Process: 719/2016-T

Date: May 15, 2017

Tax Type: IUC

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 719/2016-T) addresses the subjective incidence of IUC (Imposto Único de Circulação) in financial leasing contracts. A credit institution challenged IUC assessments totaling €10,208.34 for tax periods 2010-2012, arguing it should not be liable as the vehicles were transferred to lessees under active financial lease contracts at the time of the tax event. The bank, registered as the vehicle owner, paid the assessments but filed for official revision claiming the lessees should be the taxpayers. After both the revision request and hierarchical appeal were dismissed by the Tax Authority, the institution sought arbitration at CAAD. The central legal question concerns whether IUC liability falls on the lessor (who holds legal ownership and registration) or the lessee (who has possession and use of the vehicle) under Portuguese tax law. The case illustrates the procedural path for contesting IUC assessments: official revision, hierarchical appeal, and ultimately tax arbitration. The tribunal accepted jurisdiction and deemed the cumulation of multiple vehicle assessments appropriate given the identical legal grounds. This decision has significant implications for financial institutions engaged in vehicle leasing operations and clarifies taxpayer identification in financial lease arrangements for IUC purposes.

Full Decision

Arbitration Decision

I. Report

  1. A…. S.A., collective entity no. …, with registered office at Rua…, …, …-… Lisbon, has requested the constitution of the arbitral tribunal in tax matters, raising a request for arbitral decision against the act of dismissal of the hierarchical appeal filed against the dismissal of a request for official revision and, consequently, against the acts of assessment of Single Tax on Vehicles (IUC) relating to the years 2010, 2011 and 2012 and to the motor vehicles identified by their respective registration numbers in the list and documents attached to the request (Annex A), whose annulment it requests. As a consequence of the said annulment, it requests the condemnation of the Tax and Customs Authority (AT) to reimburse the amount that it considers unduly paid, in the total amount of € 10,208.34, of which € 9,382.10 is tax and € 826.24 is compensatory interest, plus the corresponding indemnity interest calculated according to legal terms.

  2. As the basis for the request submitted on 30-11-2016, the Applicant alleges, in summary, that, having timely submitted a request for official revision of the IUC assessments in question, the same was dismissed, with the same fate befalling the hierarchical appeal timely filed against that decision.

  3. As the basis for the said request for official revision and subsequent hierarchical appeal of the decision issued thereon, the Applicant invokes the fact that it is not the taxpayer of the IUC obligation relating to the tax periods and vehicles to which those assessments pertain.

  4. According to what is alleged by the Applicant, the said vehicles, although registered in its name on the date to which the tax facts to which those assessments relate refer, were transferred to their respective lessees under financial lease contracts that were in force on the date of the tax event and tax exigibility in question.

  5. In response to what was requested, the Tax and Customs Authority (AT) ruled in the sense of the lack of merit of the present request for arbitral decision, maintaining in the legal order the tax acts contested and, accordingly, for the absolution of the defendant entity.

  6. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax and Customs Authority (AT) on 16-12-2016.

  7. Pursuant to the provisions of subparagraph a) of article 6(2) and subparagraph b) of article 11(1) of Decree-Law no. 10/2011, of 20/01, as amended by article 228 of Law no. 66-B/2012, of 31/12, the Deontological Council appointed the signatory as arbitrator of the single arbitral tribunal, who communicated acceptance of the appointment within the applicable deadline, and notified the parties of such appointment on 30-01-2017.

  8. Duly notified of such appointment, the parties did not express their will to refuse the appointment of the arbitrator pursuant to the combined provisions of article 11(1), subparagraphs a) and b) of RJAT and articles 6 and 7 of the Code of Ethics.

  9. Thus, in accordance with the provision of subparagraph c) of article 11(1) of RJAT, as amended by article 228 of Law no. 66-B/2012, of 31/12, the single arbitral tribunal was constituted on 14-02-2017.

  10. The regularly constituted arbitral tribunal is materially competent, in view of the provision in articles 2(1), subparagraph a), of RJAT.

  11. The parties have legal personality and capacity and have standing (articles 4 and 10(2) of RJAT, and article 1 of Ordinance no. 112-A/2011, of 22/03).

  12. No nullities occur and no preliminary questions or exceptions were raised, so nothing prevents judgment on the merits, thus being the present proceedings in conditions for the final decision to be issued therein.

  13. Considering the knowledge that results from the procedural documents submitted by the parties, particularly from the administrative file, which is deemed sufficient for the decision, the Tribunal decided to dispense with the meeting referred to in article 18 of RJAT.

