Process: 247/2017-T

Date: November 27, 2017

Tax Type: IRC

Source: Original CAAD Decision

Summary

CAAD Process 247/2017-T addresses the complex interaction between bank resolution measures and corporate income tax (IRC) obligations, specifically concerning subsequent assessments (liquidação superveniente) and the transfer of special advance payments. The case arose when A..., S.A. challenged Assessment 2016... for €358,828.93, arguing that assets transferred from B... following a Bank of Portugal resolution measure included deductible special advance payments that should reduce its 2015 tax liability. The procedural timeline proved critical: after filing the arbitration request, the taxpayer submitted a substitute declaration in May 2017, resulting in Assessment 2017... (June 2017) that granted a €226,704.85 refund. The subsequent statement of settlement (August 2017) totaling €578,862.79 effectively reversed the contested assessment plus the new refund, minus prior execution discounts. The taxpayer acknowledged this created implicit revocation and supervening uselessness of the litigation. The Tax Authority argued the original assessment was no longer in effect and the case lacked subject matter, rendering it unimpugnable. The Arbitral Tribunal rejected this position, emphasizing that impugnability must be assessed at the filing date, not based on subsequent developments. The Tribunal clarified that statements of settlement are merely executive acts, not autonomous assessments. This decision establishes important precedents regarding: (1) the temporal assessment of procedural requirements in tax arbitration; (2) the distinction between assessment acts and their execution; (3) the treatment of supervening circumstances that may render tax disputes moot; and (4) the fiscal consequences of banking resolution measures on transferable tax positions, particularly special advance payments under IRC rules.

Full Decision

ARBITRATION DECISION

The Arbitrators José Pedro Carvalho (Arbitrator President), Jónatas Machado and Jorge Júlio Landeiro de Vaz, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree:

I – REPORT

On 6 April 2017, A…, S.A., taxpayer number…, with registered office at Av. …, …, …-… Lisbon, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2 and 10 of Decree-Law no. 10/2011, of 20 January, which approved the Legal Regime for Arbitration in Tax Matters, with the wording introduced by article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as LRAT), seeking the declaration of illegality of the Assessment no. 2016… of 2015, in the amount of € 358,828.93.

To support its request, the Applicant alleges, in summary, that the referred act suffers from illegality due to error in the factual and legal presuppositions, arising from the Bank of Portugal, acting as a resolution entity, having determined the transfer of the majority of the assets of B… to the Applicant, necessarily encompassing the special advance payments deductible and supported by B… prior to the resolution resolution, which may be relevant in the exercise of 2015.

On 10-04-2017, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Applicant did not proceed with the appointment of an arbitrator, therefore, pursuant to the provisions of subsection a) of no. 2 of article 6 and subsection a) of no. 1 of article 11 of the LRAT, the President of the Deontological Council of the CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the office within the applicable period.

On 09-06-2017, the parties were notified of these appointments and did not manifest any intention to challenge any of them.

In compliance with the provision of subsection c) of no. 1 of article 11 of the LRAT, the collective Arbitral Tribunal was constituted on 28-06-2017.

On 13-09-2017, the Respondent, duly notified for this purpose, filed its answer, defending itself by exception and challenge.

The Applicant replied to the matter of exception, stating, among other things, that it acknowledged that an implicit revocation of the tax act subject to the present arbitral action occurred, generating the subsequent inutility of the litigation.

Pursuant to the provisions of subsections c) and e) of article 16 and no. 2 of article 29, both of the LRAT, the holding of the meeting referred to in article 18 of the LRAT was dispensed with.

Having been granted a deadline for the submission of written pleadings, the same were submitted by the Applicant, addressing the evidence produced and reiterating and developing its legal positions.

A deadline of 30 days was set for the rendering of a final decision, following the submission of pleadings by the Respondent.

The Arbitral Tribunal is materially competent and is regularly constituted, in accordance with articles 2, no. 1, subsection a), 5, and 6, no. 1, of the LRAT.

The parties have legal personality and capacity, are legitimate and are legally represented, in accordance with articles 4 and 10 of the LRAT and article 1 of Portaria no. 112-A/2011, of 22 March.

