Process: 24/2017-T

Date: July 17, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration decision (Process 24/2017-T) addresses the procedural and financial consequences when the Portuguese Tax Authority revokes a contested IMT assessment during pending arbitration proceedings. The claimant challenged an IMT liquidation of €21,372.00 filed on January 5, 2017. Subsequently, on March 2, 2017, the Tax Authority revoked the disputed assessment notice. The arbitral tribunal applied Article 277(e) of the Code of Civil Procedure (CPC), incorporated by Article 29(1)(e) of the Legal Framework for Arbitration in Tax Matters (LFATM), to declare the proceedings extinct due to supervening futility of the dispute (inutilidade superveniente da lide). When the object of the dispute ceases to exist through administrative revocation of the tax assessment, the arbitration petition becomes moot. The central issue concerned allocation of procedural costs. Under Article 527 CPC, the party causing the costs bears responsibility for payment. The tribunal determined that since the Tax Authority revoked the illegal assessment only after the taxpayer initiated arbitration proceedings, the Respondent caused the costs and must pay them. The arbitration fee of €1,224.00 was charged entirely to the Tax Authority. Significantly, the tribunal also awarded indemnity interest pursuant to Article 43(1) of the General Tax Law (GTL) and Article 61(2)(5) of the Code of Tax Procedure and Process (CTPP). The decision explicitly recognized error attributable to the services (erro imputável aos serviços) in issuing the original IMT assessment. This interest accrues from the payment date until full reimbursement. This ruling establishes important precedents: taxpayers are not penalized when the Tax Authority corrects errors during arbitration; supervening administrative revocation triggers automatic cost attribution against the Tax Authority; and taxpayers retain rights to indemnity interest even when proceedings are terminated for futility, provided the original tax act was erroneous.

Full Decision

ARBITRATION DECISION

I. Report

1. A..., S.A., a legal entity with tax identification number ... (hereinafter referred to only as the Claimant), with registered office at ..., no. ..., parish of ..., ...-... Porto, filed on 5 January 2017, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, i.e., the Legal Framework for Arbitration in Tax Matters ("LFATM"), a petition for the constitution of an arbitral tribunal, in which the Tax and Customs Authority (hereinafter referred to as the Respondent) is the defendant.

2. The Claimant requests the declaration of illegality and consequent annulment of the assessment notice for the Municipal Tax on Onerous Transfers of Real Property ("IMT"), with no. ..., in the amount of € 21,372.00.

A) Constitution of the Arbitral Tribunal

3. Pursuant to the provisions of subparagraph a) of paragraph 2 of article 6 and subparagraph b) of paragraph 1 of article 11 of the LFATM, the Deontological Council of this Administrative Arbitration Center ("CAAD") appointed the undersigned as arbitrator of the Singular Arbitral Tribunal, who communicated acceptance of the appointment within the applicable period, and notified the parties of this appointment on 6 March 2017.

4. Thus, in compliance with the provisions of subparagraph c) of paragraph 1 of article 11 of the LFATM, and through the communication of the President of the Deontological Council of the CAAD, the Singular Arbitral Tribunal was constituted on 21 March 2017.

B) Procedural History

5. By order of 5 July 2017, the Singular Arbitral Tribunal decided, without opposition from the parties, that it was not necessary to hold the meeting referred to in article 18 of the LFATM.

6. The Tribunal was duly constituted and is competent to examine the issues indicated (article 2, paragraph 1, subparagraph a) of the LFATM), the parties have legal personality and capacity and full standing (articles 4 and 10, paragraph 2 of the LFATM and article 1 of Order no. 112-A/2011, of 22 March). There are no nullities whatsoever, and nothing prevents judgment on the merits.

7. The present proceedings are thus in a position for a final decision to be rendered.

II. Issues to be Decided

8. In its Reply the Respondent raises the issue of supervening futility of the dispute, inasmuch as the aforesaid IMT assessment notice, which is the subject of arbitral challenge, was revoked by order on 2 March 2017 by the Director of Finance of ....

9. Notified to state its position on this issue, the Claimant does not oppose the dismissal of the proceedings due to futility of the dispute, considering that the costs of the present petition should be borne by the Respondent.

10. In light of the foregoing, as there is agreement on the matter of dismissal of the proceedings, there remains only to examine the question of responsibility for costs.

11. Pursuant to article 527 of the Code of Civil Procedure, by virtue of subparagraph e) of paragraph 1 of article 29 of the LFATM, the party that has caused the costs shall be responsible for their payment.

12. Given that the tax act which is the subject of the present petition for arbitral review was annulled after the filing of the petition for arbitral review presented by the Claimant, it is concluded that, pursuant to the law, responsibility for the costs of the present arbitral proceedings shall be attributed exclusively to the Respondent.