  14. Given that there are no doubts regarding the determination of the facts duly proved on the basis of documentary evidence and considering that exclusively a matter of law is at issue, the Tribunal decided to dispense with witness evidence.

II. Facts

  1. With relevance for the assessment of the issues raised, the following factual elements are highlighted, which, based on the documentary evidence joined to the case file, are deemed proved:

15.1. The Applicant is a credit institution that, within the scope of its corporate purpose, carries out all operations and provides all services permitted to banks.

15.2. Among its areas of activity, financing of the automotive sector assumes particular relevance, with a substantial part of its activity relating to the execution of financial lease contracts intended for the acquisition, by companies and individuals, of motor vehicles.

15.3. To this effect, the now Applicant acquires the vehicles indicated by its clients from their respective suppliers, proceeding thereafter to their delivery to the lessees.

15.4. During the period stipulated in the contract, these lessees maintain the temporary enjoyment of the vehicle — which remains the property of the Applicant — by means of remuneration to be paid to the Applicant in the form of rents; they may acquire the vehicle at the end of the contract by paying a residual value.

15.5. The motor vehicles to which the contested assessments relate, identified in a list attached to the request for arbitral decision (Annex A), were transferred to their respective lessees under financial lease contracts.

15.6. The said contracts were in force on the date of the tax event and the tax exigibility in question (Docs. 57 to 112).

15.7. With respect to the motor vehicles identified in the said Annex A, by their respective registration numbers, and the tax periods of 2010, 2011 and 2012, AT carried out official assessments of IUC, plus compensatory interest, in the total amount of € 10,208.34.

15.8. Notified of the said assessments, the now Applicant made voluntary payment of the tax (Cf. Docs. 1 to 56).

15.9. However, it reacted against the said assessment acts by means of a request for official revision in which, in essence, it alleges that it is not the taxpayer of the tax obligation since, on the date of occurrence of the respective tax event, the vehicles to which those relate were transferred to their respective lessees under financial lease contracts.

15.10. The revision request, as appears from the elements that form part of the present proceedings, was the object of an express dismissal.

15.11. Against the said decision, a hierarchical appeal was filed, also dismissed in its entirety.

  1. There are no facts relevant to the decision that have not been proved.

III. Cumulation of Claims

  1. The present request for arbitral decision relates to several IUC assessments. However, in view of the identity of the tax facts, of the tribunal competent to decide and of the grounds of fact and law invoked, the tribunal considers that nothing prevents, in view of the provisions of articles 3 of RJAT and 104 of CPPT, the cumulation of claims.

IV. Law

  1. In the request for arbitral decision, the Applicant submits to the assessment of this tribunal the legality of the act of express dismissal of the hierarchical appeal filed against the decision of dismissal of a request for official revision and, consequently, the legality of the acts of assessment of IUC, relating to the periods of 2010, 2011 and 2012 and the vehicles it identifies in a list attached to the request (cfr. Annex A), invoking the circumstance that, on the date to which the tax facts that originated them refer, these were transferred to their respective lessees within the scope of financial lease contracts, and, consequently, it does not assume the status of taxpayer of the tax assessed to it.

  2. It is therefore a matter of determining whether the Applicant should or should not be considered a taxpayer of IUC with respect to the vehicles and periods to which the tax relates, duly identified in an annex to the request, because, on the date of tax exigibility, they were leased under financial lease contracts in force on the said date.

  3. With respect to this matter, article 3 of CIUC provides, in its articles 1 and 2, in the wording in force on the date of the facts under analysis, that:

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

  1. Equivalent to owners are financial lessees, acquirers with reservation of ownership, as well as other holders of purchase option rights by virtue of lease contract"

  2. According to the understanding of the Respondent, the said norm does not contain any legal presumption, considering that "The tax legislator, by establishing in article 3(1) who the taxpayers of the IUC are, expressly and intentionally established that these are the owners (or in the situations provided for in no. 2 the persons stated therein), as such being considered the persons in whose name they are registered.

  3. For its part, the Applicant argues that such norm establishes a legal presumption, rebuttable in general terms and, in particular, by virtue of the provision of article 73 of the General Tax Law according to which presumptions of tax incidence always admit proof to the contrary.

  4. This matter has been the subject of numerous decisions within the scope of the arbitral tribunals operating in CAAD, generally in the sense of the merit of the respective requests, on the ground that the norm in question, in the wording in force on the date of the facts to which the present request relates, contains a legal presumption that admits proof to the contrary.[i]

  5. Adhering, therefore, to the position referred to above, it is dispensed with, as unnecessary and tedious, the reproduction of the respective reasoning, since nothing new is advanced in the present proceedings on that matter.