The proceeding does not suffer from defects of nullity.

Thus, there is no obstacle to the examination of the case.

Having considered all matters, it is necessary to rule:

II. DECISION

A. FACTUAL MATTERS

The following facts are relevant to the present decision:

A.1. Facts established as proven

1. The Declaration Form 22 for the financial year 2015, submitted by the Applicant on 31-05-2016, resulted in the issuance, on 23-06-2016, of assessment no. 2016….

2. On 27-06-2016, the Applicant submitted a declaration substituting the Declaration Form 22 for the financial year 2015, in which it calculated taxable income of € 71,913,777.29 and declared special advance payments in the amount of € 420,000.00.

3. Following the submission of the declaration substituting the self-assessment, assessment no. 2016… was issued on 02-07-2016, corresponding to the statement of settlement of accounts no. 2016…, which determined tax payable in the total amount of € 358,828.93.

4. The Applicant submitted a new declaration substituting the one relating to the financial year 2015 on 30-05-2017, where it carried out a new calculation of taxable income which was altered to € 70,735,604.84, and declared special advance payments in the amount of € 420,000.00, which resulted in the issuance, on 07-06-2017, of assessment no. 2017…, which determined tax to be refunded in the total amount of € 226,704.85.

5. Following the assessment referred to in the previous point, the AT issued the statement of settlement of accounts no. 2017… of 01-08-2017, in the total of € 578,862.79, which was received by the Applicant, by means of electronic interbank transfer, on 08-08-2017.

6. The value contained in the referred statement of settlement of accounts no. 2017… corresponds to the sum of the reversal of the amount of € 358,828.93, relating to the additional assessment no. 2016…, subject to the present arbitral action, with the refund calculated in the referred assessment no. 2017… of € 226,704.85, and a discount in the amount of € 6,670.99, relating to a previous tax execution.

A.2. Facts established as not proven

Relevant to the decision, there are no facts that should be considered as not proven.

A.3. Reasoning regarding the factual matters proven and not proven

With respect to factual matters, the Tribunal does not have to rule on everything that was alleged by the parties, but rather it has the duty to select the facts that matter for the decision and to distinguish the proven matters from the unproven ones (see article 123, no. 2, of the CPPT and article 607, no. 3 of the CPC, applicable ex vi article 29, no. 1, subsections a) and e), of the LRAT).

In this way, the facts pertinent to the judgment of the case are chosen and selected according to their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (see former article 511, no. 1, of the CPC, corresponding to the current article 596, applicable ex vi article 29, no. 1, subsection e), of the LRAT).

Thus, taking into consideration the positions assumed by the parties, in light of article 110/7 of the CPPT, the documentary evidence and the case file attached to the records, the facts listed above were considered proven, relevant to the decision.

B. ON THE LAW

The first question that arises to be resolved in the present case concerns the assessment of the repercussion therein of assessment no. 2017… of 07-06-2017.

The Applicant understands that the referred assessment had no effects whatsoever with respect to assessment no. 2016… of 02-07-2016, and that only the statement of settlement of accounts no. 2017… of 01-08-2017, would have operated a tacit revocation of that referred assessment, subject to the present arbitral action.

The Respondent, on the other hand, understands that assessment no. 2016 …"is no longer in effect, and, as results from the factuality set out above (…) the amount of tax paid was considered and reversed upon the issuance of assessment no. 2017…, whereby the arbitral action lacks subject matter.", whereby that one would be unimpugnable.

Regarding this thesis of the Respondent, it must be said from the outset that it lacks any support, in so far as, among other things, the impugnability of the act, as a procedural requirement, is assessed as of the date of filing of the action and the facts on which the Respondent bases the alleged "unimpugnability" are, unquestionably, subsequent.

As for the understanding of the Respondent, the same is also not susceptible of acceptance, since the statement of settlement of accounts is a mere act of execution of the assessment act, the latter being the true tax act understood as that which "always has at its base a concrete factual situation, which is foreseen abstractly and typically in tax law as generating the right to tax."[1]

The act of statement of settlement of accounts is an act in which the AT proceeds to a settlement between credits and debits of the taxpayer, credits and debits those defined (declared) and created by other acts (tax acts, judicial decisions, etc.).

