, in particular the provisions of articles 1 and 3 of that Code."

The Claimant further understands that, with respect to the objective scope, the grounds for transfer are, in fact, different, which does not prevent, however, the joinder of claims, to the extent that the legal and tax issue to be assessed arises from the same facts, that is, to determine the scope of the application of paragraph 1 of article 3 of the CIUC, in the case of a transfer of ownership of motor vehicles having occurred, without the corresponding registration in the motor vehicle registry.

It appears to us that the Claimant has reason. Indeed, regardless of the invocation of specific grounds for annulment of the assessments along with grounds common to all of them, the reasons underlying the joinder of claims - reasons of efficiency and uniformity of decisions - dictate the admissibility of the joinder to the extent that the issue to be assessed consists of determining what happens in terms of IUC liability when, despite the fact that the registration in the motor vehicle registry is in the name of the Claimant, it should not, for various reasons, be considered the owner of the automobile in question.

Thus, we understand that the prerequisites for the joinder of claims are met, pursuant to paragraph 1 of article 3 of the RJAT and article 104 of the CPPT.

III. FACTS OF THE CASE

III.1. Facts Proven

Before proceeding to the assessment of the issues, it is necessary to present the factual matter relevant to its understanding and decision, which, having examined the documentary evidence and the administrative proceeding (AP) attached to the case file and taking into account the facts alleged, is established as follows:

- The corporate purpose of the Claimant consists of the financing of credit acquisitions of consumer goods and equipment (financial leasing and credit), as well as the activity of Long-Term Rental (LTR) of motor vehicles without a driver, motorcycles, and boats.

- On 7 December 2005, the Claimant incorporated, through merger, C…, a merger that produced its accounting and tax effects as of 1 January 2005.

- In the context of the activity it develops, the Claimant enters into contracts with its clients for long-term rental and financial leasing contracts, at the end of which the vehicle is transferred to the lessee, the object of which are motor vehicles and, as well, loan contracts for the acquisition of motor vehicles in which a retention of ownership clause is established in its favour.

- The Claimant made payment of the impugned assessments.

- With respect to the situations in which the Claimant alleges that the vehicle to which the tax relates had already been sold on the date of the taxable event (documents 7 to 60 attached to the request for arbitral pronouncement), this fact is considered proven with respect to the following documents:

- document 14, relating to the vehicle with registration plate …-…-…, tax in the amount of € 124.31, corresponding to assessment no. 2016…, proves the total loss of the vehicle with registration plate …-…-… in 2005, due to loss. Although it does not prove the fact alleged, it proves that, at a moment prior to the occurrence of the taxable event, the vehicle had been declared a total loss.

- Documents 16 to 23, 25 to 33, 35 to 52, 54 to 58 and 60 prove the facts alleged.

F. Situations in which the taxable event of the tax occurred at a time when the total loss of the vehicles in question had already occurred due to an insured loss, in the amount of EUR 877.37 (documents 61 to 71 attached to the initial petition)

- Documents 61 to 64, 66 to 71 prove the total loss;

- Document 65, relating to the vehicle with registration plate …-…-…, tax in the amount of € 19.86, corresponding to assessment no. 2013…, does not prove the total loss but proves that the vehicle was sold prior to the occurrence of the taxable event.

G. Situations in which the taxable event of the tax occurred during the pendency of financial leasing contracts (documents 72 and 73 attached to the request for arbitral pronouncement)

- The documents prove the facts alleged

H. IUC assessments on vehicles that were subject to financial leasing contracts and long-term rental agreements and that fell into default, with proceedings in litigation and the said vehicles not having been recovered (documents 74 to 168 attached to the request for arbitral pronouncement)

- Documents 74 to 138, 140, 142 to 168 – prove the facts alleged (the tax relates to 2016; the notice of non-return of the vehicle is dated 2015).

- With respect to an IUC assessment on the vehicle with registration plate …-…-…, which was returned by the Claimant to the respective supplier due to a defect and exchanged for another, in the amount of € 19.05, document 169 proves the facts alleged.

III.2. Facts Not Proven

- With respect to the first set of situations: assessments whose taxable event occurred at a time when the Claimant was merely a beneficiary of a retention of ownership clause stipulated in the loan contract, from documents 1 to 6 submitted by the Claimant to the case file it does not follow, in some cases, that even the existence of such a retention of ownership is proven, and in other cases, that the retention of ownership, if existing, existed on the date when the taxable event occurred.

- With respect to the second set of situations: assessments relating to vehicles alienated on the date of the occurrence of the taxable event

- document 12, relating to the vehicle with registration plate …-…-… 2016, tax in the amount of € 594.72, corresponding to assessment no. 2016…, only demonstrates that, following the termination of the financial leasing contract, the Claimant sued and succeeded in obtaining a court order in its favour to the effect that the vehicle be returned to it. It is not, therefore, proven that the transfer of ownership of the vehicle occurred at a time prior to the occurrence of the taxable event.