  6. However, the conclusion that the norm of subjective incidence of IUC establishes a rebuttable presumption does not preclude another question which, for the present case, is important to clarify, namely whether the verification of the circumstance provided for in article 3(2) of CIUC precludes or not the rule of incidence established in article 3(1) of the same article, in the case that the provision of article 19 of CIUC has not been complied with.

  7. This provision, in force on the date of the facts to which the present request relates, established that "For the purposes of the provision in article 3 of the present code, as well as in article 3(1) of the law of its approval, the entities that carry out financial leasing, operational leasing or long-term rental of vehicles are obliged to provide to the Directorate-General of Taxes the data relating to the tax identification of the users of the leased vehicles."

  8. From the norm of article 3(2) of CIUC, combined with the cited article 19 of the same Code, there remain no doubts that, where vehicles are transferred to third parties under financial lease or other lease contracts with purchase option, the taxpayer of this tax will be the lessee and not the respective owner, thus precluding the rule of subjective incidence of article 3(1) thereof, provided that sufficient proof is given to rebut the presumption it contains.

  9. This is not, however, the understanding of the Respondent which, "in the matter of financial leasing and for the purposes of the waiver of article 3 of CIUC, it is necessary that the financial lessors (such as the Applicant) comply with the obligation inherent in article 19 of that Code in order to exonerate themselves from the obligation to pay the tax."

  10. It is emphasized that the relevance of non-compliance with such obligation regarding the incidence of the tax in question has been the subject of various arbitral decisions,[ii] recalling, for this purpose, the Arbitration Decision, of 14-07-2014, in Proc. 136/2014-T:

"Indeed, the provision in article 3, no. 2 of CIUC is quite clear regarding the subjective incidence of IUC, in the term of financial lease contracts, subjecting the lessee to that obligation, by equating it to the owner for this purpose.

Thus, the law not attributing this obligation to the owner-lessor, there will be no place for any exoneration on the part of the latter, with the communication provided for in the said article 19 of CIUC, for the simple reason that it was never subject to the payment of the tax.

The subjective incidence of IUC is established, in all its elements, in article 3 of CIUC, and it will be through the application of this regulation that the taxpayer will be determined, with non-compliance with the mentioned ancillary obligation being irrelevant for the purposes of the incidence of the tax."

  1. It is therefore to this jurisprudential orientation, to which, without reservation, adherence is given, thus not following the understanding of the Respondent expressed above.

On the Waiver of the Presumption

  1. Presumptions of tax incidence may be rebutted through the contradictory procedure provided for in article 64 of CPPT or, alternatively, by means of gracious reclamation or judicial challenge of the tax acts based on them.

  2. In the present case, the Applicant did not use that specific procedure, so the present request for arbitral decision, following the dismissal of the request for official revision and subsequent hierarchical appeal, is the proper means to rebut the presumption of subjective incidence of IUC that supports the tax assessments whose annulment constitutes the object of the request, since it is a matter that falls within the scope of material competence of this arbitral tribunal (articles 2 and 4 of RJAT).

  3. Given that the Applicant appears in the Vehicle Register as owner of the vehicles identified in the request in the tax periods to which the questioned assessments relate and claiming that these were transferred to third parties under lease contracts without compliance with the provision of article 19 of CIUC, it remains to evaluate the evidence presented, in order to determine whether it is sufficient to rebut the presumption established in article 3(1) of the same Code.

  4. With a view to rebutting the said presumption, derived from the entry in the vehicle register, the applicant presents, in an annex to this request, a copy of the financial lease contracts executed on a date prior to the occurrence of the tax event and the exigibility of the tax and in force on those dates.

  5. Pronouncing on the evidence elements presented, the Respondent considers that the Applicant could only be exonerated from the tax if it had complied with the specific obligation provided for in article 19 of CIUC, in force at the time.

On the Waiver of the Presumption Based on Copies of Contracts

  1. With respect to the financial lease contracts, as evidence capable of overcoming the presumption of article 3 of CIUC, it is noted that these are configured as private documents which, when duly signed by the intervening parties, have probative force. The legal requirement relevant for the purposes of attributing them formal probative force is satisfied by the signature of its author, this being considered genuine when recognized, or not impugned, by the party against whom the document is presented (Civil Code, articles 373 and 374(1)).

  2. In the present case, the documents offered by the Applicant as evidence being duly signed and the signatures thereon not having been impugned nor having these been subject to accusation and proof of falsity by the Respondent, they make full proof as to the declarations attributed to their author (Civil Code, article 376(1)).

  3. Thus, the formal validity of the contracts submitted by the Applicant not being questioned, it is considered documentally proved that on the date of tax exigibility the vehicles to which they refer, although being the property of the Applicant, were given by it under a financial lease arrangement.

