IUC Subjective Incidence in Financial Leasing: Legal...

Process: 645/2014-T

Date: March 30, 2015

Tax Type: IUC

Summary

CAAD Case 645/2014-T addresses the crucial question of IUC (Single Circulation Tax) subjective incidence in financial leasing arrangements. Bank A, acting as financial lessor, challenged 18 IUC assessments for 2013-2014 on vehicles under financial lease to third-party customers, seeking annulment and reimbursement of €1,270.93 plus interest. The Claimant argued that despite legal ownership, it should not be the IUC taxpayer because financial leasing involves merely instrumental ownership for guarantee purposes, while lessees hold exclusive use and enjoyment rights. Citing expert opinion from Professor Diogo Leite de Campos, the Claimant contended that IUC, as an environmental tax, targets actual vehicle users who cause environmental damage and road wear. Article 3(2) of the CIUC Code establishes a rebuttable presumption that owners are taxpayers, but this presumption fails when another party holds title to exclusive use. In financial leasing, the lessee exercises typical ownership powers including exclusive enjoyment, making them the proper taxpayer under subjective incidence rules. The Tax Authority raised a preliminary objection regarding the Claimant's standing, noting that some assessments were issued to a different entity (B... Car Rental and Commerce, S.A.), requesting partial dismissal under CPC article 577(e). The arbitral tribunal, constituted on November 3, 2014, with sole arbitrator Maria de Fátima Alves, held hearings where parties waived witness examination and presented oral arguments. The case involves fundamental interpretation of tax liability principles when legal ownership diverges from actual use, particularly relevant for leasing companies facing IUC assessments on extensive vehicle portfolios under financial lease agreements.

Full Decision

TAX ARBITRATION DECISION

Tax Arbitration Decision

CAAD—Tax Arbitration

Case No. 645/2014-T

Claimant – BANK A…, S.A., TIN: …

Respondent – TAX AND CUSTOMS AUTHORITY (AT)

Subject Matter - Assessment of Single Circulation Tax (IUC)

Designated Arbitrator - Maria de Fátima Alves

1 REPORT

1.1

Bank A…, S. A., with the TIN: …, Claimant in the aforementioned tax procedure, hereinafter referred to as the "Claimant", has come, invoking the provisions of paragraphs 1 and 2 of article 10 of Decree-Law No. 10/2011, of 20 January (hereinafter RJAT), of article 99 of the Code of Tax Procedure and Process (CPPT) and of paragraph 1 of article 95 of the General Tax Law (LGT), to request the constitution of a Single Arbitral Tribunal, with a view to:

The annulment of 18 assessment acts relating to the Single Circulation Tax (hereinafter referred to as IUC), carried out by the Tax Authority (hereinafter AT), referring to the years: 2013 and 2014, concerning the vehicles listed in Annex A, identified in columns: A and C, which form an integral part of the Request for Tax Arbitral Opinion.
The request for reimbursement of the total amount of €1,270.93, plus the respective compensatory interest improperly paid by the Claimant and indemnifying interest provided for in articles 43 of the LGT and article 61 of the CPPT.

1.2

Pursuant to the provisions of paragraph a) of paragraph 2 of article 6 and paragraph b) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of 20 January, in the wording introduced by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council appointed as sole arbitrator Maria de Fátima Alves, who communicated acceptance of the assignment within the applicable time:

On 17-10-2014 the parties were duly notified of this appointment and did not manifest an intention to refuse the arbitrator's appointment, in accordance with the combined provisions of article 11 paragraph 1 sub-paragraphs a) and b) of the RJAT and articles 6 and 7 of the Deontological Code;
Wherefore, the arbitral tribunal was constituted on 03-11-2014, as provided for in sub-paragraph c) of paragraph 1 of article 11 of Decree-Law No. 10/2011, of 20 January, in the wording introduced by article 228 of Law 66-B/2012, of 31 December.

