Autonomous taxation on Vehicles

As the name implies, we are facing a tax charge that is imposed independently of the taxable income.

This taxation is calculated regardless of the result for IRC purposes and has suffered progressive increases over the years.

Autonomous taxation consists of an extraordinary taxation of certain expenses that a company has and that may not be directly related to the expenses of its activity. Among these expenses, the following stand out: representation expenses, undocumented expenses and charges with company vehicles. Giving their nature, this type of expenses can be personal expenses disguised as being business expenses. Thus, and because there is an increased chance of being misused, the legislator chose to impose a charge associated to them.

These expenses are taxed irrespective of whether companies present profits or losses. In fact, if there is a tax loss, the rates are increased by 10%, which represents a very high penalty for companies.

This taxation, created in 2001, seeks to combat tax evasion, preventing companies from using certain expenses to somehow remunerate employees, allowing them in the case of vehicles, for example, to be used for personal purposes. It was also determined with the aim of encouraging environmentally friendly practices, since companies which acquire and circulate with plug-in hybrid vehicles, electric vehicles or LPG or NGV vehicles are taxed less or even totally exempt – as in the case of electric vehicles. All vehicles, with the exception of commercial or electric vehicles, are subject to autonomous taxation.

There are companies that due to the inherent nature of their activity, as is the case of CTT (Portugal Post Company), came to contest this rule, stating that the tax should not be paid and appealing to Courts, claiming that in their specific situation it was impossible to give a personal usage to the company vehicles and that this fact could be proven. There were contradictory trends in the decisions: in one hand, there was the argument that the rule of the IRC Code did not admit proof of the contrary, on another hand, arguments stated that the law was a presumption and could be contested, provided that the taxpayer proves the contrary, meaning in this case, the use of company vehicles strictly for business purposes. Contradictory rulings began to emerge regardless of the proof.

As there was divergence in the application of the Rule, the case was presented to the Supreme Administrative Court, which decided that the legal rules establishing autonomous taxation of company expenses with passenger vehicles, goods vehicles, motorbikes or motorcycles “constitute tax incidence rules that do not consecrate any presumption that can be proven to the contrary”. With this decision, published in the Official Gazette last June, the Supreme Administrative Court (STA) has put an end to the doubts that divided specialists, rising different judicial decisions in arbitration courts. In practice, however companies may prove that such autonomous taxation should not be applicable, they will always have to pay the tax, without appeal.

In this case we cannot follow the understanding of the Supreme Administrative Court.

Contrary to what has now been decided, we consider that the rules in question enclose real legal presumptions. In other words, they start from a known fact (the existence of expenses related to passenger vehicles or motorcycles) and induce an unknown fact (the supposedly abusive use of the business expense to benefit the personal sphere).

Therefore, the presumption established in the Law must admit evidence to the contrary. It is, in fact, the General Tax Law in its article 73, that determines that presumptions always admit proof to the contrary.

This seems to us to be the only possible solution in view of the object of the IRC Tax, determined for in the Constitution, aimed to tax real profit. The uncritical application of autonomous taxation rates without the possibility of proof to the contrary transforms the IRC into a tax over expenses (and less over income).

The decision now issued has a serious impact on companies which, due to the imperative of their activity, use vehicles with the above-mentioned characteristics (passenger cars or motorbikes) and transforms the IRC into an almost punitive system by reference to the use of certain assets. The legislator must have the common sense to recognise that the wording of the law is not fair and does not produce desirable results, and should be amended in order to recognise these expenses, at least when justified, as legitimate negative components of taxable income.

In our opinion this decision, based on a rule to prevent abuse, is itself abusive and it does not make sense to overtax situations where there is no abuse.