Process: 125/2017-T

Date: July 27, 2017

Tax Type: Selo

Source: Original CAAD Decision

Summary

In CAAD Arbitration Process 125/2017-T, a taxpayer challenged the third installment of Stamp Tax (Imposto do Selo) for 2015 on urban property located in Lisbon, seeking annulment on grounds of legal violation of Verba 28 of the General Stamp Tax Table (TGIS) and unconstitutionality for breach of the principle of tax equality. The taxpayer alternatively requested annulment of all 2015 stamp duty installments if the assessment could only be challenged as a whole.

The Tax and Customs Authority initially filed a Reply raising jurisdictional exceptions and defending the legality of the tax acts. However, a significant procedural development occurred when the Tax Authority voluntarily annulled all stamp duty assessments for 2015 (first, second, and third installments) during the pendency of the arbitration proceedings and issued a full refund to the claimant.

Following this supervening fact, the Tax Authority petitioned for extinction of proceedings due to subsequent futility of the action (inutilidade superveniente da lide) under article 287(e) of the Code of Civil Procedure, applicable subsidiarily to tax arbitration pursuant to article 29 of the RJAT (Legal Framework for Tax Arbitration).

The arbitral tribunal, citing doctrine from Lebre de Freitas, recognized that subsequent futility arises when the plaintiff's claim cannot be maintained due to facts occurring during proceedings, either because the intended result becomes impossible or has been achieved through other means. Since the contested tax acts were voluntarily revoked and the taxpayer had already received reimbursement, examining their legality became futile.

The tribunal declared the proceedings extinct, fixed the case value at €11,471.25, and ordered the Tax Authority to pay arbitration costs of €918.00 pursuant to articles 12(2) and 22(4) of the RJAT. This decision demonstrates that Portuguese tax authorities can voluntarily annul assessments during arbitration, leading to case extinction without substantive examination of the constitutional and legal challenges raised.

Full Decision

ARBITRAL DECISION

The request for the constitution of the arbitral tribunal was accepted by the Honorable President of CAAD and automatically notified to the Tax and Customs Authority on 24-02-2017. 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 January, as amended by article 228 of Law No. 66-B/2012 of 31 December, the Deontological Council designated the undersigned as arbitrator of the singular arbitral tribunal, and notified the parties of such designation on 10-04-2017. Thus, in accordance with the provisions of subparagraph c) of article 11(1) of Decree-Law No. 10/2011 of 20 January, as amended by article 228 of Law No. 66-B/2012 of 31 December, the arbitral tribunal was constituted on 27-04-2017, following the relevant legal procedures.

I – REPORT

On 17-02-2017, the taxpayer A…, NIF…, filed a request for the constitution of a singular arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law No. 10/2011 of 20 January (Legal Framework for Tax Arbitration, hereinafter referred to as LFTA), against the Tax and Customs Authority as respondent.

Seeking the annulment of the third installment payments of corporate income tax for the year 2015, collection documents nos. 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, 2016…, which concern the urban property located at Rua …, no. …, parish of …, described in the Land Registry of Lisbon under sheet…, registered in the urban property tax register under article….

As the main claim, it seeks the annulment of the tax acts relating to the third installment of stamp duty for the year 2015, better identified in its request for arbitral decision, on the grounds of violation of law, alleging that they violate the provisions of item 28 of the General Stamp Duty Table, and furthermore, on the grounds of unconstitutionality for violation of the principle of tax equality.

It further submits, as an alternative claim, the annulment of the entire stamp duty assessment for the year 2015 (first, second and third installments), in the event that it is determined that such assessment can only be challenged as a whole.

The Tax Authority presented a Reply in which it raised an exception of lack of jurisdiction, further requesting dismissal of the claim on the grounds of the legality of the tax acts issued, which it defends.

MEANWHILE, by means of a petition dated 23-06-2014, the respondent brought to the attention of the record the following supervening fact: (…) all stamp duty assessment acts for the year 2015 (first, second and third / 2 installments) which are the subject matter of the present arbitral proceedings … were annulled, and the respective reimbursement was already issued and received by the claimant, (…).

