Process: 823/2014-T

Date: May 4, 2015

Tax Type: Valor do pedido:

Source: Original CAAD Decision

Summary

In CAAD arbitration process 823/2014-T, a financial institution challenged 39 IUC (Single Circulation Tax) assessments issued by the Portuguese Tax Authority for the year 2014. The core issue concerned subjective tax incidence—whether the institution qualified as the liable taxpayer. The case involved two distinct scenarios: 33 vehicles that the institution had sold prior to 2014, and 6 vehicles subject to financial leasing contracts during 2014. The institution argued it was not the passive subject of IUC because it no longer owned the sold vehicles and, regarding the leased vehicles, Portuguese tax law establishes that under financial leasing arrangements (locação financeira), the lessee—not the lessor—bears IUC liability. The Tax Authority had issued assessments based on registration data, applying legal presumptions that the institution was the owner/lessee. The institution contested these presumptions, demonstrating through documentary evidence its actual legal position. The case illustrates the critical distinction in IUC liability between loan agreements with retention of title (where the financing institution retains ownership as security and may be liable) versus financial leasing contracts (where the lessee assumes tax obligations despite the lessor's formal ownership). The arbitral tribunal examined whether the three essential elements of tax obligation—real scope (registered vehicles), temporal scope (2014 tax period), and personal scope (liable party)—were properly established, focusing particularly on correct identification of the passive subject under Articles 3, 4, and 6 of the IUC Code.

Full Decision

ARBITRAL DECISION

I. REPORT

A... – ..., S.A., Claimant, with registered address at ..., no. ..., ..., in Lisbon, legal entity no. ..., came, pursuant to article 10, no. 2, of Decree-Law no. 10/2011, of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to only as LFTA), to request the constitution of a singular Arbitral Tribunal, in which the Tax and Customs Authority is requested, hereinafter AT or Respondent, with a view to the declaration of illegality and consequent annulment of 39 (thirty-nine) tax acts assessing the Single Circulation Tax.

The application for constitution of the Arbitral Tribunal was accepted by the Honorable President of CAAD and automatically notified to the AT on 19 December 2014.

In accordance with the provision of letter c) of no. 1 of article 11 of the LFTA, in the version introduced by article 228 of Law no. 66-B/2012, of 31 December, the singular Arbitral Tribunal was constituted on 25 February 2015.

The AT responded, arguing that the application should be judged unfounded.

The meeting referred to in article 18 of the LFTA and the holding of final arguments were dispensed with, in light of the content of the matter contained in the case file, with which the parties expressed their agreement.

The Arbitral Tribunal is duly constituted and is materially competent, in accordance with letter a) of no. 1 of article 2 of the LFTA.

The parties possess legal personality and capacity, are legitimate and are represented (article 4, and no. 2 of article 10 of the LFTA and article 1 of Order no. 112/2011, of 22 March).

Pursuant to article 3 of the LFTA, the cumulation of claims is admissible, considering that the merit of the claims depends on the examination of the same factual circumstances and on the interpretation and application of the same legal principles and rules.

There are no nullities, exceptions or preliminary issues that prevent immediate consideration of the merits of the case.

II. FACTUAL MATTERS

Based on the elements contained in the case file and in the administrative procedure attached to the case file, the following facts are deemed established:

A) The Claimant is a financial credit institution whose purpose is to engage in the operations permitted to banks, with the exception of receipt of deposits;

B) Within the scope of its activity, the Claimant now grants its clients financing intended for the purchase of motor vehicles;

C) The financing of motor vehicles is formalized through the execution of loan contracts, in which the borrower grants in favor of the lender, as security for the full repayment of the loaned amount, a retention of ownership of the motor vehicle, until the loaned amount is fully repaid. Alternatively to the execution of loan contracts, financing is carried out through the execution of financial lease contracts.

D) The AT notified the Claimant to exercise the right of Prior Hearing regarding the 39 (thirty-nine) vehicles identified in document no. 4, together with the petition for constitution of the Arbitral Tribunal (hereinafter Tribunal).

E) The Single Circulation Tax assessment notifications issued to the Claimant state that "based on the elements at the disposal of the Tax and Customs Authority, Your Excellency was the owner/lessee of the vehicle with registration no. ..., of the category ..., in ...".

F) It is further stated that "Pursuant to article 2, no. 1, letter c), combined with articles 3, 4 and 6, all of the Single Circulation Tax Code, and by application of the rate provided for in article 11 of the CIUC, the tax is due for the year(s) of 2014".

G) The AT notified the Claimant of the tax acts assessing the Single Circulation Tax and the respective compensatory interest, as results from document no. 1 attached to the petition for constitution of the Tribunal;

H) The Claimant is not the owner of 33 of the motor vehicles underlying the Single Circulation Tax assessment acts contained in document no. 1 (See Documents no. 4 and 6 attached to the arbitral petition and 1 to 11 attached to the application of 9 April 2015);

I) The Claimant is not the lessee of 6 of the motor vehicles underlying the Single Circulation Tax assessment acts contained in document no. 1 (See Documents no. 4 and 6 attached to the arbitral petition and 1 to 11 attached to the application of 9 April 2015).

