Process: 142/2019-T

Date: July 5, 2019

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 142/2019-T) addresses the procedural consequences when the Portuguese Tax Authority (AT) revokes IRC (Corporate Income Tax) assessments during pending arbitration proceedings. The claimant company challenged additional IRC assessments for 2014 and 2015 totaling €164,417.93. After the arbitration request was filed and arbitrators were appointed, but before the tribunal was formally constituted, the AT completely revoked the contested tax acts on April 11, 2019, within the 30-day period stipulated in Article 13(1) of RJAT (Legal Regime for Tax Arbitration). The tribunal determined this revocation created a supervening impossibility of the dispute (impossibilidade superveniente da lide), as the subject matter of the proceeding ceased to exist. The claimant withdrew its request for compensatory interest, stating it lacked material value after full reimbursement. The critical issue became allocation of arbitration costs. The AT argued costs should fall on the claimant because revocation occurred within the statutory 30-day period before tribunal constitution. However, the tribunal applied the general principle under Articles 527 and 536 of the Civil Procedure Code that costs are borne by the party causing extinction of proceedings. Since the AT's initial tax assessments created the dispute and its subsequent revocation made continuation impossible, the tribunal ruled the AT must bear all arbitration costs, despite acting within procedural timelines, as it was responsible for both initiating the controversy through allegedly illegal tax acts and later eliminating the dispute's subject matter.

Full Decision

ARBITRAL DECISION

I Report

In this arbitral proceeding wherein A..., SA (in liquidation) is the Claimant and the Respondent is the Tax and Customs Authority (AT), on 11-4-2019, the latter communicated to this Court that, by order issued on 11 April 2019, it had revoked the additional assessments which are the subject matter of this proceeding.

On 15-4-2019, both parties were notified of an order from the President of CAAD requesting that, "given the circumstances provided for in Article 13, No. 2, of RJAT" (...) the CAAD be informed, if willing, about the continuation of the proceedings (...)".

Following or as a consequence of this order, nothing of use was requested by either of the parties.

Following the normal and regulatory procedures of the arbitral proceeding, the Collective Arbitral Tribunal was constituted on 14-5-2019.

On 17-5-2019, the initial order provided for in Article 17 of RJAT was issued and the AT was notified to submit its response and a copy of the administrative file.

On 17-6-2019, the Claimant, alleging that it had been notified of the total annulment of the assessments which are the subject of the arbitral request, with the effective reimbursement of the tax previously assessed and paid in the total amount of €164,417.93, declared that it does not oppose the extinction of the instance by supervening futility of the claim "(...) withdrawing, for this purpose, the request for compensatory interest presented, because it did not have material value at the time of restitution (...)", with the costs of the proceeding to be borne entirely by the AT.

Notified of this request, the AT exercised this right on 25/6/2019, limiting its opposition to the extinction of the instance only as regards condemnation to costs, which in its view should be borne by the Claimant, alleging in particular that the revocation of the syndicated tax acts occurred before the 30-day period provided for in Article 13 of RJAT had expired and, consequently, the fact that the Arbitral Tribunal was constituted could not be attributed to it.

Preliminary Procedural Issues

This Court is competent.

The proceeding is proper and the parties are legitimate and possess legal personality and capacity to act.

There are no objections or nullities.

It therefore behoves the Court to examine and decide the matter of extinction of the instance.

II Grounds

According to Lebre de Freitas, "supervening impossibility or futility of the claim occurs when, by a fact occurring during the pendency of the instance, the claim of the applicant cannot be maintained by virtue of the disappearance of the parties or the subject matter of the proceeding, or finds satisfaction outside the scheme of the relief sought. In either case, the relief ceases to be relevant – in the former case by impossibility of achieving the intended result; in the latter, because it has already been achieved by other means" – See "Código de Processo Civil Anotado", vol. III, p. 633. The same understanding is followed by Lopes do Rego, Comentários, p. 611 and Remédio Marques, Curso de Processo Executivo Comum, p. 381.

Subsuming:

Having examined the case file, it is obvious that the arbitral proceeding request sought the annulment, on grounds of illegality, of the additional corporate income tax assessments Nos. 2018... and 2018..., relating to the tax periods of 2014 and 2015, the aforementioned order revoking these assessments completely deprives this arbitral proceeding of its subject matter.