Requesting, for this reason, the extinction of the proceedings due to subsequent futility of the action, pursuant to subparagraph e) of article 277 of the Code of Civil Procedure, applicable subsidiarily pursuant to article 29 of the LFTA.

By arbitral order of 26-08-2017, the claimant was notified that the proceedings would be declared extinguished in the event that nothing to the contrary was said or requested … which occurred.

CASE MANAGEMENT

This Tribunal has jurisdiction.

The proceedings are proper and the parties are legitimate and possess legal and procedural personality and capacity.

The subsequent futility of the action is a ground for extinction of the proceedings, pursuant to article 287, subparagraph e), of the Code of Civil Procedure.

ACCORDINGLY, it is necessary to examine and decide on the extinction of the proceedings.

According to Lebre de Freitas, "the impossibility or subsequent futility of the action arises when, by reason of a fact occurring during the pendency of the proceedings, the plaintiff's claim cannot be maintained, by virtue of the disappearance of the subjects or object of the proceedings, or finds satisfaction outside the scheme of the relief sought. In either case, the relief ceases to be of interest – either by impossibility of achieving the intended result; here, because it has already been achieved by other means" – See "Annotated Code of Civil Procedure", vol. III, p. 633.

In the present case…

Evidently, having the revocation of the tax act(s) whose annulment constituted the object of the present proceedings been declared and accepted, it becomes futile to examine their legality, leading to the conclusion of subsequent futility of the action, as contended and requested by the respondent.

DECISION

In view of the foregoing, it is hereby decided:

The proceedings are declared extinguished due to subsequent futility of the action resulting from the voluntary elimination from the legal order, in the manner set out above, of the assessment acts which are the subject matter of these proceedings, and the appropriate filing of the case is ordered.

Value of the Proceedings

The value of the proceedings is fixed at €11,471.25, pursuant to article 97-A(1), subparagraph a) of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of article 29(1) of the LFTA and article 3(2) of the Regulations on Costs in Tax Arbitration Proceedings.

Costs

The arbitration fee is fixed at €918.00, pursuant to Table I of the Regulations on Costs in Tax Arbitration Proceedings, to be paid by the respondent, pursuant to articles 12(2) and 22(4), both of the LFTA, and article 4(4) of the aforementioned Regulations.

Let notification be made.

