Process: 691/2014-T

Date: September 14, 2015

Tax Type: IUC

Source: Original CAAD Decision

Summary

CAAD arbitration case 691/2014-T addresses the subjective incidence of Portugal's Unique Circulation Tax (IUC) involving a leasing and financial services company assessed for IUC on 391 vehicles. The central legal issue concerns whether a financial institution appearing as registered owner in the vehicle registry must pay IUC when the actual use and possession of vehicles belong to lessees, purchasers under reservation of ownership, or third parties. The claimant contested IUC assessments across five distinct scenarios: vehicles subject to loan contracts with reservation of ownership clauses favoring the company; vehicles already sold but not yet re-registered; vehicles under active financial leasing contracts; vehicles declared total loss under insurance; and vehicles in litigation due to lessee default. Article 3(1) of the IUC Code establishes that taxpayers are registered owners, while Article 3(2) equates to owners the financial lessees, purchasers with reservation of ownership, and holders of purchase options. The company argued that Article 3(2) should be interpreted according to the equivalence principle in Article 1 CIUC, which implements a user-pays philosophy, taxing those who actually cause environmental and road costs. The claimant contended that when reservation of ownership exists or leasing contracts are active, the exclusive user—not the registered owner—should bear IUC liability. The case also raised procedural questions regarding illegal joinder of claims, as 391 separate tax assessments were challenged in a single arbitration proceeding. The dispute highlights tension between formal vehicle registration and substantive vehicle use in determining IUC liability, and whether registration creates an irrebuttable presumption or merely a rebuttable one that can be challenged with evidence of actual ownership transfer or exclusive use by third parties.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 691/2014-T

Topic: Unique Circulation Tax, subjective scope, illegal joinder of claims

Claimant: A… – …, S.A.

Respondent: TAA - Tax and Customs Authority

I - REPORT

  1. Claim

A… – …, S.A., taxpayer no. …, with registered office at Rua … …, …, … Porto, hereinafter referred to as the Claimant, presented, on 24-09-2014, pursuant to the provisions of subsection a) of paragraph 1 of Article 2 and Article 10 of Decree-Law No. 10/2011, of 20 January, which approves the Legal Framework for Arbitration in Tax Matters (RJAT), an application for arbitral pronouncement, in which the Respondent is the TAA - Tax and Customs Authority, with a view to:

  •     Annulment of 391 assessment acts for Unique Circulation Tax relating to the years 2013 and 2014.

To support its claim, the Claimant alleges, in summary:

1.1. In general

  •   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 in the activity of Long-Term Rental (LTR) of motor vehicles without driver, motorcycles and boats;

  •   In the scope of the activity it develops, the Claimant enters into long-term rental contracts and financial leasing contracts with its customers, at the end of which the vehicle is transferred to the lessee, whose object are motor vehicles and, likewise, loan contracts for the acquisition of motor vehicles in which a clause reserving ownership in its favour is established;

  •   At the end of financial leasing contracts, as a rule, the lessee acquires the vehicle for a residual value;

  •   The conclusion of such contracts constitutes, under the terms of Article 5 of the Motor Property Register Code, a fact subject to mandatory registration;

  •   With regard to the vehicles subject to the IUC assessments at issue here, the beneficiaries of the respective contracts did not subject their condition as lessees, purchasers with reservation of ownership or even as owners to registration;

  •   This omission resulted in the Claimant, in all cases at issue here, appearing in the motor property register as owner or beneficiary of a clause reserving ownership, for which reason the respective Unique Circulation Taxes were assessed against it;

  •   The aforementioned assessments relate to tax whose taxable event occurred:

(i) At a time when the now Claimant was mere beneficiary of a clause reserving ownership stipulated in the loan contract (this is what occurs with the vehicles identified in Table No. 1 inserted in the initial petition and which is hereby reproduced); or

(ii) At a time when the Claimant had already proceeded to sell the vehicle, as a rule at the end of a financial leasing contract (this is what occurs with the vehicles identified in Table No. 2 inserted in the initial petition and which is hereby reproduced); or

(iii) During the pendency of financial leasing contracts (this is what occurs with the vehicles identified in Table No. 3 inserted in the initial petition and which is hereby reproduced); or

(iv) At a time when total loss of the vehicles in question had occurred by loss covered by an insurance contract (this is what occurs with the vehicles identified in Table No. 4 inserted in the initial petition and which is hereby reproduced); or

(v) With respect to vehicles that were subject to financial leasing that fell into default, with proceedings in litigation and the vehicles not having been recovered to date (this is what occurs with the vehicles identified in Table No. 5 inserted in the initial petition and which is hereby reproduced).

  •   In accordance with the provisions of paragraph 1 of Article 3 of the Unique Circulation Tax Code (CIUC), "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 names the same are registered."

  •   Paragraph 2 of the same provision further establishes that "Equated to owners are financial lessees, purchasers with reservation of ownership, as well as other holders of purchase option rights by virtue of the leasing contract."

