Process: 230/2015-T

Date: September 28, 2015

Tax Type: IRC

Source: Original CAAD Decision

Summary

Process 230/2015-T addresses the concept of 'inutilidade originária da lide' (original impossibility of litigation) in Portuguese tax arbitration concerning Corporate Income Tax (IRC). The case involved A... SGPS, S.A. challenging an IRC assessment for fiscal year 2011 related to double international taxation credits. The company had declared foreign-source income of €215,725.40 in foreign taxes paid, but the Tax Authority initially reduced this amount to €56,755.16 through assessment no. 2012. After the taxpayer filed an administrative complaint (dismissed in October 2014), the Tax Authority issued a new assessment in December 2014 (no. 2014) that restored the full €215,725.40 credit, effectively satisfying the taxpayer's original claim. The new assessment was notified on January 6, 2015, but the company proceeded to file an arbitration request on April 1, 2015, challenging the original 2012 assessment. The CAAD arbitral tribunal, constituted on June 11, 2015, dismissed the case due to lack of subject matter. The tribunal held that since the contested assessment had been revoked and replaced by the new assessment before the arbitration request was filed, the original act no longer existed in the legal order. As CAAD arbitration is a contentious means of annulment aimed at declaring the illegality of specific administrative acts, the non-existence of the contested act made litigation impossible. The tribunal ruled that the dismissal was attributable to the claimant, as the revocation had been notified before filing the arbitration request. Consequently, the taxpayer was ordered to bear the full costs of €3,060.00. This decision establishes important precedent regarding the requirement that a contested tax act must exist in the legal order at the time arbitration is requested.

Full Decision

Case No. 230/2015-T

The arbitrators Dr. Jorge Manuel Lopes de Sousa (arbitrator-president), Prof. Doctor João Sérgio Ribeiro and Dr. Armando Tavares, appointed by the Deontological Council of the Centre for Administrative Arbitration to form the Arbitral Tribunal, constituted on 11-06-2015, hereby agree as follows:

  1. Report

A... SGPS, S.A., legal entity no. ..., with registered address at Rua ..., ..., ..., office ..., ...-... Lisbon, requested, pursuant to paragraph a) no. 1 of article 2 of Decree-Law no. 10/2011, of 20 January (hereinafter "RJAT"), the constitution of an Arbitral Tribunal, aimed at reviewing the legality of the assessment of Corporate Income Tax no. ... 2010 ..., concerning the fiscal year 2011.

The respondent is the AUTHORITY FOR TAX AND CUSTOMS.

The request for constitution of the arbitral tribunal was accepted by the President of CAAD and automatically notified to the Authority for Tax and Customs on 06-04-2015.

Pursuant to 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 appointed as arbitrators of the collective arbitral tribunal the undersigned, who communicated acceptance of the appointment within the applicable period.

On 26-05-2015 the parties were duly notified of such appointment and did not manifest any intention to refuse the appointment of the arbitrators, in accordance with article 11, no. 1, paragraphs a) and b), of the RJAT and articles 6 and 7 of the Deontological Code.

Thus, in conformity 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, the Arbitral Tribunal was constituted on 11-06-2015.

The Authority for Tax and Customs presented a response in which it raised the exception of lack of subject matter of the case and argued for the dismissal of the claim.

By order of 14-07-2015, the meeting provided for in article 18 of the RJAT was dispensed with and it was decided that the case should proceed with written arguments.

Neither of the parties submitted arguments.

The Arbitral Tribunal was duly constituted.

The parties are duly represented, possess legal personality and capacity and are legitimate (arts. 4 and 10, no. 2, of the same statute and art. 1 of Order no. 112-A/2011, of 22 March).

The case is not affected by any defects and it is imperative to examine the exception of lack of subject matter of the case as a priority.

