Process: 30/2017-T

Date: August 28, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD Process 30/2017-T addresses the complex procedural issue of what happens when the Tax Authority revokes an IMT assessment after a taxpayer has requested arbitration but before the tribunal is formally constituted. The taxpayer acquired eleven urban properties through an insolvency proceeding in June 2014, initially receiving confirmation that the transfer was exempt from IMT under Article 270(2) of the Insolvency Code (CIRE). However, in February 2016, the Tax Authority demanded payment of €12,082.20 in IMT. The taxpayer paid under protest and filed a gracious complaint in July 2016, which was rejected in November 2016. This prompted the taxpayer to request CAAD arbitration in January 2017. In a significant procedural development, the Finance Service of Amadora revoked the contested assessment in February 2017, nearly two months after the arbitration request but before the tribunal was constituted in March 2017. The Respondent Tax Authority argued for extinction of proceedings due to supervening uselessness of the dispute (inutilidade superveniente da lide). However, the taxpayer maintained its claim for compensatory interest on the amount unduly paid. The central legal question became whether an arbitral tribunal can still rule on compensatory interest when the underlying assessment has been revoked after arbitration was requested. The decision references Article 22 of the Portuguese Constitution, which establishes state liability for unlawful acts, and CAAD Decision 153/2016, recognizing that compensatory interest represents a constitutional right to indemnification. The tribunal also addressed procedural costs, with the taxpayer arguing these should be borne by the Tax Authority since revocation occurred after arbitration was initiated, demonstrating the original assessment was indeed unlawful.

Full Decision

ARBITRAL DECISION

The arbitrator, Nuno de Oliveira Garcia, appointed by the Deontological Council of the Administrative Arbitration Center (CAAD) to form the present Singular Arbitral Tribunal, constituted on 21 March 2017, decides as follows:

I. REPORT

1. The Applicant, S.A., NIPC…, with registered office in …, n.º…, parish of …, …-… Porto, requested the constitution of an Arbitral Tribunal, seeking the annulment of the assessment of Tax on Onerous Transfers of Real Estate (IMT) in the amount of € 12,082.20 attached as Document n.º 5 to the Initial Petition, as well as the consequent reimbursement of the amount unduly paid in relation to that IMT assessment, plus accrued compensatory interest.

2. The request for constitution of the Arbitral Tribunal was accepted by the Esteemed President of CAAD and automatically notified to the Tax and Customs Authority (AT) on 20 January 2017.

3. By decision dated 27 February 2017 issued by the Head of the Finance Service of Amadora …, and respective attached Report, the revocation of the contested act was determined and the consequent acceptance of the gracious complaint filed by the Applicant, despite months earlier – November 2016 – the same Finance Service of Amadora … having decided to reject the same complaint, which implied that the Applicant felt the need to request the constitution of the present Arbitral Tribunal.

4. On 1 March 2017, the Respondent Authority sent a letter to the representative of the Applicant to inform him of said revocation.

5. The undersigned Arbitrator communicated acceptance of the appointment within the applicable period, and CAAD notified the parties of that appointment on 6 March 2017.

6. Still on 6 March 2017, CAAD sent a notification letter to the representative of the Applicant informing him of the revocation of the act in dispute.

7. Having the Applicant not informed CAAD of the withdrawal from the proceedings, and in accordance with the provisions of paragraph c) of n.º 1 of Article 11 of Decree-Law n.º 10/2011 of 20 January, as amended by Article 228 of Law n.º 66-B/2012 of 31 December, the singular arbitral tribunal was constituted on 21 March 2017.

8. On 8 May 2017, the Respondent Entity, having been duly notified to that effect, filed, pursuant to the provisions of Article 17 of the RJAT, its Reply in which it emphasized, among other aspects, that it had already proceeded with the revocation of the contested tax act and, in those terms and according to its position, there existed an impossibility of the dispute, which occurred prior to the constitution of the Arbitral Tribunal.

9. The present Arbitral Tribunal, confronted with the content of the Reply and with the decision revoking the IMT assessment in dispute, notified the Applicant to pronounce itself on the usefulness of the present dispute.