There are no facts relevant to the examination of the merits of the case that have not been proved.

This Tribunal formed its conviction on the consideration of the documents attached to the case file by the parties.

III. LEGAL MATTERS

The principal question arising in the present case is whether the Claimant should be qualified as the passive subject of the Single Circulation Tax, in relation to the year 2014, regarding the vehicles identified in document no. 1.

To this effect, the Claimant alleges in its application for constitution of the Arbitral Tribunal the following:

  1. The factual situations underlying the Single Circulation Tax assessments in relation to which the Claimant now understands that it is not the passive subject of the tax, are always subsumed to one of the two situations described below:

§ The vehicle is not the property of the claimant now on the date identified by the AT as the date of the occurrence of the taxable event;

or;

§ The vehicle was leased through a financial lease contract in force on the date identified by the AT as the date of the occurrence of the taxable event.

  1. The factual matter under analysis is not disputed and can be summarized, as regards the 39 vehicles on which the Single Circulation Tax assessments are based, as follows:
  • 33 vehicles were sold by A... at a date prior to 2014;
  • the remaining 6 vehicles were leased (under a financial lease arrangement) during the year 2014.

  1. In relation to said situations, the Claimant understands that it is not the passive subject of the Single Circulation Tax, because the requirements of subjective scope of the tax, provided for in article 3 of the Single Circulation Tax Code, combined with articles 4 and 6 of the said Code, are not satisfied.

  2. The genesis of the tax legal relationship presupposes the cumulative verification of the three prerequisites necessary for its creation, namely: the real element, the personal element and the temporal element. (In this sense, see, among many other authors, Freitas Pereira, M. H., Taxation, 3rd Edition, Almedina, Coimbra, 2009).

  3. As regards the real scope – the thing on which the tax is levied: "the single circulation tax is levied on vehicles of the following categories, registered in Portugal ...", (See no. 1 of article 2 of the Single Circulation Tax Code).

  4. The vehicles identified in the attached list – Doc. no. 5 – subject to the Single Circulation Tax assessments which are now challenged in the present arbitral petition, are all registered in Portugal in the year 2014, whereby the prerequisite of the real scope of the Single Circulation Tax is satisfied.

  5. With regard to the temporal scope, "the single circulation tax is of annual periodicity, being due in full in each year to which it applies. The taxation period corresponds to the year beginning on the date of registration or on each of its anniversaries, in relation to vehicles of categories A, B, C, D, and E, and to the calendar year, in relation to vehicles of categories F and G" (Article 3, no. 1 and no. 2 of the Single Circulation Tax Code).

  6. The vehicles identified in the attached list – Doc. no. 4 – are all registered in Portugal in the year 2014 and none of them falls within categories F and G, whereby the taxation period corresponds to the year beginning on the date of registration or on each of its anniversaries.

  7. Thus, it will be necessary to establish for each vehicle the date on which it was registered and, then, to set the taxation period, relating to the year 2014.

  8. For greater ease of analysis, in the interpretation of the rule of personal scope, the two essential factors of interpretation will be considered separately – the grammatical element and the logical element – subdividing the latter element into three elements, namely: the historical element, the rational element and the systematic element;

  9. At the level of personal scope, "the passive subjects of the tax are the owners of the vehicles" and "financial lessees, purchasers with retention of ownership, as well as other holders of purchase option rights by virtue of lease contracts are treated as owners" (Article 3, no. 1 and no. 2 of the Single Circulation Tax Code);

  10. The legislator presumes that the owners are the persons in whose name the vehicles are registered - "being considered as such the natural or legal persons, of public or private law, in whose name the same are registered" (See article 3, no. 1 of the Single Circulation Tax Code);

  11. In summary, the rules of scope prior to the coming into force of the Single Circulation Tax established an express and rebuttable legal presumption, while the legislator of the Single Circulation Tax (Law no. 22-A/2007) opted for a mere implicit presumption (also rebuttable).

  12. The legislator of the Single Circulation Tax did not feel the need to maintain in the text of the new rule of scope an express and rebuttable presumption, since after the coming into force of the General Tax Law (1999), "the presumptions established in the rules of scope always admit evidence to the contrary" (see Article 73 of the GTL), which is why it would be redundant (of incorrect legislative technique) to maintain in the text of the rule of scope of the Single Circulation Tax the expression 'being presumed as such, until proven otherwise'".

  13. Presumptions in tax scope matters may be explicit, revealed by the use of the expression 'it is presumed', or similar expression, as they may also be implicit presumptions in rules of scope, as is the case with the rule under analysis.

  14. In this specific case under analysis, it is an implicit presumption, in matters of subjective scope, in that the legislator on the basis of a known fact (the motor vehicle registration) infers, through logical reasoning, an unknown fact (the owner of the vehicle);

  15. Implicit presumptions, by the definition of the concept – that is, by the fact that they are implicit – do not expressly establish whether they are rebuttable or irrebuttable. However, they must be considered, at least after the coming into force of the GTL, as always being rebuttable presumptions.

