Process: 400/2018-T

Date: January 28, 2019

Tax Type: IRS

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 400/2018-T) addresses the supervening futility of proceedings (inutilidade superveniente da lide) when the Portuguese Tax Authority (AT) voluntarily revokes a contested IRS assessment during arbitration. The taxpayers challenged IRS assessment no. 2018... for tax year 2017, seeking annulment, refund, and indemnity interest. After the arbitral tribunal was constituted on 29 October 2018, the AT revoked the contested assessment on 7 December 2018. Significantly, this revocation occurred outside the 30-day period established in Article 13 of the RJAT (Legal Framework for Tax Arbitration), during which the AT can revoke contested acts without cost consequences. The tribunal applied Article 277(e) of the Civil Procedure Code, which terminates proceedings when the dispute becomes superveniently futile. The arbitrator determined that while the taxpayers' claims were fully satisfied through the AT's voluntary revocation, the timing was critical for cost allocation. Under Article 536(3) and (4) of the Civil Procedure Code, when supervening futility results from voluntary satisfaction of the claimant's claim by the respondent, the latter bears all costs. Since the AT revoked the assessment after both the tribunal's constitution and the 30-day statutory period, the tribunal attributed full responsibility for costs (€918 arbitration fee) to the AT. This decision establishes an important precedent: tax authorities that delay revocation of contested assessments beyond the statutory period face cost consequences, even when ultimately conceding to taxpayers' claims, incentivizing prompt administrative resolution of tax disputes.

Full Decision

ARBITRAL DECISION

I. Report

  1. A..., taxpayer no. ..., and B..., taxpayer no. ..., married (hereinafter referred to as "Claimants"), both resident in ..., n.º..., ..., ...-... Lisbon, filed, pursuant to the combined provisions of articles 2º and 10º of Decree-Law n.º 10/2011, of 20 January, i.e., Legal Framework for Arbitration in Tax Matters ("LFATM"), a request for constitution of an Arbitral Tribunal, in order to declare illegal the assessment of Personal Income Tax (PIT) n.º 2018..., concerning the tax year 2017, naming the Tax and Customs Authority ("Respondent" or "TA") as defendant.

A) Constitution of the Arbitral Tribunal

  1. Pursuant to the provisions of paragraph a) of section 2 of article 6º and paragraph b) of section 1 of article 11º of the LFATM, the Ethics Council of the Administrative Arbitration Centre ("CAAC") appointed the undersigned as arbitrator of the sole arbitrator tribunal, who communicated acceptance of the assignment within the applicable period, and notified the parties of this appointment on 9 October 2018.

  2. Thus, in accordance with the provision of paragraph c) of section 1 of article 11º of the LFATM, and through communication from the President of the Ethics Council of the CAAC, the Sole Arbitral Tribunal was constituted on 29 October 2018.

B) Procedural History

  1. In the request for arbitral decision, the Claimants petition for partial annulment, on the grounds of illegality due to breach of law, of the PIT assessment n.º 2018..., dated 2 June 2018, issued in respect of the 2017 tax year, and likewise petition for reimbursement of the amount paid, as well as payment, by the TA, of indemnity interest.

  2. The TA, in turn, having been notified of the request for arbitral decision presented by the Claimants, communicated, within the period established for its Response in article 17º of the LFATM, that the assessment contested in these proceedings was duly revoked.

  3. The Claimants, having been notified to pronounce themselves on the supervening futility of the dispute, inform that they have no objection to the termination of the proceedings under paragraph e) of article 277º of the Code of Civil Procedure ("CCP").

  4. The Arbitral Tribunal was duly constituted and is competent to assess the issues indicated (article 2º, section 1, paragraph a) of the LFATM), the parties have legal capacity and standing and have full legal legitimacy (articles 4º and 10º, section 2 of the LFATM and article 1º of Ordinance n.º 112-A/2011, of 22 March).

  5. Thus, the present proceedings are in conditions for the final decision to be rendered.

II. On the Supervening Futility of the Dispute

  1. Article 277º, paragraph e), of the CCP, applicable ex vi article 29º, section 1, paragraph e), of the LFATM, provides as follows: "Proceedings terminate with the impossibility or supervening futility of the dispute".

