Process: 29/2017-T

Date: May 22, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

This arbitral decision addresses the IMT (Municipal Property Transfer Tax) exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE) and demonstrates supervening futility in tax arbitration proceedings. The claimant acquired property for €194,800 in insolvency proceedings in December 2013, initially receiving IMT exemption certificates under Article 270(2) CIRE. The Tax Authority later assessed IMT of €5,472.88, which the claimant paid in February 2016. After the administrative appeal was dismissed in November 2016, the claimant filed a CAAD arbitration request on 6 January 2017 seeking nullity or annulment of the assessment and reimbursement with compensatory interest. The core legal issue concerned whether the IMT exemption applies only to property transferred as part of a business sale or extends to standalone property sales in insolvency. The arbitral tribunal was constituted on 21 March 2017. However, on 5 May 2017, before filing its response, the Tax Authority informed the tribunal it had revoked the dismissal decision on 20 April 2017 following Circular No. 4/2017 of 10 February 2017, which adopted a broader interpretation favorable to taxpayers. The Tax Authority requested termination for supervening futility of proceedings (inutilidade superveniente da lide) under Article 277(e) CPC, applicable subsidiarily under Article 29 RJAT. The claimant consented, and the tribunal terminated the proceedings by order of 10 May 2017. This case demonstrates how administrative circulars can resolve pending disputes by changing tax interpretations and highlights the procedural efficiency of supervening futility when contested acts are revoked during arbitration.

Full Decision

ARBITRAL DECISION

The Arbitrator, Dr. Sílvia Oliveira, appointed by the Deontological Council of the Administrative Arbitration Centre (CAAD) to form the Arbitral Tribunal, constituted on 21 March 2017, with respect to the process identified above, decided as follows:

1. REPORT

1.1

A…, S.A., Legal Entity No. …, with registered office on Rua do …, No. …, in Lisbon (hereinafter referred to as the "Claimant"), submitted a request for arbitral ruling and constitution of a Single Arbitral Tribunal on 6 January 2017, pursuant to the provisions of Article 4 and Article 10(2) of Decree-Law No. 10/2011 of 20 January [Legal Regime for Arbitration in Tax Matters (LRAT)], against the Tax and Customs Authority (hereinafter referred to as the "Respondent").

1.2

The Claimant seeks with the aforementioned request for arbitral ruling that the Arbitral Tribunal "be pleased to consider the present request for arbitral ruling (…) judged to be well-founded based on the facts and law (…) presented, declaring null or annulling the Municipal Property Transfer Tax (IMT) assessment in the present case, and consequently (…) an order should be issued for the reimbursement of the amount unduly paid regarding the IMT assessment, plus the compensatory interest due, with the legal consequences thereof".

1.3

The request for constitution of the Arbitral Tribunal was accepted on 9 January 2017 by the Honourable President of CAAD and notification thereof was given to the Respondent on the same date.

1.4

The Claimant did not proceed to appoint an arbitrator, therefore, pursuant to the provisions of Article 6(2)(a) of the LRAT, the undersigned was appointed as arbitrator by the President of the Deontological Council of CAAD on 6 March 2017, with the appointment being accepted within the legally prescribed period and terms.

1.6

On the same date, the parties were duly notified of such appointment, and neither expressed an intention to refuse it, pursuant to the provisions of Article 11(1)(a) and (b) of the LRAT, in conjunction with Articles 6 and 7 of the Code of Deontology.

1.7

Thus, in accordance with Article 11(1)(c) of the LRAT, the Arbitral Tribunal was constituted on 21 March 2017, with an arbitral order being issued on the same date to notify the Respondent to, pursuant to the provisions of Article 17(1) of the LRAT, submit a response within a maximum period of 30 days and, if it so wished, request the production of additional evidence.

1.8

Additionally, it was also stated in that arbitral order that the Respondent should submit to the Arbitral Tribunal, within the response period, a copy of the administrative file.