In this way, the tacit revocation of assessment no. 2016… of 02-07-2016, acknowledged by the Applicant, did indeed occur, but by virtue of the assessment act no. 2017… of 07-06-2017, this being the tax act that definitively defined, up to the date, the right to corporate income tax (IRC) of the AT, over the Applicant, regarding the financial year 2015, and this is not merely a corrective assessment of assessment no. 2016… of 02-07-2016, especially since this one and that one are based on presuppositions, and have reasons, that are distinct (the declarations substituting of 27-06-2016 and 30-05-2017, respectively).

It is concluded, thus and as set out above, that assessment no. 2016… of 02-07-2016 was revoked by assessment no. 2017… of 07-06-2017.

In this regard, article 13/1 of the Legal Regime for Arbitration in Tax Matters (LRAT) provides:

"In requests for arbitral determination that have as their object the examination of the legality of the tax acts provided for in article 2, the highest-ranking official of the tax administration service may, within a period of 30 days from knowledge of the request for constitution of the arbitral tribunal, proceed to the revocation, ratification, reform or conversion of the tax act whose illegality has been raised, practicing, when necessary, a substitute tax act, and must notify the president of the Administrative Arbitration Centre (CAAD) of its decision, whereupon the counting of the period referred to in subsection c) of no. 1 of article 11 shall commence."

Also provided in no. 3 of the same article:

"Upon the expiry of the period provided for in no. 1, the tax administration is prevented from practicing a new tax act with respect to the same taxpayer or tax obligor, tax and taxation period, except on the basis of new facts."

The legal regime appears sufficiently clear, in the sense that, upon expiry of the period stipulated in article 13/1 of the LRAT, the AT is barred from the power to dispose of the (material legal-tax) relationship in dispute.

It is intended, with this provision, to permit a stabilization of the litigation, in such a way that, once it is submitted to arbitral jurisdiction, to remove it from the instability that a permanent availability of its content by the AT could generate.

It is thus concluded that the revocatory act practiced after the expiry of the period fixed in article 13/3 of the LRAT will be illegal, by violation thereof, and, as such, voidable, insofar as there exists no rule that punishes the referred illegality with nullity (see article 161/1 of the new CPA).

Should the interested party, in this case the Applicant, have raised the referred voidability, and considering that:

i. the Tribunal always has competence to examine both incidental and prejudicial questions that are relevant to the decision of the case (article 91 of the CPC) and, as for the latter, may suspend the case only if competence to decide falls to another jurisdiction (article 92 of the CPC and article 15/1 of the New CPTA);

ii. that what is at issue is the examination of the question of the utility of the continuation of the litigation; and

iii. that voidability may be raised either by way of action or by way of exception,

with effects restricted to the present case and to the decision of the question at issue, one could recognize the pointed illegality and draw the corresponding effects therefrom, namely not recognizing to the act that suffers therefrom the possibility of affecting the utility of the present litigation.

Not having, however, the Applicant raised the invalidity of the revocatory act, conforming itself thereto, and expressly requesting the subsequent inutility of the litigation (see article 47 of the response to the exceptions and last paragraph of p. 10 of the Applicant's pleadings), the said illegality should be deemed cured.

As was written in the Decision rendered in arbitral case 220/2017T of the CAAD[2]:

"The subsequent inutility of the litigation is verified when, by a fact occurring in the course of the case, the solution of the dispute ceases to have interest and utility, which justifies the extinction of the instance (see article 277, subsection e), of the Code of Civil Procedure, hereinafter CPC). As observed by LEBRE DE FREITAS, JOÃO REDINHA, RUI PINTO, Code of Civil Procedure annotated, volume 1st, 2nd edition, Coimbra Editora, 2008, page 555, the inutility or subsequent impossibility of the litigation "occurs when, by a fact occurring in the course of the instance, the claim of the claimant cannot be maintained, by virtue of the disappearance of the subjects or of the object of the case, or is found satisfaction outside the scheme of the relief sought. In either case, the solution of the dispute ceases to matter – here, by impossibility of achieving the intended result; there, by it having already been achieved by other means".