1.3

The Claimant, in the substantiation of its request for arbitral opinion, states, in summary, the following:

The vehicles, to which the single circulation tax assessment relates and identified in the attached list as ANNEX A, and whose registration numbers are listed in the respective column D, were given in financial lease by the Claimant to the identified customers in column M which forms an integral part of the aforementioned ANNEX A;

A lease which was in force in the month in which the obligation to pay the IUC associated with the respective vehicles became due;

The legal ownership belonged, in fact, to the Claimant, as the lessor entity, "however, it never enjoyed the use of the vehicles, which were, from the moment of their acquisition, being used (solely and only) by the lessees";

Wherefore, at the date of the tax events, the Claimant could not be considered the taxpayer of the tax, a fact which prevents it from any subjective liability for its payment;
The Claimant bases its position on the fact that the taxed motor vehicles are encompassed within the scope of financial lease contracts, which, in our legal system, presupposes the exclusive enjoyment of the leased asset by the lessee;
Adding that within the scope of financial lease contracts, the ownership of vehicles is merely instrumental, since, according to Diogo Leite de Campos: "in financial leasing only the lessor is owner by way of guarantee" " (in Opinion attached as Annex C, of the PI)";
"Not only does the lessor become owner with the purpose, assumed from the outset, of ceding the enjoyment of the asset,
But it is the lessee, and not the lessor, who exercises the typical powers of ownership"
Emphasizing the fact that the legal qualification of the lessor (in this case, the Claimant), clearly exceeds the qualification of owner, in that: the lessor is merely an instrumental owner (as aforementioned) and whose rights and duties are very distinct from those typically associated with the legal figure of ownership;
"The same applies 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, furthermore, to the lessee with purchase option, who likewise has the exclusive enjoyment of the leased asset";
Furthermore, according to Diogo Leite de Campos (in the aforementioned Opinion): "The IUC is an environmental tax that takes into account the use of the asset which is presumed. The owner is the taxpayer because it is presumed that the owner uses the asset. But, by way of contrary proof, to the effect that the owner does not use the asset, there being another with title to such use, the taxpayer becomes this one, and only this one";
"It is this party that is responsible for the actual damage caused to the environment and to roadways"
In light of the facts presented, at the date of the occurrence of the tax event there was a financial lease contract, as evidenced by the proofs presented in Annex A of the PI, wherefore the Claimant cannot be the taxpayer of the tax, as it holds the legal figure of lessor, which, in light of the letter and spirit of paragraph 2 of article 3 of the Code of Single Circulation Tax (hereinafter referred to as CIUC), the taxpayer of the tax will be the lessee, as it has the enjoyment of the vehicle and, as such is the potential polluter;

1.4

The Respondent, Tax and Customs Authority (hereinafter referred to as AT), submitted a reply, from which it is apparent that the contested tax acts do not suffer from any defect of violation of Law, pronouncing itself in favor of the dismissal of the respondent and the maintenance of the assessment acts questioned, defending, in summary, the following:

It questions the standing of the Claimant regarding the vehicles listed in documents numbered: 4 to 18 attached to the PI, on the grounds that such assessments were sent to the commercial company "B…- Car Rental and Commerce, S.A.";
Requesting, therefore, the recognition of the partial lack of standing of the Claimant;
It does not consider Annex B, attached to the PI, as an appropriate document to demonstrate the alleged extinction of "B…"
Being the Claimant, in this context, a party lacking standing, constituting a dilatory exception referred to in article 577, sub-paragraph e) of the CPC, in the wording given by Law No. 41/2013, of 26 June;
Requesting dismissal of the case, pursuant to article 278, paragraph 1, sub-paragraph b) of the same statute;
The arbitral proceedings should continue in its precise terms, to conclusion.

1.5

The meeting provided for in article 18 of the RJAT took place on 02-03-2015, where it was decided by the Tribunal, with the agreement of the parties, to dispense with the examination of witnesses;

The Illustrious Representatives of the parties presented orally their arguments;
The Tribunal, in compliance with the provisions of article 18, paragraph 2 of the RJAT, designated until 30-03-2015 for the purpose of rendering the arbitral decision.

2 ISSUES FOR DECISION

2.1

In light of the foregoing in the preceding paragraphs, relating to the parties' exposition and the arguments presented, the principal issues to be decided are as follows:

The allegation made by the Claimant regarding the substantive assessment of the assessment acts relating to the years 2013 and 2014 concerning the IUC on the vehicles aforementioned in the PI;
The preliminary issue of standing invoked by the AT;
The erroneous interpretation and application of the norms of subjective incidence of the single circulation tax assessed and collected, which constitutes the central issue to be decided in the present case;
The legal value of the registration of motor vehicles.