  2. The supervening futility of the dispute occurs when, by virtue of new facts occurring during the course of the proceedings, the decision to be rendered has no longer any useful effect, either because it is not possible to satisfy the claim that the claimant wishes to assert in the proceedings or because the objective of the action has been achieved by other means.

  3. The impossibility or supervening futility of the dispute thus translates into a legal impossibility or futility, the determination of which is based on what is established by law.

  4. In the words of the distinguished José Lebre de Freitas, Rui Pinto and João Redinha[1], "the impossibility or supervening futility of the dispute occurs when, by a fact occurring during the course of proceedings, the plaintiff's claim cannot be maintained, by virtue of the disappearance of the subjects or the object of the proceedings, or finds satisfaction outside the scheme of the remedy sought. In either case, the resolution of the dispute ceases to be relevant – here, by impossibility of achieving the intended result; there, by the result having already been achieved by other means".

  5. Returning to the specific case, the TA has fully and voluntarily satisfied the claims that the Claimant has made in these proceedings.

  6. Accordingly, the results that the Claimant aimed to achieve with the present arbitral proceedings have already been fully attained, so that the arbitral decision which, normally, would be rendered, deciding on the merits of the claims submitted, appears to be devoid of any useful effect, so that its rendering is not justified.

  7. Without further considerations, the supervening futility of the dispute is thus deemed to be established.

III. On the Responsibility for Costs

  1. Pursuant to the provisions of article 536º, section 3, of the CCP (applicable ex vi article 29º, section 1, paragraph e), of the LFATM), in cases of termination of proceedings due to impossibility or supervening futility of the dispute (except those provided for in the previous sections), responsibility for costs shall be borne by the claimant or applicant, unless such impossibility or futility is attributable to the respondent or defendant, in which case the latter shall be responsible for the totality of the costs.

  2. Furthermore, section 4 of the same article provides, as is relevant here, that it is deemed, in particular, attributable to the respondent or defendant the supervening futility of the dispute when this results from voluntary satisfaction, on the latter's part, of the claimant's or applicant's claim.

  3. In the specific case, the Claimant's claim was satisfied voluntarily by the TA, as it revoked the tax act contested.

  4. Now, the PIT assessment that is the subject of the present request for arbitral decision was annulled by the TA on 7 December 2018, already after the constitution of the present Arbitral Tribunal, which took place on 29 October 2018.

  5. It should be noted moreover that, having the request for constitution of the arbitral tribunal been accepted by the Honourable President of the CAAC and notified to the TA, the latter could "(…) within 30 days from the date of knowledge of the request for constitution of the arbitral tribunal, proceed to revoke, ratify, reform or convert the tax act whose legality has been raised" (emphasis ours), as provided for in article 13º of the LFATM.

  6. Indeed, the annulment of the assessment that is the subject of these proceedings occurred after this 30-day period, so the present Arbitral Tribunal considers that a cause of termination of the proceedings attributable to the TA exists, namely the supervening futility of the dispute, by annulment of the contested act.

  7. Thus, in the case at hand, having regard to the foregoing, responsibility for costs shall be entirely attributed to the TA.

IV. Decision

  1. Accordingly, it is decided in this Arbitral Tribunal to declare the present dispute superveniently futile, dismissing the Respondent from the proceedings, condemning the latter to pay the costs of the proceedings, in the amount fixed below.

V. Process Value

  1. The value of the proceedings is fixed at Euro 8,662.29, pursuant to article 97º-A, section 1, paragraph a), of the Tax Procedure Code, applicable by virtue of paragraphs a) and b) of section 1 of article 29º of the LFATM and section 2 of article 3º of the Regulation of Costs in Tax Arbitration Proceedings ("RCTAP").

VI. Costs

  1. In accordance with the provisions of article 22º, section 4, of the LFATM, the value of the arbitration fee is fixed at Euro 918, pursuant to Table I of the aforementioned Regulation, to be borne by the Respondent, given the merits of the claim.

Let notification be made.