In this way, if, by virtue of new facts occurring in the course of the case, the objective sought with the claim filed in court has already been achieved by other means, then the decision to be rendered does not involve useful effect, whereby, in that sphere, subsequent inutility of the litigation occurs.

Now, as results from the procedural circumstances set out above (…), the tax acts examined in the present arbitral case were subject to revocation (see article 79, no. 1 of the General Tax Law, hereinafter LGT), by the AT (…)

It follows, then, from this administrative action that the claim formulated by the Applicant, which had as its objective the declaration of illegality and annulment by this Tribunal of the examined acts, was prejudiced inasmuch as the suppression of those acts and their effects from the legal order was achieved by another means after the instance was initiated. In truth, the subsequent practice of the express act of revocation of the challenged assessments (see article 79, no. 1 of the LGT) implies that the instance relating to the examination of the legality of those assessments is extinguished by subsequent inutility of the litigation, given that, having their effects been eliminated by the annulling revocation, the examination loses utility, in relation to such assessments, of the defects alleged in order to their invalidity, the action for impugnation against them deduced being left without subject matter."

In these terms, here as there, it is incumbent upon this Tribunal to consider verified the subsequent inutility of the litigation as regards the request for annulment of the tax acts subject to the present case (main request), assessment no. 2016… of 02-07-2016, and respective ancillary requests, which implies the extinction of the corresponding instance in accordance with the provision of article 277, subsection e) of the CPC, applicable ex vi article 29, no. 1, subsection e) of the LRAT.

*

Given this, it is also necessary to address the question, expressly raised by the parties, of the attribution of responsibility for the litigation, and consequent assignment of responsibility for the procedural costs.

In this regard, article 536 of the Code of Civil Procedure provides:

"1 - When the claim of the claimant or petitioner or the opposition of the defendant or respondent were well-founded at the moment in which they were filed or raised and ceased to be so by circumstances subsequent to these not imputable to them, the costs are divided between them in equal parts.

2 - It is considered that a change in circumstances has occurred not imputable to the parties when:

a) The claim of the claimant or respondent or opposition of the defendant or petitioner shall have been grounded in a legal provision that was subsequently altered or revoked;

b) When there occurs a reversal of jurisprudence constant in which the claim of the claimant or petitioner or opposition of the defendant or respondent was grounded;

c) When there occurs, in the course of the case, prescription or amnesty;

d) When, in execution proceedings, the patrimony that would serve as guarantee to the creditors has been dissipated by fact not imputable to the executed party;

e) When it is an action tending to the satisfaction of pecuniary obligations and there occurs the declaration of insolvency of the defendant or executed party, provided that, at the date of filing of the action, the referred insolvency was not foreseeable to the claimant.

3 - In the remaining cases of extinction of the instance by subsequent impossibility or inutility of the litigation, the responsibility for the costs falls on the claimant or petitioner, unless such impossibility or inutility is imputable to the defendant or respondent, in which case the latter is responsible for the totality of the costs.

4 - It is considered, in particular, that it is imputable to the defendant or respondent the subsequent inutility of the litigation when this results from the voluntary satisfaction, by the latter, of the claim of the claimant or petitioner, outside the cases provided for in no. 2 of the preceding article and unless, in case of agreement, the parties agree on the division of the costs."

As will be clearly evident, we are not dealing with a case of subsequent inutility of the litigation, by cause of circumstances subsequent not imputable to the parties, in accordance with the provisions of the transcribed normative.

There remains, therefore, to determine, in light of the legal criteria, to whom the responsibility for the subsequent inutility of the litigation verified should be attributed.

Of interest for this question, it results from the established facts, in summary that:

i. the assessment subject to the present arbitral action was issued on the basis of the first declaration substituting Form 22 timely submitted by the Applicant, replacing the original corporate income tax assessment for the financial year 2015, which was based on the first declaration;

ii. the present arbitral action was filed on 06-04-2017;

iii. that same assessment subject to the present arbitral action was tacitly revoked by assessment no. 2017… of 07-06-2017;

iv. This assessment was based on the second declaration substituting the declaration of Form 22 of 2015, submitted by the Applicant on 30-05-2017.

