Process: 663/2017-T

Date: May 28, 2018

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 663/2017-T) addresses whether recreational motor vessels registered in the Madeira International Ship Registry (RINM-MAR) are exempt from Portugal's Single Vehicle Tax (Imposto Único de Circulação - IUC). The claimant owned a recreational vessel registered with RINM-MAR in 2014, paying annual fees and receiving an IUC exemption certificate. However, the Tax and Customs Authority (AT) retroactively assessed IUC for 2015-2017, totaling €6,093.66. The taxpayer argued that vessels registered in MAR qualify for the Madeira Free Trade Zone tax regime, which grants exemptions from local taxes including IUC, pursuant to Decree-Law 165/86 and Decree-Law 96/89. The claimant contended that the legal framework establishes equivalence between MAR-registered ships and enterprises in the Free Trade Zone, thereby extending tax benefits to vessel owners regardless of residence. The AT countered that MAR registration constitutes Portuguese flag registration under Article 6(2) of Decree-Law 96/89, making vessels subject to IUC under Article 2(1)(f) of the IUC Code, which taxes recreational vessels with engine power ≥20kw registered in Portugal since 1986. The dispute centers on interpreting whether Free Trade Zone tax exemptions apply to individual vessel owners or only to commercial enterprises, and whether MAR registration simultaneously triggers both Portuguese tax jurisdiction and Free Trade Zone benefits. The case illustrates crucial issues regarding the interplay between special tax regimes for autonomous regions and national taxation, with significant implications for yacht owners using international registries.

Full Decision

ARBITRAL DECISION

Report:

A…, NIF…, (hereinafter referred to as "Claimant"), resident at Rua…, no.…, …-… ..., submitted a request for arbitral pronouncement and constitution of a singular arbitral tribunal on 21 December 2017, pursuant to Article 4 and Article 10, no. 2 of Decree-Law no. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to as "LFTM"), in which the Tax and Customs Authority (hereinafter referred to as "Respondent" or "TCA") is the defendant.

In the said request for arbitral pronouncement, the Claimant seeks the annulment of the assessments of Single Vehicle Tax no.…, in the amount of € 1,975.85 relating to 2017, no.…, in the amount of € 2,037.03 relating to 2016, and no.…, in the amount of € 2,080.78 relating to 2015, and requests, as a consequence, the refund of amounts paid and payment of compensatory interest.

The request for constitution of the Singular Arbitral Tribunal was accepted by the President of CAAD on 22 December 2017 and notified to the Respondent.

The Claimant did not appoint an arbitrator; therefore, in accordance with Article 6, no. 2, paragraph a) and Article 11, no. 1, paragraph b) of the LFTM, the President of the Deontological Council of CAAD designated the undersigned as arbitrator of the singular arbitral tribunal, who communicated acceptance of the assignment within the applicable period, and the parties did not manifest refusal of the designation, in accordance with Article 11, no. 1, paragraphs a) and b) of the LFTM and Article 7 of the Deontological Code.

On 5 March 2018, the arbitral tribunal was constituted.

Notified for this purpose on 5 March 2018, the Respondent submitted its Reply on 13 April 2018, and remitted a copy of the administrative file on the same date.

On 13 April 2018, the arbitral hearing provided for in Article 18 of the LFTM was dispensed with, and the Claimant and Respondent were invited to submit written arguments.

On 17 May 2018, the deadline for publication of the final decision was set as 18 June 2018.

Arguments of the Claimant:

The Claimant supports its request, in summary, as follows:

The Claimant is the owner of the vessel with hull no. … which, in 2014, following consultation with the International Register of Ships of Madeira, registry MAR (IRSM-MAR), registered it and to which was assigned the registration R-…, with the purpose of benefiting from the Single Vehicle Tax exemption.

The Claimant paid, and pays, to Company B... (B...), which oversees the IRSM-MAR, the amount of € 500.00/year, in the form of a fee.