1.9

On 5 May 2017, the Respondent submitted a request to the effect that:

1.9.1

Inform the case file that the decision dismissing the Administrative Appeal No. …2016… (issued by the Head of the Finance Service of Amadora …, on 31/10/2016) was "(…) revoked by the Head of that Finance Service, by order issued on 20/04/2017, in accordance with the new understanding of Article 270(2) of the Insolvency Code [CIRE] set out in Circular No. 4/2017 of 10 February, with all the legal consequences arising therefrom (…)" and,

1.9.2

Request that "(…) the proceedings be terminated for supervening futility of the dispute, pursuant to Article 277(e) of the Code of Civil Procedure, applicable subsidiarily under Article 29 of the LRAT".

1.10

By arbitral order dated 8 May 2017, the Claimant was ordered to be notified "to, in accordance with the principle of contradiction, and within a period of 5 days, state its position, if so wished, on the content of the information identified above, including the document attached by the Respondent".

1.11

The Claimant submitted, on 10 May 2017, a request stating that it had nothing "(…) to object to the proceedings being terminated for supervening futility of the dispute" with the consequences arising therefrom.

1.12

In these terms, by arbitral order dated 10 May 2017, this Arbitral Tribunal decided, in accordance with the procedural principles set out in Article 16 of the LRAT, to set 22 May 2017 as the date for issuing the arbitral decision.

1.13

The Claimant was further warned that "by the date of issuing the arbitral decision, it should proceed to pay the subsequent arbitration fee, pursuant to Article 4(3) of the Regulations on Costs in Tax Arbitration Proceedings and notify such payment to CAAD".

2. STATEMENT OF CLAIM

2.1

The Claimant begins by stating that "on 18 December 2013 (…) it acquired the urban property (…) described in the Second Registry of Property Records of … under number … and registered in the property register of the said parish under article …, in the context of the insolvency proceedings (…) which took place in the … Court of the Commercial Court of Lisbon (…)", the property in question having been "(…) listed and seized for the insolvency estate (…)" and acquired "(…) for the price of EUR 194,800.00".

2.2

The Claimant further states that "(…) prior to the aforementioned acquisition, (…) it submitted to the competent Finance Service the declaration for the assessment of the Municipal Property Transfer Tax (IMT) and Stamp Duty (IS), and it is certain that certificates were issued certifying that the transmission in question was exempt from IMT, pursuant to Article 270(2) of the Insolvency Code [CIRE] (…)".

2.3

Nevertheless, the Claimant "(…) was notified (…) to make submissions, in the prior hearing procedure, providing evidence that it had proceeded to pay the IMT (…) or that it had requested its payment (…)" and that "(…) in February 2016, (…) it proceeded to pay (…) the said tax, in the amount of EUR 5,472.88 (…)" and "on 18 July 2016, (…) it filed an administrative appeal against the aforementioned assessment (…)".

2.4

The Claimant further states that "on 14 September 2016, (…) it was notified, in the prior hearing procedure, of the draft decision to dismiss the administrative appeal submitted (…)" and "on 4 November 2016, (…) it was notified of the decision dismissing the administrative appeal submitted (…)".

2.5

The Claimant submits that "the additional assessment (…) in question stems from the allegedly improper application (…) of the IMT exemption benefit, provided for in Article 270(2) of the Insolvency Code" because "what is essentially at issue (…) is the correct interpretation of this legal provision", discussing "specifically, whether such rule should be interpreted to mean that, within the scope of the insolvency plan or payments made within the liquidation of the insolvency estate:

a) only the transmission of immovable property, whose transfer occurs by virtue of the sale, exchange or transfer of the business or establishment in which the property (transmitted) is integrated, enjoys IMT exemption;

b) or, alternatively, and as is our understanding, whether such exemption covers (also) immovable property transmitted by sale or exchange, when not integrated in the sale, exchange or transfer of the business or establishment".

2.6

In this respect, according to the Claimant, "(…) what cannot be accepted is the interpretation that the Tax Administration seeks to impose, perhaps ignoring how much more detrimental it is for the State to hinder the re-entry into the market of the assets of insolvency estates, in particular, given their economic significance, of immovable property, and to delay the satisfaction (possible) of creditors, who themselves, as a rule, have serious liquidity problems".

