Overtaxed imported cars could cost Portuguese government “tens of millions of euros”

An ‘unprecedented decision’ by arbitrators in Lisbon has meant that anyone who has imported a car into the country since 2017 can seek compensation for the fact that the taxation formulae used have been discriminatory.

This is a story that has been strangely downplayed in the media this week, but stems from the ‘discriminatory’ way the AT tax authority has been taxing imported cars for the last four years.

The government has finally accepted this – after months in which it stuck to its guns and weathered out legal battles (in which it always lost). The State Budget 2021 has a clause revising the way in which ISV (imposto sobre veículos, or vehicle tax) will be calculated from January onwards (click here).

But little has been said about ‘compensation’ for all those who have been overcharged since 2017.

As Público explained last week, Lisbon’s Caad (centre for administrative arbitration) has decided taxpayers can demand restitution for all the money they may have been overcharged. The tax authority had been hoping the limit would only go back 120 days. It hasn’t: it goes back four years.

As such, says the paper – using an image of finance minister João Leão tightening his jacket – the decision “could trigger cash returns of tens of millions of euros”.

What is perhaps not so ‘helpful’ is that any importer who feels he or she has a case has still to pursue it through legal channels.

Paulo Carido, of Paulo Carido Advogados in Porto, is very much the pioneer ISV legal challenges, powered by commercial client in Aveiro Guilherme Ferreira de Almeida. He agrees that it is “a bit ridiculous” that taxpayers have to take legal action to get compensation for an ‘illegality’, but this is Portugal. “I wouldn’t like to say why the government has been so stubborn”, he told us over Skype.

What is interesting is that Paulo Carido – as an expert on this area of legislation – contends the government is ‘still acting illegally’ – even with the new formula.

“They have improved the situation. Importers are going to pay less”, he told us. “But an illegality remains, and the State could still be challenged”.

The formulae for calculating ISV involves two components: the cylindrical capacity, and an environmental component.

In the now ‘outlawed’ formula all imported cars were ‘charged’ within the environmental component as if they were a new car (no matter how many years old they were).

National cars’ ISV did not have this issue.

Now, with the new formula, the ‘environmental component’ has been brought ‘more in line’ with the component for cylindrical capacity (which takes age into consideration), says Mr Carido – but not totally.

For example, a car of eight years old may face a 20% tax on its cylindrical capacity, but 30% for its environmental component.

In Paulo Carido’s opinion this still violates the Treaty of the Functioning of the European Union, as again, a national car will be paying less, when it will be polluting to exactly the same degree.

This is a ‘very technical’ issue, but one that commercial importers are not going to let drop. As such lawyers like Mr Carido still have quite a bit of mileage left in the way the AT tax authority is calculating ISV.

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