Process: 673/2018-T

Date: April 29, 2019

Tax Type: Outros

Source: Original CAAD Decision

Summary

This CAAD arbitral decision (Process 673/2018-T) addresses the procedural consequence of supervening futility of proceedings in Portuguese tax arbitration when the Tax Authority (AT) revokes a contested tax assessment before the arbitral tribunal is formally constituted. The claimant, A... Unipessoal Lda, challenged an Additional Municipal Property Tax (AIMI) assessment of €9,820.54 through arbitration under Decree-Law 10/2011 (RJAT). However, the AT revoked the contested act on September 27, 2018, before the arbitration request was filed on December 26, 2018. The tribunal, composed of sole arbitrator Rita Guerra Alves, held that the revocation rendered the dispute futile under Articles 287(e) and 277(e) of the Code of Civil Procedure (CPC), applicable subsidiarily to tax arbitration per Article 29(1) RJAT. Critically, because the revocation occurred before the thirty-day period established in Article 13(1) RJAT for the AT to respond to the arbitration request, the tribunal attributed the supervening futility to the claimant rather than the respondent. Under Article 536(4) CPC, supervening futility is normally attributed to the defendant when it results from voluntary satisfaction of the claim, but here the timing meant the claimant bore responsibility for costs totaling €918.00. The tribunal dismissed the claimant's request for compensatory interest, emphasizing that futility attributable to the claimant precluded such relief. This decision clarifies the temporal framework in RJAT proceedings and demonstrates that taxpayers must verify the status of contested acts before initiating arbitration to avoid bearing costs in cases of supervening futility.

Full Decision

ARBITRAL DECISION

I - REPORT

A - IDENTIFICATION OF THE PARTIES

Claimant: A...

A..., UNIPESSOAL LDA, with registered office at ..., n.º..., ..., ...-... Lisbon, bearing the tax identification number for legal entities ..., hereinafter referred to as Claimant or taxpayer.

Respondent: Tax and Customs Authority, hereinafter referred to as Respondent or AT.

The Claimant submitted a request for the constitution of an Arbitral Tribunal in tax matters and a request for arbitral decision, pursuant to the provisions of paragraph a) of n.º 1 of article 2.º and paragraph a) of n.º 1 of article 10.º, both of Decree-Law n.º 10/2011, of 20 January (Legal Regime of Arbitration in Tax Matters, hereinafter abbreviated as RJAT).

The request for constitution of the Arbitral Tribunal was accepted by the President of CAAD, and in compliance with the provisions of paragraph c) of n.º 1 of article 11.º of Decree-Law n.º 10/2011, of 20 January, as amended by article 228.º of Law n.º 66-B/2012, of 31 December, and notified to the Tax Authority on 2018-12-26.

The Claimant did not proceed with the appointment of an arbitrator, wherefore, pursuant to the provisions of n.º 1 of article 6.º and paragraph b) of n.º 1 of article 11.º of Decree-Law n.º 10/2011, of 20 January, as amended by article 228.º of Law n.º 66-B/2012, of 31 December, the Deontological Council appointed Rita Guerra Alves as Arbitrator, such appointment having been accepted by her in accordance with legal provisions.

On 2019-02-14, both parties were duly notified of this appointment, and did not manifest any intention to refuse the appointment of arbitrators, in accordance with article 11.º n.º 1, paragraphs a) and b), of the RJAT and Articles 6.º and 7.º of the Deontological Code.

The Singular Arbitral Tribunal was regularly constituted on 2019-03-06, to examine and decide the subject matter of the present proceedings, and the Tax and Customs Authority was automatically notified on 2019-03-06 as shown in the respective minutes.

No witness evidence was produced, and following the procedural course, both parties waived the meeting referred to in article 18.º of the RJAT.

The parties possess judicial personality and capacity, are legitimate and are represented (articles 4.º and 10.º, n.º 2, of the same statute and 1.º of Ordinance n.º 112-A/2011, of 22 March).

The proceedings do not suffer from defects that would render them invalid.

B - REQUEST

1. The Claimant petitions for a declaration of illegality of the tax assessment act for the Additional Municipal Property Tax, n.º 2018..., in the amount of € 9,820.54 (nine thousand eight hundred and twenty euros and fifty-four cents).

C - PRELIMINARY ISSUE OF IMPOSSIBILITY OR SUBSEQUENT FUTILITY OF THE DISPUTE

2. The AT raises in its response the issue of original futility of the dispute, arguing that the subject matter of the request for arbitral decision was revoked on 27-09-2018.

3. The Claimant, notified to pronounce itself on the exception raised by the Respondent, confirmed that it was notified of the revocation of the challenged assessment act.

4. It thus follows from the above that the revocation of the act now under examination occurred on 2018-09-27, that is to say, on a date prior to the request for constitution of the present arbitral tribunal which occurred on 2018-12-26, prior to the notification of the AT which occurred on 2018-12-26, and prior to the constitution of the tribunal, notified to the parties on 2019-03-06.