  •   This provision should be interpreted following the legal canons that govern the interpretation of legal norms, in particular Article 9 of the Civil Code, and it must be taken into account that "interpretation should not be limited to the letter of the law but should reconstruct from the texts the legislative intention, taking above all into account the unity of the legal system, the circumstances in which the law was drafted and the specific conditions of the time in which it is applied";

  •   In Article 1 of the IUC Code the legislator established what it calls the principle of equivalence, according to which the tax at issue here seeks to burden taxpayers in proportion to the environmental and road cost that they cause, in implementation of a general rule of tax equality, and imposing, within the taxation of motor circulation, the logic of the user-pays;

  •   It should therefore be understood that the subject liable to IUC tax is the owner of the vehicle only in those cases in which the purchaser is not burdened with a clause reserving ownership or there are no other holders of the right to purchase through a leasing contract, because in these cases the tax is owed by the one who holds the right to exclusive use of the vehicle;

1.2. As regards IUC assessments on vehicles with reservation of ownership in favour of the Claimant

  •   In cases where the acquisition of vehicles is made by means of financing granted by the Claimant to the respective purchasers, a clause reserving ownership in its favour is established, so that the purchaser contracts the purchase of the vehicle with the supplier, the price being paid by the Claimant, and ownership of the vehicle is transferred to the borrower only at the end of the loan contract;

  •   The reservation of ownership in favour of the Claimant (lender in the contracts in question) is constituted by subrogation of the same into the rights of the seller of the vehicle;

  •   The existence of a reservation of ownership over a specific asset in favour of the Claimant allows it to reserve for itself the dominion of the thing (vehicle) until the fulfilment of the obligations borne by the debtor (the borrower) within the scope of the contract in question (loan). However, possession of the thing passes immediately, and by force of the contract, to the sphere of the purchaser, being the latter its exclusive user;

  •   Recognizing this effect, the legislator provided, in Article 3, paragraph 2 of the CIUC, the equation to owners, for purposes of determining the passive subject of IUC tax, of purchasers with reservation of ownership, which leads to the conclusion that the aforementioned tax assessments are affected by illegality due to error in legal assumptions, namely due to error in the identification of the Claimant as the subject liable to the tax in question.

1.3. Regarding IUC assessments on vehicles already sold at the date of the occurrence of the respective taxable event

  •   The provision contained in paragraph 1 of Article 3 of the IUC Code, as derives from settled arbitral jurisprudence, establishes a true legal presumption within the scope of the subjective scope of the tax, capable of being rebutted.

  •   In the sale and purchase, the transfer of ownership takes place by mere effect of the contract, except for the exceptions provided by law".

  •   With respect to the transmission of ownership of motor vehicles, the law does not provide for any specific legal form by which the same should be effected, the respective contract may be verbal and the respective contractual declarations are valid under the terms of Article 219 of the Civil Code;

  •   Nevertheless, for fiscal purposes, certain formalities must be observed, in particular the issuance of an invoice titling the sale, contemporaneously with the transmission in question, formalities which the Claimant observed, so that the contracts for transmission of ownership of the vehicles at issue here should be considered concluded on the date of issuance of the corresponding invoices;

  •   In any case, the fact that subsection a) of Article 5 of Decree-Law No. 54/75, of 12 February (Motor Property Register) subjects to public registration the transmission of the right of ownership over motor vehicles does not constitute any exception to the rule that ownership is transferred by mere effect of the contract;

  •   Registration does not have a constitutive or translative effect on the ownership of assets subject to it. The purpose of registration is to give publicity to the legal situation of the assets in question and, on the other hand, definitive entries in the register have the value of mere presumptions both as to the nature of the right recorded and as to its title. Having registral entries the nature of mere legal presumptions, they can be rebutted by evidence to the contrary, under the terms of paragraph 2 of Article 350 of the Civil Code.

  •   The Tax Authority is excluded from the concept of relevant third party for purposes of paragraph 1 of Article 5 of the Real Property Register Code, so the exception of enforceability of the register against good faith third parties does not apply;

  •   As appears from the invoices attached by the Claimant to the initial petition, at the date of the taxable event of the tax at issue here, the ownership of the vehicles in question had already been transmitted by the Claimant, so the assessed tax is the exclusive responsibility of the respective purchasers, to whom the right of ownership over the vehicles in question was transferred, these being the corresponding subjects liable to tax;

1.4. Regarding IUC assessments on vehicles subject to financial leasing contracts entered into by the Claimant

  •   In cases where, at the date of the occurrence of the taxable event of the Tax, the vehicles were leased under a financial leasing contract, there is equally no doubt that it is the respective lessees who are the subjects liable to tax, even though this quality of theirs as lessees has not been subject to registration;

  •   In the cases provided for in paragraph 2 of Article 3 of the IUC Code, it can only be concluded that the assumptions of the subjective scope of the taxable fact are verified only in the sphere of the lessees and only in relation to them;

  •   Thus, having regard to the value of the Motor Register and the circumstance that the vehicles at issue here were leased at the date of the occurrence of the taxable event of the tax, it is not the Claimant who is the respective subject liable to tax.

1.5. Regarding IUC assessments on vehicles that have suffered loss or total loss

  •   As for the vehicles in relation to which losses occurred that resulted in total loss of the vehicle, the Claimant, as owner of the vehicle, provided its insurer with the documents necessary to prove the occurrence of the loss, and the respective effects, on which occasion it received, under the respective contract, the compensation owed;

  •   The Claimant provided the insurer with the necessary documents so that it would request, as is incumbent upon it by force of law (cf. paragraph 8 of Article 119 of the Road Code), the cancellation of the corresponding registration;

  •   For this reason, at the date when the tax at issue here became due the respective assumption of the objective scope was no longer present;

1.6. Regarding IUC assessments on vehicles that were subject to financial leasing that fell into default, with proceedings in litigation and the vehicles not having been recovered to date

  •   With respect to this group of vehicles, at the date when the tax in question became due, the subject liable to tax is the lessee, by virtue of the provisions of paragraph 2 of Article 3 of the IUC Code.
  1. Reply

In its Reply, the Respondent TAA – Tax and Customs Authority, in addition to contesting the Claimant's allegations of illegality, raises the following exceptions:

(i) Illegality of joinder of claims

  •   According to the Respondent, the joinder of claims is illegal because the requirement of "coincidence as to the circumstances of fact" is not verified, required as a condition for admissibility of joinder of claims by Article 3, paragraph 1 of the RJAT, because we are faced with disparate factual situations embodied in: (i) different vehicles; (ii) with different transmission dates; (iii) different transmission grounds; (iv) different taxation grounds; and (v) different owners.