3 FACTUAL FINDINGS

3.1

As a matter of fact relevant to the decision to be rendered, the present Tribunal considers as established, in light of the elements in the file, the following facts:

The Claimant presented evidentiary elements contained in Annexes A and B attached to the PI, which are considered to be fully reproduced for all legal purposes;

4.1.1 SUBSTANTIATION OF PROVEN FACTS

The facts established as proven are based on the documents attached to the request for arbitral opinion of the aforementioned PI, which are considered to be fully reproduced for all legal purposes.

3.1.2 UNPROVEN FACTS

There are no facts established as unproven, given that all facts considered relevant to the appraisal of the claim were proven.

4 LEGAL GROUNDS

4.1

The Tribunal is materially competent and is regularly constituted, pursuant to articles 2 paragraph 1, sub-paragraph a), 5 paragraph 2, sub-paragraph a), 6 paragraph 1, 10 paragraph 1, sub-paragraph a) and paragraph 2 of the RJAT:

The parties have legal personality and capacity and are duly authorized, ex vi, articles 4 and 10, paragraph 2, of the RJAT and article 1 of Ordinance No. 112-A/2011, of 22 March;
The proceedings do not suffer from any nullities;
There being a preliminary issue upon which the Tribunal must pronounce itself.

PRELIMINARY ISSUE

i. The Tax Authority, Respondent in the aforementioned case, comes forward, within the scope of its Reply, presented pursuant to the provisions and for the purposes provided in paragraphs 1 and 2 of article 17 of the RJAT, to invoke the partial lack of standing of the Claimant (Bank A…, S. A.), regarding the tax acts listed in Annex A, expressed in documents Nos. 4 to 18 attached to the PI;

ii. That the respective assessments were sent to the Commercial Company "B…-Car Rental and Commerce, S. A."

iii. Therefore, they were presented to an entity different from the Claimant;

iv. Requesting the dismissal of the case pursuant to sub-paragraph d) of paragraph 1 of article 278 of the CPC, with the arbitral proceedings continuing in its terms as to the request for arbitral opinion regarding the assessment acts of the other five vehicles listed in Annex A attached to the PI;

v. Now, in the Request for Arbitral Opinion presented by the Claimant, it presents under coercion (in points 1 and 2 of the PI) 18 acts identified in the table of Annex A, which is an integral part of the claim, sub judice;

vi. In points 9 and 10 of the PI, the Claimant expounds the reasons for its standing, referring to Annex A (already aforementioned), where it alleges that as the sole shareholder, holding 100% of the capital, it closed down "B…";

vii. It proves that company B… ceased to exist in 2008, as evidenced by the elements contained in Annex B (copy of minute No. 30 of "B…");

viii. That the motor vehicles whose IUC assessments are challenged, under Nos. 4 to 18 of Annex A, were subject to financial lease contracts concluded by "B…" with the customers, also identified in Annex A of the PI;

ix. The Claimant, as the dominant company, with the extinction of "B…" assumed the financial lease contracts identified in the already mentioned Annex A under Nos. 4 to 18, which subsequently became part of the Claimant's asset portfolio;

x. Being, therefore, in the years 2013 and 2014, the lessor entity of the vehicles in question;

xi. Thus opting the Claimant, under articles 3 of the RJAT and 104 of the CPPT, to aggregate the additional assessments whose legality is contested in a single request for arbitral opinion;

xii. In light of the facts briefly described and, from the moment the Claimant bore the tax assessed by the AT, it has a legitimate interest in discussing its legality, pursuant to paragraph 1, in fine, of article 9 of the CPPT, wherefore legally, the standing of the Claimant is considered established to contest the tax acts, sub judice.

4.2

The claim object of the present case is the declaration of annulment of the 18 assessment acts of the IUC relating to the motor vehicles better identified in Annex A of the PI;

4.2.1 Condemnation of the AT to reimburse the amount of tax relating to such assessments in the sum of €1,270.93;

4.2.2 Condemnation of the AT to payment of indemnifying interest on the same amounts.

4.3

The factual matter is fixed as it appears in paragraph 3.1 above, it being now necessary to determine the applicable Law to the underlying facts, in accordance with the issues for decision identified in paragraph 2.1 above, it being certain that the central issue in these proceedings, as to which there are absolutely opposing positions between the Claimant and the AT, consists in determining whether paragraph 1 of article 3 of the CIUC enshrines or does not enshrine a rebuttable presumption.