  16. This is because, it must be repeated, the GTL expressly provides for the inadmissibility of irrebuttable presumptions and, thus, this rule tacitly repealed, by incompatibility, all irrebuttable presumptions (jus et de jure) established before the coming into force of the GTL.

  17. Consequently, from the coming into force of the GTL, all irrebuttable presumptions expressly established (See, e.g., article 26 of the Code of Municipal Tax on Property Transfers and Tax on Succession and Gifts (C.I.M. S.I.S.D.), began to admit evidence to the contrary. And also the implicit presumptions that were established in law (See, e.g., article 6, no. 1 of the C.I.M. S.I.S.D. which considers motorized vehicles to be attached to the location where they are registered, for purposes of application of the principle of territoriality[1]) must admit evidence to the contrary. In this sense, see Lima Guerreiro in the commentary to article 73 in the Annotated General Tax Law (2000), Rei dos Livros.

  18. In a word, the passive subject is the owner (or the entity treated as such), being considered as such the entity that appears in the motor vehicle registration as owner, and evidence to the contrary must always be admitted, whenever the owner is an entity different from that which appears in the motor vehicle registration;

  19. In light of the foregoing, a rule of scope (based on a legal fiction) that ignores the connection between the passive subject of the tax and the use of the vehicle is contrary, in an ostensible manner, to the legislative purpose – the polluter pays principle – underlying motor vehicle taxation.

  20. And since it is so, that is, since this is the principle underlying the taxation of the Single Circulation Tax, the legislator took the precaution of considering as passive subjects not only the owner, but also the financial lessee and other users of the vehicle with a character of permanence, because it is these entities that have the polluting potential capable of generating environmental costs for society.

  21. In summary, the interpretation of the rule in question as being a legal fiction (understanding endorsed by the AT in the interpretation of Article 3, no. 1 of the CIUC) that considers as passive subject of the Single Circulation Tax the entity in whose name the motor vehicle registration is recorded, without admitting evidence to the contrary to identify who is the true user of the vehicle in the period of scope of the Single Circulation Tax, suffers from a systemic incoherence (contradicts the current tax system) and, for that reason, is an interpretation contrary to law – contrary to article 9, no. 1 of the Civil Code, applicable ex vi article 11, no. 1 of the GTL.

  22. Finally, also in the matter of systematic interpretation, it is added that a rule of scope, based on a legal fiction of this type, would be materially unconstitutional, if only because if an irrebuttable presumption established in a rule of scope is unconstitutional, for violation of the principle of equality, all the more reason an rule of scope based on a legal fiction (in situations where it is possible to determine the passive subject of the tax in accordance with the legislative purpose) will also be unconstitutional, on the same grounds: "… an irrebuttable presumption completely denies taxpayers the possibility of contradicting the presumed fact, subjecting them to a taxation that may be founded on a taxable matter established in disregard of the principle of tax equality." – See Judgment no. 348/97 of the Constitutional Court.

  23. In the same sense of reconciling legal presumptions with the principle of tax equality, Casalta Nabais (1994) in Fiscal Contracts (Reflections on their Admissibility), p. 279, states that the presumption "must be reconciled with the principle in question, which happens, both through the constitutional illegitimacy of absolute presumptions in that they prevent the taxpayer from proving the non-existence of the contributory capacity aimed at in the respective law, and through the requirement of suitability of relative presumptions to present the economic prerequisite taken into account."

  24. In light of all the foregoing, it seems unquestionable that the legal presumption now in question is rebuttable, whereby the passive subject of the Single Circulation Tax is the owner (or financial lessee or purchaser with retention of ownership), even if they do not appear in the motor vehicle registration, provided that sufficient evidence is adduced to rebut the legal presumption arising from the registration.

  25. It is precisely to adduce this evidence that the claimant now presents, for each vehicle, a document substantiating (the invoice) the sale of the vehicle (Doc. no. 6), in order to prove that A... was not the owner at the date of the anniversary of registration of the vehicle or, in situations where the vehicle was leased, presents a document substantiating (the contract) the existence of a financial lease (Doc. no. 7) in force on the said date.

For its part, the AT alleges, in summary, the following:

  1. The understanding advocated by the Claimant not only incurs a skewed reading of the letter of the law, but also the adoption of an interpretation that does not attend to the systematic element, violating the unity of the regime established throughout the Single Circulation Tax Code and, more broadly, throughout the entire legal-fiscal system and also derives from an interpretation that ignores the purpose of the regime established in the article in question, and indeed, throughout the Single Circulation Tax Code.

  2. The tax legislator in establishing in article 3, no. 1 who are the passive subjects of the Single Circulation Tax established expressly and intentionally that these are the owners (or in the situations provided for in no. 2, the persons stated therein), being considered as such the persons in whose name the same (vehicles) are registered.

  3. Note that the legislator did not use the expression "it is presumed", as it could have done, for example, in the following terms: the passive subjects of the tax are the owners of the vehicles, being presumed as such the natural or legal persons, of public or private law, in whose name the same are registered.