10. On 19 July 2017, the Applicant pronounced itself to the effect that it did not oppose the supervening uselessness of the dispute, provided that it was guaranteed interest arising from the payment of the assessment, further clarifying that because the revocation of the act in dispute had occurred (almost 2 months) after the request for constitution of the Arbitral Tribunal, the procedural costs should be borne by the AT.

II. SANATION

11. The Tribunal is materially competent and is regularly constituted, pursuant to Articles 2, n.º 1, paragraph a), 5 and 6, all of the RJAT.

12. The parties have legal personality and capacity, are legitimate and are represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance n.º 112-A/2011 of 22 March.

13. There are no nullities and preliminary matters that affect the entire proceedings, whereby it is now necessary to rule on the claim.

III. FACTUAL MATTERS

a. Proven Facts

14. Based on the elements contained in the proceedings and in the administrative process attached to the Case, the following facts are considered proven:

- On 17 June 2014, by adjudication the Applicant acquired eleven urban properties, intended as building land, located in the parish of … and Municipality of Odemira, described in the Land Registry Office of Odemira and registered in the matrix of said parish under the articles…, …, …, …, …, …, …, …, …, …, …, within the scope of the insolvency proceedings of company B…, Lda., which took place in the … Court of the Judicial Court of Lagos, under n.º …/12… TBLGS – see doc. n.º 1 attached to the Initial Petition.

- The property in question was listed and seized for the insolvency estate and the Applicant purchased it for the price of € 185,880.00 (one hundred and eighty-five thousand eight hundred and eighty euros) – see doc. n.º 2 attached to the Initial Petition.

- The Applicant filed with the competent Finance Service the declaration for assessment of the Tax on Onerous Transfers of Real Estate (IMT) and Stamp Tax (IS), having been issued receipts certifying that the transfer in question was exempt from IMT, pursuant to the provisions of n.º 2 of Article 270 of CIRE – see doc. n.º 3 attached to the Initial Petition.

- The Applicant was notified by letter n.º…, of 10.02.2016, sent by the Finance Service of Amadora -…, to pronounce itself, in the context of prior hearing, proving that it proceeded with the payment of the allegedly outstanding IMT or that it requested its payment – see doc. n.º 4 attached to the Initial Petition.

- The Applicant proceeded with the payment to the Tax Authority of the IMT in the amount of € 12,082.20 (twelve thousand and eighty-two euros and twenty cents) – see doc. n.º 5 attached to the Initial Petition –, having on 12 July 2016 filed a gracious complaint of the assessment – see doc. n.º 6 attached to the Initial Petition.

- On 4 November 2016, the Respondent was notified of the rejection of his complaint by letter sent by the Finance Service of Amadora –…– see doc. n.º 7 attached to the Initial Petition.

- By decision dated 27 February 2017 issued by the Head of the Finance Service of Amadora…, and respective attached Report, the revocation of the contested act was determined and the consequent acceptance of the gracious complaint filed by the Applicant – see document provided by AT to the Case on 3 March 2017.

b. Unproven Facts

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

c. Justification of Factual Matters

16. The proven facts are based on the documents submitted by the parties to the proceedings, including the administrative process, and which are not contested.

IV. OBJECT OF THE ARBITRAL DECISION

17. Having determined the revocation of the contested assessment act, and this Arbitral Tribunal having nevertheless been constituted, it is necessary for us to pronounce ourselves on the request for extinction of proceedings due to supervening uselessness of the dispute filed by the Respondent Entity, but also on the part of the claim expressed in the Initial Petition (and, moreover, reaffirmed by request of the Applicant dated 18 July 2017) concerning the conviction of the AT to pay compensatory interest petitioned in the Initial Petition.

V. LAW

18. With regard to the recognition of the right to compensatory interest, it is necessary to decide whether, having been determined the revocation of the act after the request for constitution of the Arbitral Tribunal – and still pending the Gracious Complaint according to the understanding of the Finance Service of Amadora … –can the right to payment of interest on the amount paid be recognized in arbitral proceedings.

19. Now, as correctly stated in CAAD Decision n.º 153/2016, a decision which we fully endorse, compensatory interest corresponds to the materialization of a right to indemnification that has constitutional roots in Article 22 of the Constitution of the Portuguese Republic. This provision establishes that the State and other public entities are civilly liable, jointly and severally with the holders of their organs, officials or agents, for actions or omissions taken in the exercise of their functions and because of that exercise, which result in the violation of rights, freedoms and guarantees or harm to others.