4.4

All analyzed and, taking into account, on the one hand, the positions of the parties in confrontation mentioned in points 1.3 and 1.4 above and, considering on the other hand that the central issue to be decided is whether paragraph 1 of article 3 of the CIUC enshrines or does not enshrine a legal presumption of tax incidence, it is appropriate in this context to analyze and render a decision.

5 ISSUE OF ERRONEOUS INTERPRETATION AND APPLICATION OF THE NORM OF SUBJECTIVE INCIDENCE OF THE IUC

5.1

Considering it to be accepted understanding in doctrine that in the interpretation of tax laws the general principles of interpretation apply fully which will be only and naturally limited by the exceptions and particularities dictated by the law itself which is the object of interpretation. This is an understanding that has come to receive acceptance in the General Tax Laws of other countries and which has also come to be enshrined in article 11 of our General Tax Law, which has moreover been frequently underscored by jurisprudence.

It is consensually accepted that with a view to grasping the meaning of the law, interpretation resorts a priori to reconstructing the legislative intent through the words of the law, which means seeking its literal meaning, assessing it and evaluating it in light of other criteria, with the involvement of the so-called elements of a logical, rational or teleological nature and of a systematic order:

With regard to the interpretation of tax law, account must be taken of jurisprudence, namely the Decisions of the STA of 05-09-2012, case No. 0314/12 and of 06-02-2013, case 01000/12, available at www.dgsi.pt, the importance of the provision in article 9 of the Civil Code (CC) as a fundamental element of legal hermeneutics;
Paragraph 1 of article 3 of the CIUC provides that "The taxpayers of the tax are the owners of the vehicles, considered as such the natural or legal persons, of public or private law, in whose name the same are registered";
The formulation used in the aforementioned article resorts to the expression "considered as" which raises the question of whether such expression can be attributed a presumptive sense, equating it to the expression "presumed", these being expressions frequently used with equivalent meanings;
As Jorge Lopes de Sousa teaches, in Code of Tax Procedure and Process, Annotated and Commented, Volume I, 6th Edition, Área Editora, SA, Lisbon 2011, p. 589, that in matters of tax incidence, presumptions can be revealed by the expression "it is presumed" or by similar expression, there being mentioned various examples of such presumptions, referring to that contained in article 40, paragraph 1 of the CIRS, in which the expression "it is presumed" is used and that contained in article 46 paragraph 2 of the same Code, in which the expression "is considered" is used as an expression with an effect similar to the former and also embodying a presumption;
In the legal formulation set forth in paragraph 1 of article 3 of the CIUC, in which a presumption was enshrined, revealed by the expression "considered as", of meaning similar and of equivalent value to the expression "presumed", in use since the creation of the tax in question;
The use of the expression "considered as" intended nothing more than the establishment of a more forceful and clear approximation between the taxpayer of the IUC and the actual owner of the vehicle, which is in harmony with the reinforcement given to the ownership of the vehicle, which came to constitute the tax event, pursuant to article 6 of the CIUC;
The relevance and interest of the presumption in question, which historically was revealed through the expression "presumed" and which now serves the expression "considered as", resides in the truth and justice which, thereby, are conferred upon tax relations and which embody fundamental tax values, allowing the actual and effective owner to be taxed and not the one who, by circumstances of various nature, is sometimes nothing more than an apparent and false owner. If the case were not so considered, not admitting and highlighting the presentation of evidentiary elements intended to demonstrate that the actual owner is, in fact, a person different from the one registered and who initially and in principle was supposed to be the true owner, those values would be objectively subordinated.