  4. As has been concluded before, in situations where vehicles, on the date of occurrence of the tax event, are transferred to lessees, under financial lease contracts or other leases involving purchase option, the taxpayer of the tax obligation is not the lessor owner but, pursuant to article 3(2) of CIUC, the respective lessee, as the one who has the enjoyment of the vehicle. And this applies regardless of whether or not compliance has been made with the provision of article 19 of that Code and the fact that the property register remains in the name of the lessor, without the lease contract having been registered in it.

  5. In view of the foregoing, it is concluded that there is no legal basis for the acts of assessment of IUC and compensatory interest with respect to the vehicles and periods identified in an annex to the request for arbitral decision which, on the date of tax exigibility, were transferred to their respective lessees under lease contracts with purchase option.

  6. The facts alleged by the Applicant being documentally proved, it is considered unnecessary to hear the witnesses enrolled by it, so their hearing is dispensed with.

  7. In these terms, considering that the presumption of ownership derived from the vehicle register contained in article 3 of CIUC - in the wording in force on the date of the facts to which the assessments in question relate - has been rebutted, the assessments identified in an annex to the present request for arbitral decision (Annex A) should be annulled, in the total amount of € 10,208.34, on the basis of illegality and error in the assumptions on which they are based.

On the Right to Indemnity Interest

  1. Along with the annulment of the assessments, and consequent reimbursement of the amounts unduly paid, the Applicant further requests that it be recognized the right to indemnity interest, under article 43 of LGT.

  2. Indeed, pursuant to the provision of article 43(1) of the said article, indemnity interest will be due "when it is determined, in gracious reclamation or judicial challenge, that there was error attributable to the services that resulted in the payment of the tax debt in an amount higher than legally due." In addition to the means referred to in the norm which is transcribed, we understand that, as results from article 24(5) of RJAT, the right to the mentioned interest can be recognized in the arbitration proceeding and thus the request is heard.

  3. The right to indemnity interest to which the LGT norm above referred to alludes presupposes that tax has been paid in an amount greater than due and that such derives from error, of fact or of law, attributable to the services of AT.

  4. In the present case, although it is recognized that the tax paid by the Applicant is not due, since it is not the taxpayer of the tax obligation, determining, in consequence, its respective reimbursement, it is not seen that, at its origin, there is error attributable to the services, which determines such right in favor of the taxpayer.

  5. Indeed, by promoting the official assessment of IUC considering the Applicant as the taxpayer of this tax, AT could not proceed differently, limiting itself to giving effect to the provision of article 3(1) of CIUC, which, as abundantly referred to above, imputes such status to the persons in whose name the vehicles are registered.

  6. On the other hand, also as has been concluded, the said norm has the nature of legal presumption, from which results, for AT, the right to assess the tax and demand it from those persons, without need to prove the facts that lead to it, as expressly provided for in article 350(1) of the Civil Code.

  7. However, with respect to the assessments that constitute the object of the present request for arbitral decision, it is important to know whether the act of dismissal of the claim of the now Applicant, formulated in the request for official revision timely submitted, constitutes, or not, error attributable to the Tax Authority for the purposes of the exigibility of indemnity interest, under article 43(1) of LGT.

  8. On this matter, account is taken of the guidance resulting from the jurisprudence of the Supreme Administrative Court, which is in the direction of recognizing that a decision of AT that dismisses a request for annulment of an admittedly illegal assessment and consequent restitution of unduly collected tax, constitutes error attributable to the services.

  9. According to the mentioned jurisprudence – set out in a learned ruling of 28-10-2009, in Proc. 601/09 – indemnity interest is due from the date of the dismissal of the request until the date of processing of the respective credit note, pursuant to article 61 of CPPT.

V. Decision

In these terms, and with the grounds set out, the Arbitral Tribunal decides:

a) To judge the request for arbitral decision well-founded, as concerns the illegality of the assessments relating to the vehicles and periods identified in an annex to the request for arbitral decision (Annex A), determining their annulment and consequent reimbursement of the amounts unduly paid.

b) To judge the request for recognition of the right to indemnity interest calculated from the date of dismissal of the request for official revision until the date of actual reimbursement of the taxes and compensatory interest unduly collected.

Value of the proceedings: € 10,208.34

Costs: Under article 22(4) of RJAT, and pursuant to Table I attached to the Regulation of Costs in Tax Arbitration Proceedings, I fix the amount of costs at € 918.00, to be borne by the Respondent (AT).

Lisbon, 15 May 2017,

The Arbitrator, Álvaro Caneira.

