Process: 215/2018-T

Date: November 16, 2018

Tax Type: IRC

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 215/2018-T) addresses the procedural consequences of the Tax Authority's revocation of IRC (Corporate Income Tax) assessments during pending arbitration proceedings. The taxpayer challenged additional IRC assessments totaling €125,094.19 (2013) and €101,662.91 (2014). After the arbitral tribunal was constituted, the Tax Authority issued a revocatory dispatch on October 2, 2018, annulling the contested assessments based on a favorable decision in similar proceedings (313/2017-T). The central legal issue concerned whether revocation after the 30-day deadline stipulated in Article 13(1) of RJAT was valid, and whether the taxpayer's claim for compensatory interest (juros indemnizatórios) survived the revocation. The tribunal clarified that the revocatory act was actually an administrative annulment based on illegality considerations, not mere discretion. The tribunal analyzed the temporal limitations of Article 13(1) RJAT, which permits revocation within 30 days of knowledge of the arbitration request. Despite the revocation occurring after this deadline and after tribunal constitution, the decision examined whether late revocation could still produce effects and terminate proceedings. The taxpayer conditioned acceptance of the revocation on the Tax Authority's explicit agreement to pay compensatory interest, arguing that silence on this claim meant proceedings should continue. This case illustrates critical procedural dynamics in CAAD arbitration, particularly regarding timing of administrative annulments, the distinction between revocation and annulment under the 2015 Administrative Procedure Code, and the preservation of ancillary claims for compensatory interest even when principal assessments are revoked.

Full Decision

ARBITRAL DECISION

Agree in arbitral tribunal

I – Report

  1. A..., LDA., holder of the collective identification number ..., with registered office at ..., Street, No. ..., in ..., hereby requests the constitution of an arbitral tribunal, pursuant to the provisions of articles 2, no. 1, paragraph a), and 10 of Decree-Law no. 10/2011, of 20 January, to assess the legality of the tax acts of additional assessment of Corporate Income Tax and compensatory interest, relating to the period 2013, in the total amount of € 125,094.19, and of additional assessments of Corporate Income Tax and compensatory interest, relating to the period 2014, in the total amount of € 101,662.91, further requesting the reimbursement of the amount unduly paid and condemnation to payment of indemnification interest.

Notified to submit a reply, the Tax Authority requested an extension of the deadline, pursuant to the provisions of article 569, no. 5, of the Civil Procedure Code, which was granted, and within the extended deadline submitted a dispatch revoking the contested tax acts issued by the head of the service.

By arbitral dispatch of 11 October 2018, the Applicant was ordered to be notified to state its position on the revocatory act and its consequences regarding the continuation of proceedings.

In response, the Applicant stated the following:

Pursuant to no. 1 of article 13 of the RJAT, the Tax Authority has 30 days, counting from the knowledge of the request for constitution, to revoke the challenged act. That is, it had until the end of May to revoke the act, a revocation which, pursuant to law, should have taken place at a moment prior to the constitution of this tribunal.

Furthermore, the Tax Authority does not express its position on the request for indemnification interest, which was duly formulated in the request for constitution of this tribunal.

In these terms, the Tax Authority is requested to be notified to express itself explicitly regarding the request for indemnification interest formulated in the initial petition, which is invoked for the relevant legal purposes.

Should the Respondent rule favorably, then the Applicant accepts the revocation of the act and the said favorable decision regarding indemnification interest.

In the opposite case, the present action should proceed in its terms.

  1. The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Tax Authority pursuant to regulatory provisions.

Pursuant to the provisions of paragraph a) of no. 2 of article 6 and paragraph b) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the Deontological Council designated as arbitrators of the collective arbitral tribunal the signatories, who communicated acceptance of the appointment within the applicable deadline.

The parties were timely and duly notified of this designation and did not express any willingness to refuse it, pursuant to the combined provisions of article 11, no. 1, paragraphs a) and b), of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in accordance with the provision in paragraph c) of no. 1 of article 11 of the RJAT, in the wording introduced by article 228 of Law no. 66-B/2012, of 31 December, the collective arbitral tribunal was constituted on 10 July 2018.