  1. Factual Matters Relevant to Examining the Exception

a) The Claimant is a commercial company subject to Corporate Income Tax (IRC);

b) The Claimant submitted in May 2012 its Form 22 Income Statement for IRC relating to the fiscal year 2011;

c) In the said statement, it presented income obtained abroad and the taxes which, also abroad, were levied on such income;

d) The taxes levied abroad on those foreign-source income amounted to €215,725.40;

e) The Claimant did not calculate any IRC tax payable in that fiscal year 2011, having calculated and paid a Municipal Surcharge (Derrama Municipal) in the amount of €56,755.46 and €139,183.87 of State Surcharge (Derrama Estadual);

f) Following an inspection action, the Authority for Tax and Customs made an assessment no. 2012 ..., dated 15-06-2012, in which it reduced the amount declared by the Claimant concerning double international taxation from €215,725.40 to €56,755.16 (document no. 1 attached to the request for arbitral decision, the contents of which are hereby reproduced);

g) The Claimant filed an administrative complaint against the assessment referred to in the previous paragraph, dismissed by order of 17-10-2014 (document no. 2 attached to the request for arbitral decision, the contents of which are hereby reproduced);

h) Subsequently, on 30-12-2014, the Authority for Tax and Customs issued a new assessment, no. 2014 ... and respective demonstration of accounting correction no. 2015 ... of 02-01-2015, in which, among other things, it corrected the amount of €56,755.16, relating to double international taxation, to €215,725.40 (document no. 2 attached to the Response, the contents of which are hereby reproduced);

i) Assessment no. 2014 ... and the demonstration of accounting correction no. 2015 ... were notified to the Claimant on 06-01-2015, by ViaCTT, and the Claimant accessed the electronic mailbox on that same date (documents nos. 3 to 5 attached to the Response, the contents of which are hereby reproduced);

j) On 01-04-2015, the Claimant submitted the request for arbitral decision which gave rise to the present case.

2.1. Facts Not Proven

There are no facts relevant to the decision that have not been proven.

2.2. Reasoning for the Decision on Factual Matters

The facts were accepted as proven on the basis of the documents indicated as attached to the request for arbitral decision and to the Response.

  1. Legal Matters

The Authority for Tax and Customs raised the exception of lack of subject matter of the case, on the grounds that, in summary, the contested assessment, no. 2012 ..., was replaced by assessment no. ..., which restored the situation prior to such first assessment, thereby satisfying the Claimant's claim as formulated in the administrative complaint.

Thus, as the Authority for Tax and Customs correctly states, "the contested assessment ceased to be in effect and produce its effects in the sphere of the Claimant," as the second assessment revokes by substitution the first.

In these terms, the present case lacks ab initio subject matter, as the assessment contested no longer existed in the legal order on the date when the Claimant submitted the request for arbitral decision.

Since the arbitral proceedings provided for in the RJAT is a contentious means of annulment, which has as its objective to declare the illegality of an act of the types indicated in article 2 thereof, the non-existence in the legal order of the act whose declaration of illegality is sought implies the impossibility of the litigation.

  1. Decision

In these terms, this Arbitral Tribunal agrees to:

– declare the case closed due to original impossibility of litigation, arising from lack of subject matter;

– absolve the Authority for Tax and Customs from the claim.

  1. Value of the Case

In accordance with article 306, no. 2, of the Code of Civil Procedure and article 97-A, no. 1, paragraph a), of the Code of Tax Procedure and article 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the value of the case is fixed at €139,183.87.

  1. Costs

Pursuant to article 22, no. 4, of the RJAT, the amount of costs is fixed at €3,060.00, in accordance with Table I attached to the Regulation of Costs in Tax Arbitration Proceedings.

Since the revocation of the contested act was notified to the Claimant before the submission of the request for arbitral decision, the dismissal of the claim is attributable to the Claimant, and therefore the Claimant shall bear sole responsibility for the costs of the proceedings.

Lisbon, 28-09-2015

The Arbitrators

(Jorge Manuel Lopes de Sousa)

(João Sérgio Ribeiro)

(Armando Tavares)