[i] By way of merely exemplary reference, see Procs. 14/2013-T, 26/2013-T, 27/2013-T, 73/2013-T, 170/2013-T, 217/2013-T, 256/2013-T, 289/2013-T, 294/2013-T, 21/2014-T, 42/2014-T, 43/2014-T, 50/2014-T, 52/2014-T, 67/2014-T, 68/2014-T, 77/2014-T, 108/2014-T, 115/2014-T, 117/2014-T, 118/2014-T, 120/2014-T, 121/2014-T, 128/2014-T, 140/2014-T, 141/2014-T, 152/2014-T, 154/2014-T, 173/2014-T, 174/2014-T, 175/2014-T, 182/2014-T, 191/2014-T, 214/2014-T, 219/2014-T, 221/2014-T, 222/2014-T, 227/2014-T, 228/2014-T, 229/2014-T, 230/2014-T, 233/2014-T, 246/2014-T, 247/2014-T, 250/2014-T, 262/2014-T, 302/2014-T, 333/2014-T, 414/2014-T, 646/2014-T, all available at www.caad.org.pt.

[ii] See, among others, Procs. 128/2014-T, 134/2014-T, 136/2014-T, 137/2014-T, 224/2014-T, 228/2014-T, 232/2014-T, 233/2014-T and 341/2014-T

Frequently Asked Questions

Automatically Created

Who is the taxable person for IUC when a vehicle is under a financial leasing contract in Portugal?
Under Portuguese law, determining the IUC taxable person in financial leasing requires analyzing the subjective incidence rules. While the vehicle remains registered in the lessor's name (the financial institution), the lessee has possession and use. The case examines whether registration or actual possession determines tax liability. Portuguese tax authorities typically assess the registered owner, but lessors argue that lessees, as beneficial users during the tax event period, should bear the obligation. This arbitration decision addresses this fundamental question of tax incidence in financial lease contracts.
Can a registered vehicle owner contest IUC liability if the vehicle was delivered to a lessee?
Yes, a registered vehicle owner can contest IUC liability even when vehicles are delivered to lessees. The procedure involves: (1) filing a request for official revision with the Tax Authority within the statutory deadline, (2) if dismissed, filing a hierarchical appeal against that decision, and (3) if the appeal is also dismissed, seeking arbitration at CAAD (Centro de Arbitragem Administrativa). In this case, the credit institution followed this complete procedural path, challenging assessments totaling €10,208.34 across multiple vehicles and tax periods (2010-2012). The institution must prove the financial lease contracts were active on the tax event dates.
What is the procedure for challenging IUC assessments through hierarchical appeal and tax arbitration at CAAD?
The procedure for challenging IUC assessments involves a three-tier administrative and judicial review system. First, taxpayers must file a request for official revision (revisão oficiosa) with the Tax Authority, presenting legal and factual grounds for contesting the assessment. If dismissed, a hierarchical appeal (recurso hierárquico) can be filed to a superior administrative authority. Finally, if both administrative remedies fail, taxpayers may seek tax arbitration at CAAD under RJAT (Decree-Law 10/2011). CAAD provides an alternative to judicial courts, offering faster resolution. The arbitral tribunal examines material competence, legal standing, and substantive issues. Decisions may order refunds plus compensatory and indemnity interest.
Does the subjective incidence of IUC fall on the lessor or the lessee under Portuguese tax law?
The subjective incidence of IUC in financial leasing contexts presents a complex legal question under Portuguese tax law. The issue centers on whether the lessor (financial institution maintaining legal ownership and vehicle registration) or the lessee (who possesses and uses the vehicle under contract) qualifies as the taxpayer. Tax authorities typically assess the registered owner, following vehicle registration records. However, lessors argue that since lessees have economic possession, beneficial use, and control during the tax period, they should bear IUC liability. The determination depends on interpreting IUC legal provisions regarding who constitutes the 'owner' for tax purposes—legal ownership versus economic substance and actual use.
What are the legal consequences of annulling IUC assessments, including refund and compensatory interest rights?
When IUC assessments are annulled through arbitration, significant legal consequences follow. The Tax and Customs Authority must reimburse all amounts unduly paid, including both principal tax and any compensatory interest (juros compensatórios) charged for payment delays. Additionally, the taxpayer becomes entitled to indemnity interest (juros indemnizatórios) calculated from the payment date until reimbursement, compensating for the State's unjustified retention of funds. In this case, the institution claimed refund of €9,382.10 (tax) plus €826.24 (compensatory interest), plus indemnity interest calculated according to legal rates. These financial consequences incentivize proper tax assessment and provide full restitution for unlawful collection, ensuring taxpayers are made whole when administrative errors occur.