Process: 787/2014-T

Date: April 27, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

This CAAD arbitration case (787/2014-T) addresses whether a car rental company must pay Vehicle Circulation Tax (IUC) on vehicles registered in its name but declared total loss by insurance companies before the tax event. The claimant, a vehicle rental company, challenged IUC assessments for 2013 and 2014, arguing that Article 3(1) of the IUC Code establishes a rebuttable legal presumption of ownership based on vehicle registration. The company presented evidence that the vehicles were involved in accidents and classified as total loss prior to the tax event dates, contending it was no longer the actual owner despite remaining the registered owner. The claimant invoked Article 73 of the General Tax Law, which states that presumptions in tax incidence rules always admit evidence to the contrary, and argued that maintaining the assessment violated constitutional principles of inquiry, justice, and impartiality under Article 266 of the Portuguese Constitution. The Tax Authority contested this interpretation, asserting that Article 3(1) is not a presumption but an express legislative policy choice defining owners as those in whose name vehicles are registered. The Authority emphasized that Article 6(1) of the IUC Code establishes ownership as attested by registration as the tax event, and that responsibility for updating vehicle registration under Article 42 of the Vehicle Register Regulation falls on the taxpayer. Furthermore, the Tax Authority challenged the evidentiary value of the documents submitted, characterizing them as internal movements rather than proper invoices, and argued that the claimant's interpretation would violate principles of legal certainty, trust, efficiency, and proportionality. The case presents fundamental questions about the nature of registration-based tax liability, the balance between formal registration and substantive ownership, and the limits of rebutting statutory definitions in Portuguese tax law.

Full Decision

ARBITRAL DECISION

CAAD: Tax Arbitration

Case No. 787/2014-T

I – Report

  1. On 24 November 2014, the Claimant, A… – AUTOMÓVEIS DE ALUGUER, LDA., a company with registered office at …, Building …. …, Floor .., in …, with the unique registration and legal entity identification number …, requested the CAAD to constitute an arbitral tribunal, in accordance with Article 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter designated only as "RJAT"), in which the Tax and Customs Authority is the Respondent, with a view to the annulment of the Vehicle Circulation Tax assessments identified in the table below:

The Claimant, alleging that it has paid the amount of these assessments, further petitions their restitution, increased by compensatory interest.

  1. The request for constitution of the arbitral tribunal was accepted by His Excellency the President of the CAAD and notified to the Tax and Customs Authority.

In accordance with the provisions of Article 6(1) of the RJAT, by decision of the President of the Ethics Council, duly communicated to the parties within the legally applicable time limits, the undersigned was appointed as arbitrator, and communicated his acceptance of the mandate to the Ethics Council and the Administrative Arbitration Centre within the regularly applicable time limit.

The Arbitral Tribunal was constituted on 2 February 2015.

  1. By order of 16 March 2015, the holding of the meeting provided for in Article 18 of the RJAT was dispensed with, on the grounds of its unnecessary nature.

  2. The grounds presented by the Claimant in support of its claim were, in summary, as follows:

a. The Claimant is a commercial company that carries on the activity of rental of motor vehicles and provision of related services.

b. During the performance of vehicle rental contracts concluded in the context of its activity, the vehicles indicated in the assessments sub judice were subject to claims (accidents), having been considered by the insurance companies as total loss, as evidenced by invoices and correspondence from the insurance companies attached in years prior to 2013 and 2014 and prior to the date of the tax event in the years in question.

c. As results from the factual matters set out above, the Vehicle Circulation Tax assessments in question will have been issued on the basis that the Claimant is registered in the Vehicle Register as owner of the vehicles in question, which, for the tax administration, is sufficient for the Claimant to be considered the owner of the vehicles and, as such, the taxpayer of the Vehicle Circulation Tax, in accordance with Article 3(1) of the Vehicle Circulation Tax Code.

d. However, taking into account both the systematic place that the principle of equivalence occupies in the Vehicle Circulation Tax Code, as well as the historical element, and also the ratio legis of the provision, it must be considered that Article 3(1) of the Vehicle Circulation Tax Code establishes a rebuttable legal presumption, in the sense that those in whose name the vehicles are registered are considered as owners, such presumption necessarily being a rebuttable presumption, in accordance with the provisions of Article 73 of the General Tax Law which establishes that "Presumptions established in tax incidence rules always admit evidence to the contrary."