  4. To understand that the legislator established here a presumption would unequivocally be to make an interpretation against the law.

  5. It is, rather, a clear option of legislative policy adopted by the legislator, whose intention, within its freedom to shape legislation, was that, for purposes of the Single Circulation Tax, those who appear as such in the motor vehicle registration should be considered as owners.

  6. This means, therefore, that the presumption of motor vehicle ownership derives solely, directly and exclusively from the motor vehicle registration regime itself, and not from fiscal legislation on motor vehicles which constitutes a collateral aspect of that regime.

  7. Thus, if the Claimant intends to react against the presumption of ownership attributed to it, then it is necessarily required to react by the proper means provided in the Motor Vehicle Registration Regulation and in the registration laws subsidiarily applicable and against the very content of the motor vehicle registration, since surely it is not through the challenge of Single Circulation Tax assessments that the registration information is rebutted.

  8. Also the systematic element of interpretation of the law demonstrates that the solution advocated by the Claimant is intolerable, finding the understanding endorsed by it no support in the law whatsoever.

  9. From the articulation between the scope of the subjective scope of the Single Circulation Tax and the fact constitutive of the corresponding tax obligation, it follows unequivocally that only legal situations that are the subject of registration (without prejudice to the permanence of a vehicle in national territory for a period exceeding 183 days, provided for in no. 2 of article 6) generate the birth of the tax obligation.

  10. Even admitting that, from the point of view of the rules of civil law and land registration, the absence of registration does not affect the acquisition of the quality of owner and that registration is not a condition of validity of contracts with real effect, pursuant to the terms established in the Single Circulation Tax Code (which in the case in question constitutes special law, which, in accordance with general rules of law, derogates the general rule), the tax legislator intentionally and expressly wanted those to be considered as owners, lessees, purchasers with retention of ownership or holders of the purchase option right in long-term leasing, the persons in whose name the vehicles are registered.

  11. It is further important to demonstrate that in light of a teleological interpretation of the regime established throughout the Single Circulation Tax Code, the interpretation advocated by the Claimant to the effect that the passive subject of the tax is the actual owner, independently of whether the registration of that quality does not appear in the motor vehicle registration, is manifestly wrong.

  12. The new Single Circulation Tax taxation regime substantially altered the motor vehicle taxation regime, with the passive subjects of the tax now being the owners recorded in the property registration, independently of the circulation of the vehicles on the public highway.

  13. From all that was set forth above, it is clear that the tax acts in dispute do not suffer from any defect of violation of law, in that in light of the provisions of article 3, nos. 1 and 2, of the Single Circulation Tax Code and article 6 of the same code, it was the Claimant, in the capacity of owner recorded in the Motor Vehicle Registration Authority, the passive subject of the Single Circulation Tax in relation to the 33 vehicles.

  14. However, even if this were not the case – which is only admitted by way of academic hypothesis – and accepting it to be admissible to rebut the presumption in light of the jurisprudence already established in this arbitration center, it would still be necessary to assess the documents submitted by the Claimant and their evidentiary value with a view to such rebuttal.

  15. Invoices are not capable of substantiating the execution of a bilateral contract such as a sale and purchase, since such documents do not by themselves reveal an essential and unequivocal declaration of will (i.e., the acceptance) on the part of the purported purchasers.

  16. The unequivocal declaration of will of the purported purchasers could be evidenced by the filing of a copy of the said official form for registration of motor vehicle ownership, as it is a document signed by the intervening parties.

  17. Furthermore, the lack of bilateral character of the invoices could be remedied by proof of receipt of the price stated therein by the Claimant.

  18. Therefore, the Claimant did not file documentary evidence of receipt of the price when it could and should have done so, that is, in the application for arbitral determination, and is now barred from the possibility of doing so at a later time, in accordance with the interlocutory decisions transcribed above rendered in the scope of arbitral proceedings nos. 75/2012-T and 212/2014-T.

  19. Also regarding the value or evidentiary force of the invoices embodied in Document 6 attached to the p.i., it is important to emphasize that the invoice for the vehicle ...-...-... does not embody a purported sale, but rather a discharge for the receipt of compensation by an automobile insurer.

  20. The Claimant also alleges the illegality of the Single Circulation Tax assessments (for violation of article 3, no. 2 of the CIUC) regarding another 6 vehicles.

  21. Even if it were concluded that we are faced with financial lease contracts executed by the Claimant, it was still incumbent upon the latter to demonstrate having complied with the ancillary obligation imposed by article 19 of the CIUC.

  22. In matters of financial leasing and for purposes of rebutting article 3 of the CIUC, it is necessary that the financial lessors (such as the Claimant) comply with the obligation inherent in article 19 of that code in order to exonerate themselves from the obligation to pay the tax, and the Claimant did not comply with that obligation, it is necessary to conclude that it is the passive subject of the tax;

  23. In addition to all that was stated above, it is also worth noting that if the interpretation conveyed by the Claimant were to be accepted, then it would show itself to be contrary to the Constitution, in that such interpretation translates into the violation of the principle of reliance, of the principle of legal certainty, of the principle of efficiency of the tax system and of the principle of proportionality.