- Document 15, relating to the vehicle with registration plate …-…-…, tax in the amount of € 62.24, corresponding to assessment no. 2013…, proves that the financial leasing contract began on 27/03/2004 and ended on 27/03/2010, the tax relating to March 2013, but does not prove what happened to the vehicle after the contract ended.

- Document 24, relating to the vehicle with registration plate …-…-…, tax in the amount of € 19.92, corresponding to assessment no. 2013…, does not prove the alienation of the vehicle at a time prior to the occurrence of the taxable event.

- Document 34, relating to the vehicle with registration plate …-…-…, tax in the amount of € 60.66, corresponding to assessment no. 2014…, proves the existence of a financial leasing contract between 27.03.2004 and 27.03.2010, the tax being from March 2014, but does not prove the sale of the vehicle at the end of the contract.

- Document 44, relating to the vehicle with registration plate …-…-…, tax in the amount of € 22.86, corresponding to assessment no. 2014…, does not prove the sale of the vehicle at a time after the contract ended.

- Document 53, relating to the vehicle with registration plate …-…-…, tax in the amount of € 54.60, corresponding to assessment no. 2015…, does not prove the sale of the vehicle at a time after the contract ended.

- Document 59, relating to the vehicle with registration plate …-…-…, tax in the amount of € 7.92, corresponding to assessment no. 2016…, does not prove the sale of the vehicle at a time after the contract ended.

C. With respect to the fourth set of situations (IUC assessments on vehicles that were subject to financial leasing contracts and long-term rental agreements and that fell into default, with proceedings in litigation and without the said vehicles having been recovered (documents 74 to 168)

- Document 139, relating to the vehicle with registration plate …-…-…, tax in the amount of € 36.58, corresponding to assessment no. 2013 …, does not prove the facts alleged.

- Document 141, relating to the vehicle with registration plate …-…-…, tax in the amount of € 35.30, corresponding to assessment no. 2014…, does not prove the facts alleged.

IV. ISSUE TO BE DECIDED

The substantive issue at stake in the present case consists of determining whether the facts alleged by the Claimant constitute grounds for exclusion of the subjective scope of the tax and whether, consequently, it should be considered that the impugned acts are tainted by an error regarding the presuppositions of the taxable event, which would constitute a defect of violation of law determining their respective annulment, with the consequent legal effects.

V. LEGAL GROUNDS

The Claimant bases its claim on the argument that the prerequisites for subjective tax incidence provided for in article 3 of the CIUC are not met.

The following six situations are at issue:

I. Assessments whose taxable event occurred at a time when the Claimant was merely a beneficiary of a retention of ownership clause stipulated in the loan contract;

II. Assessments whose taxable event occurred at a time when the Claimant had already proceeded to sell the vehicle, pursuant to a financial leasing contract or long-term rental agreement

III. Assessments whose taxable event occurred at a time when the total loss of the vehicles in question had already occurred due to an insured loss;

IV. Assessments whose taxable event occurred during the pendency of financial leasing contracts;

V. IUC assessments on vehicles that were subject to financial leasing contracts and long-term rental agreements and that fell into default, with proceedings in litigation and without the said vehicles having been recovered;

VI. An IUC assessment on a vehicle that was returned by the Claimant to the respective supplier due to a defect and exchanged for another.

According to the facts proven and not proven contained in the preceding section of this decision, we have:

- With respect to the first set of situations, the facts alleged by the Claimant were not considered proven, and the amount of tax at issue is a total of € 277.86;

- With respect to the second set of situations, the facts alleged by the Claimant were considered partially proven, except for those intended to be proven through documents 12, 15, 24, 34, 44, 53 and 59, that is, the facts alleged with a view to the annulment of a total of € 822.92 in tax were not considered proven;

- With respect to the third set of situations, the facts alleged by the Claimant were considered proven;

- With respect to the fourth set of situations, the facts alleged were considered proven;

- With respect to the fifth set of situations, the facts alleged by the Claimant were considered partially proven, with the corresponding facts not being proven with respect to documents 139 and 141, in a total of assessed tax of € 71.88.

- With respect to the sixth type of situations, the fact alleged by the Claimant was considered proven.

Let us now examine the law applicable to each of the situations:

Regarding the first set of situations: assessments whose taxable event occurred at a time when the Claimant was merely a beneficiary of a retention of ownership clause stipulated in the loan contract

Article 3 of the CIUC provides as follows:

1 - Taxable persons of the tax are individuals or legal entities, whether public or private law, in whose name the ownership of the vehicles is registered.

2 - Financial lessees, acquirers with retention of ownership, as well as other holders of purchase option rights by virtue of the leasing contract, are assimilated to taxable persons.

3 - An undivided inheritance, represented by the head of household, is also assimilated to a taxable person.