e. Given that the Vehicle Circulation Tax is levied on the owners of the vehicle at the date of the tax event and the rule provided for in Article 3(1) of the Vehicle Circulation Tax Code being a rebuttable legal presumption by means of evidence to the contrary, the demonstration by the Claimant that it is no longer the owner of the vehicles in question as of a date prior to the occurrence of the tax event in the years 2013 and 2014 is sufficient to conclude that the Claimant is not the taxpayer of the tax.

f. The interpretation of Article 3 of the Vehicle Circulation Tax Code, in the sense that those in whose name the vehicles are registered should be considered owners of the vehicles and, consequently, taxpayers of the Vehicle Circulation Tax, regardless of any evidence to the contrary, violates the principles of inquiry, justice and impartiality constitutionally enshrined in Article 266 of the Constitution of the Portuguese Republic.

g. Notwithstanding the full conviction of the illegality of the assessments sub judice, the Claimant proceeded to pay them.

h. In this way, as the present request for arbitral pronouncement proceeds, the Claimant should be reimbursed for the amount unduly paid.

i. Furthermore, given that the assessment under review results from an error attributable to the services from which payment of totally unwarranted tax results, the Claimant is also entitled, in accordance with Article 43(1) of the General Tax Law, to compensatory interest whose recognition is also requested.

  1. The Tax and Customs Authority, called upon to pronounce itself, contested the Claimant's claim, arguing for the dismissal of the Claimant's claims, defending itself by contestation, alleging, in summary, the following:

a. The tax legislator, in establishing in Article 3, paragraph 1, of the Vehicle Circulation Tax Code, who are the taxpayers of the Vehicle Circulation Tax, expressly and intentionally established that these are the owners, considering as such the persons in whose name the same are registered, it being not a presumption but a clear option of legislative policy adopted by the legislator within its freedom of legislative configuration.

b. The tax provision is full of provisions analogous to that enshrined in the final part of paragraph 1 of Article 3, in which the tax legislator, within its freedom of legislative configuration, expressly and intentionally, establishes what should be considered legally, for the purposes of incidence.

c. The systematic element of the interpretation of the law also demonstrates that the solution advocated by the Claimant is untenable, with Article 6(1) of the Vehicle Circulation Tax Code establishing that "The tax event is constituted by the ownership of the vehicle, as attested by the registration in national territory."

d. The non-updating of the registration, in accordance with Article 42 of the Vehicle Register Regulation, shall be attributable to the legal sphere of the taxpayer of the Vehicle Circulation Tax and not to that of the Portuguese State, as the active subject of this tax.

e. The interpretation proposed by the Claimant of Article 3, paragraph 1 of the Vehicle Circulation Tax Code is contrary to the Constitution of the Portuguese Republic in that it devalues the registered reality in favour of an "informal reality", violating the principle of trust and legal certainty, the principle of efficiency of the tax system, and the principle of proportionality.

f. Even if this were not the case, the documents attached by the Claimant do not constitute sufficient evidence to undermine the alleged legal presumption established in Article 3 of the Vehicle Circulation Tax Code.

g. It does not correspond to the truth that document number 2 attached by the Claimant includes invoices, as what results from the heading of the documents is that they are "internal movements."

h. Even if it were understood that the documents presented by the Claimant constitute invoices, these always require the presentation of other means of proof demonstrating the effective realisation of the underlying transactions.

  1. The parties, notified to this effect, did not present written submissions.

  2. The tribunal is materially competent and is regularly constituted in accordance with the RJAT.

The parties have legal personality and capacity, are entitled to act and are legally represented.

The proceedings do not suffer from defects that would invalidate them.

  1. It is necessary to resolve the following issues:

  1. Whether the assessments sub judice are illegal.

  2. Whether the Claimant should be recognised as entitled to restitution of the taxes paid.

  3. Whether the Claimant should be recognised as entitled to compensatory interest on the amounts paid.

II – The Relevant Factual Matter

  1. The tribunal considers the following facts proven:

  2. The Claimant is a commercial company that carries on the activity of rental of motor vehicles and the provision of related services.

  3. In the context of its activity, the Claimant concludes vehicle rental contracts.

  4. The Claimant was notified of the Vehicle Circulation Tax assessments identified in the table below, which amount to the sum of €718.25:

  5. At the date of the tax facts sub judice, the vehicles in question were recorded in the Vehicle Register as property of the Claimant.

  6. During the performance of vehicle rental contracts, the vehicles registration …-…-…, …-…-… and …-…-… which relate to assessments No. 2013 .., in the amount of €39.31; 2013 …, in the amount of €33.57 and 2013 …, in the amount of €39.31, were subject to claims (accidents), having been considered by the insurance companies as total loss.