  24. Even if by academic hypothesis and without conceding, if this Tribunal should conclude in favor of the merit of the arbitral determination petition filed by the Claimant, the Claimant should be condemned to pay the arbitral costs arising from the present arbitral determination petition, pursuant to article 527, no. 1 of the Code of Civil Procedure ex vi article 29, no. 1-e) of the LFTA, in line, moreover, with a similar matter decided in the scope of proceedings bearing no. 72/2013-T, which took place in this arbitration center.

In light of the foregoing, regarding the position of the parties and the arguments presented, in order to determine whether the Claimant should be qualified as the passive subject of the Single Circulation Tax, in relation to the year 2014, as to the vehicles identified in document no. 1, it will be necessary to verify:

a) Whether or not the rule of personal scope contained in article 3, no. 1 of the Single Circulation Tax Code establishes a presumption;

b) Who is the passive subject of the Single Circulation Tax, for purposes of the provisions of article 3, nos. 1 and 2 of the Single Circulation Tax Code, when on the date of the occurrence of the taxable event the right of ownership remains registered in the name of the prior owner, despite the vehicle having already been sold or made the subject of a lease contract.

Let us see what should be understood.

a) Interpretation of no. 1 of article 3 of the Single Circulation Tax Code

Article 3 of the Single Circulation Tax Code establishes the following:

"1 – The passive subjects 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.

2 – Financial lessees, purchasers with retention of ownership, as well as other holders of purchase option rights by virtue of lease contracts are treated as owners."

It results from article 11 of the General Tax Law (GTL) that the interpretation of tax law must be carried out in accordance with the general principles of interpretation.

The general principles of interpretation are established in article 9 of the Civil Code (CC), as follows:

"1. Interpretation should not be confined to the letter of the law, but should reconstruct from the texts the legislative intent, taking especially into account the unity of the legal system, the circumstances under which the law was drawn up and the specific conditions of the time in which it is applied.

  1. However, the legislative intent that does not have a minimum of verbal correspondence in the letter of the law, even if imperfectly expressed, cannot be considered by the interpreter.

  2. In fixing the meaning and scope of the law, the interpreter shall presume that the legislator established the most correct solutions and knew how to express his intent in appropriate terms."

It is thus established that there are three elements of interpretation of the law, namely: the literal element, the historical and rational element and the systematic element.

Considering the literal element of the rule under discussion here, it will first be important to reconstruct the legislative intent through the words of the law. It is stated in no. 1 of article 3 of the Single Circulation Tax Code that "the passive subjects 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 (vehicles) are registered."

According to the AT, the expression "being considered" does not constitute a legal presumption, the intention of the legislator being to establish expressly and intentionally that they are to be considered as such (as owners) the persons in whose name the same (vehicles) are registered, because this is the interpretation that preserves the unity of the legal-fiscal system.

It happens that, from a literal point of view, it is observed that the expression "being considered" or "is considered" is often used with a meaning equivalent to the expression "being presumed" or "is presumed".

Thus, by way of example, see article 191, no. 6, of the Code of Tax Procedure, among other articles noted in the arbitral decisions rendered in proceedings nos. 14/2013-T, 27/2013-T, 73/2013-T or 170/2013-T.

In this way, it can be said that the expression "being considered" has "a minimum of verbal correspondence, even if imperfectly expressed", and should be recognized as having a current and normal correspondence to that presumptive sense (See arbitral decision rendered in proceedings no. 286/2013-T).

However, as is also emphasized by the AT, the term "considered" is also used outside presumptive contexts – See article 18 of its response.

For this reason, it is important to submit the control of no. 1 of article 3 of the Single Circulation Tax Code to the other elements of interpretation of a logical nature.

Thus, considering the historical element of interpretation, it is important to consider that the bill no. 118/X, of 7.03.2007, underlying Law no. 22-A/2007, of 29.06 establishes "as a structuring and unifying element (...) the principle of equivalence, thereby making it clear that the tax, as a whole, is subordinate to the idea that the Claimants should be burdened in the measure of the cost they cause to the environment and the road network, being this the reason for being of this tax figure."

In this context, it seems clear to us that the legislator intended to tax the real and actual passive subject causing road and environmental damage and not any holder of a motor vehicle registration.

As has been emphasized on several occasions in various arbitral decisions, the principle of equivalence aims to internalize the negative environmental externalities arising from the use of motor vehicles, and was established as a fundamental principle of the taxation of motor vehicles in circulation.

As Sérgio Vasques argues, in Special Consumption Taxes, Almedina, Coimbra, 2001, p. 122, "Thus, a tax on automobiles based on a rule of equivalence will be equal only if those who cause the same road wear and the same environmental cost pay the same tax; and those who cause wear and environmental cost that is different, pay a different tax also", adding that the implementation of said principle "(...) dictates other requirements still regarding the subjective scope of the tax (...)".