The arbitral tribunal was regularly constituted and is materially competent, in light of the provisions of articles 2, no. 1, paragraph a), and 30, no. 1, of Decree-Law no. 10/2011, of 20 January.

The parties have legal personality and capacity, are legitimate and are represented (articles 4 and 10, no. 2, of the same instrument and 1 of Ordinance no. 112-A/2011, of 22 March).

The proceedings do not suffer from nullities nor were exceptions raised.

It is appropriate to assess and decide.

II – Reasoning

  1. Following the request for pronouncement formulated by the Applicant, the arbitral tribunal was constituted on 10 July 2018, and by dispatch of 12 July following, notification was ordered to the head of the tax administration service to, within a period of 30 days, submit a reply. Still within that deadline, the jurists designated to represent the Tax Administration requested an extension of the reply deadline by ten days, pursuant to the provisions of article 569, no. 5, of the Civil Procedure Code. The request was granted and before the expiration of the extension period a dispatch was filed by the Deputy Director-General of Tax Management of Income Tax, made with delegation of powers, which revokes the contested tax assessment acts.

The revocatory dispatch, dated 2 October 2018, refers to the reasoning contained in the information prepared by the Income Tax Services Division for Legal Persons, by which it is considered appropriate to revoke the acts in question in light of the decision made in the scope of arbitral proceedings no. 313/2017-T, which had as its object identical tax acts relating to the year 2012 and was favorable to the Applicant.

Notified to state its position on the procedural consequences of the revocation, the Applicant stated that the revocatory act was made after the deadline referred to in article 13, no. 1, of the RJAT had elapsed and that the Tax Authority did not express its position on the indemnification interest that was petitioned in the arbitral request, concluding that it only accepts the revocation if the Administration, notified for that purpose, rules favorably regarding the request for indemnification interest, and if not, the proceedings should continue in its terms.

  1. It should be noted preliminarily that the new Administrative Procedure Code, approved by Decree-Law no. 4/2015, of 7 January, distinguished between revocation and administrative annulment, making each of these figures correspond to the two previous modalities of abrogatory or extinctive revocation and annulling revocation. According to the definition contained in article 165, revocation is "the administrative act that determines the cessation of the effects of another act, for reasons of merit, convenience or opportunity", while administrative annulment is "the administrative act that determines the destruction of the effects of another act, on the grounds of invalidity". Revocation produces, as a rule, only effects for the future (article 171, no. 1), while administrative annulment, having as its object the elimination from the legal order of voidable acts, has, as a rule, retroactive effects (article 171, no. 3).

In the present case, the Tax Authority decided to follow the decision-making direction of an arbitral decision handed down in a previous proceeding in which tax acts of identical nature to those at issue here were discussed, and therefore practiced, according to the new terminology, an act of administrative annulment, that is, an act based on considerations of administrative legality and not mere discretion. Accordingly, the said dispatch of 2 October 2018, although it adopts the verbal formula previously applied, corresponds to a true annulling act.

The question that the Applicant first raises is whether – bearing in mind the provisions of article 13, no. 1, of the RJAT – it is possible to proceed, during the pendency of the arbitral proceedings, to the administrative annulment of the contested tax acts.

The cited article 13, no. 1, of the RJAT, under the heading "Effects of the request for constitution of the arbitral tribunal", provides as follows:

In requests for arbitral pronouncement having as their object the assessment of the legality of the tax acts provided for in article 2, the head of the tax administration service may, within a period of 30 days counting from the knowledge of the request for constitution of the arbitral tribunal, proceed to the revocation, ratification, reform or conversion of the tax act whose illegality was raised, practicing, when necessary, a substitute tax act, and shall notify the president of the Administrative Arbitration Center (CAAD) of his decision, after which the counting of the deadline referred to in paragraph c) of no. 1 of article 11 shall commence.