An exemption declaration for Single Vehicle Tax from the IRSM-MAR was issued to the Claimant.

By letter from the Tax Office of Matosinhos – … dated 12 September 2017, the Claimant was notified of the intention of those services to assess the Single Vehicle Tax relating to the vessel referred to above.

On 22 September 2017, the Claimant exercised the right to be heard, and on 13 October 2017 was notified by that tax office that the vessel was subject to Single Vehicle Tax, and accordingly, on 7 November 2017, was notified of the assessment notices in question in the proceedings, which the Claimant paid.

The Claimant argues that, pursuant to Article 2 of the Single Vehicle Tax Code, the vessel of which it is the owner is subject to that tax but, pursuant to Article 7, paragraph d) of Decree-Law 165/86 of 26 June, in conjunction with Article 24, no. 2 of Decree-Law 96/89 of 28 March, there is equivalence between ships registered in the IRSM-MAR and enterprises established in the Free Trade Zone of Madeira, granting them the same benefits that would be granted to enterprises.

The Single Vehicle Tax, according to the Claimant, has the nature of a local tax, so recreational vessels registered in MAR are considered vessels flying the Portuguese flag and, being registered in the IRSM-MAR, the regime of the Free Trade Zone of Madeira applies to them, pursuant to Decree-Law 192/2003, of 22 August (Article 6, no. 1 of Decree-Law 96/89 of 28 March, by reference to Article 1 of Decree-Law 192/2003, of 22 August).

By the same legal reference, the Claimant considers that to vessels registered in MAR is applied the tax regime provided in the legislation relating to the Free Trade Zone of Madeira (Article 24 of Decree-Law 96/89 of 28 March, by reference to Article 1 of Decree-Law 192/2003, of 22 August).

The Claimant concludes that, as the Single Vehicle Tax is a local tax, the owners of private-use recreational vessels registered in MAR are exempt from payment thereof.

Thus, in terms of subjective scope, the Claimant argues that the passive subjects of the tax are the owners of vehicles, considered as such natural or legal persons, of public or private law, in whose names they are registered, with no distinction in the law, according to the Claimant, that the owners are resident in Portugal.

Thus, the Claimant concludes that the Single Vehicle Tax exemption will apply to owners of private-use recreational vessels registered in the IRSM-MAR, whether they are resident in Portugal or in another territory.

Based on the arguments expounded, the Claimant concludes that the tax assessments are voidable and, consequently, requests the refund of the amounts paid and payment of compensatory interest.

Response of the Respondent:

The Respondent, in turn, argued the inadmissibility of the request for arbitral pronouncement and alleged, in summary, that:

The obligation to register referred to in Article 19, no. 1 of the current Regulations on Recreational Boating, which, pursuant to no. 2 thereof, "is carried out by the maritime authority", is performed by the harbour master who, in accordance with Article 13, no. 6 of Decree-Law no. 44/2002 of 02/03, is the entity with authority to carry out the registration of vessels, stipulating in paragraph a) thereof "to carry out the registration of ownership of national vessels, as well as the cancellation, reform, and alteration of registration, in accordance with what is legally established, particularly in matters of registration of movable property and recreational boating."

The MAR constitutes a second register of ships with "special, insular, and ultraperipheral" character, which can be perceived as an alternative to the register provided for in the current General Regulations of the Harbour Masters and the Regulations on Recreational Boating.

In addition to the registration of the vessel's registration in the MAR, these must be registered with the Commercial Registry Office exclusive to the Free Trade Zone of Madeira, which involves the constitution, acquisition, or extinction of real rights, but given that the vessel in question is recreational, it is not subject to double registration, the scope of commercial registration being restricted to merchant ships.

Recreational vessels registered in the MAR are considered registered in Portugal, flying the Portuguese flag, pursuant to Article 6, no. 2 of Decree-Law no. 96/89, of 28 March, and are therefore subject to taxation under the Single Vehicle Tax.

