Process: 672/2018-T

Date: March 25, 2019

Tax Type: IRS

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 672/2018-T) addresses the procedural consequence of supervening futility of litigation in Portuguese tax arbitration. The taxpayer, A... S.A., challenged VAT assessment act no. ... for period 201612M totaling €125,881.68, alleging factual and legal errors. After the arbitral tribunal was constituted on March 6, 2019, but before the Tax Authority (AT) filed its response, the AT informed the tribunal that the Deputy Director-General had revoked the contested assessment on February 26, 2018. The taxpayer confirmed it no longer had interest in continuing the proceedings and requested extinction of the instance with costs awarded against the AT. The tribunal found that the revocation satisfied the taxpayer's objective—elimination of the contested act from the legal order—making continuation of arbitration futile. Applying Article 277(e) of the Civil Procedure Code, the tribunal ruled that supervening futility occurs when facts arising during proceedings render resolution of the dispute without utility or interest. Since the AT's voluntary revocation achieved the same result the taxpayer sought through arbitration (declaration of illegality and annulment), the dispute became moot. The decision demonstrates that when the Tax Authority revokes a contested act during pending CAAD proceedings, the arbitral instance must be extinguished due to supervening futility, as the substantive legal relationship no longer requires judicial determination. This procedural mechanism prevents unnecessary adjudication when the underlying controversy has been resolved administratively.

Full Decision

The Arbitrators José Pedro Carvalho (Presiding Arbitrator), Luís Menezes Leitão and Marcolino Pisão Pedreiro, appointed by the Deontological Council of the Administrative Arbitration Centre to form an Arbitral Tribunal, hereby agree as follows:

ARBITRAL DECISION

I – REPORT

1. On 21 December 2018, A..., S.A., taxpayer no. ..., with registered office at ..., ... ..., ..., ...-... Lisbon, filed a request for constitution of an arbitral tribunal, under the combined provisions of articles 2 and 10 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 RJAT), seeking a declaration of illegality of the VAT assessment act no. ..., relating to the period 201612M, in the total amount of €125,881.68.

2. To support its request, the Applicant alleges, in summary, that the said assessment act is vitiated by factual and legal errors.

3. On 26-12-2018, the request for constitution of the arbitral tribunal was accepted and automatically notified to the AT.

4. The Applicant failed to appoint an arbitrator, whereupon, under article 6, section 2, subsection a) and article 11, section 1, subsection a) of the RJAT, the President of the Deontological Council of the CAAD appointed the undersigned as arbitrators of the collective arbitral tribunal, who communicated acceptance of the appointment within the applicable period.

5. On 14-02-2019, the parties were notified of these appointments and manifested no intention to challenge any of them.

6. In accordance with the provision of article 11, section 1, subsection c) of the RJAT, the collective Arbitral Tribunal was constituted on 06-03-2019.

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

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

"THE DIRECTOR-GENERAL OF AT - TAX AND CUSTOMS AUTHORITY, entity Respondent in the proceedings referenced in the margin, hereby informs that, by dispatch of the Hon. Deputy Director-General with delegated competencies in the VAT area, Dr. B..., issued on 26/02/2018, the assessment act contested in the present proceedings was revoked.

In these terms, extinction of the instance is requested on grounds of supervening futility of the dispute, under the provisions of article 277, subsection e) of the CPC, applicable ex vi article 1 of the CPTA and article 29 of the RJAT."

9. On 27-11-2017, the Applicant, notified to exercise the right to reply, filed a request in the proceedings with the following content:

"Following the request submitted by the Public Treasury on the past 08.03.2019, and the arbitral dispatch issued on the same date, we hereby inform you that we do not maintain an interest in continuing the action, under the provisions of section 2 of article 13 of the RJAT, since the tax act contested was subject to revocation by the Tax Authority.

Additionally, we request that extinction of the instance be decreed on grounds of supervening futility of the dispute, and that the Tax Authority be condemned to pay the costs of the proceedings as the futility is attributable to it, under the provisions of subsection e) of article 277 and sections 3 and 4 of article 536, both of the Code of Civil Procedure."

10. The Arbitral Tribunal is materially competent and is regularly constituted, under articles 2, section 1, subsection a), 5 and 6, section 2, of the RJAT.