Lisbon, CAAC, 28 January 2019

The Arbitrator

(Sérgio Santos Pereira)

[1] Cfr. Annotated Code of Civil Procedure, Volume 1st, 2nd edition, Coimbra Editora, Coimbra, 2008, p. 555

Frequently Asked Questions

Automatically Created

What is 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, during the course of proceedings, facts arise that make the arbitral decision no longer have any useful effect. This happens either because the claimant's claim cannot be satisfied due to disappearance of the subjects or object of proceedings, or because the objective has been achieved by other means. Under Article 277(e) of the Civil Procedure Code, applicable to CAAD proceedings via Article 29(1)(e) of the RJAT, this situation leads to termination of proceedings. In tax arbitration, the most common scenario is when the Tax Authority voluntarily revokes the contested tax assessment, fully satisfying the taxpayer's claims and rendering the arbitral decision unnecessary.
What happens when the Portuguese Tax Authority revokes a contested IRS assessment during arbitration proceedings?
When the Portuguese Tax Authority revokes a contested IRS assessment during arbitration proceedings, the case typically terminates due to supervening futility of the dispute. However, the timing of revocation determines cost responsibility. Article 13 of the RJAT gives the AT 30 days from notification of the arbitration request to revoke, ratify, reform, or convert the contested act. If revocation occurs within this period, cost consequences may differ. If revocation occurs after this 30-day period and after tribunal constitution, as in Process 400/2018-T, the AT bears full responsibility for arbitration costs under Article 536(3) and (4) of the Civil Procedure Code, because the supervening futility is attributable to the respondent's voluntary satisfaction of the claim. The taxpayer is dismissed from proceedings but the AT must pay the arbitration fee and costs.
How does Article 277(e) of the Portuguese Civil Procedure Code apply to CAAD tax arbitration cases?
Article 277(e) of the Portuguese Civil Procedure Code provides that proceedings terminate with impossibility or supervening futility of the dispute. This provision applies to CAAD tax arbitration cases through Article 29(1)(e) of the RJAT (Legal Framework for Tax Arbitration). In tax arbitration, supervening futility commonly arises when the Tax Authority revokes a contested assessment during proceedings, achieving the taxpayer's objective outside the arbitration framework. The arbitral tribunal must declare the futility and terminate proceedings. Cost allocation follows Article 536(3) and (4) of the Civil Procedure Code: generally the claimant pays costs, but when futility results from the respondent's voluntary satisfaction of the claim (such as AT revoking the assessment), the respondent bears all costs. This rule incentivizes early resolution and prevents authorities from forcing taxpayers to incur arbitration costs before conceding.
Can taxpayers claim a refund and indemnity interest when an IRS tax assessment is revoked by the Tax Authority?
When an IRS tax assessment is revoked by the Tax Authority, taxpayers automatically receive the refund of any amounts paid under that assessment, as the revocation renders the tax debt legally non-existent. Regarding indemnity interest (juros indemnizatórios), taxpayers are entitled to compensation for amounts unduly paid or retained beyond legal deadlines, as provided in Article 43 of the Portuguese Tax General Law (LGT). The interest accrues from the date of payment until refund. However, when revocation occurs during arbitration proceedings leading to supervening futility, the arbitral tribunal does not issue a substantive decision on these claims since they are satisfied administratively. The taxpayer's right to refund and indemnity interest flows directly from the revocation act itself, not from an arbitral decision. If disputes arise regarding calculation or payment of these amounts, separate proceedings may be necessary.
What is the procedure when the Tax Authority revokes a tax assessment before the CAAD arbitral tribunal issues a decision?
When the Tax Authority revokes a tax assessment before the CAAD arbitral tribunal issues a decision, the procedure follows Article 17 of the RJAT. The AT communicates the revocation to the tribunal instead of filing a response. The tribunal then notifies the taxpayer to comment on the supervening futility of the dispute under Article 277(e) of the Civil Procedure Code. If the taxpayer agrees (as in Process 400/2018-T), the tribunal declares the supervening futility and terminates proceedings. The tribunal must determine cost responsibility: if revocation occurred after the 30-day period in Article 13 RJAT and after tribunal constitution, the AT bears all costs under Article 536(4) CPC as the futility is attributable to voluntary satisfaction of the claim. The tribunal issues a decision declaring supervening futility, dismissing the parties, fixing process value, and ordering the AT to pay arbitration costs. No substantive decision on the tax assessment's legality is issued.