Porto, 27 July 2017

The Arbitrator,

Fernando Miranda Ferreira

Frequently Asked Questions

Automatically Created

What is supervening uselessness of the dispute (inutilidade superveniente da lide) in Portuguese tax arbitration?
Supervening uselessness of the dispute (inutilidade superveniente da lide) is a ground for extinction of tax arbitration proceedings under article 287(e) of the Code of Civil Procedure, applicable subsidiarily to CAAD cases via article 29 of the RJAT. It occurs when, due to facts arising during the proceedings, the plaintiff's claim cannot be maintained because the subjects or object of the proceedings disappear, or the claim finds satisfaction outside the requested relief. In tax arbitration, this typically happens when the Tax Authority voluntarily annuls the contested assessment and refunds the taxpayer during pending proceedings, making judicial examination of the act's legality futile. The tribunal cited Lebre de Freitas' doctrine that the relief ceases to be of interest either by impossibility of achieving the intended result or because it has already been achieved by other means. When inutilidade superveniente is declared, proceedings are extinguished without substantive decision on the merits, and costs are typically assigned to the party whose conduct caused the futility.
Can the Portuguese Tax Authority voluntarily annul Stamp Tax (Imposto do Selo) assessments during pending arbitration proceedings?
Yes, the Portuguese Tax and Customs Authority can voluntarily annul Stamp Tax (Imposto do Selo) assessments during pending arbitration proceedings, as demonstrated in Process 125/2017-T. In this case, the Tax Authority voluntarily annulled all stamp duty assessment acts for 2015 (first, second, and third installments) after the taxpayer had initiated arbitration proceedings and the Authority had already filed its Reply. The Authority then issued a full reimbursement to the claimant before the arbitral tribunal reached a substantive decision. This voluntary revocation eliminated the contested tax acts from the legal order, satisfying the taxpayer's claim outside the arbitral process. Such administrative self-correction is legally permitted and, when it occurs, the Tax Authority must petition for extinction of proceedings due to subsequent futility of the action. However, the Authority bears the arbitration costs when proceedings are extinguished due to its voluntary revocation of the contested acts, as occurred in this case where costs of €918.00 were assigned to the respondent Tax Authority pursuant to articles 12(2) and 22(4) of the RJAT.
How does CAAD handle arbitration cases when the disputed tax assessments are annulled and refunded before a decision is reached?
When disputed tax assessments are annulled and refunded before a decision is reached, CAAD (Centro de Arbitragem Administrativa) handles the case by declaring extinction of proceedings due to subsequent futility of the action (inutilidade superveniente da lide) under article 287(e) of the Code of Civil Procedure, applicable subsidiarily through article 29 of the RJAT. The procedural steps include: (1) the Tax Authority files a petition informing the tribunal of the voluntary annulment and refund; (2) the arbitrator notifies the claimant and provides an opportunity to respond; (3) if the claimant does not object, the tribunal examines whether the claim has been fully satisfied; (4) the tribunal issues a decision declaring proceedings extinct without substantive examination of the merits, since examining the legality of an already-revoked act serves no purpose; (5) the tribunal fixes the case value and assigns costs. In Process 125/2017-T, costs were assigned to the Tax Authority (€918.00 arbitration fee) pursuant to articles 12(2) and 22(4) of RJAT, reflecting that the Authority's voluntary revocation caused the proceedings' futility. This mechanism ensures procedural economy while protecting taxpayers' interests by allowing administrative self-correction during arbitration.
What are the legal grounds for challenging Stamp Tax assessments under Verba 28 of the General Stamp Tax Table (TGIS)?
The legal grounds for challenging Stamp Tax assessments under Verba 28 of the General Stamp Tax Table (Tabela Geral do Imposto do Selo - TGIS) were raised in Process 125/2017-T but not substantively decided due to proceedings' extinction. Verba 28 TGIS imposes annual stamp duty on high-value urban properties (currently properties with taxable asset value exceeding €600,000). Common legal challenges include: (1) violation of law (violação de lei) - arguing the property does not meet statutory requirements for taxation under Verba 28, such as incorrect property valuation or misclassification; (2) unconstitutionality for breach of tax equality principle (princípio da igualdade tributária) - contending that taxing only high-value urban properties creates unjustified discrimination; (3) violation of property rights and non-confiscatory taxation principles; (4) improper application of tax rates or calculation methodology; (5) errors in determining the taxable asset value (valor patrimonial tributário) used as the tax base. In this case, the taxpayer argued both legal violation of Verba 28 provisions and constitutional grounds. The alternative claim sought annulment of all 2015 installments, recognizing potential arguments that stamp duty assessments must be challenged holistically rather than by individual installments.
Does the principle of tax equality (princípio da igualdade tributária) apply to Stamp Tax on high-value urban properties in Portugal?
Yes, the principle of tax equality (princípio da igualdade tributária) applies to Stamp Tax on high-value urban properties in Portugal and can be invoked as a constitutional challenge, as demonstrated in Process 125/2017-T where the taxpayer argued unconstitutionality on these grounds. The principle of tax equality, enshrined in Article 13 (general equality) and Article 104 of the Portuguese Constitution (tax system principles), requires that taxpayers in equivalent situations be treated equally and that tax burdens be distributed fairly according to ability to pay. When challenging Verba 28 TGIS (which taxes urban properties exceeding certain values), taxpayers may argue that: (1) differential treatment of high-value properties versus lower-value properties lacks reasonable justification; (2) the tax creates arbitrary distinctions not based on economic capacity; (3) it constitutes discriminatory double taxation when combined with IMI (property tax); or (4) the threshold creates inequitable cliff effects. While Process 125/2017-T did not reach a substantive ruling on this constitutional question due to the Tax Authority's voluntary annulment, the admissibility of such claims confirms that tax equality challenges to Verba 28 TGIS are legally cognizable in Portuguese tax arbitration, requiring tribunals to examine proportionality, reasonableness, and justification for differential tax treatment.