The parties have legal personality and capacity, are legitimated and are legally represented, under articles 4 and 10 of the RJAT and article 1 of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from nullities.

In light of all the foregoing, it is appropriate to deliver

II. DECISION

A. MATTERS OF FACT

A.1. Facts established as proven

1- By dispatch of the Hon. Deputy Director-General of AT - Tax and Customs Authority with delegated competencies in the VAT area, issued on 26/02/2018, the VAT assessment act against the Applicant no. ..., relating to the period 201612M, in the total amount of €125,881.68, was 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. Reasoning regarding the proven and unproven matters of fact

With respect to matters of fact, the Tribunal need not pronounce upon everything alleged by the parties; rather, it has the duty to select the facts that matter for the decision and to distinguish between proven and unproven matters (cf. art. 123, section 2, of the CPPT and article 607, section 3 of the CPC, applicable ex vi article 29, section 1, subsections a) and e), of the RJAT).

Thus, the facts pertinent to the judgment of the case are selected and delimited according to their legal relevance, which is established having regard to the various plausible solutions of the legal question(s) (cf. former article 511, section 1, of the CPC, corresponding to the current article 596, applicable ex vi article 29, section 1, subsection e), of the RJAT).

Accordingly, taking into consideration the positions assumed by the parties and the documentary evidence submitted with the proceedings, the following fact listed above is considered proven as relevant to the decision.

B. ON THE LAW

The subject matter of the present proceedings is constituted by the VAT assessment act against the Applicant no. ..., relating to the period 201612M, in the total amount of €125,881.68.

As results from the fact established as proven, by dispatch of the Hon. Deputy Director-General of AT - Tax and Customs Authority with competencies delegated in the VAT area, issued on 26/02, the said tax act was revoked.

In light of what has occurred, it becomes futile to continue the present dispute, in so far as continuation thereof will result in no effect upon the contested substantive legal relationship, to which the parties agree, moreover.

Indeed, supervening futility of the dispute occurs when, by reason of a fact occurring pending the action, the resolution of the dispute ceases to have interest and utility, which justifies extinction of the instance (cf. article 277, subsection e), of the Code of Civil Procedure). As LEBRE DE FREITAS, JOÃO REDINHA, RUI PINTO note, supervening futility or impossibility of the dispute "occurs when, by reason of a fact occurring pending the instance, the plaintiff's claim cannot be maintained, by virtue of the disappearance of the subjects or the object of the proceedings, or is satisfied outside the scheme of the remedy sought. In one case and the other, the resolution of the dispute ceases to interest – here, by impossibility of achieving the intended result; there, because it has already been achieved by other means".

Thus, if, by virtue of new facts occurring pending the proceedings, the aim pursued with the claim brought before court has already been achieved by other means, then the decision to be delivered will have no useful effect, and supervening futility of the dispute thereby occurs.

It follows from the administrative action established as proven that the claim formulated by the Applicant, which had as its purpose the declaration of illegality and annulment by this Tribunal of the act in question, has been undermined in so far as the elimination of that act and its effects from the legal order was achieved by another route, after the instance was initiated. In truth, the subsequent execution of the express act of revocation of the contested assessment (cf. art. 79, section 1 of the LGT) entails that the instance concerning the examination of the legality of these assessments is extinguished by supervening futility of the dispute, given that, as its effects have been eliminated by annulling revocation, the examination regarding such assessments of the alleged vices in order to establish their invalidity loses utility, and the challenge claim filed against them becomes purposeless.

In these terms, this Tribunal finds that supervening futility of the dispute exists with regard to the request for annulment of the tax act which is the subject of the present proceedings, which entails extinction of the corresponding instance under the provisions of article 277, subsection e) of the CPC, applicable ex vi article 29, section 1, subsection e) of the RJAT.

*

The present action was, in a causally adequate manner, a consequence of the assessment act which constitutes its subject matter, an act revoked by the AT itself, which, in doing so, equally gave cause to the extinction of the dispute.

Thus, it is understood that it is the Respondent who must be held responsible for the corresponding costs, under article 536, section 3 of the CPC.