That is: once the syndicated tax acts have been destroyed by administrative revocation during the pendency of the case, the continuation of the instance is not only useless but even impossible due to lack of subject matter of the claim.

The Question of Costs

The question then arises as to who, in these circumstances, should bear the costs.

The general principle in this matter is that costs are borne by whoever causes the extinction of the instance, rendering it useless or impossible (see Articles 527 and 536, Nos. 3 and 4, of CPC, by virtue of Article 29 of RJAT).

Now it appears from the file that the AT was informed of the entry of this proceeding in CAAD on 1 March 2019 and, on 7 March 2019, was notified of the presentation of the request, a notification which is confirmed by the AT on that same date, with the appointed arbitrators designated by order of 11-3-2019, communicated to CAAD on 15-3-2019.

Subsequently, on 11-4-2019, the CAAD was notified of the revocation of the tax acts, in accordance with and for the purposes provided for in Article 13 of RJAT and, on 15-4-2019, the respective order was attached.

On that same date, both parties were notified of the order of the CAAD President in the following terms: "(...) following the communication from the Tax and Customs Authority provided for in Article 13, No. 1 [of RJAT] (...) you are requested to deign to inform CAAD, if willing, about the continuation of the proceedings (...)".

Nothing of use was reported or requested, and the proceedings continued their normal course and, with the Collective Tribunal constituted on 14/5/2019, by order of 17-5-2019, the AT was notified to submit its response and attach the administrative file, in accordance with Article 17 of RJAT.

The Claimant then presented, on 17-6-2019, the aforementioned request, therein declaring that it does not oppose the extinction of the instance by supervening futility of the claim "(...) withdrawing, for this purpose, the request for compensatory interest presented, because it did not have material value at the time of restitution (...)", with the costs of the proceeding to be borne entirely by the AT.

The AT opposed, as seen above, the costs being charged to it.

Having considered all the foregoing:

It is clearly established from the above that the AT revoked entirely the acts which were the subject of the arbitral proceeding request and that it did so and communicated it to CAAD, as will be seen below, within the 30-day period provided for in Article 13-1 of RJAT.

A copy of the revocation decision was attached to the file by the AT on 15-4-2019, whereupon the President of CAAD issued the order referred to above, notified on that same date (15-4-2019) to both parties.

Following that order or at any other moment prior to the constitution of the Tribunal on 14-5-2019, neither of the parties requested the cessation of the respective proceeding as a consequence of the aforementioned revocation of the syndicated tax acts, only the claimant doing so on 17-6-2019, for the reasons it then invoked.

Now if a judicial proceeding, whatever its nature, is instituted and the cause of action is subsequently extinguished by an act of the respondent at a moment after the institution or entry in proceedings, naturally the cause of the claim and also the cause of its extinction can only be attributed to the respondent entity: in the first case, because there was a basis for the claim and in the second because, the respondent recognizing it, voluntarily eliminated it.

Transposing these basic principles to the case at hand:

Invoking the illegality of tax acts, the claimant requested the constitution of an Arbitral Tribunal seeking the revocation of those acts.

However, during the pendency of the regulatory procedures for the constitution of the Tribunal, the AT (Tax and Customs Authority), the respondent entity, notified, on 11-4-2019, the President of CAAD, in accordance with and for the purposes provided for in Article 13-1 of RJAT, that it had proceeded to the total revocation of the tax acts which were the subject of the request, also advising that it had notified the taxpayer of that revocation, in accordance with and for the purposes provided for in Article 13-2 of RJAT. Subsequently, on 15-4-2019, it supplemented, by providing documentation, the information provided.

Now the fact that CAAD had knowledge of the revocation of the aforementioned acts is not, in itself, suitable to suspend the proceeding for the purpose of constituting the Arbitral Tribunal, nor will it prevent the Tribunal from being constituted without the claimant requesting it, in particular in order to be reimbursed for the arbitration fee paid, as provided for in Article 3-A of RCPAT (Regulation of Costs in Tax Arbitration Proceedings).