(ii) Partial lack of standing of the Claimant

  •   According to the Respondent, the assessments formalized in documents 4, 9 to 11, 13, 14, 16 to 19, 21 to 56, 61 to 75, 76, 82 to 85, 87 to 93 and 96 to 99 attached to the PI (and whose content is hereby reproduced) have as subject liable the company B… – …, SA, and not the Claimant, whereby this party lacks standing to contest contentiously such assessments.

(iii) Lack of subject matter and lack of jurisdiction of the Arbitral Tribunal as to subject matter

  •   The Respondent alleges that the acts corresponding to documents 3, 4, 47 to 56, 60, 71 to 75 and 94 to 99 are not ex officio assessments, and are therefore not acts of the Tax Authority.

  •   The documents in question are mere collection notes generated by the taxpayer itself, which do not constitute tax acts.

  •   There being no tax acts in the cases indicated, with respect to those cases there is a situation of lack of subject matter, which constitutes a peremptory exception under the terms of Article 577, paragraph 3 of the Code of Civil Procedure, applicable ex vi of Article 29, paragraph 1, subsection e) of the RJAT.

  •   Collection notes in question not being tax acts but mere acts in tax matters, the means of challenge against such acts should be the special administrative action, whereby the Singular Arbitral Tribunal constituted is materially incompetent to hear and decide the claim that is the object of the sub judice litigation as regards such acts.

(iv) Failure to exhaust prior administrative appeal

  •   Should it not be understood that the contested acts are mere collection notes but self-assessments generated by the taxpayers themselves in the Tax Portal, then the present application for arbitral pronouncement cannot proceed.

  •   Since under the terms of Article 16/2 of the CIUC, "The assessment of the tax is made by the taxpayer itself through the internet, under the conditions of registration and access to electronic statements", being mandatory for legal persons, and there having been no ex officio assessment, were there to be an assessment it could only be a self-assessment, whose contentious challenge requires prior administrative appeal, under the terms of Article 131, paragraph 1 of the Code of Tax Procedure and Process (CPPT).

  •   And thus being, the assessments in question are also excluded from the jurisdiction of arbitral tribunals formed under the sponsorship of the Center for Administrative Arbitration (CAAD), under the terms of Article 2, paragraph 1, subsection a) of Order No. 112-A/2011, of 22 March).

By way of contest, the Respondent advanced the following arguments, in summary:

  •   The tax legislator, in defining in Article 3, paragraph 1 who are the subjects liable to IUC tax, expressly and intentionally established that these are the owners (or in the situations provided in paragraph 2, the persons therein named), considered as such the persons in whose names the same are registered;

  •   The legislator expressly and intentionally established that they are to be considered as such [as owners or in the situations provided in paragraph 2, the persons therein named] the persons in whose names the same [vehicles] are registered, because this is the interpretation that preserves the unity of the legal-tax system;

  •   Article 3 of the CIUC does not contain any presumption capable of being rebutted;

  •   Furthermore, the presumption of motor ownership derives solely, directly and exclusively from the motor register regime itself, and not from the tax legislation on automobiles which constitutes a collateral aspect to that regime, whereby the rebuttability of the presumption of motor ownership necessarily will have to be directed at the motor register itself, and not against the mere fiscal effect that derives from the motor register information as, in the end, the Claimant tries to do;

  •   Also the systematic element of interpretation of the law equally demonstrates that the solution advocated by the Claimant is untenable;

  •   From the articulation between the scope of the subjective scope of IUC and the constitutive fact of the corresponding tax obligation it follows unequivocally that only legal situations subject to registration (without prejudice to the continuance of a vehicle in national territory for a period exceeding 183 days, provided for in paragraph 2 of Article 6) generate the birth of the tax obligation;

  •   The teleological element of interpretation points in the same direction. The ratio of the regime established in the CIUC is clear proof that what the

  •   Tax legislator intended was to create a tax based on the taxation of the owner of the vehicle as it appears in the motor register;

  •   If the interpretation conveyed by the Claimant were to be accepted, then the same would show itself to be contrary to the Constitution, insofar as such interpretation results in the violation of the principle of confidence, the principle of legal certainty, the principle of efficiency of the tax system and the principle of proportionality.

Without relinquishing, as to the rebuttability of presumptions resulting from the motor register, the Respondent contested in the following terms:

(i) As regards assessments relating to vehicles sold with reservation of ownership:

  •   It is not extracted from the documentary evidence offered that such reservation was constituted;

  •   For the Claimant to be able to enjoy the regime of Article 3/2 of the CIUC, it would have been necessary that the supposed reservations of ownership had been brought to registration, which is not demonstrated.

(ii) As regards assessments relating to vehicles sold at the date of the taxable event

  •   The purported invoices attached as evidence by the Claimant are not fit to prove the conclusion of a synallagmatic contract such as sale and purchase, because such documents do not reveal by themselves an essential and unequivocal statement of intent (i.e., acceptance) on the part of the purported purchasers.