According to the Claimant, in cases where the acquisition of vehicles is done through financing granted by it to the respective acquirers, a retention of ownership clause is established in its favour: the acquirer contracts the purchase of the vehicle with the supplier, the price being paid by the Claimant and, with a view to guaranteeing and ensuring the full satisfaction of its credit, the ownership of the vehicle does not pass except at the end of the loan contract.

Pursuant to the provisions of paragraph 1 of article 409 of the Civil Code, "In contracts of alienation it is permitted to the alienator to reserve for itself the ownership of the thing until the full or partial performance of the obligations of the other party or until the occurrence of any other event", and that, "If it is a movable thing subject to registration, only the clause contained in the registration is enforceable against third parties" (cf. para. 2 of the same article).

In the case at hand, it is not a matter of a retention of ownership constituted in favour of the alienator. The retention of ownership of the motor vehicles in question is constituted in favour of the financier by force of the doctrine of subrogation, being permitted to the debtor who performs the obligation with money or other fungible thing lent by a third party, pursuant to the provisions of article 591 of the Civil Code, to subrogate the latter to the rights of the creditor, without need for its consent.

The existence of a retention of ownership over a specific asset in favour of a third party (in this case, the Claimant) permits it to reserve for itself the ownership of the thing (vehicle) until the performance of the obligations that rest upon the debtor (the borrower) within the scope of the contract in question (loan).

This retention does not, however, prevent the possession of the thing from immediately passing, and by force of the contract, to the sphere of the acquirer of the vehicle, being the latter its exclusive user. Recognizing this effect, the legislator provided for, in paragraph 2 of article 3 of the CIUC, the assimilation to owners of acquirers with retention of ownership.

The AT understands that, in order for the Claimant to be able to benefit from the scheme of article 3, paragraph 2, of the CIUC, it would be necessary for the alleged retentions of ownership to have been registered, which was not proven.

Before determining what effect such a retention of ownership has on the condition of taxable person of the tax, it would be necessary to prove that, effectively, that retention of ownership existed on the date when the taxable event occurred. Now, from the documents submitted by the Claimant to the case file (documents 1 to 6 attached to the initial petition), it does not follow, in some cases, that even the existence of such a retention of ownership is proven, and in other cases, that the retention of ownership, if existing, existed on the date when the taxable event occurred.

On the other hand, the Respondent is correct when it states that the retention of ownership that can be taken into account pursuant to article 3, paragraph 2, of the CIUC is the retention of ownership constituted in favour of the acquirers and not in favour of the alienator, as occurred with the Claimant in this case.

Therefore, with respect to this first set of situations, there is no ground for considering that the assessments in question, totalling € 277.86, are illegal.

Regarding the second set of situations: IUC assessments on vehicles already alienated on the date of the occurrence of the respective taxable event

As to these assessments, the Claimant alleges that the vehicles on which the IUC falls had already been alienated on the date when the taxable event of the tax occurred, seeking to prove such facts through documents 7 to 60, which correspond to invoices relating to the sale of the vehicles in question.

The AT understands that invoices are not apt to prove the conclusion of a synallagmatic contract such as sale and purchase, as such documents do not reveal by themselves an essential and unequivocal declaration of will (i.e., acceptance) on the part of the alleged purchasers.

The Claimant invokes the provisions of article 3 of the CIUC, which, in its understanding, establishes an implicit presumption of ownership of the vehicles in favour of those in whose name they are registered, a presumption that, by application of the general rule provided for in article 73 of the General Tax Law, is rebuttable by contrary proof. For the Respondent, article 3 of the CIUC establishes no implicit presumption, but rather a true, irrebuttable legal fiction.

This issue has been extensively dealt with by arbitral jurisprudence over the past years (cf. the decisions rendered in cases 286/2013-T, of 2 May 2014, 293/2013-T, of 9 June 2014, 46/2014-T of 5 September, 246 and 247/2014 T, of 10 October, among others), and has also been the subject of the judgment of the Central Administrative Court of the South rendered on 19-03-2015, case no. 08300/14. Following this court closely along the lines of the jurisprudential path delineated in the above-mentioned cases, only its most significant features will be indicated here.

At the date of the taxable events of the tax assessed through the impugned assessments, paragraph 1 of article 3 of the CIUC established that:

"Taxable persons of the tax are owners of the vehicles, being considered as such individuals or legal entities, whether public or private law, in whose name the same are registered."

The issue that is discussed with respect to this rule is as follows: should it be understood that the legislator used the word "considered" as it could have used the word "presumed" or, on the contrary, that the legislator intended to establish a legal fiction, barring the possibility of proving the contrary?

Pursuant to the provisions of article 349 of the Civil Code, "presumptions are the inferences that the law or the judge draws from a known fact to establish an unknown fact." On the other hand, paragraph 2 of article 350 of the Civil Code clarifies that legal presumptions may be rebutted by contrary proof, except in cases where the law prohibits it.

