Process: 26/2017-T

Date: May 22, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 26/2017-T) demonstrates the principle of supervening uselessness of proceedings in Portuguese tax arbitration. The claimant challenged an additional IMT assessment of €58,045.00 related to a property acquired through insolvency proceedings for €893,000.00. Before the arbitral tribunal examined the merits, the Portuguese Tax Authority voluntarily revoked the contested IMT assessment and the related administrative appeal dismissal. The arbitrator applied Article 277(e) of the Code of Civil Procedure, which provides that proceedings terminate when there is impossibility or supervening uselessness of the dispute. According to Portuguese jurisprudence, supervening uselessness occurs when facts arising during proceedings render the decision without useful effect, either because the claim cannot be satisfied or because the objective has been achieved by other means. Both parties agreed that the dispute had become supervenient useless. The claimant acknowledged that since the Tax Authority had revoked the assessment and accepted the duty to refund the tax paid with legal interest from payment date until refund, the arbitration objectives were fully achieved. This case illustrates important procedural aspects of CAAD arbitration: the Tax Authority's power to revoke contested acts during arbitration proceedings under Article 13(1) LFTAM; the application of civil procedure rules to tax arbitration through Article 29 LFTAM; the efficiency of the arbitration system in resolving disputes without full hearing; and the taxpayer's right to legal interest on amounts paid in error. The decision reflects the principle that arbitration exists to resolve disputes, and when the dispute ceases to exist through voluntary compliance, proceedings should terminate efficiently.

Full Decision

ARBITRAL DECISION

I. REPORT

  1. On 5 January 2017, A…, S.A., NIPC …, with registered office at Praça …, no. …, Oporto (hereinafter, Claimant), filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of Articles 2, no. 1, subparagraph a), and 10, nos. 1, subparagraph a), and 2, of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by Article 228 of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as LFTAM), seeking:

  • The declaration of illegality and annulment of the additional IMT (Real Estate Transfer Tax) assessment act in the amount of €58,045.00, relating to the acquisition of the urban property, located at … or … parish of …, municipality of Caldas da Rainha, registered in the Real Estate Registry of Caldas da Rainha under no. … and entered in the urban real estate register of said parish under article …, by adjudication, at the price of €893,000.00, in the framework of the insolvency proceedings of the company "B…, S.A.", NIPC …, which, under no. …/11… TYLSB, were processed by … Commercial Court of Lisbon; and

  • The declaration of illegality and annulment of the administrative appeal dismissal act no. …2016…, which was processed by the Tax Authority Office of Amadora-…, filed against the aforementioned tax act.

The Claimant attached 7 (seven) documents and did not request the production of any other evidence.

  1. The request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority on 20 January 2017.

  2. The Claimant did not proceed to appoint an arbitrator, wherefore, pursuant to the provisions of no. 1 of Article 6 and subparagraph a) of no. 1 of Article 11 of the LFTAM, the President of the CAAD Deontological Council appointed the undersigned as arbitrator of the single-arbitrator tribunal, who communicated acceptance of the appointment within the applicable deadline.

  3. On 3 March 2017, the Tax Authority, pursuant to the terms and for the purposes of Article 13, no. 1, of the LFTAM, filed a request, communicating the revocation of the disputed acts, in the following terms:

[content omitted]

  1. On 6 March 2017, the Claimant was duly notified both of the Tax Authority's request and of the order of the President of CAAD, with the following content:

[content omitted]

  1. On the same date, the Parties were duly notified of the appointment of the undersigned as arbitrator of the single-arbitrator tribunal, and expressed no intention to challenge this appointment, pursuant to the combined terms of Article 11, no. 1, subparagraphs b) and c), of the LFTAM and Articles 6 and 7 of the CAAD Deontological Code.

  2. The Claimant having made no further submissions or requests in the proceedings, following the aforementioned notification, mentioned in point 5 (five), in accordance with the provision of subparagraph c) of no. 1 of Article 11 of the LFTAM, the single-arbitrator tribunal was constituted on 21 March 2017.

  3. On 4 May 2017, the Respondent, duly notified for such purpose, filed its Response which concluded as follows:

"Pursuant to the foregoing and to the remaining applicable law which Your Excellency will duly supplement, the exceptions raised should be judged as well-founded:

The termination of the proceedings should be ordered, based on the impossibility of the dispute, pursuant to subparagraph e) of Article 277 of the Code of Civil Procedure in accordance with Article 29 of the LFTAM,

Or, should such not be the case,

The peremptory exception raised should be judged as well-founded and the Tax Authority absolved from the entirety of the claim, pursuant to no. 3 of Article 576 of the Code of Civil Procedure in accordance with Article 29 of the LFTAM

Or, furthermore,

The exception of material incompetence of the Arbitral Tribunal to consider the request for compensatory interest should be judged as well-founded, with all other legal consequences."