5.2

Account must also be taken of the principle of equivalence inscribed in article 1 of the CIUC, which has underlying it the polluter-pays principle and concretizes the idea inscribed in it that whoever pollutes must, as a result, pay. The aforementioned principle has constitutional grounding insofar as it represents a corollary of the provision in sub-paragraph h) of paragraph 2 of article 66 of the Constitution, and also has grounding in Community law, whether at the level of primary law, article 130-R of the Maastricht Treaty (Treaty of the European Union, of 07-02-1992), where the aforementioned principle came to be included as the basis of Community Policy in the environmental field and which aims to hold responsible those who contribute to the damage arising to the community from the use of motor vehicles, being assumed by their owner-users as costs that only they must bear.

5.3

In light of the facts described above, it is important to stress that the aforementioned elements of interpretation, whether those related to literal interpretation, supported by legally used words, whether those relating to logical elements of interpretation of a historical nature or of a rational order, all point to the understanding that the expression "considered as" has a meaning equivalent to the expression "presumed", and thus should be understood that the provision in paragraph 1 of article 3 of the CIUC enshrines a legal presumption which, in light of article 73 of the LGT, where it is established that "Presumptions enshrined in the norms of tax incidence always admit proof to the contrary", will necessarily be rebuttable, which means that the taxpayers are, in principle, the persons in whose name such vehicles are registered. These persons, thus identified under these conditions, are those to whom the AT must necessarily address itself;

But this will be in principle given that within the framework of mandatory prior hearing, in light of the provision in sub-paragraph a) of paragraph 1 of article 60 of the LGT, the tax relationship may be reconfigured, validating the taxpayer initially identified or redirecting the proceedings towards the one who is, in fact, the true and actual taxpayer of the tax in question.
The taxpayer has the right to be heard, through prior hearing (José Manuel Santos Botelho, Américo Pires Esteves and José Cândido de Pinho, in Code of Administrative Procedure, Annotated and Commented, 4th edition, Almedina, 2000, annotation 8 of article 100).
The prior hearing which naturally is to take place at the moment immediately prior to the assessment procedure corresponds to the venue and proper time for, with certainty and security to identify the taxpayer of the IUC.
That in the instant case, the Claimant demonstrated to the AT, in the prior hearing forum, that the facts fell within the scope of financial lease contracts, wherefore through documents contained in Annex A, it was the lessees who were responsible for the payment of the IUCs, pursuant to paragraph 2 of article 3 of the CIUC.

6 ON THE LEGAL VALUE OF REGISTRATION

6.1

With respect to the legal value of registration, it is important to note what is established in paragraph 1 of article 1 of Decree-Law No. 54/75, of 12 February (amended several times, the last being by way of Law No. 39/2008, of 11 August), when it provides that "the registration of vehicles has essentially the purpose of giving publicity to the legal situation of motor vehicles and their trailers, with a view to the security of legal commerce":

Article 7 of the Code of Land Registration (CRP), applicable supplementarily to the registration of automobiles by virtue of article 29 of the CRA, provides that "Definitive registration constitutes a presumption that the right exists and belongs to the registered owner, in the precise terms in which the registration defines it";
Definitive registration constitutes nothing more than a rebuttable presumption, admitting therefore contrary proof as follows from the law and jurisprudence has been pointing out, which can be seen among others in the Decisions of the STJ No. 03B4369 of 19-02-2004 and No. 07B4528 of 29-01-2008, available at: www.dgsi.pt;
Therefore, the function legally reserved to registration is on the one hand that of publicizing the legal situation of the goods, in the case at hand, of the vehicles and on the other hand, it allows us to presume that there exists a right over those vehicles and that such right belongs to the registered owner, does not have a constitutive nature of the right of ownership, but only declaratory, whereby registration does not constitute a condition of validity of the transfer of the vehicle from seller to buyer;
The acquirers of the vehicles become owners of those same vehicles through the execution of the corresponding contracts of purchase and sale, with registration or without it;
In this context it is pertinent to recall that, in light of the provision in paragraph 1 of article 408 of the CC, the transfer of real rights over things, in the case sub judice, motor vehicles, is determined by mere effect of the contract, and that pursuant to the provision in sub-paragraph a) of article 879 of the CC, among the essential effects of the contract of purchase and sale, stands out the transfer of the thing;
From the foregoing, it becomes clear that the legislative intent points towards the understanding that the provision in paragraph 1 of article 3 of the CIUC enshrines a presumption "juris tantum", consequently rebuttable, thus allowing the person who in the registration is inscribed as owner of the vehicle to present evidentiary elements intended to demonstrate that such ownership is inserted in the legal sphere of another person, to whom the ownership was transferred;
Which concerning the contested facts, there exist financial lease contracts, which were proven by the Claimant both in the prior hearing forum as well as in the request for arbitral opinion, thereby establishing the certainty that it is the respective lessees who bear the subjective responsibility for the IUCs, pursuant to paragraph 2 of article 3 of the CIUC.