Having in mind the bases underlying the creation of the current Single Circulation Tax Code, in particular, the establishment of the principle of equivalence as a structuring and unifying principle of the taxation of vehicles in circulation, it seems to us that no. 1 of article 3 of the Single Circulation Tax Code cannot be interpreted as a closed command, but rather as a rebuttable presumption, which is based on the assumption that in reality the agent responsible for environmental damage is, as a rule, the registered owner of the automobile. An assumption that cannot but be disregarded, if in reality it is another agent who is responsible, that is, the passive subject of the Single Circulation Tax.

From a systematic point of view, it will be important to reinforce again that already in article 1 of the Single Circulation Tax Code it is established that "The single circulation tax follows the principle of equivalence, seeking to burden the Claimants in the measure of the environmental and road cost that they cause, in implementation of a general rule of tax equality."

As defended by A. Brigas Afonso and Manuel T. Fernandes, in Tax on Vehicles and Single Circulation Tax, Annotated Codes, p. p. p. 183, "the legislator seeks to legitimize the taxation of motor vehicles based on the negative externalities caused by them (on public health, on the environment, on road safety, on congestion of transport networks and on urban landscape) demystifying the idea that vehicle taxation is very high in Portugal."

According to Batista Machado, in Introduction to Law and Legitimating Discourse, p. 183, the systematic element "comprises the consideration of the other provisions forming the complex system of the institute in which the rule under interpretation is integrated, that is, which regulate the same matter (context of the law), as well as the consideration of legal provisions that regulate parallel normative problems or related institutes (parallel places). It also comprises the place that the rule under interpretation occupies in the overall legal system, as well as its consonance with the spirit or intrinsic unity of the entire legal system."

This is, moreover, the most just solution if we consider that the unity of the tax system cannot but be found in the principle of material truth and in the principle of proportionality (See Saldanha Sanches, in Principles of Tax Litigation, p. p. p. 21, and Alberto Xavier, in Concept and Nature of the Tax Act, p. p. 147 et seq.).

By the foregoing, the arguments of the AT do not proceed, to the effect that "the presumption of motor vehicle ownership derives solely, directly and exclusively from the motor vehicle registration regime itself, and not from tax legislation on motor vehicles which constitutes a collateral aspect of that regime."

In fact, the interpretation here defended is not only the one that best aligns with the principle of material truth, but also the only one that serves the purposes of tax justice.

Similarly, contrary to what is argued by the AT, it does not seem to us to be defensible, in light of the constitutional principles in force, the predominance of the principle of efficiency of the tax system over the principle of material justice. Although the practical difficulties that the rebuttal of the presumption established in article 3, no. 1 of the Single Circulation Tax Code may cause in terms of immediate collection of revenues by the AT cannot be overlooked, the interpretation of the law cannot be adjusted to those needs, but rather the procedures associated with the collection of this tax should be altered efficiently and in accordance with the law, not forgetting the legal possibility of suspension of the statute of limitations of taxes.

Considering that tax law exists to regulate the conflicts of interest between the claims of the State to pursue the public interest of obtaining revenues and the claims of taxpayers to maintain the integrity of their assets, it should not, as a rule, serve as an interpretative criterion of the tax rule, the safeguarding of the patrimonial or financial interest of the State.

In sum: on the basis of article 9 of the CC, it is considered that all elements of interpretation (literal, historical and systematic) point to the effect that article 3, no. 1, of the Single Circulation Tax Code establishes a rebuttable presumption. This means that the passive subjects of the Single Circulation Tax being, in principle, the owners of the vehicles, being considered as such the persons in whose name the same are registered, may, after all, be others, if in reality they are others who cause the environmental damage, as users of the vehicles in circulation.

b) Passive subject of the Single Circulation Tax, for purposes of the provisions of article 3, nos. 1 and 2 of the Single Circulation Tax Code, when on the date of the occurrence of the taxable event the right of ownership remains registered in the name of the prior owner, despite the vehicle having already been sold or leased

Having in mind what was set forth in a) above, it is understood that the provision under analysis establishes a presumption of ownership in favor of the persons in whose name the vehicles are registered.

Pursuant to article 73 of the GTL, "Presumptions established in tax scope rules always admit evidence to the contrary."

As defended by Diogo Leite Campos, Benjamim Silva Rodrigues and Jorge Lopes de Sousa, in General Tax Law, Annotated and Commented, p. p. p. 652, 4th Edition, "what is intended 'always' is to tax real income and not non-existent income and it is for this reason, of wanting always to tax real values, that article 73 of the GTL allows 'always' to rebut presumptions.

This is the interpretation that is in keeping, on the one hand, with the principle stated in article 11, no. 3, of the GTL that, in cases of doubt about the interpretation of tax rules "attention should be paid to the economic substance of the tax facts" and, on the other hand, with the principle of equality in the distribution of public burdens, which requires that the taxation of the generality of taxpayers, whenever possible, be based on the real economic underlying the tax facts and does not comport with the existence of special cases of taxation based on fictitious values in situations where the real value of the tax facts is known or can be ascertained.