The Single Vehicle Tax applies to vehicles registered or matriculated in Portugal, including "private-use recreational vessels with engine power equal to or greater than 20kw, registered since 1986", constituting category F of vehicles, pursuant to Article 2, no. 1, paragraph f) of the Single Vehicle Tax Code.

The vessel is subject to Single Vehicle Tax, by virtue of the tax base rule contained in paragraph f) of Article 2, no. 1 of the Single Vehicle Tax Code.

The tax regime provided for the Free Trade Zone of Madeira includes the provisions of the Tax Benefits Statute, approved by Decree-Law no. 215/89 of 01/07, and the provisions of Decree-Law no. 165/86 of 26/06, with different scopes of application, according to the Respondent.

Pursuant to Decree-Law no. 165/86 of 26/06, namely Article 7 thereof, enterprises established in the Free Trade Zone of Madeira are exempt from local taxes and duties (paragraph d) of Article 7), an exemption that extends to recreational vessels by virtue of Articles 8 and 26 of Decree-Law 96/89 of 28/03, by the equivalence of ships registered in the MAR to enterprises installed for tax purposes.

However, according to the Respondent, pursuant to Article 3, no. 1 of the Single Vehicle Tax Code, the passive subjects of the tax are the owners of registered vehicles, and although Article 2, no. 1 of Law no. 22-A/2007, of 29/06, provides that the Single Vehicle Tax is administered by the current Tax and Customs Authority, Article 3, no. 1 of the same Law provides that the revenue from Single Vehicle Tax relating, inter alia, to vehicles of category F, is owned by the municipality of residence of the passive subject.

In the case of the vessel in question, although it has been registered in the MAR since 2014, the Single Vehicle Tax revenue resulting from its taxation is owned by the municipality of residence of its owner.

Thus, the ownership referred to in Article 3, no. 1 of Law no. 22-A/2007, of 29/06, is only the ownership of revenue, and therefore the Single Vehicle Tax is a tax of a state nature, with the State being the active subject of the tax legal relationship.

In the interpretation of paragraph d) of Article 7 of Decree-Law no. 165/86, of 26/06, the reference to "local taxes and duties" refers to taxes created under the General Regime of Taxes of Local Authorities and taxes created under the tax competencies of municipalities, provided for in Article 15 of the Financial Regime of Local Authorities and Inter-Municipal Entities, so, according to the Respondent, the Single Vehicle Tax does not fall within the concept of "local taxes and duties" contained in paragraph d) of Article 7 of Decree-Law no. 165/86 of 26/06.

If the position defended by the Claimant were accepted, according to the Respondent, there would be no reason for the existence of the provision in Article 2, no. 1, paragraph f) of the Single Vehicle Tax Code, as it would be sufficient for the owners of all vessels to which that rule applied to register them in the MAR in order to be granted more favourable tax treatment for the Single Vehicle Tax thereon.

The Claimant requests compensatory interest, by virtue of having opted to pay the Single Vehicle Tax relating to the assessments in question, despite considering them undue. Therefore, in case the present request for arbitral pronouncement is upheld, the Claimant considers that it is entitled to such interest pursuant to Article 43 of the General Tax Code.

The right to compensatory interest provided for in Article 43, no. 1 of the General Tax Code, derived from judicial annulment of a tax assessment act, depends on it being demonstrated in the proceedings that such act is affected by an error attributable to the services, resulting in payment of a tax debt in an amount greater than legally due.

Given that the assessment made was based on the applicable law, to which the Administration is bound, according to the Respondent, the right to interest depends on it being demonstrated in the proceedings that that fact is affected by an error as to the factual or legal premises attributable to the tax administration, which, according to the Respondent, does not exist.

The Respondent thus concludes by arguing for the inadmissibility of the arbitration request.