7 THE PRESUMPTION OF ARTICLE 3 OF THE CIUC AND THE DATE ON WHICH THE IUC IS DUE

7.1 DATE ON WHICH THE IUC IS DUE

The IUC is a periodically taxed tax whose periodicity corresponds to the year that begins on the date of registration or on each of its anniversaries, as provided in paragraphs 1 and 2 of article 4 of the CIUC;
It is due pursuant to paragraph 3 of article 6 of the aforementioned Code;
It should be noted that, as to the assessment of the IUC taxed to the Claimant on the vehicles aforementioned, in the years 2013 and 2014, are not to be considered because, as this involves financial lease contracts, at the time of the tax events, the vehicles in question were in the legal sphere of the lessees, whereby these retain the use and enjoyment of the vehicles, wherefore pursuant to paragraph 2 of the CIUC, they must be held responsible for the payment of the obligation of the aforementioned tax.

7.1.1 With respect to the burden of proof, article 342 paragraph 1 of the CC provides "it is incumbent upon the one who invokes a right to prove the facts constitutive of the alleged right";

7.1.2 Also article 346 of the CC (contrary proof) determines that "to the proof produced by the party on whom the burden of proof falls the contrary party may oppose contrary proof with respect to the same facts, intended to render them doubtful; if it succeeds, the issue is decided against the party burdened with the proof." (As affirms Anselmo de Castro, A., 1982, ED. Almedina Coimbra, "Civil Procedural Law of Declaration", III, p. 163, "where one of the parties bears the burden of proof, to the contrary party it suffices to oppose contrary proof, this being proof intended to render doubtful the facts alleged by the first").

Thus in the instant case, what the Claimant has to prove, in order to rebut the presumption arising from article 3 of the CIUC, is that the Claimant, within the scope of financial lease contracts, is not the lessee party, as evidenced by the evidentiary documents contained in Annex A attached to the PI.

7.2 REBUTTAL OF THE PRESUMPTION

The Claimant, as referred to in 3.1, regarding the proven facts, alleged, with the purpose of averting the presumption, not to be the taxpayer of the tax when the tax event occurred, offering for that purpose the following documents:
Documents contained in Annex A;
As the Claimant was notified by the AT in the capacity of lessor of the 18 vehicles, better identified in Annex A of the PI; vehicles which are part of financial lease contracts which it is presumed pursuant to paragraph 2 of article 3 of the CIUC that: "financial lessees are equated with owners, purchasers with reservation of ownership, as well as other holders of purchase option rights by virtue of the lease contract";
Now those documents enjoy the presumption of truthfulness provided in paragraph 1 of article 75 of the LGT. It follows from this that at the date when the IUC was due those who held the ownership of the motor vehicles were the legitimate lessees.

8 OTHER ISSUES RELATING TO THE LEGALITY OF THE ASSESSMENT ACTS

With respect to the existence of other issues relating to the legality of the assessment acts, taking into account that it is inherent in the establishment of an order of knowledge of defects as provided in article 124 of the CPPT that proceeding with the request for arbitral opinion based on defects that prevent the renewal of the impugned assessments becomes moot, because pointless, the knowledge of other defects, it does not appear necessary to address the other issues raised.