(iii) As regards assessments relating to vehicles subject to financial leasing contracts

  •   Not all of the documents attached show the existence of financial leasing contracts;

  •   Even if it were concluded that we are faced with financial leasing contracts entered into by the Claimant, it was still incumbent upon the latter to prove that it had complied with the ancillary obligation imposed by Article 19 of the CIUC, which establishes that "for purposes of Article 3 of this code (...), entities that proceed to financial leasing, operational leasing or long-term rental of vehicles are obligated to provide to the Tax Directorate-General the data relating to the identification of the users of the leased vehicles;

  •   The Claimant made no proof as to the fulfillment of this obligation, as was its burden, whereby necessarily the intended rebuttability of Article 3 here in question must fail;

(iv) As regards assessments relating to vehicles that have suffered loss or total loss

  •   The loss or total loss of vehicles does not, in itself, determine the end of ownership of the damaged or totally lost vehicle;

  •   The receipt of compensation for loss or total loss by the insured party (in this case, the Claimant) does not, without more, result in a sale of the insured object or the transfer of ownership of the insured object to the insurer.

  •   The Claimant made no proof as to the purported transfer of ownership of the damaged or totally lost automobiles in favour of the insurer(s) when it could and should have done so.

(v) As regards assessments relating to vehicles subject to financial leasing contracts in case of default/litigation

  •   The documents attached as evidence do not show that we are faced with financial leasing contracts in all cases;

  •   In the cases in which it could be concluded that we are faced with financial leasing contracts entered into by the Claimant, it was still incumbent upon the latter to prove that it had complied with the ancillary obligation imposed by Article 19 of the CIUC, which establishes that "for purposes of Article 3 of this code (...), entities that proceed to financial leasing, operational leasing or long-term rental of vehicles are obligated to provide to the Tax Directorate-General the data relating to the identification of the users of the leased vehicles;

  •   The Claimant made no proof as to the fulfillment of this obligation, as was its burden, whereby necessarily the intended rebuttability of Article 3 here in question must fail.
  1. Parties' submissions on questions of an exceptional nature

In view of the number and complexity of the exceptional questions raised by the Respondent in its reply, the Tribunal decided, under the principle of free management of the proceedings established in Article 19 of the RJAT, to hear the parties on the same, first granting the Claimant a period to pronounce itself in writing on this matter – which it did on 5-6-2015 – and then giving the Respondent the opportunity to exercise the right to reply in relation to the Claimant's submission, which it did, also in writing, on 8-6-2015.

3.1. Claimant's submission

In its submission, presented on 4-6-2015, the Claimant sustained the lack of merit of the exceptions raised by the Respondent, in the following terms:

(i) As regards the alleged illegality of joinder of claims

  •   The conclusion of long-term contracts and the transfer of enjoyment and possession to third parties is the principal and transverse basis to all of the assessed claims, since it is this question that prevents the Claimant from being the subject liable to the tax in question.

(ii) Exception of partial lack of standing of the Claimant

  •   On 7 December 2005, the Claimant incorporated, by merger, B… – …, S.A.

  •   With the incorporation of B… – …, S.A., and once the merger was registered on 30 December 2005, it ceased its activity for tax purposes on that same date, succeeding the now Claimant in all its rights and obligations.

(iii) Exception of lack of subject matter and lack of jurisdiction of the Arbitral Tribunal

  •   The fact that some of the IUC collection notes do not correspond to ex officio assessments does not justify the lack of subject matter or the lack of jurisdiction of the arbitral tribunal;

  •   Firstly because the collection notes would always end up being notified to the Claimant;

  •   Secondly because ex officio assessment only takes place when there is a failure or notice of assessment by the taxpayer;

  •   It was the Respondent and not the Claimant who determined the subject liable to the tax acts in question;

  •   The collection note is an assessment act for all legal purposes, it is not a self-assessment but a voluntary payment that does not require prior recourse to administrative appeal.

(iv) Failure to exhaust prior administrative appeal

  •   Article 131 of the CPPT provides, in its paragraph 3, that "when only a matter of law is at issue and the self-assessment has been made in accordance with generic guidelines issued by the tax authority, there is no requirement for the necessary administrative appeal provided for in paragraph 1".

  •   The Supreme Administrative Court interpreted this provision in the sense that the two conditions referred to therein are disjunctive, and not cumulative, it being sufficient for one of them to be verified for the administrative appeal to be dispensable.

  •   Having in mind that at issue is the declaration of illegality of IUC assessments, on the ground of the lack of the assumption of subjective scope, it can easily be concluded that what is at issue is the discussion of a matter of law.

3.2. Respondent's submission

In a submission presented on 16-6-2015, the Respondent reiterated what it had already alleged in its Reply.

It added that it is its understanding, contrary to what was argued by the Claimant, that the present case does not involve, solely, the discussion of a matter of law, since the question of the rebuttability of the alleged presumption contained in Article 3 of the CIUC is a question of fact.

As such, the Claimant could never have foregone, as it did, the prior administrative appeal before contentious challenge.

  1. Interlocutory decision

Considering that the exceptions raised, if upheld, would be capable of influencing the course of the proceedings, the Tribunal deemed it should pronounce itself on them in an interlocutory decision.

In this respect, and since some of the exceptions raised relate only to some of the joined claims, the exception of illegality of joinder of claims should first be considered.

In an interlocutory decision handed down on 14-7-2015, the Tribunal upheld the exception of illegality of joinder of claims.

It was found that there were five different factual grounds for the 391 claims, corresponding to five different factual situations determining five different causes of action.