2.7

Thus, the Claimant submits that "(…) the IMT exemption established in Article 270(2) of the Insolvency Code covers immovable property transmitted by sale or exchange, even when such transmission is not integrated in the transmission of a business or establishment", "it being all too evident that the act of additional IMT assessment now being challenged stems (…) from an erroneous interpretation of Article 270(2) of the Insolvency Code, thereby suffering from the defect of error as to the legal prerequisites".

2.8

And, according to the Claimant, "the legal consequence established for this legal defect is the voidability of the assessment act now being challenged", having "(…) the right to restitution of the amount unduly paid, plus legal interest from the date of payment until its effective return, by virtue of the assessment whose annulment is now requested".

2.9

The Claimant further reiterates that "since in the present case it was not proven that the prerequisites upon which, according to law, the taxability of the tax in question depends were met, it is manifest that no tax event was constituted, whereby the payment demanded (…) is illegal and unenforceable".

2.10

Nevertheless, according to the Claimant, "if this were not accepted, it would have to be concluded that the Tax Authority could demand payment of the amounts in question independently of the demonstration and verification of the legally established prerequisites (…), freely creating taxes, which is inadmissible".

2.11

In these terms, the Claimant submits that "(…) the assessment act sub judice constitutes the creation of a true tax or special contribution not permitted by law" and is therefore, according to the Claimant, "(…) null and void for lack of authority and for having created taxes or special contributions not permitted by law (…)".

2.12

On the other hand, the Claimant further states that "the quantification of the tax event in question raises well-founded doubts, whereby the challenged act should in any case be annulled (…)", because "the interpretation by the Tax Administration applied to a past tax event, entirely occurring under the old law, constitutes a violation of the principle of protection of legitimate expectations, in the aspect of legal certainty".

2.13

To this extent, the Claimant submits that there is "(…) clearly an error of law on the part of the Tax Authority (…)", "whereby, the assessment in question should be annulled for omission of legal formality, violation of the principles of cooperation and good faith in the terms referred to above (…)".

2.14

Furthermore, according to the Claimant, "the revocation of such administrative act was effected beyond the period of one year during which it was legally possible (…)" and, "to this extent, the illegality of the revocation is established, since the revoking act, with retroactive effect, occurred more than one year after the act granting the exemption, in clear violation of Article 141 of the Code of Administrative Procedure [CPA]".

2.15

The Claimant concludes its request for arbitral ruling, reiterating that "it has the right to restitution of the amount unduly paid, plus legal interest from the date of payment until its effective return, by virtue of the assessment whose annulment is now requested".

3. RESPONDENT'S ANSWER

3.1

The Respondent, within the response period, informed the Arbitral Tribunal that the decision issued by the Head of the Finance Service of Amadora …, on 31 October 2016 was "(…) revoked by the Head of that Finance Service, by order issued on 20/04/2017, in accordance with the new understanding of Article 270(2) of the Insolvency Code [CIRE] set out in Circular No. 4/2017 of 10 February, with all the legal consequences arising therefrom (…)".

3.2

In these terms, the Respondent requested that the proceedings be "(…) terminated for supervening futility of the dispute, pursuant to Article 277(e) of the Code of Civil Procedure, applicable subsidiarily under Article 29 of the LRAT".

4. PRELIMINARY RULING

4.1

The Tribunal is competent to rule on the request for arbitral ruling submitted by the Claimant.

4.2

The parties have legal standing and capacity to sue, are entitled to submit the request for arbitral ruling and are duly represented, pursuant to the provisions of Articles 4 and 10 of the LRAT and Article 1 of Regulation No. 112-A/2011 of 22 March.

4.3

The Respondent raised the issue of supervening futility of the dispute, a preliminary issue whose analysis must precede consideration of the merits of the claim, which may be affected by the success of that preliminary issue.

4.4

No other exceptions were raised that require consideration.

4.5

No nullities are found to exist.