20. The obligation to pay compensatory interest has its foundation in the institute of extracontractual civil liability of the State, constituting the counterpart of interest in favor of the Administration. Thus, the nature of compensatory interest is substantially identical to that of interest in favor of the Administration, being, like these, an indemnification awarded on the basis of extracontractual civil liability. Compensatory interest accrues in favor of the taxpayer, intended to compensate him for the damage caused by an undue payment of a tax obligation (cited. Judgment of the Central Administrative Court South, issued in Case n.º 08862/15, on 10-09-2015 at www.dgsi.pt).

21. It should, therefore, be understood that once the revocation of acts is determined after the request for constitution of an Arbitral Tribunal, the right to payment of interest on the amount paid can still be recognized in this context provided that the respective legal requirements are met.

22. Indeed, "[...] to consider in a situation such as this that the ex officio annulment was not constitutive of the right to the compensatory interest requested was to place, as correctly noted by the respondent in its counter-argument, arbitrarily, in the hands of the Tax Administration the constitution of that same right whenever an error of the services occurred which would constitute manifest abuse that the law cannot tolerate or consent to", therefore having been annulled the assessments by the Tax and Customs Authority "[...] during the pendency of judicial challenge, instituted against such assessments and where in addition to requesting the annulment of these tax acts compensatory interest was also requested from the AT, this fact is in itself demonstrative of error attributable to the services and of the payment of interest pursuant to Article 43 of the LGT" (cited. Judgment of the Supreme Administrative Court, issued in Case n.º 0574/14, of 07-01-2016, at www.dgsi.pt).

23. Now if this is the case in the courts, we see no reason why it should not be so in Arbitral Tribunals.

24. Moreover, in this sense follows the arbitral decision issued in Case n.º 360/2014-T in accordance with which "[t]he contrary would be to grant the AT the possibility of avoiding the payment of compensatory interest in cases where an error occurs that is attributable to it, merely by limiting itself to revoking the act within the period of its challenge" (cited).

25. It is therefore necessary to determine whether in the present case the legal requirements for the right to compensatory interest to be recognized are met.

26. Now, Article 43, n.º 1 of the General Tax Law establishes that compensatory interest is due when it is determined, in a gracious complaint or judicial challenge, that there was error attributable to the services from which results payment of the tax obligation in an amount greater than legally due.

27. And in accordance with n.º 5 of Article 24 of the Legal Regime for Tax Arbitration, payment of interest is due, regardless of its nature, in the terms provided for in the General Tax Law and in the Code of Tax Procedure and Process (CPPT).

28. For there to be a right to compensatory interest, it is necessary that in the proceedings it is determined that in the assessment there was error attributable to the services, understood as "[e]rror regarding the factual or legal assumptions attributable to the Tax Administration" (cited).

29. In the present case, this requirement must be considered met because the revocation of the contested act was determined by the change in the understanding of the Respondent Entity on the matter under consideration.

30. Furthermore, in this case the AT, through the Finance Service of Amadora…, even proceeded to revoke the act granting the Gracious Complaint – see document provided by AT to the Case on 3 March 2017.

31. This being the case, that granting, by itself alone, immediately established the taxpayer (now Applicant) in the right to receive compensatory interest in accordance with Article 100 of the LGT which is explicit in this regard referring specifically to the situation of "total or partial success of complaints or administrative appeals" (cited).

32. In such terms, in addition to the reimbursement of € 12,082.20 paid as assessment of the now revoked IMT, the AT is condemned to pay compensatory interest accruing on said amount, in accordance with Article 43 of the General Tax Law.

33. Finally, and as to the remainder, due to the revocation of the contested assessment act, the extinction of proceedings is determined due to supervening uselessness of the dispute with reference to the request for annulment of that same act based on its illegality.

VI. DECISION

In such terms, the extinction of proceedings is determined due to supervening uselessness of the dispute with reference to the request for annulment of the contested act, due to its revocation in accordance with and for the purposes of Article 277, paragraph e) of the CPC, and furthermore, the Tax Authority is condemned to reimburse the amounts paid and to pay compensatory interest accruing on said amounts in accordance with Article 43 of the LGT.