Consequently, under the terms of Article 47, paragraph 5 of the Code of Procedure in Administrative Courts (applicable ex vi of Article 29, paragraph 1, subsection c) of the RJAT), the Tribunal invited the Claimant to indicate, within a period of 10 days, which claims it wished to have heard in the proceedings, under penalty of, should it fail to do so, the Respondent being absolved of the instance as to all claims.

The interlocutory decision concludes in the following terms:

"The Claimant must indicate the claims it wishes to have heard in accordance with the division it makes itself of the factual grounds, that is to say it must indicate one of the following groups:

A) That the Claimant is mere beneficiary of a clause reserving ownership stipulated in a loan contract;

B) That the Claimant has proceeded to sell the vehicle;

C) Pendency of financial leasing contracts in relation to some of the vehicles;

D) That total loss of the vehicles in question has occurred;

E) That the financial leasing contracts on the vehicles have fallen into default, with proceedings in litigation and the vehicles not having been recovered to date."

  1. Claimant's Response

In a motion addressed to the Tribunal on 6.8.2015, the Claimant came to reiterate its position on the question of the legality of joinder of claims, alleging, in summary:

  •   The circumstances of fact and law on which all the claims are based reside in the day-to-day activity of the Claimant, which, as is known, is dedicated to the leasing of motor vehicles, in the most diverse modalities;

  •   With the exception, perhaps, of the cases in which it finances the direct acquisition of vehicles by its customers (cases in which it stipulates in its favour a clause reserving ownership), the reason why the Claimant is not the subject liable to the tax in question results from the fact that each of the vehicles (for the most diverse reasons and vicissitudes normal in its activity) is registered in its name even though the user of the vehicle, and the one on whom the legislator intended to impose the burden of the tax, is a different entity;

  •   The theory that the circumstances of fact and law in which the Claimant is not liable for the tax are different in cases where there is a purchase option in favour of the lessee or in which a financial leasing contract has been concluded, or in cases where the vehicle is salvage that the insurance company that acquired it should have eliminated from the register or in which, at the end of the contract, the lessee acquired the vehicle, is not only a theory highly penalizing the rights of defense of taxpayers (who, for this reason, find themselves obliged to multiply proceedings, court fees and attorneys' fees), but is an illegal theory and clearly violative of the principles of tax arbitration, very different from those that apply in tax judicial proceedings;

  •   As to this last point, it is sufficient to note the legal formulation of the requirements for the validity of joinder of claims in the RJAT and contrast it with that of the CPPT.

  •   Indeed, Article 104 of the CPPT determines that "In judicial challenge, claims may be joined and parties may be joined, under the legal terms, in case of identity of the nature of the taxes, of the factual and legal grounds invoked and of the court competent to decide;

  •   Whereas Article 3 of the RJAT provides only that "The joinder of claims, even if relating to different acts and the joining of parties are admissible when the success of the claims depends essentially on the appraisal of the same circumstances of fact and the interpretation and application of the same principles or rules of law;"

  •     It is therefore evident that the CPPT, like civil procedure, is much more stringent as to joinder of claims than arbitration;

  •   Nevertheless, it is the settled understanding of the Supreme Administrative Court that this provision must be interpreted with flexibility and taking into account the principle of economy of means;

  •   In this regard, it cites the Decision of 16.11.2011, which, in considering the arguments raised by the challenger (nullity of additional IRS assessments, invalidity of additional IRS assessments for the years 2000 to 2005 and the expiration of the right to assess IRS for the years 2000 to 2003) concludes as follows: "Will Article 104 of the CPPT, however, prevent that, being invoked grounds of fact and law common to all the assessments contested, one invokes in relation to some of them any specific ground, in the case of the proceedings before us the expiration of the right to assess? We do not think so. The invocation of specific grounds for annulment of some of the assessments contested, alongside grounds common to all of them, does not prevent there being identity of grounds of fact and law invoked and the realization of the aims intended with the admissibility of joining challenges to different tax acts – reasons of economy of means and uniformity of decisions, as has been said."

  •   The strict identity of factual and legal grounds is not necessary in tax arbitration, only requiring that the success of the claims depends essentially on the appraisal of the same circumstances and the application of the same legal principles, which, precisely, is what is at issue in the present proceedings,

  •   In which, as has been reiterated and repeatedly made explicit, it is intended that the tribunal conclude that the Claimant, as a credit institution that finances the use and acquisition of motor vehicles, is not the subject liable to IUC tax that applies to such vehicles;

  •   The Claimant considers that it cannot conform to the tribunal's decision and that it cannot, consequently, take any act likely to suggest that it agreed with it.

The Claimant concludes by declaring that it maintains the formulation of the initial claims, requesting the tribunal that, under the principle of free management of proceedings and the autonomy of the judge, review its decision.

II. Pleadings

The Singular Arbitral Tribunal was regularly constituted on 29-12-2014, the Arbitrator having been designated by the Ethical Council of the CAAD, with the respective legal and regulatory formalities complied with (Articles 11, paragraph 1, subsections a) and b) of the RJAT and Articles 6 and 7 of the CAAD Ethical Code), and is competent as to subject matter, in conformity with Article 2 of the RJAT.

The parties have legal capacity and standing and are duly represented.

No nullities were identified in the proceedings.

III. REASONING

Questions to be decided

The following are the questions to be decided by the Arbitral Tribunal:

A) As to exceptional matters:

  •   The illegality of joinder of claims;

  •   The partial lack of standing of the Claimant;

  •   The lack of subject matter and lack of jurisdiction of the Arbitral Tribunal as to subject matter;

  •   The failure to exhaust prior administrative appeal;

B) As to the merits of the case

  •   The existence, in Article 3, paragraph 1 and paragraph 2 of the CIUC, of presumptions as to the ownership of vehicles and of other legal positions relating to them;

  •   The rebuttability, in the concrete cases, of such presumptions.