With regard to presumptions of tax incidence, article 73 of the General Tax Law provides that these always admit contrary proof.

"Legal fictions" consist, differently, "in a legal process that considers a situation or a fact as distinct from reality in order to attribute legal consequences to it".

Now, contrary to what the Respondent argues and as has already been recognized in the arbitral and judicial decisions referred to, the analysis of the literal element, as well as of the historical and teleological elements present in the rule in question, lead to the conclusion that the legislator did not intend to establish any legal fiction but only and simply a presumption, rebuttable by contrary proof in accordance with the provisions of article 73 of the General Tax Law. Being the rule of incidence provided for in paragraph 1 of article 3 of the CIUC a rule of tax incidence, any other understanding would be clearly contrary to the principles governing the tax law relationship.

As to the historical element, it is important to note that the CIUC originated in the creation, through Decree-Law 599/72, of 30 December, of the motor vehicle tax, which already expressly provided that the tax was owed by owners of the vehicles, being presumed as such the persons in whose name the same are registered or matriculated. On the other hand, article 2 of the Regulations of Circulation and Haulage Taxes (approved by Decree-Law No. 116/94) established that: "taxable persons of the circulation tax and the haulage tax are owners of the vehicles, being presumed as such, subject to contrary proof, individuals or legal entities in whose name the same are registered".

It is true that, in the CIUC, the legislator replaced the expression "being presumed" with the expression "being considered", which, in the Respondent's perspective, resulted in the establishment of a legal fiction, irrebuttable. We do not, however, consider this to be the case. The change of verb does not constitute a fundamental alteration of the rule of incidence, which, in our view, continues to establish a presumption rebuttable by contrary proof – in conformity, moreover, with the provisions of article 73 of the LGT.

As stated by DIOGO LEITE CAMPOS, BENJAMIM SILVA RODRIGUES AND JORGE LOPES DE SOUSA, in the annotation to paragraph 3 of article 73 of the LGT, "presumptions in matters of tax incidence can be explicit, revealed by the use of the expression presumed or similar (…). However, presumptions can also be implicit in rules of incidence, in particular of objective incidence, when certain values of movable or immovable property are considered as constituting taxable matter, in situations where it is not impracticable to ascertain the actual value".

In summary, in matters of tax incidence, presumptions can be revealed by the expression "presumed" or by a similar expression. By way of example, JORGE LOPES DE SOUSA points out that in article 40, paragraph 1, of the CIRS, the expression "presumed" is used, whereas in article 46, paragraph 2 of the same Code, the expression "considered" is used, there being no difference between one expression and the other, both meaning, in fact, the same thing: a legal presumption.

As to the teleological element, it is important to note that the structuring principle of the reform of motor vehicle taxation is precisely that of the incidence of taxation on the true user of the vehicle, which principle is not compatible with a "blind" reading of the letter of the law, which could, in fact, lead to taxing someone who was not an owner and, in that way, someone who was not the subject causing the "environmental and road cost" provoked by the vehicle, to which article 1 of the CIUC alludes.

Thus, as to the subjective incidence of the tax, it is to be concluded that no changes occur with respect to the situation previously in force in the scope of the Municipal Tax on Vehicles, Circulation Tax and Haulage Tax, as is, moreover, widely recognized by legal scholars, a rebuttable presumption continuing to apply in this matter. This understanding is, furthermore, the only one that appears adequate and in conformity with the principle of material truth and justice, underlying tax law relationships, with the aim of taxing the real and effective owner and not one who, by circumstances of a different nature, is, at times, merely an apparent and false owner, by being listed in the motor vehicle registry.

In this conformity, considering the interpretation elements of the law referred to, we are led to the conclusion that the expression "considered" has exactly the same meaning as the expression "presumed", and should, therefore, be understood that article 3, paragraph 1, of the CIUC, establishes a true presumption of ownership and not any fiction, and is therefore such presumption rebuttable. Because it is so, the person registered in the motor vehicle registry must be permitted the possibility of presenting sufficient probative elements to demonstrate that the effective owner is, in fact, a different person from that listed in the registry.

Finally, in this analysis, it is necessary to consider the legal value of the motor vehicle registry. Thus, pursuant to the provisions of paragraph 1 of article 1 of Decree-Law 54/75, of 12 February, which established the Motor Vehicle Property Registry, "the registration of vehicles has essentially as its purpose to give publicity to the legal situation of motor vehicles and their respective trailers, with a view to the security of legal commerce". Article 7 of the Land Registry Code further adds that "definitive registration constitutes a presumption that the right exists and belongs to the person registered, in the precise terms in which the registration defines it". The motor vehicle property registry does not, therefore, have a constitutive nature, but merely a declarative one, allowing only the registration in the registry to presume the existence of the right and its ownership. Consequently, the presumption resulting from the registry may be rebutted by contrary proof. And this is so precisely because, pursuant to the provisions of article 408 of the Civil Code, except as provided otherwise by law, the constitution or transfer of real rights over a determined thing is accomplished by the mere effect of the contract, and its validity does not depend on registration in the registry.