The deadline provided for in paragraph c) of no. 1 of article 11 to which this provision refers is that which concerns the notification to the parties of the constitution of the arbitral tribunal, which allows the conclusion that this is a procedural deadline, inserted in the procedure for constitution of the tribunal, and which takes place still before the start of the arbitral proceedings (cf. article 15).

This does not mean, however, that the Administration is prevented from proceeding with administrative annulment of the impugned act during the pendency of the arbitral proceedings.

The Tax Authority, as an administrative entity, is subordinated to the provisions of the Administrative Procedure Code (article 2, no. 1), and, on the other hand, as results from the provision of article 29 of the RJAT, the rules on proceedings in administrative courts are to be applied subsidiarily to tax arbitral proceedings, according to the nature of the lacuna, among others.

Article 168 of the CPA, which defines the conditions applicable to administrative annulment, in its no. 3, establishes that "when the act has been the subject of jurisdictional impugnation, administrative annulment can only take place until the closure of the discussion". The closure of the discussion should be understood, in correspondence with what is established in article 604, no. 3, paragraph e), of the CPC, as the moment when the parties make oral submissions or the deadline for written submissions expires, or the end of the pleading phase when the parties have waived final submissions and the procedural stage permits assessment of the request without the need for further inquiry.

It must be concluded, therefore, that the CPA expanded the powers of disposition of the Administration during the pendency of proceedings, permitting, in line with what was already suggested by doctrine, that administrative annulment, when the act has been the subject of jurisdictional impugnation, can take place until the closure of the discussion, and not only until reply, as was provided for in article 141, no. 1, of the CPA of 1991.

In any case, nothing prevents the Administration, under the cited article 168, no. 3, from being able to annul the contested tax act during the pendency of the proceedings, provided it is within the time limit defined in that provision, and this power has nothing to do with the specific regime referred to in article 13, no. 1, of the RJAT, which confers the possibility for the Administration to annul the impugned act still within the scope of the procedure for constitution of the arbitral tribunal. What the special regime of that article prohibits, beyond the 30-day period counting from knowledge of the request for constitution of the arbitral tribunal, is the practice of a new tax act regarding the same taxpayer, tax and taxation period, unless based on new facts (no. 3). But not the administrative annulment of the act itself without new regulation of the legal situation.

That said, it cannot fail to be acknowledged that the administrative annulment is timely, since the Tax Authority practiced the annulling act still within the deadline for submission of the reply, and the annulment must be attributed, under this condition, the corresponding legal effects.

As to the procedural consequences of administrative annulment, the provision of article 64 of the CPTA is relevant, to be applied subsidiarily, which, among other provisions, refers to situations in which, during the pendency of the impugnationary proceedings, the impugned act is the subject of administrative annulment accompanied or followed by a new definition of the legal situation, in which case it is admitted that the impugnationary proceedings continue against the new act on the grounds of relapse into the same illegalities. There is foreseen the typical hypothesis of broadening of the object of the proceedings when, during the pendency of an impugnationary proceeding, the Administration annuls the impugned act by practicing a new act in its substitution against which the impugner may still have an interest in reacting. And, on the other hand, it is important to note that, as a result of the provision of article 13, no. 3, of the RJAT, the substitution of the act during the pendency of the proceedings could only occur provided it did not imply the invocation of new facts.

It is clear that this is not, however, the situation of the case at hand.

The Administration annulled the acts without instituting any new regulation of the legal situation, merely conforming itself to the judgment in another arbitral proceeding in which the legality of identical tax acts relating to the same taxpayer and referring to an earlier period was analyzed.

Now, the annulment of the impugned act by the Administration itself, during the pendency of the proceedings, satisfying the impugnationary claim of the applicant, leads to the supervening impossibility of the dispute, which constitutes a ground for extinction of the instance (article 277, paragraph e), of the CPC).

  1. The Applicant states, however, that it only accepts the revocation (should read administrative annulment) if the Tax Authority rules favorably regarding the request for indemnification interest and, otherwise, the proceedings should continue in its terms, from which it can be inferred that it intends the proceedings to continue for the purpose of condemnation to payment of indemnification interest.