Findings of Fact

The following are the facts considered proven with relevance for the decision:

(i) The Claimant was notified of three hundred and eighty assessments of IUC, relating to the years 2013 and 2014;

(ii) The Claimant issued invoices relating to the sale of vehicles …-…-…, …-…-…, …-…-…, …-…-…, …-…-… and …-…-…;

(iii) The Claimant issued five invoices relating to the sale of "leased equipment";

(iv) The Claimant entered into, in the capacity of lessor, a financial leasing contract for the vehicle with registration …-…-…, with commencement on 8 June 2010 and with a duration period of 97 months.

There are no other facts proven with relevance to the case.

Exceptions

As to exceptional matters, it is considered that one should begin with the one concerning the legality of joinder of claims, since the judgment on the same may render the consideration of any other question unnecessary.

3.1. Illegality of joinder of claims

Article 3, paragraph 1 of the RJAT states on this matter that "the joinder of claims, even if relating to different acts and the joining of parties are admissible when the success of the claims depends essentially on the appraisal of the same circumstances of fact and the interpretation and application of the same principles or rules of law."

The provision therefore requires two cumulative requirements: the first, that the success of the claims depends essentially on the appraisal of the same circumstances of fact; and the second, that the success of the claims depends essentially on the interpretation and application of the same principles or rules of law.

Let us first see what should not be understood by "same circumstances of fact".

By "same circumstances of fact" should not, in this Tribunal's view, be understood restrictively and exactly "the same facts". According to this restrictive interpretation, there could be joinder of claims only when the same fact – the sale of vehicle X – was at issue in relation to several assessments of tax for various years. We think that the provision in question should not be interpreted in this restrictive way, because the expression "circumstances of fact" is not equivalent to "facts".

To find the precise scope of the provision, it is useful to take into account the interpretation that doctrine has made of the provision referring to joinder of claims in tax proceedings. Article 104 of the CPPT provides on this matter that, "in judicial challenge, claims may be joined and parties may be joined, under the legal terms, in case of identity of the nature of the taxes, of the factual and legal grounds invoked and of the court competent to decide".

As to the identity of the factual grounds, Jorge Lopes de Sousa says, in Code of Tax Procedure and Process Annotated and Commented, 6th ed., Vol. II, Áreas, Lisbon, 2011, p. 183 that "it is not necessary for joinder and joining of parties to be viable that there be an absolute identity of factual situations, it being sufficient that the legal-tax question to be considered is identical.

On the same question, but in comment to Article 71 (joinder of claims in administrative appeal), the same Author reaffirms that "it is not necessary for joinder of claims to have an absolute identity of factual situations, it being sufficient that the legal-tax question to be considered is identical", adding: "For this identity, what will be necessary is that the legal question to be considered be fundamentally the same and that the factual situation be similar in the points that are relevant for the decision. The facts will be essentially the same when they are common to the claims of all the parties, in such a way that it can be concluded that, if the facts alleged by one of the parties are proven, there will exist the factual support totally or partially necessary for the success of the claims of all of them. Thus, for example, a case in which there is an assessment of municipal contribution relating to a year in which a person holder of a right of use and habitation of a property is considered liable to this tax will be identical, for purposes of administrative appeal, to another in which the same question is considered in relation to the same interested party as to another property of which he is holder of an identical right, or as to another year in relation to the same property."

Can this interpretation be applied to Article 3, paragraph 1 of the RJAT? In this provision one speaks of "same circumstances of fact", while the provision of the CPPT speaks of "factual grounds". But one cannot fail to consider that the circumstances of fact to which Article 3 of the RJAT refers are the circumstances of fact that are relevant to the cause of action, and only those. To that extent, since the circumstances of fact that are relevant to the cause of action are those on which the factual grounds are based, the expressions are equivalent.

Therefore, what should be relevant to the question of admissibility of joinder of claims in the scope of the RJAT are not any characteristics of the facts alleged in the claim, but only the characteristics that have connection with the cause of action. There will thus be identity of the circumstances of fact when the factual circumstances are so similar that the factual grounds be identical for all the claims, so that the appraisal that the judge must make on the matter of fact be identical in all of them.

The examples given by Lopes de Sousa in the passage transcribed fit this criterion, at the same time translating a relatively restricted interpretation of the concept of "identity of the factual grounds". In the two cases suggested as examples, is identical, as the Author says, the legal-tax question to be considered: the question of whether the holding of a right of use and habitation determines subjection to the tax.

The cited Author goes even further, stating that it is necessary that, upon the facts serving as a basis to one of the claims being proven, there be proven the "factual support totally or partially necessary for the success of all of them."

The interpretation that the Author makes of the provision, through these examples is, as was said earlier, a relatively restricted interpretation, which is justified by the ratio itself of the provision, which resides in economy of means and uniformity of decisions (STA, decision of 16-11-2011, proc. no. 0608/11). Now, such economy of means and uniformity of decisions will only be achieved when the judge is faced with different claims for which the same appraisals are made both as to the matter of fact and as to the matter of law. In other words, although faced with a multiplicity of facts, the judge must make the same appraisals for all the facts.

Let us now see the situation in the present proceedings.