In summary, the motor vehicle registry, in the economy of the CIUC, represents mere rebuttable presumption of the taxable persons of the tax. In the case of a sale and purchase contract of a motor vehicle, the law providing no exception for the same, the contract has real effect, the acquirer becoming its owner, regardless of registration; likewise, the person registered in the registry will cease to be the owner, notwithstanding that it may still appear, for some time or even much longer, in the registry as such.

It should also be noted that the transfers effected are enforceable against the Respondent, despite the provisions of paragraph 1 of article 5 of the Land Registry Code, which provides: "facts subject to registration produce effects against third parties only when registered." The notion of third parties for the purposes of registration is established in paragraph 4 of the same article 5: third parties, for the purposes of registration, are those who have acquired from a common author rights incompatible with one another, which is manifestly not the case of the AT. Thus, the AT is not a third party for purposes of registration.

As a consequence of the foregoing, the registered owner of an automobile can make proof, for the purposes of taxation under the IUC, that it is no longer the effective owner of the vehicle in question, namely by having proceeded to its sale. And the proof of the existence of a sale and purchase contract can be effected by any means, the invoice being a documentary accounting suitable for this purpose, as for many others, namely tax purposes. Invoices evidence sales, transactions or provision of services that are presumed to be true by force of the presumption of truthfulness established in article 75 of the LGT. In this sense, it is not accepted that one questions their probative force only for the purpose of proving the transfer of ownership of the vehicle, under penalty of falling into the legal absurdity of, from the same document, recognizing that the transaction existed for the purposes of income tax incidence, but did not exist for the purposes of IUC. But, being it a presumption, nothing prevents the demonstration of its falsehood or inadequacy in light of the legal requirements established in article 36 of the VAT Code. It is also in this case a rebuttable presumption, and the burden of proof rests with the AT.

The Claimant alleges that, on the date when the tax events occurred, it had already transferred the ownership of the vehicles to third party purchasers. To prove this it submits copies of invoices, in which are mentioned, among other elements, the registration plate of the vehicle, the customer number, the identification of the recipient, the amount, a description - "Sale" - and the indication, in the data relating to the elements of direct debit, of "settled".

The situations in question are those listed in the table contained in point 2 of article 4 of the initial petition. The documents presented by the Claimant to prove the facts indicated – that is, that the vehicle to which the tax relates had already been alienated on the date of the occurrence of the taxable event – prove this fact, with the following exceptions:

- document 12, relating to the vehicle with registration plate …-…-…, tax in the amount of € 594.72, corresponding to assessment no. 2016…, only demonstrates that, following the termination of the financial leasing contract, the Claimant sued and succeeded in obtaining a court order in its favour to the effect that the vehicle be returned to it. It is not, therefore, proven that the transfer of ownership of the vehicle occurred at a time prior to the occurrence of the taxable event.

- document 14, relating to the vehicle with registration plate …-…-…, tax in the amount of € 124.31, corresponding to assessment no. 2016…, proves the total loss of the vehicle with registration plate …-…-… in 2005, due to loss. Although it does not prove the fact alleged, it proves that, at a moment prior to the occurrence of the taxable event, the vehicle had been declared a total loss.

- document 15, relating to the vehicle with registration plate …-…-…, tax in the amount of € 62.24, corresponding to assessment no. 2013…, proves that the financial leasing contract began on 27/03/2004 and ended on 27/03/2010, the tax relating to March 2013, but does not prove what happened to the vehicle after the contract ended.

- document 24, relating to the vehicle with registration plate …-…-…, tax in the amount of € 19.92, corresponding to assessment no. 2013…, does not prove the alienation of the vehicle at a time prior to the occurrence of the taxable event.

- document 34, relating to the vehicle with registration plate …-…-…, tax in the amount of € 60.66, corresponding to assessment no. 2014…, proves the existence of a financial leasing contract between 27.03.2004 and 27.03.2010, the tax being from March 2014, but does not prove the sale of the vehicle at the end of the contract.

- document 44, relating to the vehicle with registration plate …-…-…, tax in the amount of € 22.86, corresponding to assessment no. 2014…, does not prove the sale of the vehicle at a time after the contract ended.

- document 53, relating to the vehicle with registration plate …-…-…, tax in the amount of € 54.60, corresponding to assessment no. 2015…, does not prove the sale of the vehicle at a time after the contract ended.

- document 59, relating to the vehicle with registration plate …-…-…, tax in the amount of € 7.92, corresponding to assessment no. 2016…, does not prove the sale of the vehicle at a time after the contract ended.