Preliminary Ruling (Saneador):

The parties have legal personality and capacity, are qualified to sue, and are represented, in accordance with Articles 4 and 10 of the LFTM and Article 1 of Ordinance no. 112-A/2011, of 22 March.

The request is timely.

The joinder of requests is admissible, which was requested in accordance with Article 3, no. 1 of the LFTM and Article 104 of the Code of Tax Procedure, considering that the tax assessment acts at issue relate to the same tax, the same competent body is responsible for the decision, and there is coincidence between the factual and legal grounds in question.

No nullities or other preliminary matters affecting the entire proceedings are present, and it is therefore necessary to proceed to examine the merits of the request.

Findings of Fact:

Facts Proven:

It falls to the tribunal to select the facts that are relevant to the decision of the case and to distinguish the proven facts from those not proven (in accordance with Article 123, no. 2, of the Code of Tax Procedure and Article 607, no. 3 of the Code of Civil Procedure, applicable by virtue of Article 29, no. 1, paragraphs a) and e), of the LFTM).

Thus, the facts relevant to the judgment of the case are chosen and delineated in function of their legal relevance, which is determined in consideration of the various plausible solutions of the legal question or questions (in accordance with former Article 511, no. 1, of the Code of Civil Procedure, corresponding to the current Article 596, applicable by virtue of Article 29, no. 1, paragraph e), of the LFTM).

Accordingly, taking into account the positions assumed by the parties, the documentary evidence, and the elements contained in the Administrative File submitted to the proceedings, the following facts were considered proven, as relevant to the decision:

The Claimant, resident at Rua …, no.…, …, Matosinhos, is the owner of the vessel (private-use motor recreational vessel), "…", with hull no.…, with engine power equal to or greater than 20 kW, which has been definitively registered since 6 November 2014 in the International Register of Ships of Madeira (MAR), to which was assigned the registration R-....

The Claimant paid, and pays, to B..., which oversees the MAR, the amount of € 500.00/year, in the form of a fee.

By letter from the Tax Office of Matosinhos – … dated 12 September 2017, the Claimant was notified of the intention of those services to assess the Single Vehicle Tax relating to the vessel referred to above for the years 2015, 2016, and 2017.

On 22 September 2017, the Claimant exercised the right to be heard, and on 13 October 2017 was notified by that tax office that the vessel was subject to Single Vehicle Tax, and accordingly, on 7 November 2017, was notified of the assessments of the Single Vehicle Tax with numbers …, in the amount of € 1,975.85 relating to 2017, …, in the amount of € 2,037.03 relating to 2016, and …, in the amount of € 2,080.78 relating to 2015, in the total amount of € 6,121.66, including interest.

The Claimant made the respective payment on 21/11/2017.

No other facts were proven as relevant to the decision of the case, considering the possible legal solutions.

Justification of Proven and Unproven Facts:

The conviction regarding the facts resulted from the parties' submissions and respective documentary support provided in the proceedings.

Matters of Law – Questions to be Decided:

Object and Scope of the Present Proceedings:

The question to be decided in the present proceedings is the extent to which a recreational vessel registered in the MAR is exempt from the Single Vehicle Tax.

It is necessary to decide:

Pursuant to Article 2, no. 1 of the Single Vehicle Tax Code:

1 - The Single Vehicle Tax applies to vehicles of the following categories, registered or matriculated in Portugal:

…

f) Category F: Private-use recreational vessels with engine power equal to or greater than 20 kW, registered since 1986;

…

Given that, in accordance with Article 3 of the Single Vehicle Tax Code:

1 - The passive subjects of the tax are natural or legal persons, of public or private law, in whose names the ownership of vehicles is registered.

2 - Financial lessees, purchasers with retention of title, and other holders of purchase option rights by virtue of lease contracts are also treated as passive subjects.

3 - An undivided estate is also treated as a passive subject, represented by the head of the family.