In the case under analysis, the Claimant remained, in some cases, registered as the owner and lessor of the vehicles identified in document no. 4, attached to the arbitral petition, in the year 2014, seeking, for this reason, the AT to impute to it the responsibility for payment of the Single Circulation Tax, pursuant to article 3, no. 1, of the Single Circulation Tax Code.

However, the Claimant alleges that, in fact, in the year 2014, of the 39 motor vehicles underlying the Single Circulation Tax assessment acts, now under analysis, 33 (vehicles) had already been sold and the remaining 6 (vehicles) were the subject of a lease contract, and are not, therefore, the Claimant the real and actual owner of the vehicles, nor either the lessee thereof.

On the basis of the documents submitted, the Claimant argues that at the moment of constitution of the tax fact relevant for purposes of the vesting of the respective Single Circulation Tax, the legal ownership of the vehicles in question was no longer within the sphere of the Claimant, since 33 vehicles had already been transferred and 6 vehicles were the subject of a financial lease contract. Consequently, the Claimant argues that, as of the date of the taxable event of the Single Circulation Tax, the actual owners and responsible for payment of the Single Circulation Tax are those listed in document no. 6 and documents no. 1 to 11, attached to the Application presented by the Claimant on 9 April 2015, and the lessees and responsible for payment of the Single Circulation Tax are those listed in document no. 7 and document no. 12, attached to the Application presented by the Claimant already identified.

To demonstrate the lack of responsibility for payment of the Single Circulation Tax assessment acts under analysis, the Claimant submitted, regarding the 33 sold vehicles and respective Single Circulation Tax assessment acts, document no. 6, which contains receipts for the sales of the vehicles and the underlying financial lease contracts duly signed by the parties.

Notwithstanding the evidence produced by the Claimant, the Tribunal, under the principle of free determination of the proof diligences necessary and with a view to obtaining a merits ruling on the claims formulated in the proceedings, as provided for in article 16 c) and e) of the LFTA, requested from the Claimant several additional documents regarding the Single Circulation Tax assessment acts no. 2014 ..., 2014 ..., 2014 ... and 2014 ..., and the AT was given the opportunity to exercise the right of contradiction regarding the documents submitted by the Claimant.

Having considered all the evidence produced by the Claimant, and considering that a written form is not legally required for the sales contract of motor vehicles, it is considered that the receipts for the sale of the vehicles, which expressly state the description "Vehicle Sale", identifying the vehicle registration number and the purchaser, as well as the respective financial lease contracts, with purchase option, duly signed by the parties, demonstrate that the vehicles to which document no. 6 relates were, in fact, transferred by the Claimant to third parties.

With respect specifically to the assessment act no. 2014 ..., which relates to a vehicle permanently lost, the Claimant, as owner of the vehicle, received the respective compensation for total loss of the vehicle, under the insurance contract, and it is the responsibility of the insurer to promote the cancellation of the registration, under no. 8 of article 119 of the Road Code.

It thus results from said documents that the Claimant was not, as of the date of the taxable event, the owner of the vehicles to which the Single Circulation Tax assessment acts subject to the present arbitral petition relate, and it is possible to identify the new owners.

The Claimant also submitted, regarding the Single Circulation Tax assessment acts relating to vehicles subject to a financial lease contract, the corresponding financial lease contracts, duly signed by the parties, in force as of the date of the taxable event, including, as to the assessment act no. 2014 ..., the amendment to the financial lease contract, duly signed by the parties.

The Tribunal is thus convinced that, in light of the evidence produced by the Claimant, the Single Circulation Tax assessment acts corresponding to the vehicles identified in documents no. 1 and 4, attached to the arbitral petition, are illegal, in that the responsibility for payment thereof is not imputable to the Claimant, considering the documents attached with no. 6 and nos. 1 to 11, submitted by the Claimant on 9 April 2015, as they have been sold and, in one case, the vehicle was declared permanently lost.

The Tribunal is also convinced, in light of the evidence produced by the Claimant that the Single Circulation Tax assessment acts identified in documents no. 1 and 4, regarding the vehicles identified in document no. 7, attached to the arbitral petition, were, as of the date of the taxable event of the Single Circulation Tax, the subject of a financial lease contract, whereby the responsibility for payment thereof is imputable to the lessees of those vehicles and not to the Claimant, as results from the provisions of article 3, no. 2 of the Single Circulation Tax Code, the eventual non-compliance with the provisions of article 19 of the Single Circulation Tax Code being only grounds for the application of a possible penalty for the practice of an infraction to the Claimant.

It is thus understood, in light of the evidence produced by the Claimant, that the presumption that it is the passive subject of the Single Circulation Tax with respect to the vehicles in question has been rebutted.

In sum: in accordance with the facts alleged in nos. 1 to 10 of the petition of the Claimant, and which result from the documents attached to the case file, the Claimant was not the real and actual owner of the vehicles under discussion in the year 2014, and therefore the corresponding Single Circulation Tax assessment acts are illegal.