Thus, with the exceptions referred to, the sales alleged by the Claimant, occurring at a time prior to the occurrence of the taxable event, are considered proven.

Now, having the vehicles been alienated, in the cases referred to, at a time prior to the occurrence of the taxable event, the Claimant should not be considered responsible for the assessment of the tax that relates to them, and therefore the impugned assessments should, indeed, be annulled by the Respondent.

Regarding the situations in which the taxable event of the tax occurred at a time when the total loss of the vehicles in question had already occurred due to an insured loss.

The facts alleged by the Claimant were considered proven, except with respect to document 65, relating to the vehicle with registration plate …-…-…, tax in the amount of € 19.86, corresponding to assessment no. 2013…, which does not prove the total loss but proves that the vehicle was sold prior to the occurrence of the taxable event. That is, as to this case, the Claimant is considered to have right regarding the invalidity of the assessment, although not for the reason of total loss of the vehicle but rather for the fact that it had been alienated prior to the occurrence of the taxable event.

With respect to all other situations, the total loss of the vehicle prior to the date of occurrence of the tax event is considered proven.

In those cases, the Claimant, as owner of the vehicle, furnished its insurer with the necessary documents to prove the occurrence of the loss and received, under the respective contract, the indemnity owed. In these cases, it is the responsibility of the insurance company, pursuant to the provisions of paragraph 7 of article 119 of the Road Code, to communicate the destruction of the vehicle and to remit the vehicle identification document and the motor vehicle property registration title to the competent authorities.

Thus, the Claimant should not be considered the taxable person of the tax assessed through these assessments, which are invalid by virtue of an error regarding the factual and legal presuppositions.

Regarding the situations in which the taxable event of the tax occurred during the pendency of financial leasing contracts

The facts alleged by the Claimant were considered proven, that is, that the vehicles to which the tax assessed through these assessments relates were subject to financial leasing contracts on the date when the taxable event of the tax occurred.

The Respondent understands, on the one hand, that these are not, in this case, financial leasing contracts, but rather contracts for vehicle rental without a driver and simple rental contracts and, on the other hand, that, even if it were concluded that we are dealing with financial leasing contracts granted by the Claimant, it would still be incumbent on the latter to demonstrate compliance with the ancillary obligation imposed by article 19 of the CIUC.

As to the first argument, the AT is not correct. Indeed, document 72 consists of a leasing contract relating to the vehicle …-… -…, with a purchase option at the end (cf. page 8 of that document). As to the second contract, contained in document 73, also of financial leasing, it likewise provides for the purchase option (cf. page 6 of that document).

As to the second argument, the understanding of the AT does not also proceed. On this point, see, by way of example, what is stated in the arbitral decision rendered in case no. 14/2013-T, of 15/10/2013: "the financial lessee is assimilated to an owner for the purposes of paragraph 1 of article 3 of the CIUC, which is to say for the purpose of being a taxable person of the IUC (cfr. para. 2 of art. 3). [...] not being disposed, by legal and contractual imposition, of the potential use of the vehicle by the lessor and having the lessee the exclusive enjoyment of the automobile, [and reaffirming] the conclusion we had already reached that [...] the ratio legis of the CIUC requires that, pursuant to the aforementioned paragraph 2 of article 3 of this Code, it be the lessee who is responsible for the payment of the tax, since it is the lessee who has the potential use of the vehicle and causes the road and environmental costs inherent to it. The same conclusion is reached when the importance given to users of leased vehicles is observed in article 19 of the CIUC. Indeed, pursuant to the provisions of this article, entities that proceed, in particular, to the financial leasing of vehicles are obliged to furnish to the AT (formerly DGCI), the tax identification of the users of the leased vehicles for the purposes of the provisions of article 3 of the CIUC (subjective incidence), as well as of paragraph 1 of article 3 of the Law of its approval, since pursuant to this provision of Law No. 22-A/2007, if the revenue generated by the IUC falls on vehicles subject to long-term rental or operational leasing, it must be allocated to the municipality of residence of the respective user (underlined in original). [...] [But, despite that obligation, this does not prevent that,] on the date of the occurrence of the taxable event of the tax, a financial leasing contract remain[s] in force that has as its object an automobile, for the purposes of the provisions of article 3, paras. 1 and 2, of the CIUC, [and that] the taxable person of the IUC is the lessee even if the registration of the right of ownership of the vehicle is made in the name of the leasing entity, provided that the latter proves the existence of the said contract."

By the foregoing, the AT's allegation regarding article 19 of the CIUC does not proceed, since the same aims to superimpose a formal obligation on a substantial reality clearly demonstrative of the Claimant's condition as leasing entity in the contracts underlying.

Thus, as to these two assessments, the Claimant is considered to have right, and the assessment acts should be annulled, by invalidity due to error regarding the factual and legal presuppositions.