Having the Arbitral Tribunal been duly constituted, the Respondent Entity is condemned to pay costs in the amount of € 918, in accordance with Table I of the RCPAT, and in compliance with the provisions of Articles 12, n.º 2, and 22, n.º 4, both of the RJAT, and the provisions of Article 4, n.º 4, of the said Regulation.

The value of the case is fixed at € 12,082.20 (twelve thousand, eighty-two euros and twenty cents), in accordance with Article 32 of the Code of Procedure in Administrative Courts and Article 97-A of the CPPT, applicable by virtue of the provisions of Article 29, n.º 1, paragraphs a) and b), of the RJAT, and Article 3, n.º 2, of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT).

Lisbon, 28 August 2017

The Arbitrator

(Nuno de Oliveira Garcia)

Frequently Asked Questions

Automatically Created

What happens when the Tax Authority revokes an IMT assessment after an arbitral tribunal has been requested?
When the Tax Authority revokes an IMT assessment after an arbitral tribunal has been requested, the proceedings continue for purposes of ruling on ancillary claims such as compensatory interest. In Process 30/2017-T, although the Finance Service of Amadora revoked the contested IMT assessment in February 2017 (after the January 2017 arbitration request), the tribunal was still constituted in March 2017. The Tax Authority argued for supervening uselessness of the dispute, but the tribunal maintained jurisdiction to decide on compensatory interest and procedural costs, as these claims survive the revocation of the underlying assessment.
Are taxpayers entitled to compensatory interest (juros indemnizatórios) when an unlawful IMT assessment is revoked?
Yes, taxpayers are entitled to compensatory interest (juros indemnizatórios) when an unlawful IMT assessment is revoked. The CAAD tribunal in Process 30/2017-T recognized this right has constitutional foundations in Article 22 of the Portuguese Constitution, which establishes civil liability of the State for unlawful acts by its officials or agents. Citing CAAD Decision 153/2016, the tribunal affirmed that compensatory interest materializes the constitutional right to indemnification when a taxpayer has paid a tax that is later determined to be unlawfully assessed. This applies even when the Tax Authority voluntarily revokes the assessment before a final arbitral decision.
Can an arbitral tribunal still rule on compensatory interest after the Tax Authority revokes the contested act?
Yes, an arbitral tribunal retains jurisdiction to rule on compensatory interest even after the Tax Authority revokes the contested act. In Process 30/2017-T, despite the revocation of the IMT assessment in February 2017, the tribunal was constituted in March 2017 and proceeded to analyze the compensatory interest claim. The tribunal notified the taxpayer to pronounce on the usefulness of the dispute, and the taxpayer confirmed it did not oppose extinction of proceedings regarding the principal claim (annulment of assessment) but maintained the claim for compensatory interest. This demonstrates that revocation of the underlying act does not automatically extinguish all claims in the arbitral proceedings.
What is the legal effect of supervening uselessness of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration?
Supervening uselessness of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration occurs when the object of the dispute ceases to exist during the proceedings, typically through revocation of the contested act by the Tax Authority. In Process 30/2017-T, the Tax Authority invoked this procedural ground after revoking the IMT assessment, arguing the dispute had become moot. However, the effect is not absolute extinction of all proceedings. While the principal claim (annulment of the assessment) becomes moot, ancillary claims such as compensatory interest and determination of responsibility for procedural costs remain justiciable. The tribunal must still rule on these surviving issues, and the timing of revocation (before or after tribunal constitution) affects allocation of costs.
How does the CAAD arbitral process work when the Tax Authority revokes the contested IMT liquidation before the tribunal is constituted?
When the Tax Authority revokes a contested IMT assessment before the CAAD arbitral tribunal is constituted, the procedural status depends on precise timing. In Process 30/2017-T, the revocation occurred in February 2017, after the arbitration request (January 2017) but before tribunal constitution (March 2017). Under Article 11(1)(c) of the RJAT as amended, the tribunal is still constituted unless the taxpayer withdraws from proceedings. The taxpayer must be notified of the revocation and given opportunity to withdraw. If the taxpayer does not withdraw, the tribunal proceeds to rule on remaining issues like compensatory interest. The timing of revocation relative to the arbitration request is crucial for determining which party bears procedural costs—revocation after the request typically indicates the original assessment was unlawful, supporting allocation of costs to the Tax Authority.