It is important to bear in mind in this regard that administrative annulment is undertaken on the initiative of the Administration and, constituting a unilateral act, its effects do not depend on the manifestation of will of the interested private party. On the other hand, the arbitral request relating to indemnification interest can only be understood as a claim of a condemnatory nature that is accessory or consequential to the principal claim, implying that the proceedings should continue for the incidental assessment of the legality of the impugned act only for the purpose of determining whether there is grounds for the sought compensation in the form of indemnification interest.

The fact is that administrative annulment determines the destruction of the effects of the annulled administrative act (article 165, no. 2, of the CPA), with its consequent elimination from the legal order, so that a situation of supervening impossibility of the dispute occurs due to lack of procedural object.

Furthermore, article 172 of the CPA, under the heading "Consequences of administrative annulment", reproduces the provision of article 173 of the CPTA, applicable to the execution of judgments annulling administrative acts, stipulating a set of duties to execute regarding the administratively annulled act that correspond to those equally imposed on the Administration if there is contentiousness annulment within the scope of an impugnationary proceeding. This suggests that the consequences resulting from the annulment of an administrative act are fundamentally identical, regardless of whether the annulment results from an act of the Administration itself or from a jurisdictional decision handed down in an impugnationary proceeding (in these precise terms, Carlos Fernandes Cadilha, "Implications of the New Administrative Procedure Code Regime in Administrative Procedural Law", in Julgar no. 26, May-August 2015, p. 31).

Being one of the duties in which the Administration becomes constituted, as a result of the administrative annulment of the act, the reconstitution of the situation that would exist if the act had not been practiced, through the execution of the repristinatary effect of the annulment, nothing prevents that indemnification interest be owed within that scope for unduly paid tax performance, in accordance with what is also established in article 43 of the General Tax Law.

And it is not excluded, in any case, that the Applicant may lodge an indemnity claim in an autonomous civil liability action.

What cannot fail to be acknowledged is that the present arbitral proceeding, as a result of the administrative annulment of the impugned acts, cannot continue due to the supervening impossibility of the dispute.

III – Decision

Accordingly, it is decided to declare the instance extinct due to supervening impossibility of the dispute.

Value of the Case

The Applicant indicated as the value of the case the amount of € 226,757.10, which was not contested by the Respondent and corresponds to the value of the assessment which it sought to oppose, and accordingly the value of the case is fixed at that amount.

Costs

Pursuant to the provisions of articles 12, no. 2, and 24, no. 4, of the RJAT, and 3, no. 2, of the Costs Regulation in Tax Arbitration Proceedings and Table I annexed to that Regulation, the amount of costs is fixed at € 4,284.00, which shall be borne by the Respondent (article 536, no. 3, second part, of the CPC).

Notify.