  1. On 15 May 2017, the Claimant, duly notified for such purpose, submitted its observations regarding the exception matter raised by the Respondent, having further stated the following:

"1. Given the revocation of the order which is the subject matter of the present proceedings and the consequent duty to refund the amount of tax paid in error, increased by legal interest from the date of payment until its effective refund, the present Claimant has no objection to the present proceedings being considered as terminated by subsequent futility of the dispute, pursuant to the provision of subparagraph e) of Article 277 of the Code of Civil Procedure applicable under Article 29 of the LFTAM.

(…)

  1. Given the foregoing, should the present proceedings be judged as terminated by subsequent futility of the dispute, responsibility for costs should be borne by the Respondent as it is attributable to the Respondent the subsequent futility or impossibility of the dispute, having voluntarily satisfied the claim of the present Claimant and the consequent duty to refund the amount of tax paid in error, increased by legal interest from the date of payment until its effective refund."

  2. The Tribunal dispensed with both the holding of the meeting referred to in Article 18 of the LFTAM and the submission of final pleadings, having set 16 June 2017 as the deadline for rendering the arbitral decision.

II. PRELIMINARY MATTERS

The Arbitral Tribunal was regularly constituted and is competent.

The proceedings do not suffer from any nullities.

The parties enjoy legal standing and capacity, are duly represented and are legitimate.

III. ON THE SUBSEQUENT FUTILITY OF THE DISPUTE

Both Parties expressed the understanding that there exists subsequent futility of the dispute and, consequently, both request the termination of the present arbitral proceedings.

It is necessary to examine and decide.

Article 277, subparagraph e), of the Code of Civil Procedure, applicable under Article 29, no. 1, subparagraph e), of the LFTAM, provides as follows: "The proceedings are terminated with the impossibility or subsequent futility of the dispute".

Impossibility of the dispute occurs in the case of death or extinction of one of the parties, through disappearance or loss of the subject matter of the proceedings or through extinction of one of the interests in conflict.

Subsequent futility of the dispute takes place when, by virtue of new facts occurring during the pendency of the proceedings, the decision to be rendered no longer has any useful effect, either because it is not possible to satisfy the claim that the claimant intends to assert in the proceedings or because the objective pursued with the action has been achieved by other means.

The impossibility or subsequent futility of the dispute thus translates into a legal impossibility or futility, whose determination is based on the statute provided in law.

According to José Lebre de Freitas, Rui Pinto and João Redinha (Code of Civil Procedure Annotated, Volume 1, 2nd edition, Coimbra Editora, Coimbra, 2008, p. 555), "the impossibility or subsequent futility of the dispute occurs when, by fact occurring during the pendency of the proceedings, the claimant's claim cannot be maintained, by virtue of the disappearance of the subjects or the subject matter of the proceedings, or finds satisfaction outside the framework of the remedy sought. In either case, the resolution of the dispute ceases to be of interest – here, due to impossibility of achieving the intended result; there, because it has already been achieved by other means".

Turning to the present case, we have that the Tax Authority fully and voluntarily satisfied the claims that the Claimant formulated in these proceedings, as the latter itself expressly acknowledged.

To that extent, the results that the Claimant intended to achieve with the present arbitral proceedings have already been fully obtained, wherefore the arbitral decision which, normally, would have been rendered, considering the merits of the claims raised, appears to be devoid of any useful effect, wherefore its rendering is not justified.

Without need for further considerations, it is therefore judged that subsequent futility of the dispute is verified.

IV. ON COSTS

Pursuant to the provisions of Article 536, no. 3, of the Code of Civil Procedure, applicable under Article 29, no. 1, subparagraph e), of the LFTAM, in cases of termination of the proceedings due to impossibility or subsequent futility of the dispute (excepting those provided for in the preceding numbers), responsibility for costs shall be borne by the claimant or petitioner, except if such impossibility or futility is attributable to the respondent or party being petitioned, in which case the latter is responsible for all of the costs; no. 4 of the same article provides, insofar as it is relevant to note, that it is considered, in particular, that it is attributable to the respondent or party being petitioned the subsequent futility of the dispute when this results from voluntary satisfaction, by the latter, of the claim of the claimant or petitioner.

In the present case, we have that the Claimant's claim was voluntarily satisfied by the Tax Authority, as the latter revoked the disputed acts.

However, the Tax Authority proceeded to the aforementioned revocation even before the constitution of this single-arbitrator tribunal, and the continuation of the proceedings (more accurately, of the arbitral procedure), despite the complete and voluntary satisfaction of the requests formulated by the Tax Authority, can only be attributed to the Claimant.