5. FACTS

5.1 Proved facts

5.1.1

On 18 December 2013, the Claimant acquired, for the amount of EUR 194,800.00, an urban property comprising a basement for parking, ground floor and first floor for residential use, located in …, …, lot …, parish of …, Municipality of Loures, described in the Second Registry of Property Records of Loures under number … and registered in the urban property register of the said parish under article …, in the context of the insolvency proceedings of the company B…, Lda. (which took place in the … Court of the Commercial Court of Lisbon), as referred to in the claim and in documents No. 1, 2 and 6 attached by the Claimant.

5.1.2

In 2016, a corrective additional IMT assessment was made in the amount of EUR 5,472.88, concerning the property described above (IMT record No. …/2013, dated 20/12/2013) because the Tax Authority considered that IMT exemption was unduly granted, pursuant to Article 270(2) of the Insolvency Code [CIRE], as shown in document No. 6 attached by the Claimant.

5.1.3

The IMT assessment identified in the previous point, to which the payment tax number (DUC) … corresponds, was paid by the Claimant on 19 February 2016, as shown in documents No. 2 and 6 attached by the Claimant.

5.1.4

The Claimant filed, on 18 July 2016, an administrative appeal concerning the IMT assessment identified above, as shown in documents No. 5 and 6 attached by the Claimant.

5.1.5

The Claimant was notified, by Official Letter No. …, dated 13 September 2016, concerning the intention to dismiss the administrative appeal referred to in the previous point (No. …2016…), as well as to exercise, if so wished, the right to participate in the decision, in the form of a prior hearing, as shown in document No. 6 attached by the Claimant.

5.1.6

The Claimant was notified, by Official Letter No. …, dated 3 November 2016, concerning the dismissal of the administrative appeal identified above, as shown in document No. 7 attached by the Claimant.

5.2 Unproved facts

5.2.1

No facts were found to be unproved with relevance for the decision.

6. PRELIMINARY ISSUE TO BE DECIDED

6.1

The Respondent raised, within the Response period, the issue of supervening futility of the dispute taking into account the order issued on 20 April 2017, issued by the Head of the Finance Service of Amadora …, which it attaches, pursuant to which, "taking into account the new instructions issued by circular No. 4/2017 of 10 February (…)" it revokes "(…) the order of 31 October 2016", "(…) now considering the transmission of the urban property (…)", identified in the case file, "(…) exempt from (…) IMT (…)" and ordering the taking of "(…) the necessary steps for the restitution of the amounts paid and for the payment of the respective compensatory interest".

6.2

The Claimant, notified to state its position on the issue identified in the previous point, stated that it had nothing "(…) to object to the proceedings being terminated for supervening futility of the dispute" with the consequences arising therefrom (see point 1.11., above).

6.3

The annulment of the contested IMT assessment, pending the arbitral proceedings, renders it unnecessary to examine its legality and leads to the conclusion that supervening futility of the dispute has occurred, as argued by the Respondent.

6.4

Supervening futility of the dispute is a ground for termination of the proceedings, pursuant to Article 277(e) of the Code of Civil Procedure (CPC).[3][4]

6.5

Having regard to the fact that the results sought by the Claimant in the present arbitral proceedings have already been fully achieved, the arbitral decision that would normally be issued (ruling on the merits of the claims formulated by the Claimant) appears to be devoid of any useful effect, since supervening futility of the dispute is established, pursuant to Article 277(e) of the CPC.

7. LIABILITY FOR PROCESS COSTS

7.1

In accordance with Article 22(4) of the LRAT, "the arbitral decision issued by the arbitral tribunal shall contain the determination of the amount and allocation between the parties of the costs directly resulting from the arbitral proceedings".

7.2

In general terms, according to Article 527(1) of the CPC (by virtue of Article 29(1)(e) of the LRAT), it must be established that the party who caused the costs to be incurred shall be condemned to pay costs, or, if there is no winner of the case, whoever benefited from the proceedings.

7.3

In this respect, Article 527(2) of the said Code specifies the expression "caused the costs to be incurred", according to the principle of non-success, providing that the unsuccessful party causes the process costs to be incurred, in proportion to its lack of success.