III. Decision

13. Therefore, this Singular Arbitral Tribunal decides:

A) To declare the proceedings extinct due to supervening futility of the petition for arbitral review and supervening futility of the dispute, pursuant to subparagraph e) of article 277 of the Code of Civil Procedure, by virtue of subparagraph e) of paragraph 1 of article 29 of the LFATM;

B) To condemn the Respondent, pursuant to article 43, paragraph 1 of the General Tax Law ("GTL") and article 61, paragraphs 2 and 5 of the Code of Tax Procedure and Process ("CTPP"), to the payment of indemnity interest, at the rate resulting from paragraph 4 of article 43 of the GTL, there being in the case sub judice, undoubtedly error attributable to the services in the practice of the tax act in question, calculated on the amount paid, from the day on which the assessment mentioned above was paid until the full reimbursement of the amount referred to; and

C) To condemn the Respondent in the costs of the proceedings for having caused the petition.

IV. Value of the Proceedings

14. The value of the proceedings is fixed at € 21,372.00, pursuant to article 97-A, paragraph 1, subparagraph a), of the CTPP, made applicable by virtue of subparagraphs a) and b) of paragraph 1 of article 29 of the LFATM and paragraph 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

V. Costs

15. In accordance with the provisions of article 22, paragraph 4, of the LFATM, the value of the arbitration fee is fixed at € 1,224.00, in accordance with Table I of the aforementioned Regulation, to be borne by the Respondent, for having caused the petition.

Let it be notified.

Lisbon, CAAD, 17 July 2017

The Arbitrator

________________________________________________________________________

(Sérgio Santos Pereira)

Frequently Asked Questions

Automatically Created

What happens when the Tax Authority revokes an IMT liquidation during pending CAAD arbitration proceedings?
When the Tax Authority revokes a contested IMT assessment during pending CAAD arbitration, the proceedings are declared extinct due to supervening futility of the dispute (inutilidade superveniente da lide) under Article 277(e) of the Code of Civil Procedure, applicable through Article 29(1)(e) LFATM. The arbitral tribunal terminates the case since the object of the dispute no longer exists. However, the taxpayer is not disadvantaged—the Tax Authority bears all arbitration costs for having caused the petition, and the taxpayer retains entitlement to indemnity interest on amounts paid if the revoked assessment contained errors attributable to tax services. This procedural termination does not prejudice the taxpayer's substantive rights to reimbursement and compensation for improper tax collection.
How does supervening uselessness of proceedings (inutilidade superveniente da lide) apply to tax arbitration in Portugal?
Supervening uselessness (inutilidade superveniente da lide) applies to Portuguese tax arbitration through Article 29(1)(e) LFATM, which incorporates Article 277(e) of the Code of Civil Procedure. This ground for extinction arises when the object of the dispute ceases to exist after the arbitration petition is filed, making judicial determination unnecessary. In Process 24/2017-T, the Tax Authority's revocation of the challenged IMT assessment created supervening futility because there was no longer a tax act to annul. Both parties must agree to dismissal on this ground. The tribunal declares proceedings extinct but must still determine cost allocation under Article 527 CPC—the party that caused the dispute (typically the Tax Authority when it revokes an erroneous assessment) bears all procedural costs, including arbitration fees.
Can a taxpayer claim costs against the Tax Authority when the disputed IMT assessment is revoked before the arbitral decision?
Yes, taxpayers can claim costs against the Tax Authority when a disputed IMT assessment is revoked before the arbitral decision. Under Article 527 CPC (applicable via Article 29(1)(e) LFATM), the party that caused the costs bears responsibility for payment. When the Tax Authority revokes an assessment after the taxpayer files an arbitration petition, the Tax Authority is deemed to have caused the proceedings because the erroneous assessment forced the taxpayer to seek judicial relief. In Process 24/2017-T, the tribunal charged the full arbitration fee of €1,224.00 to the Tax Authority. Additionally, the taxpayer can claim indemnity interest under Article 43 GTL and Article 61 CTPP when the revoked assessment contained errors attributable to tax services, calculated from payment date until full reimbursement.
How does Article 270 of the Portuguese Insolvency Code (CIRE) affect IMT exemptions on property transfers?
While Article 270 CIRE is referenced in the case theme, the decision focuses on procedural extinction due to supervening futility rather than substantive analysis of this provision. Article 270 CIRE governs the tax treatment of property transfers in insolvency contexts, potentially establishing IMT exemptions or special regimes for assets transferred during insolvency proceedings. The underlying dispute likely involved whether a property transfer qualified for IMT exemption under CIRE Article 270. However, because the Tax Authority revoked the IMT assessment before the tribunal issued a substantive ruling, the decision does not analyze how Article 270 CIRE exemptions apply. The revocation suggests the Tax Authority recognized the transfer qualified for favorable treatment under insolvency legislation.
Who bears the costs of CAAD arbitration when the proceedings are terminated due to supervening uselessness?
When CAAD arbitration proceedings are terminated due to supervening uselessness, the party that caused the dispute bears all costs under Article 527 of the Code of Civil Procedure (applicable via Article 29(1)(e) LFATM). The tribunal examines which party's actions necessitated the arbitration. In Process 24/2017-T, the Tax Authority bore full costs because it issued an erroneous IMT assessment that the taxpayer rightfully challenged, then revoked the assessment only after arbitration commenced. This cost allocation includes the arbitration fee (€1,224.00 in this case) and any other procedural expenses. The principle ensures taxpayers are not financially penalized for appropriately challenging illegal tax acts that the Tax Authority later recognizes as erroneous.