Lisbon, 16 November 2018

The President of the Arbitral Tribunal

Carlos Fernandes Cadilha

The Associate Arbitrator

André Sousa Tavares

The Associate Arbitrator

André Festas da Silva

Frequently Asked Questions

Automatically Created

What happens when the Tax Authority revokes an IRC tax assessment during CAAD arbitration proceedings?
When the Tax Authority revokes an IRC assessment during CAAD proceedings, the legal effect depends on timing and whether ancillary claims remain pending. Under Article 13(1) RJAT, the Tax Authority has 30 days from knowledge of the arbitration request to revoke, ratify, reform or convert the contested act. If revocation occurs within this period and resolves all claims, proceedings typically terminate due to loss of object (Article 13(3) RJAT). However, revocation after tribunal constitution or after the 30-day deadline raises questions about procedural validity. Additionally, if the taxpayer has claimed compensatory interest (juros indemnizatórios), the revocation of the principal assessment does not automatically resolve this ancillary claim, and the tribunal must determine whether the claim survives independently or if proceedings should continue to adjudicate it.
What is the legal deadline for the Tax Authority to revoke a tax act under Article 13 of RJAT?
Under Article 13(1) of RJAT, the Tax Authority has 30 days counting from knowledge of the request for constitution of the arbitral tribunal to revoke, ratify, reform or convert the contested tax act. This deadline is calculated from when the Tax Authority becomes aware of the arbitration request, which occurs through automatic notification by CAAD's President upon acceptance of the request. The 30-day period is designed to provide the Tax Authority an opportunity to reconsider its position before incurring the costs and time of full arbitration proceedings. Revocation within this window allows the Administration to correct errors or align with recent jurisprudence efficiently. However, as this case demonstrates, revocations made after this statutory deadline and particularly after tribunal constitution create legal uncertainty regarding their procedural effects and whether they can still terminate proceedings or whether the tribunal retains jurisdiction to decide remaining issues.
Can a taxpayer claim compensatory interest (juros indemnizatórios) after the revocation of an additional IRC tax assessment?
Yes, a taxpayer can claim compensatory interest (juros indemnizatórios) after revocation of an additional IRC assessment. Compensatory interest is governed by Article 43 of the LGT (General Tax Law) and compensates taxpayers for undue payments resulting from illegal tax assessments. When the Tax Authority revokes or annuls an assessment that resulted in payment by the taxpayer, this creates a right to reimbursement of the principal amount plus compensatory interest for the period the State improperly retained those funds. The claim for compensatory interest is an ancillary but independent right that survives revocation of the principal assessment. In this case, the taxpayer explicitly stated that acceptance of the revocation was conditional on the Tax Authority's agreement to pay compensatory interest. If the Administration remains silent or refuses to recognize this obligation, the taxpayer can insist that arbitral proceedings continue solely to adjudicate the compensatory interest claim, even if the principal assessments have been eliminated.
Does the revocation of a tax act by the Tax Authority automatically lead to the termination of CAAD arbitral proceedings?
No, revocation of a tax act by the Tax Authority does not automatically lead to termination of CAAD arbitral proceedings. While Article 13(3) RJAT provides that proceedings terminate when there is loss of object (perda de objeto), termination is not automatic and depends on several factors. First, if revocation occurs within the 30-day period of Article 13(1) RJAT and before tribunal constitution, and resolves all claims including any requests for compensatory interest, proceedings will typically terminate. However, if revocation occurs after this deadline or after tribunal constitution, the tribunal must evaluate its procedural effects. Second, if the taxpayer has made ancillary claims such as compensatory interest (juros indemnizatórios) and the Tax Authority's revocation does not expressly address these claims, the proceedings cannot terminate because unresolved issues remain. The tribunal retains jurisdiction to decide whether the ancillary claims survive independently. In this case, the taxpayer conditioned acceptance of the revocation on favorable resolution of the compensatory interest claim, demonstrating that revocation alone does not automatically end proceedings when disputes remain.
What are the consequences of late revocation of a tax act after the CAAD arbitral tribunal has already been constituted?
The consequences of late revocation after CAAD tribunal constitution raise important procedural questions. Article 13(1) RJAT establishes a 30-day deadline for revocation counted from knowledge of the arbitration request, which typically occurs before tribunal constitution. Revocation within this period allows efficient resolution and avoids tribunal costs. When revocation occurs after tribunal constitution and beyond the 30-day deadline, several issues arise: (1) whether such late revocation is procedurally valid and can produce legal effects; (2) whether it terminates proceedings or the tribunal retains jurisdiction; (3) whether the taxpayer can refuse acceptance of late revocation; and (4) how costs are allocated. In this case, the revocation occurred on October 2, 2018, well after the 30-day deadline and after July 10, 2018 tribunal constitution. The tribunal characterized the act as administrative annulment (not mere revocation) based on illegality, not discretion. Late revocation may still be substantively valid as the Administration can correct illegal acts at any time, but procedurally it may not achieve automatic termination of proceedings, especially when ancillary claims like compensatory interest remain unresolved and the taxpayer conditionally accepts the revocation.