Process: 431/2017-T

Date: March 6, 2018

Tax Type: IRS

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 431/2017-T) addresses the supervening uselessness of proceedings following the Tax Authority's revocation of contested IRS withholding tax assessments. A..., S.A. challenged two IRS withholding tax assessments for 2014 and 2016, totaling €100,799.00 plus compensatory interest of €6,068.96, claiming nullity due to lack of authorization for applying the anti-abuse clause under Article 38(2) of the LGT, illegitimacy of the passive subject, and improper application of the general anti-abuse provision. The Tax Authority did not file a response but instead, by order of 16/11/2017, revoked all contested acts including the withholding tax assessments and compensatory interest. The arbitral tribunal held that continuation of proceedings became useless since the revocation eliminated the disputed legal relationship. Applying Article 277(e) of the Civil Procedure Code, the tribunal declared supervening uselessness (inutilidade superveniente da lide) and terminated the instance. Both parties agreed on this outcome. The claimant requested costs be awarded against the Tax Authority for causing the dispute, including reimbursement of the arbitration fee. This decision demonstrates that when the Tax Authority revokes contested acts during pending CAAD arbitration, the proceedings lose their purpose and utility, justifying termination without a merit-based decision, though cost allocation issues may remain.

Full Decision

ARBITRAL DECISION

I – REPORT

On 17 July 2017, A..., S.A., taxpayer no. ..., with tax domicile in ..., ..., ...-... ..., 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, as amended by Article 228 of Law No. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the acts assessing withholding tax on personal income tax (IRS) 2014 No. 2017 ... of 19-04-2015 and corresponding compensatory interest No. 2017..., which set IRS payable at the amount of € 60,480.00, and compensatory interest at the amount of € 5,335.49, and assessment of withholding tax on IRS 2016 No. 2017... of 06-01-2015 and corresponding compensatory interest No. 2017..., which set IRS payable at the amount of € 40,319.00, and compensatory interest at the amount of € 733.47.

To substantiate its request, the Claimant alleges, in summary:

  • Nullity of the assessments due to lack of authorization for application of the anti-abuse provision (in violation of Article 63, paragraph 7 of the CPPT);

  • Illegitimacy of the passive subject;

  • Improper application of the general anti-abuse clause and consequent violation of law due to errors in factual and legal grounds.

On 17-07-2017, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority (AT).

The Claimant failed to appoint an arbitrator, whereupon, pursuant to Article 6, paragraph 2, subsection a) and Article 11, paragraph 1, subsection a) of the RJAT, the President of the Deontological Council of CAAD appointed the signatories as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

On 05-09-2017, the parties were notified of these appointments and did not express any intention to challenge them.

In accordance with Article 11, paragraph 1, subsection c) of the RJAT, the collective Arbitral Tribunal was constituted on 24-12-2014.

The Respondent, duly notified for this purpose, did not file a response to the arbitral request filed.

On 16-11-2017, the Respondent filed a motion in the proceedings with the following content:

"The Tax and Customs Authority, notified of the request for arbitral decision filed by A..., S.A., with Tax Identification Number ..., in the context of the case referenced above, did not file a Response, pursuant to Article 17 of the RJAT, as it was proceeding with the revocation of the contested acts.

Subsequently, by order of 16/11/2017, of the Deputy Finance Director, by delegation of powers, of the Finance Directorate of Braga, the decision of 05/04/2017 and consequent acts were revoked, namely the acts assessing withholding tax on IRS for 2014 and 2016, assessments No. 2017 ... and No. 2017 ..., as well as the respective assessments of compensatory interest resulting from the corrections made by tax inspection, pursuant to service orders OI2016... and OI2016..., based on the general anti-abuse clause of Article 38, paragraph 2 of the LGT, as per the attached document.

In light of the foregoing, and given the absence of interest to act subsequent to the filing of the request for arbitral decision, the supervenient uselessness of the dispute should be declared.

On 27-11-2017, the Claimant, notified to make submissions regarding the motion filed by the Respondent Tax and Customs Authority that communicated the revocation of the contested assessments to the proceedings, considers that the supervenient uselessness of the dispute occurs, despite, to the knowledge of the Claimant, such revocation still not having been communicated to the Finance Service where the respective enforcement proceeding is pending.

Thus, it requests that the termination of the instance be decreed on that ground, determining that the Respondent entity be condemned to pay the costs of the proceedings given that it caused the dispute, with the consequent reimbursement of the arbitration fee paid by the Claimant."