That is: no coercive effect is provided for the claimant, in particular regarding the payment of costs or arbitration fees, in the event that, having been notified of the revocation, it fails to prevent the constitution of the arbitral tribunal.

It should also be noted that, as was the case, after notification by the AT of the revocation of the assessment acts, the taxpayer and claimant have a period of 10 days to pronounce themselves, if willing, and the proceeding for constitution of the Tribunal continues if they say nothing (see cited Article 13-2).

This will reinforce the conclusion, which is anticipated, of the absence of culpability on the part of the claimant in the constitution of the Tribunal and the extinction of the instance.

In fact, the AT's communication to CAAD of the revocation of the assessments occurs, in complete form, that is, with a copy of that decision, on 15-4-2019, following a prior simple communication on 11-4-2019.

Now given that the AT has had knowledge, since 1-3-2019, of the presentation of the request for arbitral pronouncement, the 30-day period provided for in Article 13-1 cited, calculated in accordance with the combined provisions of Articles 3-A of RJAT and 87 of CPA, expired exactly on 15-4-2019, that is, on the date on which the AT submitted to CAAD a copy of the order revoking the assessments.

Which means that the Claimant, not notified before 15-4-2019, of that revocation, had a period of 10 days to pronounce itself, if it so wished, in accordance with the aforementioned Article 13, No. 2.

Which leads to the obvious conclusion that the constitution of the Arbitral Tribunal cannot be attributed to the applicant nor can the cause of the extinction of the instance; on the contrary, the determinative facts of that supervening extinction are, in the first place or at a first moment, the commission of the assessment acts causing the request for constitution of the Tribunal and, at a second moment, and already after the request was formulated, the revocation of those acts by the respondent entity, which must therefore bear entirely the costs.

III Decision

In light of the foregoing and having considered the positions of both parties and the provisions of Articles 277-e) of CPC applicable by virtue of Article 29 of RJAT, the instance is hereby declared extinct by supervening impossibility of the claim resulting from the voluntary elimination of the legal order, in accordance with the terms set out above, of the assessment acts which are the subject matter of this file, and the appropriate filing of the proceeding is ordered.

Costs

The costs are charged to the AT inasmuch as it caused the extinction of the instance (See Articles 527 and 536, Nos. 3 and 4, of CPC, applicable by virtue of Article 29 of RJAT), with the arbitration fee being fixed at €3,672.00 (three thousand six hundred and seventy-two euros), in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings and Articles 12, No. 2, and 22, No. 4, both of RJAT and 4, No. 4, of the cited Regulation.

Value of the Proceeding

The value of the proceeding is fixed at €164,417.93 (one hundred and sixty-four thousand four hundred and seventeen euros and ninety-three cents), in accordance with Article 97-A, No. 1, a), of the Code of Tax Procedure and Process, applicable by virtue of subparagraphs a) and b) of No. 1 of Article 29 of RJAT and No. 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

Let notification be made.

Lisbon, 5 July 2019

The Arbitral Tribunal,

José Poças Falcão
(Arbitrator President)

Elisabete Flora Louro Martins
(dissenting, in accordance with the dissenting opinion attached)
(Associate Arbitrator)

Pedro Miguel Bastos Rosado
(Associate Arbitrator)

Dissenting Opinion:

Pursuant to Article 536, No. 3 of CPC (applicable by virtue of Article 29, No. 1, subparagraph (e) of RJAT), in cases of extinction of the instance by supervening futility of the claim, responsibility for costs is borne by the Applicant or Claimant, unless such futility is attributable to the Respondent. No. 4 of the same article provides, insofar as it is relevant to note, that it is considered, in particular, to be attributable to the Respondent when the supervening futility of the claim results from voluntary satisfaction, on its part, of the claim of the Applicant or Claimant.

In the case at hand, as was demonstrated, the claim of the Claimant was satisfied entirely and voluntarily by the Respondent, by virtue of the latter having revoked the impugned tax acts. However, as was equally demonstrated, the Respondent proceeded to said revocation even before the constitution of this Arbitral Tribunal (although it did so outside the 30-day period provided for in Article 13, No. 1 of RJAT), and the continuation of the proceeding (or more precisely, of the arbitral procedure), despite the entire and voluntary satisfaction by the Respondent of the requests formulated, can only be attributed to the Claimant.