*

C. DECISION

Accordingly, this Arbitral Tribunal finds the present dispute to be superveniently futile, absolving the Respondent of the instance, condemning it to pay the costs of the proceedings, in the amount fixed below.

D. Value of the Proceedings

The value of the proceedings is fixed at €125,881.68, under article 97-A, section 1, a), of the Code of Tax Procedure and Process, applicable by virtue of subsections a) and b) of section 1 of article 29 of the RJAT and section 3 of article 3 of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The amount of the arbitration fee is fixed at €3,060.00, under Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, in so far as it gave cause to the present arbitral action, under articles 12, section 2, and 22, section 4, both of the RJAT, and article 4, section 5, of the said Regulation.

Notify accordingly.

Lisbon, 25 March 2019

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Vogal

(Luís Menezes Leitão)

The Arbitrator Vogal

(Marcolino Pisão Pedreiro)

Frequently Asked Questions

Automatically Created

What is supervening uselessness of litigation (inutilidade superveniente da lide) in Portuguese tax arbitration?
Supervening uselessness of litigation (inutilidade superveniente da lide) in Portuguese tax arbitration occurs when facts arising during proceedings eliminate the need for judicial resolution. Under Article 277(e) of the Civil Procedure Code, applicable to tax arbitration via Article 29 RJAT, the instance is extinguished when the dispute loses utility or interest. This happens when the taxpayer's objective is achieved through alternative means, such as when the Tax Authority voluntarily revokes the contested act, satisfying the claim outside the arbitration framework and making a tribunal decision unnecessary.
What happens when the Tax Authority revokes the contested VAT liquidation act during CAAD arbitration proceedings?
When the Tax Authority revokes a contested VAT liquidation act during CAAD arbitration proceedings, the arbitral tribunal must declare extinction of the instance due to supervening futility. The revocation, executed under Article 79(1) of the General Tax Law (LGT), eliminates the contested act from the legal order, achieving the same result the taxpayer sought through arbitration. Both parties typically agree that continuation serves no purpose, and the tribunal declares the proceedings extinct under Article 277(e) CPC, as the substantive dispute has been resolved administratively.
How does the extinction of proceedings work under Article 277(e) of the Portuguese Civil Procedure Code in tax cases?
Extinction of proceedings under Article 277(e) of the Portuguese Civil Procedure Code in tax cases occurs when supervening facts make dispute resolution futile. Applied to tax arbitration through Article 29 RJAT, this provision requires tribunals to terminate instances when the plaintiff's claim cannot be maintained or has been satisfied outside the judicial process. In tax arbitration, common scenarios include voluntary revocation of contested acts by the Tax Authority, payment and acceptance of tax debt, or legislative changes eliminating the legal basis for assessment. The tribunal issues a decision declaring extinction without examining the merits of the original challenge.
Can a taxpayer challenge a VAT liquidation act through CAAD arbitral tribunal under the RJAT framework?
Yes, taxpayers can challenge VAT liquidation acts through CAAD arbitral tribunals under the RJAT framework. Article 2(1)(a) of Decree-Law 10/2011 (RJAT) grants arbitral tribunals jurisdiction over disputes concerning the legality of tax acts, including VAT assessments. The taxpayer files a request for constitution of an arbitral tribunal within the statutory deadline, alleging illegality based on factual or legal errors. The tribunal is constituted with arbitrators appointed by the CAAD Deontological Council if parties don't appoint their own. This alternative dispute resolution mechanism provides faster resolution than administrative courts while maintaining full review of tax assessment legality.
What is the procedural outcome when the Tax Authority voluntarily revokes a tax assessment during pending arbitration at CAAD?
When the Tax Authority voluntarily revokes a tax assessment during pending CAAD arbitration, the procedural outcome is extinction of the instance for supervening futility under Article 277(e) CPC. The AT notifies the tribunal of the revocation act, issued under Article 79 LGT, which eliminates the contested assessment from the legal order. The taxpayer, having achieved its objective (removal of the illegal tax act), confirms lack of interest in continuing proceedings. The tribunal issues a decision declaring extinction without examining substantive legality issues. Typically, costs are allocated against the AT as the party whose conduct rendered litigation unnecessary, though this depends on specific circumstances and timing of the revocation.