It is therefore the case that in the vessel in question in the present proceedings, the Single Vehicle Tax applies, of which the Claimant is the respective passive subject.

But if this is so, we cannot lose sight of the specific legal regime to which vessels – such as the one in this case, even though registered in Portugal, upon which depends the application of Article 2, no. 1 of the Single Vehicle Tax Code (or registered in the country) – registered in the MAR are subject, by virtue of special legislation.

Considering:

The creation of the Free Trade Zone of Madeira had as its fundamental purpose the promotion and attraction of investment, which led to a revision of the tax benefits to be granted to enterprises established there; indeed, as results from Decree-Law 165/86, of 26 June, which, among other incentives, provided in Article 7 that:

Enterprises established in the Free Trade Zone of Madeira enjoy the following tax benefits:

…

d) Exemption from local taxes and duties;

…

With the creation of the International Register of Ships of Madeira (by Decree-Law no. 96/89, of 28 March), the legislature, considering, as results from the explanatory statement of the decree in question, "competition in the merchant marine sector is extremely strong, having led to a pronounced and prolonged decline in maritime freight rates, a fact which has resulted in very low profit margins in the sector", assumed that "(…) all cost factors assume decisive relevance in making the activity viable, which is why there has been an increase at the international level in the importance both of flags of convenience and of special registers and of other solutions to overcome existing difficulties".

To "(…) address the situation in the merchant marine, several European states have already created their own second registers, such as the United Kingdom, France, the Netherlands, Denmark, and Norway, with other countries currently studying similar solutions".

"These second registers created by those countries have made it possible to halt the process of ships departing from the principal register for convenience flags, as well as to attract some new shipowners and ships to the new registers, offering them conditions comparable to those of the most competitive registers", which led Portugal to establish a second register, and given the associated advantages, it decided to create the International Register of Ships of Madeira (MAR) by this decree.

Among other things, the legislature considers that "this register, in addition to functioning as an element of revitalization of the national merchant marine and as a means of halting the departure of Portuguese ships to convenience flags, will also be an important factor in the economic revitalization of the Autonomous Region of Madeira and of the Country".

From this decree it results, in Article 24 thereof, that:

  1. The tax regime applicable to the entities referred to in Article 8 is that provided for in the legislation relating to the Free Trade Zone of Madeira.

  2. The regime referred to in the preceding paragraph also applies to ships registered in the MAR.

Given that, pursuant to Decree-Law 192/2003, of 22 August, which approved the regulations applicable to recreational vessels registered or to be registered in the International Register of Ships of Madeira, in accordance with Article 1 thereof:

The acts of registration and other acts relating to recreational vessels in the International Register of Ships of Madeira, abbreviated as MAR, are subject to the regime established in Decree-Law no. 96/89, of 28 March, as amended by Decrees-Law nos. 393/93, of 23 November, 5/97, of 9 January, 331/99, of 20 August, and 248/2002, of 8 November, and in the present regulations.

Now, from the provision in Article 24, no. 2, cited above, ships registered in the MAR, as is the case with the vessel in question in the present proceedings, benefit from the tax regime provided for in Decree-Law 165/86, of 26 June, namely from Article 7 thereof, paragraph d), that is, from the exemption from local taxes and duties.

Pursuant to the Financial Regime of Local Authorities and Equivalent Entities (Law no. 73/2013, of 03 September, which revoked the former Law no. 2/2007, of 15 January), which, in accordance with Article 92 thereof, entered into force on 1 January 2014, it establishes, in Article 14, that it is revenue of the municipality:

…

d) The portion of the Single Vehicle Tax revenue that belongs to the municipalities, in accordance with Article 3 of Law no. 22-A/2007, of 29 June;

…

Pursuant to the said Article 3:

  1. The revenue generated by the Single Vehicle Tax applying to vehicles of categories A, E, F, and G is owned by the municipality of residence of the passive subject or party treated as equivalent, (…)".