In fact, notified by order of the President of CAAD (on 15/4/2019) to pronounce itself on the request presented, in accordance with and for the purposes provided for in Article 13, No. 1, of RJAT, by the Respondent, the Claimant said nothing and filed nothing in the proceedings, and therefore, given such silent conduct, the constitution of this Arbitral Tribunal took place only as a result thereof. Effectively, the constitution of the Arbitral Tribunal would not have occurred if the Claimant had, on the said occasion, come to the proceedings to pronounce itself to the effect of the supervening futility of the claim and consequent extinction of the proceeding, since it is axiomatic that the Respondent revoked the tax act at a moment prior to the constitution of the Arbitral Tribunal.

The costs of this proceeding must, therefore, be entirely attributed to the Claimant.

Elisabete Flora Louro Martins
(Associate Arbitrator)

Frequently Asked Questions

Automatically Created

What happens when the Tax Authority revokes additional IRC liquidations during pending arbitration proceedings?
When the Tax Authority revokes additional IRC liquidations during pending arbitration proceedings, it creates a supervening impossibility of the dispute (impossibilidade superveniente da lide), depriving the arbitration of its subject matter. The arbitral tribunal must declare extinction of the proceedings because continuation becomes both useless and impossible due to lack of claim subject. This occurs even when revocation happens after the arbitration request is filed but before final decision, as the contested tax acts no longer exist and cannot be judicially reviewed.
What is supervening impossibility of the dispute (impossibilidade superveniente da lide) in Portuguese tax arbitration?
Supervening impossibility of the dispute (impossibilidade superveniente da lide) in Portuguese tax arbitration occurs when a fact arising during pending proceedings makes the claimant's claim unmaintainable due to disappearance of the parties or subject matter, or when the claim finds satisfaction outside the requested relief. According to legal doctrine cited in this decision, the relief ceases to be relevant either by impossibility of achieving the intended result or because it has already been achieved by other means. In tax arbitration, administrative revocation of contested tax acts during proceedings creates this impossibility.
Who bears the arbitration costs when the Tax Authority revokes tax assessments after an arbitral proceeding is initiated under RJAT?
Under RJAT arbitration rules, costs are borne by whoever causes extinction of proceedings, rendering them useless or impossible, pursuant to Articles 527 and 536(3) and (4) of the Civil Procedure Code applied via Article 29 of RJAT. In this case, the tribunal ruled the Tax Authority must bear all costs despite revoking assessments within the 30-day Article 13 period, because the AT was responsible for both: (1) issuing the allegedly illegal tax acts that created the dispute, and (2) subsequently revoking them, which eliminated the subject matter. The timing of revocation does not exempt the AT from cost liability when it caused both the initiation and extinction of proceedings.
What is the significance of the 30-day period under Article 13 of RJAT for revocation of tax acts?
The 30-day period under Article 13 of RJAT allows the Tax Authority to revoke contested tax acts after receiving notification of an arbitration request but before formal response. Article 13(1) requires the AT to notify CAAD of any revocation, while Article 13(2) requires notification to the taxpayer. This decision clarifies that revoking within this 30-day period does not automatically exempt the AT from bearing arbitration costs. The tribunal distinguished between procedural compliance with notification deadlines and substantive responsibility for causing proceedings extinction, ruling that the party whose actions (issuing then revoking assessments) caused both dispute initiation and termination bears costs regardless of timing.
Can a taxpayer waive a claim for compensatory interest (juros indemnizatórios) when tax liquidations are fully annulled and refunded?
Yes, a taxpayer can waive a claim for compensatory interest (juros indemnizatórios) when tax liquidations are fully annulled and refunded. In this case, the claimant explicitly withdrew its request for compensatory interest, stating it 'did not have material value at the time of restitution' after receiving full reimbursement of €164,417.93. Portuguese law provides compensatory interest for unlawful tax collection, but taxpayers may strategically waive this claim when: (1) the principal amount is fully refunded, (2) the interest amount is immaterial, or (3) waiver facilitates faster proceedings termination. Such waiver does not prejudice the taxpayer's right to seek cost recovery from the AT for causing proceedings extinction.