In view of these circumstances, it is judged that the responsibility for the subsequent inutility of the litigation verified falls on the Applicant.

In fact, while there is no doubt that it was the action of the Respondent, by issuing assessment no. 2017… of 07-06-2017, which, by revoking, and therefore removing from the legal order, the assessment subject to the present arbitral action, made the present litigation futile, it is no less certain that the initiative of such declaration is not imputable to the AT, but to the Applicant, which, after the filing of the arbitral request, submitted a declaration substituting the declaration on which the assessment subject to that request was based, modifying the presuppositions thereof and leading to the AT issuing assessment no. 2017… of 07-06-2017, based on the new declaration of the Applicant, which ended up revoking the assessment whose annulment is petitioned in the present arbitral action.

Not being exactly the same situation, it appears that the case sub iudice is analogous to that decided by the TCA-South in case 05243/09, by decision of 08-11-2012, where one can read:

"the embargoes and their respective lifting resulted from facts practiced by A., now Respondent, initially, by executing the works licensed illegally, in non-conformity with the approved project (which gave rise to the embargoes); subsequently, by presenting a structural reinforcement project elaborating the necessary corrections, with the inherent restoration of urban legality (circumstance that determined the lifting of the embargoes).

It was therefore such subsequent fulfillment of the essential conditions for the proper execution of the works that determined the inevitable action of the Municipality and the subsequent inutility of the litigation."

Also in the present case, it was the Applicant/Claimant that, after the institution of the action, fulfilled the presuppositions on which the act practiced by the Administration (here, the new assessment, there the lifting of the embargoes) determining the subsequent inutility of the litigation was based, through the submission of the declaration substituting after the filing of the present arbitral action.

In these terms, the responsibility for the costs should be attributed to the Applicant.

*

C. DECISION

In these terms, this Arbitral Tribunal decides to judge the instance extinguished by subsequent inutility of the litigation, in accordance with article 277, subsection e) of the CPC, applicable by force of article 29, no. 1, subsection e) of the LRAT, and to condemn the Applicant in the costs of the case, set out below.

D. VALUE OF THE CASE

The value of the case is set at € 358,828.93, in accordance with article 97-A, no. 1, a), of the Code of Tax Procedure and Process, applicable by force of subsections a) and b) of no. 1 of article 29 of the LRAT and no. 2 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. COSTS

The value of the arbitration fee is set at € 6,120.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Applicant, in accordance with articles 536 of the Code of Civil Procedure, 12, no. 2, and 22, no. 4, both of the LRAT, and article 4, no. 4, of the cited Regulation.

Notify.

Lisbon, 27 November 2017

The Arbitrator President

(José Pedro Carvalho)

The Arbitrator Member

(Jónatas Machado)

The Arbitrator Member

(Jorge Júlio Landeiro de Vaz)

(Text prepared by computer, in accordance with no. 5 of article 131 of the Code of Civil Procedure (CPC), applicable by reference of subsection e) of no. 1 of the Regulation of Arbitration in Tax Matters, with blank verses and by us revised)

[1] See Decision of the TCA-South of 18-02-2016, rendered in case 08760/15, available at www.dgsi.pt.

[2] Available at https://caad.org.pt/tributario/decisoes/.