…

From this point we can conclude that the Single Vehicle Tax is owned by the municipality, as results from the cited Article 3, and that, for the purposes of applying the Free Trade Zone of Madeira regime, as results from Article 7, paragraph d) of Decree-Law 165/86, of 26 June, "enterprises established in the Free Trade Zone of Madeira enjoy (…) 'exemption from local taxes and duties'" (applicable to recreational vessels registered in the MAR by virtue of the provision in Article 24, no. 2 of Decree-Law no. 96/89, of 28 March and Decree-Law 192/2003, of 22 August, in its no. 1).

It is true that the principle of equivalence enshrined in Article 1 of the Single Vehicle Tax Code seeks "(…) to tax contributors in proportion to the environmental and road costs that they cause, in implementation of a general rule of tax equality".

It is therefore the case that the Municipality, which tends to bear such costs and which, for that reason, is the beneficiary of the tax revenue, in accordance with the terms described (Article 3 of the Law approving the Single Vehicle Tax Code).

However, in this case, it is a matter of the application of a special regime that was designed to halt the process of ships leaving the principal register for convenience registers, as results from the explanatory statement we have cited from Decree-Law 96/89, of 28 March, and with respect to which the legislature also took into account the relocation of national shipowners:

"Faced with the situation of international crisis in the sector, levels of competitiveness and profitability and the special characteristics of the activity, as well as the recourse, already with some significance in the Portuguese case, of national shipowners to convenience flags, it also became necessary in Portugal to analyze the interest in establishing a second register".

Applying this regime, although designed for the merchant marine, the truth is that, in accordance with Article 1 of Decree-Law 192/2003, of 22 August, the same extends, without any legal limit, to recreational vessels, as in this case.

Thus, in the tribunal's view, the Single Vehicle Tax falls within Article 7, paragraph d) of Decree-Law 165/86, of 26 June.

If owners can register vessels in the MAR to be granted more favourable tax treatment, the truth is that nothing appears to limit this; on the contrary, the legal regime aims to maintain the Portuguese flag and to attract new registers, to the detriment of convenience flags, whether the owner is resident in Portugal or not, since the law does not distinguish this.

Because the MAR benefits from the special legal regime provided and described for the Free Trade Zone of Madeira, being applicable to ships and recreational vessels that are registered in the MAR, as is the case, they enjoy the exemption from local taxes and the Single Vehicle Tax is revenue of the municipality, the tribunal concludes that the owners of vessels registered in the MAR benefit from Single Vehicle Tax exemption.

Indeed, considering the very explanatory statement that results from the said regime for the creation of the MAR, the legislature's purpose was the creation, as has been seen in other countries, of a second register to, on the one hand, revitalize the autonomous region of Madeira and the Country, attracting new shipowners and ships with competitive conditions, and on the other hand, to prevent the departure of Portuguese ships to convenience registers, whether of residents or non-residents.

If the objective scope of the Single Vehicle Tax, in accordance with the terms cited from Article 2 of the Single Vehicle Tax Code, depends on registration or matriculation in Portugal, what is intended with the MAR is, inter alia, the maintenance of that very register in Portugal, albeit at the expense of a more favourable tax regime, maintaining the ships flying the Portuguese flag and all the effects resulting from the flag or pavilion principle. As it applies to residents and non-residents, since that special regime does not distinguish this, the interpreter will also not do so.

Accordingly, to ships registered in the MAR the legislation relating to the Free Trade Zone of Madeira is applied, which includes the Single Vehicle Tax exemption as described, and in relation to which there is no manifestation of any other requirement, on the one hand, or limit, on the other, namely from the residence of the owner.