The Arbitral Tribunal is materially competent and is regularly constituted pursuant to Articles 2, paragraph 1, subsection a), 5, and 6, paragraph 1 of the RJAT.

The parties have legal personality and capacity, are legitimate and are legally represented, pursuant to Articles 4 and 10 of the RJAT and Article 1 of Ordinance No. 112-A/2011, of 22 March.

The proceedings contain no nullities.

All having been reviewed, it is appropriate to render judgment.

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

By order of 16/11/2017, of the Deputy Finance Director, by delegation of powers, of the Finance Directorate of Braga, the acts assessing withholding tax on IRS 2014 No. 2017 ... of 19-04-2015 and corresponding compensatory interest No. 2017..., which set IRS payable at the amount of € 60,480.00, and compensatory interest at the amount of € 5,335.49, and assessment of withholding tax on IRS 2016 No. 2017 ... of 06-01-2015 and corresponding compensatory interest No. 2017..., which set IRS payable at the amount of € 40,319.00, and compensatory interest at the amount of € 733.47, were revoked.

A.2. Facts Established as Not Proven

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

A.3. Justification of the Factual Matters Proven and Not Proven

With respect to factual matters, the Tribunal is not required to pronounce on everything alleged by the parties; rather, it has the duty to select the facts that matter for the decision and discriminate between proven and unproven matters (see Article 123, paragraph 2 of the CPPT and Article 607, paragraph 3 of the CPC, applicable by virtue of Article 29, paragraph 1, subsections a) and e) of the RJAT).

In this manner, the facts relevant to the adjudication of the case are chosen and delineated in accordance with their legal relevance, which is established in light of the various plausible solutions to the legal question(s) (see former Article 511, paragraph 1 of the CPC, corresponding to current Article 596, applicable by virtue of Article 29, paragraph 1, subsection e) of the RJAT).

Thus, having regard to the positions assumed by the parties and the documentary evidence attached to the proceedings, the fact listed above is considered proven, with relevance to the decision.

B. LAW

The subject matter of the present proceedings consists of the acts assessing withholding tax on IRS 2014 No. 2017 ... of 19-04-2015 and corresponding compensatory interest No. 2017..., which set IRS payable at the amount of € 60,480.00, and compensatory interest at the amount of € 5,335.49, and assessment of withholding tax on IRS 2016 No. 2017 ... of 06-01-2015 and corresponding compensatory interest No. 2017..., which set IRS payable at the amount of € 40,319.00, and compensatory interest at the amount of € 733.47.

As results from the fact established as proven, by order of 16/11/2017, of the Deputy Finance Director, by delegation of powers, of the Finance Directorate of Braga, all the tax acts that are the subject matter of the present proceeding were revoked.

In light of what has occurred, it becomes useless to continue with the present dispute, insofar as the continuation thereof will not result in any effect on the disputed material legal relationship, which the parties are, moreover, in agreement on.

The supervenient uselessness of the dispute exists when, by a fact occurring during the pendency of the case, the solution of the litigation ceases to have interest and utility, which justifies the termination of the instance (see Article 277, subsection e) of the Code of Civil Procedure). As LEBRE DE FREITAS, JOÃO REDINHA, and RUI PINTO[1] state, the supervenient uselessness or impossibility of the dispute "occurs when, by a fact occurring during the pendency of the instance, the plaintiff's claim cannot be maintained, by virtue of the disappearance of the subjects or the object of the proceedings, or satisfaction is found outside the scheme of the relief sought. In either case, the solution of the litigation ceases to be of interest – in one case, due to the impossibility of achieving the intended result; in the other, because it has already been achieved by another means".

Thus, if, by virtue of new facts occurring during the pendency of the proceedings, the purpose sought with the claim filed in court has already been achieved by another means, then the decision to be rendered does not involve any useful effect, whereupon supervenient uselessness of the dispute occurs.

It follows from the administrative action established as proven that the claim formulated by the Claimant, which had as its purpose the declaration of illegality and annulment by this Tribunal of the acts contested, was prejudiced insofar as the suppression of those acts and their effects from the legal order was achieved by another means, after the institution of proceedings. In truth, the subsequent performance of the express act of revocation of the contested assessments (see Article 79, paragraph 1 of the LGT) implies that the instance pertaining to the review of the legality of those assessments is terminated by supervenient uselessness of the dispute, given that, because their effects have been eliminated by annulling revocation, the review, in relation to such assessments, of the defects alleged in order to their invalidity loses utility, leaving the claim for annulment asserted against them without object.