Frequently Asked Questions

Automatically Created

What is a subsequent liquidation (liquidação superveniente) in Portuguese IRC tax law?
A subsequent assessment (liquidação superveniente) in Portuguese IRC law refers to a tax assessment issued after an initial assessment for the same tax period, typically arising from substitute declarations filed by the taxpayer or from administrative corrections. In this case, Assessment 2017... constituted a subsequent assessment replacing Assessment 2016... for the 2015 tax year. The subsequent assessment recalculates the tax liability based on updated information - here, altered taxable income from €71,913,777.29 to €70,735,604.84 while maintaining the €420,000 special advance payment claim. The legal effect of subsequent assessments is to modify or supersede prior assessments, though the procedural status of challenged prior assessments remains a distinct question, as the CAAD tribunal emphasized that impugnability is determined at the filing date, not affected by subsequent administrative acts.
Can special advance payments (pagamentos especiais por conta) be transferred following a bank resolution under Portuguese law?
Under Portuguese law, special advance payments (pagamentos especiais por conta) can potentially be transferred following a Bank of Portugal resolution measure, as these represent tax assets connected to the business activity being transferred. In this case, the taxpayer argued that when the Bank of Portugal, acting as resolution authority, ordered the transfer of B...'s majority assets to A..., S.A., this necessarily included the special advance payments deductible by B... prior to resolution and relevant for the 2015 tax year. The taxpayer maintained these payments of €420,000 in its substitute declarations. The transferability depends on whether the resolution measure encompasses tax positions as part of the transferred assets and liabilities, and whether the acquirer assumes the tax position of the resolved entity for IRC purposes. The case highlights the intersection between banking resolution law and tax law, particularly regarding continuity of tax positions.
How does the Bank of Portugal's resolution measure affect the transfer of tax assets between entities?
The Bank of Portugal's resolution measure affects tax asset transfers by determining which assets, liabilities, and legal positions transfer from the resolved institution to the acquiring entity. When acting as resolution authority under banking supervision law, the Bank of Portugal can order asset transfers that implicitly include associated tax positions, including special advance payments. In this case, the resolution transferred B...'s majority assets to A..., S.A., raising the question whether deductible special advance payments - prepaid tax amounts that reduce final IRC liability - formed part of the transferred package. The resolution measure's scope determines tax continuity: if tax assets transfer, the acquiring entity steps into the resolved entity's tax position for those specific items. This creates complex questions about when tax positions are 'associated' with transferred assets versus remaining with the resolved entity, particularly for advance payments made before resolution but relevant to post-resolution tax periods.
What happens when an implicit revocation of a tax assessment leads to supervening uselessness of arbitral proceedings at CAAD?
When implicit revocation of a tax assessment leads to supervening uselessness of arbitral proceedings at CAAD, Portuguese tax procedural law requires careful analysis of the litigation's continued purpose. In this case, the taxpayer acknowledged that statement of settlement 2017... operated as tacit revocation of the contested Assessment 2016..., creating supervening uselessness (inutilidade superveniente da lide). This occurs when subsequent administrative acts eliminate the practical effect of the challenged decision - here, the reversal of €358,828.93 plus a new refund of €226,704.85 gave the taxpayer financial relief exceeding what the arbitration could achieve. However, the CAAD tribunal distinguished between formal revocation and mere execution acts. The tribunal emphasized that impugnability is assessed at filing, not retrospectively. While the case appears to acknowledge potential grounds for dismissal due to loss of object, the decision addresses fundamental procedural principles about when subsequent acts affect pending challenges, clarifying that statements of settlement alone, as executive rather than constitutive acts, do not automatically terminate arbitral jurisdiction.
What procedural steps apply when a tax dispute becomes moot during CAAD arbitration proceedings?
When a tax dispute becomes moot during CAAD arbitration proceedings, specific procedural steps apply under the Legal Regime for Arbitration in Tax Matters (LRAT). First, the party asserting mootness must raise it formally - here, the taxpayer acknowledged supervening uselessness in its reply to the Tax Authority's answer, while the Tax Authority argued lack of subject matter. Second, the tribunal must examine whether true mootness exists by analyzing the nature and timing of supervening acts - the CAAD distinguished between new assessments (potentially constitutive) and settlement statements (merely executive). Third, parties may submit on the issue through written pleadings, as occurred here. Fourth, the tribunal assesses whether the challenged act retains any legal effect or whether subsequent acts completely supersede it. The CAAD emphasized that procedural requirements like impugnability are assessed at filing, protecting taxpayers' access to arbitration from being defeated by subsequent administrative acts. If genuine mootness is established, the tribunal would typically dismiss the case for supervening lack of object, but not on grounds that the original act was unimpugnable - a crucial distinction for preserving arbitral jurisdiction and taxpayer rights.