The Claimant alleges that the possibility of joinder of claims in the domain of tax arbitration is broader than in the domain of the CPPT, but does not offer any legal argument to base this allegation. It states that:

"Strict identity of factual and legal grounds is not necessary in tax arbitration, only requiring that the success of the claims depends essentially on the appraisal of the same circumstances and the application of the same legal principles, which, precisely, is what is at issue in the present proceedings, in which, as has been reiterated and repeatedly made explicit, it is intended that the tribunal conclude that the Claimant, as a credit institution that finances the use and acquisition of motor vehicles, is not the subject liable to IUC tax that applies to such vehicles."

Let us analyze the argument.

"The appraisal of the claims must depend essentially on the same circumstances (of fact)", says the Claimant, and rightly so, since this is the content of Article 3, paragraph 1 of the RJAT. But what are the circumstances of fact on whose appraisal the success of all the claims depends, according to the Claimant?

In the words of the Claimant, these circumstances would be that "the Claimant, as a credit institution that finances the use and acquisition of motor vehicles, is not the subject liable to IUC tax that applies to such vehicles". Therefore, the Claimant intends that the Tribunal conclude the following: "the Claimant is a credit institution that finances the use and acquisition of motor vehicles, therefore, it is not the subject liable to IUC tax that applies to such vehicles, regardless of the legal situation of those vehicles"!

It is not necessary for elaborate cogitations to conclude that the argument has no minimum consistency, because the fact that the Claimant is a credit institution that finances the use and acquisition of motor vehicles has no relevance whatsoever to the determination of its quality as subject liable to the tax, and much less could the success of the claim depend on such circumstance.

Therefore, the Claimant, although stating that the requirement of the appraisal of the joined claims depending essentially on the same circumstances of fact is met, does not identify the circumstances of fact on whose appraisal the success of the claims depends and which are common to all of them.

The Claimant alleges, in its first submission on the exceptional matter, sent to the proceedings on 4-6-2015, that the "conclusion of long-term contracts and the transfer of enjoyment and possession to third parties is the principal and transverse basis to all of the assessments contested, since it is this question that prevents the Claimant from being the subject liable to the tax in question".

As is abundantly evident, the assertion is inaccurate, i.e. the conclusion of long-term contracts and the transfer of enjoyment and possession to third parties are not the principal and transverse basis to all of the assessments contested. The principal and transverse basis to all of the assessments contested is the existence of a registration of ownership of the vehicles subject to tax in the name of the Claimant.

The initial petition itself structures the factual and legal grounds in five distinct factual frames (legal facts) which are as follows:

  •   In paragraphs 28 to 41, the Claimant articulates the factual grounds relating to situations in which it is beneficiary of a clause reserving ownership stipulated in a loan contract;

  •   In paragraphs 42 to 67, the Claimant expounds the factual grounds relating to situations in which the vehicles were sold;

  •   In paragraphs 68 to 77, the Claimant expounds the factual grounds relating to situations in which a financial leasing contract is in force on the vehicles;

  •   In paragraphs 78 to 81, the Claimant expounds the factual grounds relating to situations of total loss of the vehicles.

  •   And finally, in paragraphs 82 to 89, the Claimant expounds the factual grounds relating to situations of financial leasing contracts that are in default.

In the five factual frames described, the success of the claim does not depend, essentially, on the appraisal of the same circumstances of fact.

Let us see.

In relation to situations in which the Claimant alleges to be beneficiary of a reservation of ownership, the success of the claim depends on:

  •   Proving the existence of an acquisition with reservation of ownership for each of the vehicles at issue (which, it should be noted in passing, is not proven in any of the cases);

  •   Proving that the situation of acquisition with reservation of ownership was maintained, despite not being registered, at the date of the tax facts, for each vehicle;

  •   Discussing and clarifying the relevance that the failure to notify the acquisition of ownership to the Respondent has for purposes of the application of Article 3, paragraph 1 of the CIUC, a question that has not yet been clarified by jurisprudence or doctrine;

  •   Possibly, clarifying whether or not such notification was made;

In relation to situations in which the Claimant alleges to have proceeded to sell the vehicles, the success of the claim depends on:

  •   Proving that the Claimant is not the owner of the vehicles, at the date of the tax facts, contrary to what results from the motor register;

  •   Discussing how such proof can and should be made, in light of the probative value of the presumption of the registral entry;

In relation to situations in which the Claimant alleges financial leasing contracts are in force, the success of the claim depends on:

  •    Proving that financial leasing contracts are in force on the vehicles at issue (which, it should be said in passing, is only proven in relation to one vehicle);

  •   Discussing the relevance that the non-compliance with the obligation imposed on lessees by Article 19 of the CIUC has on the scope of the tax;

  •   Possibly proving that the Claimant complied with the ancillary obligation imposed by Article 19 of the CIUC.

In relation to situations in which the Claimant alleges that total loss of vehicles has occurred, the success of the claim depends on:

  •   Proving the total loss of the vehicles

  •   Clarifying how this fact affects the scope of the tax:

a) whether by way of an alteration of the subjective scope, by transfer thereof to the insurance company, which would require proving the transfer of ownership to it;

b) whether by way of the disappearance of the object of the real scope of the tax, which would require discussing the relevance of the failure to regularize this situation in terms of registration;

In relation to situations in which the Claimant alleges the existence of financial leasing contracts that are in default:

  •   Proving the existence of such contracts;

  •   Proving the pendency of such litigations;

  •   Determining the legal situation of the vehicles pending such litigations;

  •   Determining the relevance of the legal situation of the vehicles to the scope of the tax.

From what has been set out, it is imperative to conclude that the success of the 391 joined claims does not depend, essentially, on the appraisal of the same circumstances of fact, nor are the same legal-tax questions to be considered. There is no central legal-tax question common to all the claims.