Since, having been notified to submit observations regarding the request presented by the Tax Authority, pursuant to the terms and for the purposes of Article 13, no. 1, of the LFTAM, the Claimant made no further submissions in the proceedings, wherefore, in view of this silent posture of the Claimant and solely because of it, the constitution of this single-arbitrator tribunal took place; indeed, the constitution of the Tribunal would not have occurred if the Claimant had, on the aforementioned occasion, submitted observations in the proceedings in the manner which, subsequently, it did, namely, in the sense of the subsequent futility of the dispute and consequent termination of the proceedings, since it is self-evident that the subsequent futility of the dispute occurred at a moment prior to the constitution of the Arbitral Tribunal.

The costs of these proceedings must, therefore, be entirely attributable to the Claimant.

V. DECISION

Pursuant to the foregoing, this Arbitral Tribunal decides:

a) To declare the present arbitral proceedings terminated by subsequent futility of the dispute;

b) To condemn the Claimant to payment of the costs of the proceedings.

VALUE OF THE PROCEEDINGS

In accordance with the provisions of Articles 306, no. 2, of the Code of Civil Procedure, 97-A, no. 1, subparagraph a), of the Tax Procedural Code and 3, no. 2, of the Regulation of Costs in Tax Arbitration Proceedings, the proceedings are valued at €58,045.00.

COSTS

Pursuant to the provisions of Articles 12, no. 2, and 22, no. 4, of the LFTAM and Article 4, no. 4, and Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, the amount of costs is set at €2,142.00 (two thousand one hundred and forty-two euros), in accordance with Table I annexed to the Regulation of Costs in Tax Arbitration Proceedings, to be borne by the Claimant.

Notify.

Lisbon, 22 May 2017.

The Arbitrator,

(Ricardo Rodrigues Pereira)

Frequently Asked Questions

Automatically Created

What is IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis) and when does it apply to property acquisitions in Portugal?
IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis) is Portugal's Real Estate Transfer Tax levied on onerous transfers of real property ownership. It applies to acquisitions of urban and rural property located in Portugal, including purchases, exchanges, expropriations with compensation, and adjudications in judicial proceedings (including insolvency). The tax is calculated on the property's transaction value or patrimonial value (VPT), whichever is higher, with progressive rates ranging from 0% to 8% depending on property type and value. The acquirer is generally liable for payment within 30 days after the deed or legal act.
What does 'inutilidade superveniente da lide' (supervening uselessness of proceedings) mean in Portuguese tax arbitration?
'Inutilidade superveniente da lide' (supervening uselessness of proceedings) is a ground for terminating proceedings under Article 277(e) of the Portuguese Code of Civil Procedure. It occurs when facts arising after the action is filed render the judicial decision without useful effect. This happens when: (a) the claim can no longer be satisfied due to disappearance of parties or subject matter; or (b) the objective pursued has been achieved by other means outside the proceedings. In tax arbitration, it commonly occurs when the Tax Authority voluntarily revokes the contested assessment, satisfying the taxpayer's claims and eliminating the need for an arbitral decision.
Can the Portuguese Tax Authority revoke a contested tax assessment during CAAD arbitration proceedings?
Yes, the Portuguese Tax Authority can revoke contested tax assessments during CAAD arbitration proceedings. Article 13(1) of the Legal Framework for Tax Arbitration (LFTAM - Decree-Law 10/2011) expressly provides that the Tax Authority may communicate the revocation of disputed acts at any stage before the arbitral decision. When revocation occurs, the arbitrator must notify the claimant and invite them to comment. If both parties agree the dispute has become useless, proceedings terminate under Article 277(e) CPC. This mechanism promotes efficiency and allows the Tax Authority to correct errors without full arbitral proceedings, though costs typically fall on the Tax Authority for causing the supervening uselessness.
How is IMT calculated on property acquired through insolvency proceedings in Portugal?
When property is acquired through adjudication in insolvency proceedings, IMT is calculated on the acquisition value, which is typically the adjudication price paid by the acquirer. The relevant taxable base is the higher of: (a) the declared transaction value (adjudication price); or (b) the property's patrimonial value (VPT) in the tax records. For urban property, progressive rates apply: 0% up to €97,064, then increasing brackets up to 8% for luxury properties. The acquirer must file Form Model 1 IMT within 30 days of adjudication. Tax authorities may issue additional assessments if they determine the declared value is insufficient or if IMT exemptions or reductions were improperly claimed.
What is the procedure for filing a CAAD arbitration request to challenge an additional IMT assessment?
To challenge an IMT assessment through CAAD arbitration, taxpayers must: (1) File a prior administrative appeal (reclamação graciosa) with the relevant tax office within the legal deadline; (2) After dismissal or if no decision is issued within the legal timeframe, submit a request for arbitral tribunal constitution to CAAD through the electronic platform; (3) The request must identify the contested acts, state the grounds for illegality, specify the relief sought, and attach relevant documents (assessment notice, administrative appeal decision, proof of payment if applicable); (4) Pay the initial arbitration fee; (5) Optionally appoint an arbitrator or allow automatic appointment by the CAAD President. The Tax Authority is automatically notified and must respond within 30 days. The process is typically faster than judicial appeals.