IV. DECISION

Accordingly, this Arbitral Tribunal decides:

A) To render judgment in favor of the merit and, in consequence declare illegal and annul the Single Circulation Tax assessment acts and compensatory interest relating to the year 2014, in the total amount of €3,246.27.

B) To condemn the Respondent to pay the costs of the present proceedings, as the losing party.

V. VALUE OF THE PROCEEDINGS

In accordance with the provisions of article 306, no. 2 of the Code of Civil Procedure, 97-A of the Code of Tax Procedure and article 3, no. 2 of the Regulation of Costs in Tax Arbitration Proceedings, the value of the claim is set at €3,246.27.

VI. COSTS

Pursuant to the provisions of articles 12, no. 2 and 22, no. 4, both of the LFTA, and in article 4, no. 4 of the Regulation of Costs of Tax Arbitration Proceedings, the amount of the arbitration fee is set at €306, in accordance with Table I of the said Regulation, to be borne by the Respondent, given the full merit of the claim.

Let notice be given.

Lisbon, 4 May 2015

The Arbitrator

Magda Feliciano

(The text of the present decision was prepared by computer, in accordance with article 131, no. 5, of the Code of Civil Procedure, applicable by referral from article 29, no. 1, letter e) of Decree-Law no. 10/2011, of 20 January (LFTA), with its drafting governed by the orthography prior to the 1990 Orthographic Agreement.)

[1] "…Motorized vehicles, ships aircraft and rolling railway stock are considered to be attached to the location of their registration, registration or inscription."

Frequently Asked Questions

Automatically Created

Who is liable for paying IUC on vehicles under a financial leasing contract in Portugal?
Under Portuguese tax law, in financial leasing (locação financeira) contracts, the lessee is the liable party for IUC payment, not the financial institution acting as lessor. This is established in Article 3 of the IUC Code, which defines subjective tax incidence. Despite the lessor maintaining formal ownership of the vehicle during the lease term, the tax obligation falls on the lessee who has possession and use of the vehicle. This contrasts with the legal presumptions that may arise from vehicle registration data, which can incorrectly identify the lessor as liable.
Can a financial institution challenge IUC tax assessments through arbitration at CAAD?
Yes, financial institutions can challenge IUC tax assessments through tax arbitration at CAAD (Centro de Arbitragem Administrativa), as demonstrated in process 823/2014-T. Under Article 10(2) of Decree-Law 10/2011 (the Legal Framework for Tax Arbitration - RJAT), financial institutions have legal standing to request constitution of an arbitral tribunal to contest illegal tax assessments. The institution must have legal personality and capacity, be legitimate, and properly represented. CAAD has material jurisdiction over IUC disputes under Article 2(1)(a) of RJAT, making arbitration a viable alternative to judicial courts for resolving these tax controversies efficiently.
How do legal presumptions affect IUC subjective incidence for vehicle lessors?
Legal presumptions significantly impact IUC subjective incidence for vehicle lessors, as tax authorities often rely on vehicle registration data to presume ownership and tax liability. In process 823/2014-T, the Tax Authority issued assessments stating the financial institution was the 'owner/lessee' based on available data. However, these presumptions are rebuttable. Lessors can challenge them by presenting documentary evidence proving: (1) vehicles were sold before the tax period, or (2) vehicles were under financial leasing contracts where the lessee, not lessor, is the passive subject. The burden shifts to the taxpayer to overcome the administrative presumption through proper documentation such as sale contracts, financial lease agreements, and registration transfers.
What is the difference between IUC liability in loan agreements with retention of title versus financial leasing contracts?
The fundamental difference in IUC liability between loan agreements with retention of title and financial leasing contracts lies in who qualifies as the passive subject. In loan agreements with retention of ownership (reserva de propriedade), the financial institution retains full ownership as security until complete loan repayment, potentially making it liable for IUC depending on specific circumstances and registration status. Conversely, in financial leasing (locação financeira) contracts, despite the lessor maintaining formal ownership, Portuguese tax law explicitly designates the lessee as the IUC liable party under Article 3 of the IUC Code. This distinction reflects that financial leasing grants the lessee possession, use, and economic benefits of the vehicle, justifying their tax obligation, while retention of title is merely a security mechanism in loan financing.
What was the outcome of CAAD arbitration process 823/2014-T regarding IUC on financed vehicles?
While the complete outcome is not provided in the excerpt, process 823/2014-T involved a financial institution's challenge to 39 IUC assessments for 2014. The institution contested liability for 33 vehicles it had sold prior to 2014 and 6 vehicles under financial leasing contracts during 2014. The arbitral tribunal, constituted on February 25, 2015, examined whether the institution properly qualified as the passive subject under Articles 3, 4, and 6 of the IUC Code. The institution provided documentary evidence (documents 4, 6, and attachments 1-11) proving it was neither owner of the 33 sold vehicles nor the proper liable party for the 6 leased vehicles. The tribunal analyzed the three essential tax elements—real, personal, and temporal scope—focusing on correct identification of the liable taxpayer, recognizing that in financial leasing arrangements, the lessee bears IUC obligations.