7.4

However, according to Article 536(1) of the CPC, "when the claim of the (…) claimant or the opposition of the (…) were well-founded at the time they were brought or raised and ceased to be so due to supervening circumstances not attributable to them, the costs shall be divided between them in equal parts", and, pursuant to Article 536(3) of the same Code, in the case of termination of the proceedings for supervening futility of the dispute, "(…) liability for costs shall be borne by the (…) claimant, unless such impossibility or futility is attributable to the (…) respondent, in which case it is the respondent who is liable for all costs" (emphasis ours).

7.5

Now, having regard to the fact that, in the case in question, the IMT assessment which is the subject of the present request for arbitral ruling was only annulled by the Respondent after the order of 20 April 2017, that is, after the arbitral request submitted by the Claimant was filed with CAAD (on 6 January 2017), it is considered that the Respondent caused the proceedings, since the supervening futility is attributable to it.

7.6

In this respect, it should be noted that, as the request for constitution of the Arbitral Tribunal was accepted by the Honourable President of CAAD on 9 January 2017 and notification thereof was given to the Respondent on the same date, it could "(…) within 30 days from receipt of the request for constitution of the arbitral tribunal, proceed to revoke, ratify, amend or convert the tax act whose legality has been raised (…)", as provided for in Article 13 of the LRAT.

7.7

Nevertheless, the Respondent did not do so within that period, having "allowed" the Arbitral Tribunal to be constituted on 21 March 2017.

7.8

Thus, in the case in hand, having regard to the fact that there is a ground for termination of the proceedings attributable to the Respondent (supervening futility of the dispute), there is no doubt that liability for costs must be attributed in its entirety to the Respondent, in accordance with Article 12(2) of the LRAT and Article 4(4) of the Regulations on Costs in Tax Arbitration Proceedings.

8. DECISION

8.1

In light of the foregoing, this Arbitral Tribunal decides:

8.1.1

To terminate the proceedings for supervening futility of the dispute, pursuant to Article 277(e) of the CPC, by virtue of Article 29(1)(e) of the LRAT, with the consequences arising therefrom;

8.1.2

To condemn the Respondent to payment of the costs of the proceedings.

Value of the dispute: Having regard to the provisions of Article 306(2) of the CPC, Article 97-A(1) of the Code of Procedure and Tax Proceedings (CPPT) and Article 3(2) of the Regulations on Costs in Tax Arbitration Proceedings, the value of the dispute is fixed at EUR 5,472.88.

Costs of the proceedings: Pursuant to Table I of the Regulations on Costs in Tax Arbitration Proceedings, the costs of the Arbitral Proceedings are fixed at EUR 612.00, to be borne by the Respondent, in accordance with Article 22(4) of the LRAT.

Let notification be given.

Lisbon, 22 May 2017

The Arbitrator,

Sílvia Oliveira

[1] The drafting of the present decision is governed by the orthography prior to the Orthographic Agreement of 1990, except with respect to the transcriptions made.

[2] The facts given as proved are contained in documents attached to the case file regarding which the correspondence with reality was not disputed, as well as in the statement of claim, whose truthfulness was not put in issue by the Respondent.

[3] In this sense, see the Ruling of the Supreme Administrative Court, of 9 January 2013 (case No. 01208/12), according to which "supervening futility of the dispute occurs when, by reason of a fact occurring pending the proceedings, the resolution of the dispute no longer has all the interest and utility, thus leading to the termination of the proceedings (…)".

[4] According to José Lebre de Freitas, Rui Pinto and João Redinha (in "Code of Civil Procedure Annotated", Volume 1, 2nd Edition, Coimbra Editora, Coimbra, 2008, p. 555), "supervening impossibility or futility of the dispute occurs when, by reason of a fact occurring pending the proceedings, the claim of the plaintiff cannot be maintained, by virtue of the disappearance of the parties or the subject matter of the proceedings, or finds satisfaction outside the scope of the remedy sought. In either case, the resolution of the dispute no longer matters – in the former, due to the impossibility of achieving the intended result; in the latter, because it has already been achieved by another means".