Frequently Asked Questions

Automatically Created

What is the meaning of 'inutilidade originária da lide' (original futility of the dispute) in Portuguese tax arbitration?
In Portuguese tax arbitration, 'inutilidade originária da lide' (original impossibility of litigation) refers to a procedural ground for dismissing a case when the dispute lacks a valid subject matter from the outset. This occurs when the contested administrative act no longer exists in the legal order at the time the arbitration request is filed. As established in Process 230/2015-T, CAAD arbitration is a contentious means of annulment aimed at declaring the illegality of specific tax acts listed in Article 2 of the RJAT (Legal Framework for Tax Arbitration). If the act being challenged has been revoked, replaced, or otherwise ceased to produce legal effects before the arbitration request is submitted, there is no valid object for the tribunal to review. The tribunal cannot declare illegal an act that no longer exists, making the litigation impossible from its inception.
When can a CAAD arbitral tribunal dismiss an IRC tax case for lack of object?
A CAAD arbitral tribunal can dismiss an IRC tax case for lack of object when the contested assessment or tax act has been revoked, replaced, or has otherwise ceased to exist in the legal order before the arbitration request is filed. In Process 230/2015-T, the tribunal dismissed the case because the original assessment (no. 2012) had been replaced by a subsequent assessment (no. 2014) that satisfied the taxpayer's claim by restoring the full double taxation credit. The replacement assessment was notified on January 6, 2015, but the taxpayer filed the arbitration request on April 1, 2015, challenging the already-revoked assessment. The tribunal held that since the second assessment revoked the first by substitution, the contested act ceased to produce effects in the taxpayer's sphere. The tribunal emphasized that as CAAD proceedings constitute a contentious means of annulment, the non-existence of the act whose illegality is sought implies the impossibility of litigation, requiring dismissal of the case.
How does the CAAD arbitration process work for corporate income tax (IRC) disputes in Portugal?
The CAAD (Centro de Arbitragem Administrativa) arbitration process for IRC disputes follows the procedures established in the RJAT (Decree-Law no. 10/2011). The process begins when a taxpayer files a request for constitution of an arbitral tribunal to review the legality of an IRC assessment, pursuant to Article 2(1)(a) of the RJAT. The CAAD President accepts the request and automatically notifies the Tax Authority. The Deontological Council appoints arbitrators (either a single arbitrator or a panel of three for collective tribunals), who must accept within the applicable period. Parties are notified of the appointments and may refuse arbitrators. Once constituted, the tribunal follows these steps: (1) the Tax Authority files a response, potentially raising preliminary objections; (2) the tribunal may order a hearing under Article 18 of RJAT or proceed with written arguments; (3) parties submit arguments if required; (4) the tribunal examines any preliminary exceptions before addressing the merits; (5) a decision is issued. The tribunal must verify party legitimacy, legal capacity, and proper representation. Costs are assessed according to the Regulation of Costs in Tax Arbitration Proceedings, with the case value determining the fee structure.
What happens when the Tax Authority raises a preliminary objection of lack of object in CAAD proceedings?
When the Tax Authority raises a preliminary objection of lack of object in CAAD proceedings, the arbitral tribunal must examine this exception as a priority before addressing the merits of the case. In Process 230/2015-T, the Tax Authority argued that the contested assessment had been replaced by a subsequent assessment that satisfied the taxpayer's claim, thereby eliminating the subject matter of the dispute. The tribunal followed this procedural sequence: (1) verified that the case was properly constituted and parties were legitimate; (2) confirmed no procedural defects existed; (3) prioritized examination of the lack of object exception; (4) established relevant facts through documentary evidence; (5) analyzed whether the contested act still existed in the legal order; (6) concluded that the replacement assessment revoked the original by substitution; and (7) dismissed the case due to original impossibility of litigation. The tribunal held that since the arbitration is a contentious means of annulment, the non-existence of the contested act makes litigation impossible. The procedural costs were attributed to the taxpayer because the revocation had been notified before filing the arbitration request.
Can a taxpayer challenge an IRC tax assessment through CAAD if the dispute has become moot?
No, a taxpayer cannot successfully challenge an IRC tax assessment through CAAD if the dispute has become moot because the contested act no longer exists in the legal order. Process 230/2015-T establishes that CAAD arbitration under the RJAT is a contentious means of annulment with the specific objective of declaring the illegality of administrative acts listed in Article 2. For the tribunal to exercise jurisdiction, the contested act must exist and produce legal effects at the time the arbitration request is filed. If the Tax Authority has revoked, replaced, or otherwise eliminated the contested assessment before the arbitration request is submitted, the case becomes moot and must be dismissed for lack of subject matter. In this case, even though the taxpayer filed within the general deadline for challenging tax acts, the tribunal dismissed the case because the new assessment (notified January 6, 2015) had already replaced the contested assessment before the arbitration request (filed April 1, 2015). The tribunal cannot declare illegal an act that has ceased to exist, regardless of whether the taxpayer's substantive claim was originally valid. Taxpayers should ensure the contested act remains in force when filing arbitration requests.