  7. The ownership of these vehicles was transferred on a date prior to the tax event date in question to the insurance companies, as salvage, the Claimant having received the indemnification relating to the value of the vehicles.

  8. The Claimant proceeded in a timely manner to the voluntary payment of the assessments that were notified to it.

  9. FACTS NOT PROVEN

With interest for the decision of the case, it was not proven, with respect to the remaining motor vehicles, that the same were subject to claims (accidents) and transferred on a date prior to the tax event date in the years in question to the insurance companies, as salvage, for having been considered by the insurance companies as total loss and that the Claimant received the indemnification relating to the value of the vehicles.

  1. REASONING ON THE FACTUAL MATTER

The Tribunal's conviction regarding the decision on the factual matter was based on the documents contained in the file as well as the arguments presented.

Specifically, with respect to the transmission of the motor vehicles by the Claimant to third parties, on a date prior to the occurrence of the tax facts, regarding all motor vehicles, the Claimant attached internal documents issued by itself, allegedly representative of the indemnification received from the insurance companies and the value of the salvage of the vehicle, received by the transmission of the ownership thereof.

Although the Claimant, in the request for arbitral pronouncement, qualified such document as "invoices," it was not confirmed that this is so, either because such documents did not comply with the requirements provided for in Article 36 of the Value Added Tax Code, or because the Claimant itself when drawing them up did not qualify them as such, but as "Internal Movement."

With respect to the vehicles mentioned in point 5 of the factual matter, these elements in combination with the letters sent to the Claimant by the Insurance Companies assuming civil liability for the claims and accepting to indemnify the Claimant for the full value of the vehicles were sufficient to create in the Tribunal the conviction, in accordance with the rules of experience, of the effective transfer of ownership represented by the aforementioned internal documents issued by the Claimant.

As for the remaining vehicles, identical documents issued by the Claimant, unaccompanied by any other probative element (and in particular unaccompanied by any document from the insurance companies) were not sufficient to convince the Tribunal of the transfers in question.

III – Applicable Law

  1. In accordance with Article 3(1) of the Vehicle Circulation Tax Code, "the taxpayers of the tax are the owners of the vehicles, being considered as such the natural or legal persons, of public or private law, in whose name the same are registered."

Article 2 of the same provision further provides that "Financial lessees, buyers with retention of ownership, as well as other holders of purchase option rights by virtue of a lease contract are treated as owners."

On the other hand, in accordance with Article 6(1) of the same act "The tax event is constituted by the ownership of the vehicle, as attested by the registration in national territory."

Article 4 of the same Code also provides that "The vehicle circulation tax is annual in frequency, being due in full in each year to which it relates" (paragraph 1) and that "The tax period corresponds to the year beginning on the date of registration or on each of its anniversaries, with respect to vehicles of categories A, B, C, D and E, and the calendar year, with respect to vehicles of categories F and G."

  1. At the date of the tax facts sub judice, the vehicles in question were recorded in the Vehicle Register as property of the Claimant.

The undersigned adheres to the understanding of arbitral jurisprudence which, unanimously, has understood that Article 3(1) of the Vehicle Circulation Tax Code establishes a rebuttable presumption (See, among others, the arbitral decisions issued in cases numbered 14/2013-T, 27/2013-T, 73/2013-T, 170/2013-T, 286/2013-T, 127/2014-T and 244/2014-T), not being seen that such understanding violates the principle of trust and legal certainty, the principle of efficiency of the tax system, and the principle of proportionality, as the Respondent maintains.

The reasoning of the arbitral decision of the singular tribunal in case 127-2014-T is adopted on this point, on the same question, and which the undersigned takes the liberty to reproduce:

"It is not seen, with all due respect, how the position sustaining that we are, in Article 3(1) of the Vehicle Circulation Tax Code, in the presence of a rebuttable presumption, could call into question the principles of trust and legal certainty, the same imposing duties and restrictions on legal-public action.

The same may be said, in essence, of the principle of proportionality.

Moreover, with respect to this principle, we would even say that the question that could be raised would be whether such principle would not be violated by the interpretation advocated by the Respondent in the event that it were admitted that the citizen could be prevented, for the purposes of taxation, from proving that despite the registration he is not the actual owner of the vehicle, such would be equivalent to suffering the consequence of the omission of an act (the vehicle register) whose interested party in terms of legal certainty, in the civil-legal perspective is another person (the buyer).

In truth, even if it is admitted that such a solution is suitable for achieving the public purpose in view, it does not clearly result in the absence of alternative measures equally apt.