In these terms, this Tribunal finds that the supervenient uselessness of the dispute exists with respect to the request for annulment of the tax acts that are the subject matter of the present proceeding, which implies the termination of the corresponding instance in accordance with Article 277, subsection e) of the CPC, applicable by virtue of Article 29, paragraph 1, subsection e) of the RJAT.

The present action was, in a causally adequate manner, a consequence of the assessment acts that constitute its subject matter, which acts were revoked by the Tax Authority itself, which, in doing so, likewise gave cause to the termination of the dispute.

In this manner, it is understood that it is the Respondent who should be held responsible for the corresponding costs, pursuant to Article 536, paragraph 3 of the CPC.

C. DECISION

Whereupon this Arbitral Tribunal decides to find the present dispute supervenient useless, absolving the Respondent from the instance, and condemning it for the costs of the proceedings, in the amount fixed below.

D. Value of the Case

The value of the case is fixed at € 106,867.96, in accordance with Article 97-A, paragraph 1, subsection a) of the Code of Procedure and Tax Process, applicable by force of subsections a) and b) of paragraph 1 of Article 29 of the RJAT and paragraph 2 of Article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at € 3,060.00, in accordance with Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Tax Authority, given that it gave cause to the present arbitral action, pursuant to Articles 12, paragraph 2, and 22, paragraph 4, both of the RJAT, and Article 4, paragraph 4 of the aforesaid Regulation.

Notice shall be given.

Lisbon, 6 March 2018

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator-Member

(Nuno Pombo)

The Arbitrator-Member

(Olívio Mota Amador)

[1] "Annotated Code of Civil Procedure", volume 1, 2nd edition, Coimbra Publisher, 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 pendency of the case, a fact occurs that causes the solution of the dispute to cease having interest and utility, justifying termination of the instance under Article 277(e) of the Civil Procedure Code. This typically happens when the Tax Authority revokes the contested acts, eliminating the disputed legal relationship and rendering any arbitral decision without practical effect for the parties.
Can the Portuguese Tax Authority revoke contested IRS withholding tax assessments during CAAD arbitration proceedings?
Yes, the Portuguese Tax Authority can revoke contested IRS withholding tax assessments during CAAD arbitration proceedings. In this case, the Deputy Finance Director of the Finance Directorate of Braga, by delegation of powers, revoked the contested withholding tax assessments for 2014 and 2016 through an order dated 16/11/2017, after the arbitration had been initiated but before the tribunal issued its decision. The Tax Authority filed a motion informing the tribunal of the revocation instead of submitting a response to the arbitration request.
What happens when the Tax Authority revokes the disputed tax acts before the arbitral tribunal issues a decision?
When the Tax Authority revokes disputed tax acts before the arbitral tribunal issues a decision, the tribunal declares supervening uselessness of the proceedings (inutilidade superveniente da lide) and terminates the instance, as continuing would serve no purpose since the contested acts no longer exist. The arbitration does not proceed to a merit-based decision on the legality of the original assessments. However, the question of costs may still be addressed, with the claimant potentially entitled to reimbursement of arbitration fees if the Tax Authority caused the dispute.
Does the anti-abuse clause (cláusula geral antiabuso) under Portuguese tax law require prior authorization before application?
According to the claimant's allegations in this case, the application of the anti-abuse clause under Article 38(2) of the General Tax Law (LGT) requires prior authorization under Article 63(7) of the Tax Procedure Code (CPPT). The claimant argued that the contested IRS withholding tax assessments were null due to lack of such authorization. However, because the Tax Authority revoked the assessments during the proceedings, the tribunal did not reach a substantive decision on whether this authorization requirement was violated.
What are the legal consequences when the Tax Authority fails to submit a response in CAAD tax arbitration proceedings?
When the Tax Authority fails to submit a response in CAAD tax arbitration proceedings, the arbitration continues and the tribunal may decide based on the claimant's allegations and available evidence. In this case, the Tax Authority did not file a response pursuant to Article 17 of the RJAT because it was proceeding with revocation of the contested acts. The failure to respond does not result in automatic acceptance of the claimant's position; instead, the proceedings continued until the Tax Authority formally communicated the revocation, leading to declaration of supervening uselessness.