Thus, given that there is no legal limit or negative requirement that permits the withdrawal of this Single Vehicle Tax exemption and the condition is met – the registration of the vessel in the MAR (and in relation to which the Claimant pays to B... which oversees the MAR the due fee) – there applies, in this case, the provision in Article 7, paragraph d) of Decree-Law 165/86, of 26 June, pursuant to Article 24, no. 2 of Decree-Law no. 96/89, of 28 March and Article 1 of Decree-Law 192/2003, of 22 August.

For all these reasons, it is concluded that the Claimant is exempt from payment of Single Vehicle Tax as requested.

Given the above, the Single Vehicle Tax assessments in question in the proceedings are considered illegal, revealing an error in the legal premises attributable to the Respondent, with the ensuing legal consequences.

On the Right to Refund of Amounts Paid and Compensatory Interest

The declaration of illegality and consequent annulment of an administrative act grants to the recipient of the act the right to reintegration of the situation in which the same would be found before the execution of the annulled act.

In the context of tax assessment, its annulment grants to the passive subject the right to restitution of the tax paid and the right to compensatory interest, in accordance with Article 43, no. 1 of the General Tax Code and Article 61 of the Code of Tax Procedure.

The Claimant requests the condemnation of the TCA to refund the improperly paid taxes, increased by compensatory interest.

Article 43, no. 1 of the General Tax Code provides that "compensatory interest is due when it is determined, in gracious reclamation or judicial objection, that there was an error attributable to the services resulting in payment of the tax debt in an amount greater than legally due".

In the case at hand, the error affecting the assessment is attributable to the Tax and Customs Authority, which carried out the assessment act on its own initiative, and therefore the Claimant is entitled to compensatory interest from the date of payment of each of the amounts until reimbursement, at the legal supplementary rate, in accordance with Articles 43, nos. 1 and 4, and 35, no. 10, of the General Tax Code, Article 559 of the Civil Code, and Ordinance no. 291/2003, of 8 April.

As results from the cited Article 43, no. 1 of the General Tax Code, the right to compensatory interest depends on payment of a tax debt in an undue amount, as was the case.

As the assessment of Single Vehicle Tax is affected by illegality, compensatory interest is due from the date of payment, in accordance with Articles 43 of the General Tax Code and 61, no. 2 of the Code of Tax Procedure.

Therefore, the Claimant is entitled, in addition to the refund of the amounts improperly paid, to compensatory interest, calculated on those amounts relating to the annulled assessments.

On Liability for Payment of Arbitration Costs:

In accordance with Article 527, no. 1 of the Code of Civil Procedure, pursuant to Article 29, no. 1, e) of the LFTM, it is provided that the party that caused the costs shall be condemned in costs or, if there is no success in the action, whoever derived profit from the proceedings.

In light of the above, the Respondent must be condemned in costs.

Decision:

In these terms and with the justification above, the tribunal decides:

a. To uphold the request for arbitral pronouncement.

b. To condemn the Respondent to refund the amounts paid by the Claimant increased by compensatory interest.

c. To condemn the Respondent to pay the costs of the present proceedings.

Value of the Proceedings:

In accordance with the provisions of Articles 306, no. 2 of the Code of Civil Procedure and 97-A, no. 1 of the Code of Tax Procedure and Article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the proceedings is fixed at € 6,121.66.

Arbitration Fee:

The value of the arbitration fee is fixed at € 612.00 in accordance with Table I annexed to the Regulation of Costs of Tax Arbitration Proceedings.

Let notification be made.

Lisbon, 28 May 2018

The Arbitrator

(Marisa Almeida Araújo)