On the other hand, from the point of view of balance or proportionality in the strict sense, it is understood that a rule with the interpretation sustained by the respondent would have excessive costs, from the point of view of the rights and interests of individuals (in this case the former owners of the vehicles) compared to the benefits aimed at achieving public interest, this fundamental requirement of the principle of proportionality being considered not met.

In reality, the benefit achieved, from the perspective of tax management, with the rebuttable presumption is already significant, the cases of absence of registration by buyers being certainly situations in a number certainly little relevant in the universe of vehicle transactions, given the natural motivation of buyers to perform the registration, since this is in their own interest.

Note also that the rebuttable presumption already represents some sacrifice for the legitimate interests of the seller, in that in order to exempt himself from taxation contrary to the principle of equivalence, he bears the burden of rebutting the presumption.

However, weighing, in particular, the requirements of tax administration practicability, it is considered that the same is capable, necessary and reasonable from the point of view of the principle of proportionality, which would not be the case with an absolute presumption, explicit or implicit, which would not even permit the citizen to make proof contrary to the presumption.

(…) The Respondent further invoked that the rule in question, in the interpretation sustained by the Claimant, would violate the principle of efficiency of the tax system.

It appears to us that the Respondent has in mind the idea of efficiency in tax law, related to administrative efficiency. It must be observed, however, that the relevance of a principle in the solution of a specific case should not operate in isolation but in joint consideration with other principles and in, as a consequence of what was said above, regarding the principles of equality, equivalence and proportionality, the idea of efficiency is not sufficient to relegate the possibility of the taxpayer setting aside the presumption resulting from the vehicle registration. Furthermore, efficiency and practicability are sufficiently safeguarded by the existence of a rebuttable presumption, in accordance with the terms referred to above."

  1. Thus, at the date of the tax facts, in function of the registration made in its name, the Claimant was, thus, presumptively, the taxpayer of the tax in light of Articles 3(1) and 6(1) of the Vehicle Circulation Tax Code.

With respect to the vehicles registration …-…-…, …-…-… and …-…-… which relate to assessments No. 2013 …, in the amount of €39.31; 2013 …, in the amount of €33.57 and 2013 …, in the amount of €39.31, it follows from the factual matter considered proven that the presumption was rebutted, so with respect to these assessments, the arbitral contestation cannot fail to succeed, both with respect to the declaration of illegality of the same, and with respect to the recognition of the right to restitution of the amounts paid, in accordance with Article 24(1)(b) of the RJAT, in line with the provisions of Article 100 of the General Tax Law.

By contrast, with respect to the remaining assessments challenged, the legal presumption in question was not rebutted, so with respect to these, the contestation is unsuccessful.

  1. The Claimant further came to petition for the right to compensatory interest.

This claim of the Claimant must also be assessed in light of Article 43 of the General Tax Law, with respect to assessments No. 2013 …; 2013 … and 2013 …, since such question is precluded with respect to the remaining assessments.

Paragraph 1 of that article provides that "Compensatory interest is due when it is determined, in amicable reclamation or judicial contestation, that there was an error attributable to the services from which resulted payment of the tax debt in an amount greater than legally due."

In the case "sub judice" it was not demonstrated that the Respondent had knowledge, at the date of the assessments, that the vehicles in question had been transferred by the Claimant on a date prior to those of the tax facts.

In making the assessments, the Respondent complied with the provisions of Article 3(1) of the Vehicle Circulation Tax Code, and the presumption established in this legal provision operated.

Having limited itself to applying what results from the aforementioned rule, it cannot be concluded that the occurrence of "error attributable to the services" is verified.

Thus, the petition for condemnation of the Respondent to pay compensatory interest to the Claimant is unsuccessful.

IV – Decision

Therefore, the arbitral tribunal decides:

a) To declare partially successful the request for arbitral pronouncement, declaring the illegality and consequent annulment of assessments No. 2013 …, in the amount of €39.31; 2013 …, in the amount of €33.57 and 2013 …, in the amount of €39.31, with the remaining assessments sub judice remaining in the legal order.

b) To recognise the Claimant's right to restitution of the amounts corresponding to the annulled assessments, condemning the Respondent to their restitution.

c) To declare unsuccessful the petition for condemnation of the Respondent to pay compensatory interest to the Claimant.

Value of the action: €718.25 (Seven hundred and eighteen euros and twenty-five cents) in accordance with the provisions of Article 306(2) of the Civil Procedure Code and Article 97-A(1)(a) of the Tax Procedure and Process Code and Article 3(2) of the Costs Regulation in Arbitration Proceedings.

Costs charged to the Claimant and Respondent in the proportion of 84.8% and 15.2%, respectively, on the amount of €306.00 in accordance with paragraph 4 of Article 22 of the RJAT.