We therefore consider that the conditions required by Article 3, paragraph 1 of the RJAT for the joinder of claims are not met in this case, with the consequence that the joinder of all the claims formulated by the Claimant is not admissible, a fact which constitutes a dilatory exception provided for in Article 89, subsection g) of the Code of Procedure in Administrative Courts (CPTA), applicable ex vi of Article 29, paragraph 1, subsection c) of the RJAT, of official cognizance, which prevents the consideration of the merits of the case (Article 576, paragraph 2 of the Civil Procedure Code, applicable ex vi of Article 29, paragraph 1, subsection e) of the RJAT) and leads to the dismissal of the Respondent from the instance.

IV. DECISION

For the reasons set out, the joinder of all the claims formulated by the Claimant is held to be legally inadmissible.

Having been the Claimant invited, by interlocutory arbitral decision of 14-7-2015, under the terms of Article 47, paragraph 5 of the CPTA (applicable ex vi of Article 29, paragraph 1, subsection c) of the RJAT), to indicate which claims it wished to have heard in the proceedings, and having the Claimant expressly refused this possibility, the Respondent TAA - Tax and Customs Authority is dismissed from the instance in relation to all the claims, in conformity with Article 4, paragraph 3 of the Code of Procedure in Administrative Courts, applicable ex vi of Article 29, paragraph 1, subsection c) of the RJAT.

Economic value of the proceedings: The economic value of the proceedings is fixed at €23,194.13.

Costs: Under the terms of Article 22, paragraph 4, of the RJAT, the amount of costs is fixed at €1,224.00, under the terms of Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, at the charge of the Claimant.

Let this arbitral decision be registered and notified to the parties.

Lisbon, Center for Administrative Arbitration, 14 September 2015

The Arbitrator

(Nina Aguiar)

Frequently Asked Questions

Automatically Created

Who is liable for IUC payment when a vehicle is subject to a financial leasing or long-term rental contract in Portugal?
Under Article 3(2) of the Portuguese IUC Code, financial lessees and holders of purchase option rights under leasing contracts are expressly equated to owners for IUC purposes. This means that in financial leasing arrangements, the lessee—not the leasing company—is the designated taxpayer, as they hold exclusive use and possession of the vehicle. Similarly, in long-term rental (LTR) contracts, the party with actual use of the vehicle should be liable. However, enforcement depends on proper registration; when lessees fail to register their status, Tax Authorities may assess the registered owner. The equivalence principle in Article 1 CIUC supports interpreting subjective incidence to tax the actual user who causes environmental and road costs.
Can a leasing company be required to pay IUC solely because it appears as the registered owner in the vehicle registry?
While Article 3(1) CIUC establishes that taxpayers are those registered as owners in the vehicle registry, this creates a legal presumption that Portuguese arbitration jurisprudence has recognized as rebuttable. A leasing company can challenge IUC assessments by demonstrating that another party (the lessee, purchaser with reservation of ownership, or subsequent buyer) holds actual ownership or exclusive use rights. The company must provide evidence such as leasing contracts, sales agreements, or insurance documentation proving they lack substantive ownership or use. Registration alone should not impose liability when Article 3(2) explicitly designates lessees and purchasers as the proper taxpayers, particularly where the user-pays principle applies.
What constitutes illegal joinder of claims (cumulação ilegal de pedidos) in Portuguese tax arbitration proceedings?
Illegal joinder of claims (cumulação ilegal de pedidos) in Portuguese tax arbitration occurs when multiple claims are improperly consolidated in a single proceeding despite lacking sufficient connection or when procedural rules prohibit their combination. In case 691/2014-T, the issue arose because 391 separate IUC assessment acts were challenged together. While Portuguese arbitration rules generally permit consolidation of related claims for efficiency, joinder may be illegal if the assessments involve fundamentally different legal or factual situations requiring separate analysis, or if they concern different tax years, vehicles, or legal relationships that cannot be properly adjudicated together. The acceptability depends on whether common questions of law or fact predominate over individual circumstances.
How does the reservation of ownership clause (reserva de propriedade) affect IUC subjective incidence?
The reservation of ownership clause (reserva de propriedade) significantly impacts IUC subjective incidence under Article 3(2) CIUC, which expressly equates purchasers with reservation of ownership to vehicle owners for tax purposes. When a vehicle is acquired through financing with such a clause, legal ownership remains with the creditor (typically a bank or financial institution) until full payment, but possession and exclusive use transfer immediately to the purchaser. Article 3(2) recognizes this economic reality by designating the purchaser—not the creditor holding reserved ownership—as the IUC taxpayer. This interpretation aligns with the equivalence and user-pays principles, as the purchaser causes the environmental and road costs. Therefore, financial institutions holding merely reserved ownership rights should not be liable for IUC.
What are the grounds for annulment of IUC assessments under CAAD arbitration process 691/2014-T?
The grounds for annulment in case 691/2014-T include: (1) error in legal assumptions regarding subjective incidence—Tax Authorities incorrectly identified the claimant as taxpayer when Article 3(2) CIUC designates lessees or purchasers with reservation of ownership as liable parties; (2) assessments on vehicles already sold, where ownership had transferred by contract effect before the taxable event occurred, making registration outdated; (3) assessments on vehicles declared total loss under insurance, which ceased to exist or circulate; (4) assessments during active leasing contracts where lessees, not the lessor, are statutorily liable; and (5) misapplication of the equivalence principle, which requires taxing actual users rather than nominal registered owners. The claimant argued these assessments violated proper interpretation of CIUC provisions under Article 9 of the Portuguese Civil Code.