Regarding IUC assessments on vehicles that were subject to financial leasing contracts and long-term rental agreements and that fell into default, with proceedings in litigation and without the said vehicles having been recovered

With respect to the facts alleged by the Claimant on this point, these were considered proven as to documents 74 to 138, 140, 142 to 168, that is, it was considered proven that, the tax being assessed relating to 2016, notice of non-return of the vehicle had already been given to the competent authorities in 2015.

As to document 139, relating to the vehicle with registration plate …-…-…, tax in the amount of € 36.58, corresponding to assessment no. 2013 …, and as to document 141, relating to the vehicle with registration plate …-…-…, tax in the amount of € 35.30, corresponding to assessment no. 2014…, the facts alleged were not considered proven.

With respect to vehicles as to which the Claimant proved having given notice of their non-return by the lessee, it is necessary, then, to decide whether that ground is sufficient to consider the respective assessments invalid.

The fact that the lessee does not return the vehicle at the end of the financial leasing contract affects the enjoyment of the property by the respective owner, but does not affect its ownership. On the other hand, with the financial leasing contract terminated and no purchase option having been exercised, the former lessee is not to be considered responsible for the assessment of the tax. That is, in this case, the presumption of ownership operated by the motor vehicle registry is not displaced by the owner, for no cause occurs that legitimizes such effect. Differently from situations in which there is total loss of the vehicle, in the case in which the vehicle exists, simply not being returned to the owner, the principle of equivalence dictates, for that reason, that someone be the taxable person of the tax. And, there being no reason to displace the presumption that that someone is the owner, the assessment made to the same is valid.

Therefore, as to the situations included in this group, the Claimant has not right, and the tax is owed in the total amount of € 5,755.92.

Regarding an IUC assessment on the vehicle with registration plate …-…-…, which was returned by the Claimant to the respective supplier due to a defect and exchanged for another

Document 169 indeed proves the facts alleged by the Claimant, that is, that the vehicle on which tax was assessed (with registration plate …-…-…) was returned to the supplier and replaced by another. The tax relates to May 2016, the supplier's statement from which it results that the vehicle on which tax was assessed was removed from circulation in 2003.

Thus, this is a case of non-existence in circulation of the vehicle subject of the tax, and therefore the respective assessment should be annulled due to absence of factual presuppositions.

It should also be noted that the circumstance that the documents attached to the request for arbitral pronouncement relate to contractual relationships between companies B…, S.A. and C…, S.A. and their clients (vd. The allegations made in points 65, 75, 125, 136 and 136 of the Response of the Respondent) in no way affect the conclusions previously set forth, given that, as was noted in subparagraph B) of the facts proven, "On 7 December 2005, the Claimant incorporated, through merger, C…, a merger that produced its accounting and tax effects as of 1 January 2005."

Regarding the request for compensatory interest

As to the request for compensatory interest, made pursuant to article 43 of the LGT, it is understood that the same does not proceed because the various grounds for annulment are not based on error attributable to the services, since the Respondent issued the assessments taking into account the information it had available, and is not responsible, nor can be held responsible, for its updating. Thus, the presuppositions listed in article 43 of the LGT are not met.

Regarding the request for condemnation of the Respondent as litigant in bad faith

The Claimant understands that "the reiterated conduct of the Respondent in disregarding, constantly and consciously, the effects resulting from the aforementioned merger operation and the change of the designation of the Claimant, constitutes, without doubt, conduct of bad faith", invoking the provisions of paragraph 1 of article 104 of the LGT, pursuant to which "(…) the tax administration can be condemned to a pecuniary sanction to be quantified in accordance with the rules on vexatious litigation in the event of acting in court contrary to the tenor of binding information previously given to interested parties or its procedure in the proceeding diverges from that habitually adopted in identical situations."

According to the Claimant, by invoking its lack of standing when it has perfect knowledge of the merger operation carried out and the change of corporate name, "the Respondent materializes, with its conduct, the essential vector of the institute of bad faith: the awareness of not being in the right". Furthermore, it understands that "it is notorious that the conduct of the Respondent in the present proceedings diverges from the doctrinal position of the binding information previously given by the Tax and Customs Authority, as well as the procedure that that Authority has been adopting regarding the effects of corporate merger operations."

In the present case, no proof was made that binding information had been given to interested parties in which the AT had assumed a position divergent from that now adopted. On the other hand, it does not appear to us that it can be said that the procedure adopted by the Respondent in the present proceeding diverges from that currently adopted in identical situations. Indeed, the position of the Respondent on the facts in question can easily be refuted by documentary proof, in fact presented by the Claimant, and therefore it appears to us that, while the AT's line of argumentation is criticizable, which in no way contributes to the clarification of the tribunal, it is not such as to be considered conduct of bad faith, not constituting, for that reason, the type of conduct that it is sought to punish with the institute of vexatious litigation.