9 REIMBURSEMENT OF THE TOTAL AMOUNT PAID

Pursuant to the provision in sub-paragraph b) of paragraph 1 of article 24 of the RJAT and in conformity with what is established therein, the arbitral decision on the merits of the claim to which no appeal or challenge may be taken binds the tax administration from the end of the period provided for appeal or challenge, and this, in the exact terms of the merits of the arbitral decision in favor of the taxpayer and until the end of the period provided for the voluntary execution of judgments of tax courts "must restore the situation that would exist if the tax act which is the object of the arbitral decision had not been carried out, adopting the acts and operations necessary for that purpose"
These are legal commands that are in full harmony with the provision in article 100 of the LGT, applicable to the case ex vi of the provision in sub-paragraph a) of paragraph 1 of article 29 of the RJAT, in which it is established that "the tax administration is obliged, in the event of total or partial merit of complaints or administrative appeals or judicial proceedings in favor of the taxpayer, to the immediate and full reconstitution of the situation that would exist if the illegality had not been committed, with indemnifying interest corresponding, in accordance with the terms and conditions provided by law".
The case contained in the instant proceedings raises the manifest application of the aforementioned norms, given that as a consequence of the illegality of the assessment acts referenced in this case, there will by virtue of these norms have to be a reimbursement of the amounts paid, whether by way of the tax paid, or of the corresponding compensatory interest, as a way of achieving the reconstitution of the situation that would exist if the illegality had not been committed.

10 AS TO THE RIGHT TO INDEMNIFYING INTEREST

The declaration of illegality and consequent annulment of an administrative act confers upon the recipient of the act the right to the reinstatement of the situation in which the same would have been before the execution of the annulled act.
Within the scope of the assessment of the tax, its annulment confers upon the taxpayer the right to the return of the tax paid and, as a rule, the right to indemnifying interest, pursuant to paragraph 1 of article 43 of the LGT and article 61 of the CPPT.
Wherefore the Claimant has the right to indemnifying interest on the amount of tax paid relating to the annulled assessments.

11 DECISION

In light of the foregoing, this Arbitral Tribunal decides:

To judge the claim well-founded for the declaration of illegality of the assessment of the IUC relating to the years 2013 and 2014, with respect to the motor vehicles identified in the instant case, hereby annulling the corresponding tax acts;
To judge the claim well-founded for condemnation of the Tax Administration to reimburse the amount improperly paid in the sum of 1,270.93 euros, condemning the Tax and Customs Authority to make these payments.

CASE VALUE: In accordance with the provisions of articles 306 paragraph 2 of the CPC and 97-A paragraph 1 of the CPPT and article 3 paragraph 2 of the Regulation of Costs in Tax Arbitration Proceedings, the case value is fixed at €1,270.93.

COSTS: In accordance with paragraph 4 of article 22 of the RJAT, the amount of costs is fixed at €306.00 in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Tax and Customs Authority.

Notify the parties.

Lisbon, 30-03-2015

The Arbitrator

Maria de Fátima Alves

(the text of this decision was prepared by computer pursuant to article 131 paragraph 5 of the Code of Civil Procedure, applicable by reference of article 29 paragraph 1 sub-paragraph e) of Decree-Law 10/2011, of 20 January (RJAT), governed in its drafting by current orthography)

Frequently Asked Questions

Automatically Created

Who is liable for IUC payment on vehicles under a financial leasing agreement in Portugal?

Under Portuguese tax law, IUC liability in financial leasing presents a complex issue of subjective incidence. Article 3 of the CIUC Code establishes that the registered owner is presumptively the taxpayer. However, in financial leasing arrangements, this creates a divergence between legal ownership (held by the lessor/financing entity for guarantee purposes) and actual use (exercised exclusively by the lessee). Legal doctrine, as articulated by Professor Diogo Leite de Campos, supports that the lessor holds only instrumental ownership while the lessee exercises substantive ownership powers including exclusive vehicle use. Since IUC is characterized as an environmental tax targeting actual road use and pollution, the proper taxpayer should be the party with exclusive enjoyment - the lessee. The presumption favoring the registered owner can be rebutted through proof that another party holds legal title to use the vehicle, shifting IUC liability from the financial lessor to the lessee who actually uses and benefits from the vehicle.

Can a financial lessor challenge IUC tax assessments based on subjective incidence rules?