Notify parties.

Lisbon, CAAD, 27 April 2015

The Arbitrator

(Marcolino Pisão Pedreiro)

Frequently Asked Questions

Automatically Created

Who is considered the taxable person for IUC under Portuguese tax law when a vehicle is registered but declared a total loss?
Under Article 3(1) of the Portuguese IUC Code, the taxable person is defined as the owner of the vehicle, specifically those in whose name the vehicle is registered. When a vehicle is declared a total loss by an insurance company but remains registered to the original owner, a legal dispute arises regarding whether registration creates an irrebuttable legal definition or a rebuttable presumption. The claimant argued this constitutes a rebuttable presumption under Article 73 of the General Tax Law, allowing proof that actual ownership ceased. The Tax Authority maintains that registration-based ownership is a definitive legislative choice, not a presumption, meaning the registered owner remains liable for IUC until the vehicle registration is officially updated or cancelled, regardless of the vehicle's physical condition or insurance classification.
Can the legal presumption of ownership in Article 3(1) of the IUC Code be rebutted by a car rental company?
The central dispute in this case concerns whether Article 3(1) of the IUC Code creates a rebuttable presumption. The car rental company argued that Article 73 of the General Tax Law establishes that all presumptions in tax incidence rules admit evidence to the contrary, and presented documentation showing vehicles were declared total loss before the tax event. However, the Tax Authority contested this interpretation, arguing that Article 3(1) is not a presumption but an express legislative definition where the lawmaker intentionally chose registration as the determinative criterion for ownership. The Authority emphasized that Article 6(1) of the IUC Code reinforces this by stating the tax event is ownership 'as attested by registration.' According to the Tax Authority's position, the obligation to update vehicle registration under Article 42 of the Vehicle Register Regulation rests with the taxpayer, and failure to do so does not exempt them from tax liability based on informal evidence of non-ownership.
What is the role of the equivalence principle in determining IUC subjective incidence for destroyed vehicles?
The claimant invoked the equivalence principle as support for interpreting Article 3(1) of the IUC Code as establishing a rebuttable presumption. The equivalence principle in tax law suggests that tax burden should correspond to the benefit received or capacity demonstrated. In the context of IUC, which taxes vehicle circulation, the claimant argued that imposing tax on destroyed vehicles that cannot circulate violates this principle's ratio legis. The argument posits that when a vehicle is declared total loss and can no longer be used, there is no substantive basis for the circulation tax, regardless of formal registration. This systematic and teleological interpretation would support allowing evidence to rebut the registration-based ownership criterion. However, the Tax Authority did not accept this reasoning, maintaining that the registration system serves important functions of legal certainty and administrative efficiency that outweigh equivalence considerations in determining subjective tax incidence.
How does CAAD arbitration process work for disputing IUC tax assessments in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for IUC disputes follows the Legal Framework for Tax Arbitration (RJAT, Decree-Law 10/2011). The process begins when a taxpayer requests constitution of an arbitral tribunal under Article 10 of RJAT. The CAAD President accepts the request and notifies the Tax Authority. An arbitrator is appointed by the Ethics Council President under Article 6(1) of RJAT, and the tribunal is constituted once the arbitrator accepts the mandate. In this case, the tribunal was constituted on February 2, 2015, following a November 24, 2014 request. The meeting under Article 18 of RJAT may be dispensed with if unnecessary. Both parties submit written arguments—the claimant presenting grounds for annulment and the Tax Authority filing a response. The parties may then submit written conclusions. The arbitrator issues a binding decision on the legality of the tax assessments and any entitlement to refunds or compensatory interest.
Is a vehicle owner entitled to a refund and compensatory interest after annulment of unlawful IUC liquidations?
Under Portuguese tax law, if IUC assessments are annulled as unlawful, the taxpayer is entitled to a refund of amounts paid. Additionally, Article 43(1) of the General Tax Law (LGT) provides that when a refund results from an error attributable to the tax services, the taxpayer is entitled to compensatory interest (juros indemnizatórios). In this case, the claimant argued that because it had already paid the contested IUC assessments, annulment would require restitution of the amounts paid plus compensatory interest. The claim for compensatory interest was based on the position that the assessments resulted from an administrative error—specifically, the Tax Authority's failure to recognize that the vehicles were total losses and the claimant was no longer the substantive owner. The entitlement to compensatory interest depends on establishing both the illegality of the assessment and that the error was attributable to the tax administration rather than to the taxpayer's own failure to update vehicle registration records as required by applicable regulations.