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption under Article 270 of the Portuguese Insolvency Code (CIRE)?
Article 270(2) of the Portuguese Insolvency Code (CIRE) provides an exemption from IMT (Municipal Property Transfer Tax) for property transfers occurring within insolvency proceedings. The interpretative question addressed in this case was whether this exemption applies only when property is transferred as part of a business or establishment sale, or whether it also covers standalone property sales within insolvency liquidation or payment plans. Following the issuance of Circular 4/2017 dated 10 February 2017, the Tax Authority adopted a broader interpretation that includes standalone property transfers in insolvency proceedings, thereby extending the exemption beyond transfers integrated in business sales.
What does supervening uselessness of proceedings (inutilidade superveniente da lide) mean in Portuguese tax arbitration?
Supervening futility of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration occurs when the legal dispute becomes moot during the arbitration process because the contested administrative act is revoked, annulled, or the underlying issue is otherwise resolved. Under Article 277(e) of the Code of Civil Procedure (CPC), applicable subsidiarily to tax arbitration under Article 29 of the RJAT (Legal Regime for Arbitration in Tax Matters), proceedings must be terminated when there ceases to be a dispute to adjudicate. In this case, supervening futility arose because the Tax Authority revoked its decision dismissing the administrative appeal, thereby eliminating the contested act and rendering the arbitration unnecessary.
How can a taxpayer challenge an IMT tax assessment through CAAD arbitration in Portugal?
To challenge an IMT assessment through CAAD arbitration in Portugal, a taxpayer must: (1) file an administrative appeal (recurso hierárquico) with the Tax Authority challenging the assessment; (2) if the appeal is dismissed or not decided within the statutory period, file a request for arbitral ruling (pedido de pronúncia arbitral) with CAAD within 90 days of notification; (3) the request must identify the parties, specify the contested act, present factual and legal grounds, indicate evidence, state the relief sought, and be accompanied by payment of the initial arbitration fee; (4) CAAD accepts the request and appoints an arbitrator if the claimant does not; (5) the arbitral tribunal is constituted; (6) the Tax Authority has 30 days to submit a response and the administrative file; (7) evidence is produced if necessary; (8) the claimant pays the subsequent arbitration fee; and (9) the arbitral decision is issued within the statutory timeframe, generally six months from tribunal constitution.
What are the grounds for annulment of an IMT liquidation and refund with compensatory interest?
Grounds for annulment of an IMT liquidation include: illegality of the assessment due to violation of substantive tax law (such as incorrect interpretation or application of exemptions like Article 270(2) CIRE); errors in calculation of the tax base or applicable rates; procedural defects or violations of the taxpayer's rights to prior hearing; and lack of legal basis for the assessment. When an IMT assessment is annulled or declared null, the taxpayer is entitled to reimbursement of amounts unduly paid. Additionally, pursuant to Article 43 of the General Tax Law (LGT), the taxpayer is entitled to compensatory interest (juros indemnizatórios) calculated from the date of payment until the date of actual refund, compensating for the State's retention of funds to which it was not entitled.
What is the procedure for filing a tax arbitration request (pedido de pronúncia arbitral) under the RJAT?
The procedure for filing a tax arbitration request (pedido de pronúncia arbitral) under the RJAT (Decree-Law 10/2011 of 20 January) requires: (1) prior exhaustion of administrative remedies (administrative appeal or hierarchical review), unless legally waived; (2) filing the request with CAAD within 90 days of notification of the contested act or expiry of the decision period; (3) the request must contain identification of parties, description and legal qualification of the contested act, statement of facts and legal grounds, specification of evidence, and clear statement of relief sought; (4) payment of the initial arbitration fee pursuant to the Regulations on Costs; (5) optional appointment of an arbitrator by the claimant within 5 days, failing which CAAD appoints; (6) constitution of the arbitral tribunal after acceptance by the arbitrator(s); (7) notification to the Tax Authority to respond within 30 days with submission of the administrative file; (8) production of additional evidence if requested and admitted; (9) payment of the subsequent arbitration fee before the decision date; and (10) issuance of the arbitral decision within the statutory deadline (generally six months from constitution, extendable once for equal period).