Frequently Asked Questions

Automatically Created

Is a recreational motor vessel registered in the Madeira International Ship Registry (RINM-MAR) exempt from IUC (Imposto Único de Circulação)?
Recreational motor vessels registered in RINM-MAR are generally NOT exempt from IUC. Despite MAR registration, vessels with engine power equal to or greater than 20kw registered in Portugal are subject to IUC under Article 2(1)(f) of the IUC Code. While MAR-registered vessels fly the Portuguese flag and benefit from certain maritime advantages, Portuguese tax authorities maintain that Free Trade Zone tax exemptions under Decree-Law 165/86 apply to commercial enterprises established in the zone, not to individual owners of recreational vessels. The AT's position is that registration in MAR constitutes registration in Portugal for tax purposes, triggering IUC liability without automatic entitlement to Free Trade Zone exemptions designed for business entities.
What are the requirements for IUC exemption for vessels registered in the Madeira Free Zone?
To qualify for IUC exemption, vessels in the Madeira Free Zone context would need to meet strict requirements that recreational vessels typically cannot satisfy. The tax benefits under Decree-Law 165/86 and the Tax Benefits Statute apply to 'enterprises established' in the Free Trade Zone—meaning commercial entities with substantive business operations, not individual vessel owners. Article 7 of Decree-Law 165/86 grants exemptions from local taxes to qualifying enterprises. However, private recreational vessels lack the commercial character necessary for these benefits. Furthermore, vessels must be registered both in MAR and potentially in commercial registries depending on their use. The exemption regime is designed for economic development purposes, not personal asset holding, creating a fundamental mismatch for recreational vessel owners seeking tax benefits.
Can the Portuguese Tax Authority (AT) retroactively liquidate IUC on vessels previously declared exempt by RINM-MAR?
Yes, the Portuguese Tax Authority can retroactively liquidate IUC on vessels previously declared exempt by RINM-MAR. As demonstrated in this case, AT assessed three years of IUC (2015-2017) despite the taxpayer holding an exemption certificate from RINM-MAR. The authority to assess taxes rests with AT, not with the ship registry. RINM-MAR certificates regarding tax exemptions do not bind the tax administration. AT's position is that MAR registration creates Portuguese tax jurisdiction while not automatically conferring Free Trade Zone exemptions. Tax authorities exercised their right to review the exemption claim, conducted a prior hearing (audiência prévia) as required by procedural law, and proceeded with assessments when concluding the exemption was improperly claimed. This highlights that administrative certificates from non-tax entities regarding tax treatment carry limited legal weight against subsequent AT determinations based on tax law interpretation.
What is the procedure for challenging IUC liquidation through CAAD tax arbitration in Portugal?
To challenge IUC liquidation through CAAD, taxpayers must file a request for arbitration (pedido de pronúncia arbitral) under Decree-Law 10/2011 (RJAT). The process begins with submitting the request within the legal deadline after exhausting or choosing to bypass administrative remedies. The claimant may request appointment of a sole arbitrator or appoint one directly. Upon acceptance by the CAAD President, the Tax Authority is notified and must submit a reply (resposta) and the administrative file within the statutory period. The arbitral tribunal is then constituted, typically within specific timeframes established by RJAT. Parties may be invited to submit written arguments, and an arbitral hearing may be scheduled or dispensed with by agreement or tribunal decision. The tribunal must issue a decision within six months (extendable). This alternative dispute resolution mechanism provides faster resolution than traditional administrative courts for tax disputes including IUC matters.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when IUC liquidations on RINM-MAR registered vessels are annulled?
Taxpayers are entitled to compensatory interest (juros indemnizatórios) when IUC liquidations are annulled, provided legal requirements are met. Under Article 43 of the General Tax Law (LGT), compensatory interest is due when tax payments result from illegal acts by tax administration, calculated from payment date until refund. If the arbitral tribunal annuls the IUC assessments as illegal or voidable (anuláveis), and the taxpayer already paid the amounts, the State must refund the principal plus compensatory interest. The claimant in this case specifically requested such interest alongside the refund of €6,093.66 paid. However, entitlement depends on the tribunal finding the assessments legally defective—mere disagreement with tax interpretation insufficient. The interest compensates taxpayers for loss of capital use due to improper tax collection, serving as an important taxpayer protection mechanism in Portuguese tax law when administrative errors or illegal acts cause undue payment.