In these terms, the Tribunal finds the request for condemnation of the Respondent in vexatious litigation improcedent, and the Respondent is, consequently, absolved of such request.

VI. DECISION

In conformity with what is set out above, it is decided:

(i) To find the request for arbitral pronouncement partially grounded and, consequently, to declare the illegality of the assessments with respect to which the allegations of the Claimant were considered grounded and their annulment, and the tax and compensatory interest paid should be refunded to the Claimant;

(ii) To find the request for condemnation of the Respondent as a litigant in bad faith improcedent;

(iii) To find the request for compensatory interest improcedent.

Value: in conformity with the provisions of articles 97-A, paragraph 1, subparagraph (a), of the CPPT and article 3, paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case is assigned the value of € 11,236.11 (eleven thousand two hundred and thirty-six euros and eleven cents).

Costs: pursuant to the provisions of article 22, paragraph 4, of the RJAT and in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at € 918.00, to be paid by the parties in proportion to their respective failure, since the request was partially grounded, pursuant to articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and article 4, paragraph 4, of the aforementioned Regulation. It should be noted that, of the € 11,236.11 which corresponds to the value of the economic utility of the request, the allegations of the Claimant were considered improcedent regarding € 6,856.70 and grounded regarding the remainder.

Let it be registered and notified.

Lisbon, 20 June 2017

The Arbitrator,

Raquel Franco

Frequently Asked Questions

Automatically Created

Who is liable for IUC payment when a vehicle is sold under a finance lease or long-term rental agreement?
Under Portuguese law as interpreted by the Tax Authority in this case, IUC liability remains with the registered owner even after selling a vehicle under finance lease or long-term rental agreements. The AT argues that Article 3 CIUC establishes registration, not economic ownership, as the determining factor. However, the claimant company disputed €4,233.48 in assessments for such vehicles, arguing that actual ownership transfer should terminate IUC liability. The resolution depends on whether Article 3 creates a rebuttable presumption or an absolute rule, and whether the seller complied with Article 19 CIUC's notification requirements to update registry records.
Can a company challenge IUC assessments on vehicles it no longer owns due to completed leasing contracts?
Yes, companies can challenge IUC assessments through CAAD arbitration even after leasing contracts are completed, as demonstrated by this case where the claimant contested €11,236.11 across multiple scenarios including completed leases. However, success depends on proving non-ownership at the relevant tax period and compliance with Article 19 CIUC's declarative obligations. The Tax Authority maintains that failure to update vehicle registry records bars such challenges, as registration determines liability regardless of economic substance. The procedural issue of joining multiple assessments may also arise when vehicles have different transfer dates and circumstances.
What is the legal effect of a reservation of ownership clause on IUC subjective incidence in Portugal?
The legal effect of a reservation (retention) of ownership clause on IUC subjective incidence is contested. The claimant argued that merely being a beneficiary of such a clause (€277.86 in disputed assessments) should not trigger IUC liability. However, the Tax Authority contends that Article 3/3 CIUC only exempts retention of ownership holders if the retention is properly registered in the motor vehicle registry. This position prioritizes formal registration over contractual arrangements. The practical implication is that creditors and financing entities holding unregistered retention clauses may face unexpected IUC liability if they remain registered owners, highlighting the critical importance of registry compliance for tax purposes.
How does the CAAD arbitral tribunal handle disputes over multiple IUC assessments across different tax periods?
The CAAD arbitral tribunal in Process 597/2016-T addressed joinder of multiple IUC assessments totaling €11,236.11 across different tax periods (December 2013 through May 2016). The Tax Authority raised a procedural objection against claim joinder, citing precedent from case 691/2014-T, arguing that disparate factual situations—different vehicles, transfer dates, transfer grounds, taxation bases, and owners—preclude consolidation despite potentially transversal procedural issues. This procedural question is significant for taxpayers seeking efficient resolution of multiple IUC disputes, as it affects litigation strategy, costs, and the ability to present systemic arguments about registry-based taxation versus economic ownership across a vehicle portfolio.
Are compensatory interest (juros indemnizatórios) available when IUC is unlawfully charged to the wrong taxpayer?
Yes, compensatory interest (juros indemnizatórios) are potentially available when IUC is unlawfully charged to the wrong taxpayer, as the claimant in this case sought such interest under Article 43 LGT (Lei Geral Tributária) in addition to contesting the €11,236.11 in principal assessments. Article 43 LGT provides that when tax has been illegally collected, the taxpayer is entitled to compensatory interest from the payment date until reimbursement. However, obtaining such interest requires successfully proving that the assessments were illegal—in this context, demonstrating that the claimant was not the proper IUC taxable person. The availability of compensatory interest provides an additional remedy beyond mere tax refund, compensating for the financial prejudice of erroneous taxation.