Yes, financial lessors have legal standing to challenge IUC assessments based on subjective incidence principles under Portuguese tax arbitration procedures. According to RJAT (Decree-Law 10/2011) and articles 95 LGT and 99 CPPT, lessors can request arbitral tribunal constitution to contest IUC liquidations where they dispute being the proper taxpayer. The challenge centers on Article 3(2) CIUC interpretation, arguing that financial leasing creates a special ownership regime where the lessor is merely an instrumental owner for guarantee purposes, not the substantive user. Lessors can invoke the rebuttable nature of legal presumptions, demonstrating through financial lease contracts that lessees hold exclusive use rights and exercise typical ownership powers. However, the Tax Authority may raise preliminary objections regarding standing if assessments were issued to related entities or if there are corporate structure questions. The arbitral process allows lessors to seek not only annulment of contested assessments but also reimbursement of amounts paid plus compensatory and indemnifying interest under LGT article 43 and CPPT article 61.

How do legal presumptions affect IUC liability for leasing companies under Portuguese tax law?

Legal presumptions play a central role in IUC liability determination for leasing companies. Portuguese tax law establishes a rebuttable presumption under CIUC Article 3 that the registered vehicle owner is the IUC taxpayer, based on the assumption that owners typically use their vehicles. However, this presumption iuris tantum (admitting contrary proof) can be challenged when factual circumstances demonstrate another party holds legal title to exclusive use. In financial leasing, the presumption creates significant liability exposure for leasing companies despite their instrumental ownership status. Companies can rebut this presumption by proving: (1) valid financial lease contracts were in force when IUC obligations arose; (2) lessees held exclusive enjoyment rights; (3) the lessor never used the vehicles; and (4) lessees exercised substantive ownership powers. The burden of proof rests on the leasing company to demonstrate the presumption's inapplicability. Expert legal opinion supports that when ownership serves merely as security (as in financial leasing), and another party has exclusive use creating actual environmental impact and road wear, the presumption should yield to the reality that the lessee is the proper taxpayer as the actual polluter and road user.

What is the CAAD arbitration procedure for disputing IUC liquidations on leased vehicles?

The CAAD (Administrative Arbitration Center) procedure for disputing IUC liquidations on leased vehicles follows the framework established in RJAT (Decree-Law 10/2011). Financial lessors must file a request for arbitral opinion invoking RJAT articles 10(1) and 10(2), along with CPPT article 99 and LGT article 95, specifically identifying contested assessment acts and vehicles involved. The request should include: (1) identification of specific IUC assessments by year and vehicle; (2) legal grounds challenging subjective incidence; (3) supporting documentation including financial lease contracts proving lessees held exclusive use when tax obligations arose; (4) claims for reimbursement, compensatory interest, and indemnifying interest. The Deontological Council appoints a sole arbitrator under RJAT article 11(1)(b), with parties having the right to refuse appointment per articles 6-7 of the Deontological Code. The tribunal is constituted when no refusal is manifested within statutory deadlines. Proceedings include a hearing under RJAT article 18 where parties may present witnesses and oral arguments. The tribunal may dispense with witness examination by mutual agreement. The arbitrator must render a decision within the designated timeframe, typically 30 days from the final hearing, addressing both preliminary issues (such as standing objections) and substantive questions of tax liability.

Are financial lessors entitled to reimbursement and compensatory interest for unduly paid IUC?

Financial lessors contesting IUC assessments can claim reimbursement and interest for unduly paid amounts under Portuguese tax law provisions. Article 43 LGT establishes the right to compensatory interest (juros compensatórios) when taxpayers have paid amounts not legally due, calculated from payment date until reimbursement. Additionally, CPPT article 61 provides for indemnifying interest (juros indemnizatórios) when delays in reimbursement occur through administrative fault. To obtain these remedies, lessors must: (1) successfully demonstrate they were not the proper IUC taxpayers due to financial lease arrangements transferring exclusive use to lessees; (2) prove actual payment of contested amounts; (3) calculate interest according to applicable legal rates and timeframes. The arbitral tribunal has jurisdiction to order both principal reimbursement and accrued interest. However, entitlement depends on prevailing on the substantive issue - proving that subjective incidence rules place IUC liability on lessees rather than lessors. If the tribunal upholds the Tax Authority's position that registered owners remain liable despite financial leasing arrangements, no reimbursement or interest will be awarded. The preliminary standing objection must also be resolved favorably, as lack of standing would result in dismissal without reaching substantive reimbursement claims.

IUC Subjective Incidence in Financial Leasing: Legal Presumptions and Tax Liability (CAAD 645/2014-T)

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