5. As results from the RJAT, there are two distinct phases in the arbitral proceedings: the procedural phase (Chapter II of the RJAT) and the proper proceedings phase (Chapter III of the RJAT), with the transition between phases marked by the constitution of the arbitral tribunal.

6. The request for constitution of the arbitral tribunal is directed to the President of CAAD, within the time limits and with the formalities provided for in article 10.º of the RJAT, and must be preceded by payment of the initial arbitration fee, proof of which must be appended thereto (see article 10.º, n.º 2, paragraph f), of the RJAT).

7. The acceptance of the request for constitution of the arbitral tribunal marks the beginning of the procedural phase, during which the Respondent entity may, within thirty days of notification of the request for constitution of the arbitral tribunal, "proceed with the revocation, ratification, amendment or conversion of the tax act whose illegality was raised, practising, when necessary, a substitute tax act", and must in such case notify the President of CAAD of its decision (see n.º 1 of article 13.º of the RJAT).

8. Upon the expiration of that thirty-day period from the date of notification of the request for constitution of the arbitral tribunal, without the Respondent having adopted any of the courses of action provided for in n.º 1 of article 13.º of the RJAT, and the taxpayer having opted not to appoint an arbitrator, the CAAD appoints the arbitrator(s), notifies the parties of the appointment (article 11.º, n.º 1, of the RJAT) and, if they do not object to such appointment, notifies them of the constitution of the arbitral tribunal within the ten subsequent days (article 11.º, n.º 1, paragraph c) and n.º 8, of the RJAT).

9. Once the arbitral tribunal is constituted, the tax arbitral proceedings commence (article 15.º of the RJAT), followed by the procedure that will culminate in the final decision.

10. In view of the foregoing, the revocation effected by the AT of the assessment act challenged on a date prior to the constitution of the arbitral tribunal renders it futile to examine the illegality of the challenged act, owing to the occurrence of subsequent futility of the dispute.

11. Now, subsequent futility of the dispute is a cause for extinction of the proceedings, pursuant to article 287.º, paragraph e) and article 277.º, paragraph e), both of the Code of Civil Procedure (CPC), applicable subsidiarily pursuant to article 29.º, n.º 1 of the Tax Arbitration Regime.

12. As regards responsibility for payment of costs in such situations, the rules contained in article 536.º of the CPC apply, subsidiarily applicable to tax arbitral proceedings, by virtue of the provision in article 29.º, n.º 1, paragraph e), of the RJAT.

13. It results from n.º 4 of article 536.º of the CPC that "It is deemed, in particular, that the subsequent futility of the dispute is attributable to the defendant or respondent when this results from the voluntary satisfaction by such party of the claim of the plaintiff or claimant, outside the cases provided for in n.º 2 of the preceding article and unless, in case of settlement, the parties agree on the apportionment of costs."

14. In view of the foregoing and considering that the revocation of the act in question was prior to the phase provided for in n.º 1 of article 13.º of the RJAT, the extinction due to subsequent futility of the dispute is attributable to the Claimant, pursuant to n.º 4 of article 536.º of the CPC, and consequently the costs are also borne by it.

F - INDEMNITARY INTEREST

15. The Claimant further contends for the payment of indemnitary interest.

16. As decided above, the extinction due to subsequent futility of the dispute is attributable to the Claimant, pursuant to n.º 4 of article 536.º of the CPC, and as such the Claimant's request is dismissed.

G - DECISION

In accordance with the facts and law set forth above, this Arbitral Tribunal decides:

a) To uphold the exception of subsequent futility of the dispute with the consequent extinction of the proceedings.

b) To dismiss the remaining requests.

The value of the case is fixed at € 9,820.54 (nine thousand eight hundred and twenty euros and fifty-four cents), the value of the assessment taking into account the economic value of the case determined by the value of the tax assessments challenged, and accordingly the costs are fixed in the respective amount of 918.00€ (nine hundred and eighteen euros), to be borne by the Claimant in accordance with article 12.º, n.º 2 of the Tax Arbitration Regime, article 4.º of the RCPAT and Table I attached thereto. – n.º 10 of article 35.º, and n.º 1, 4 and 5 of article 43.º of the LGT, articles 5.º, n.º 1, paragraph a) of the RCPT, 97.º-A, n.º 1, paragraph a) of the CPPT and 536.º and 559.º both of the CPC).

Notify.

Lisbon, 29 April 2019

The Arbitrator

Rita Guerra Alves

Frequently Asked Questions

Automatically Created

What is supervening impossibility or futility of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration?
Supervening impossibility or futility of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration occurs when the subject matter of the dispute ceases to exist or becomes moot after arbitration is initiated but before a final decision is rendered. Under Articles 287(e) and 277(e) of the Code of Civil Procedure (CPC), applied subsidiarily to tax arbitration pursuant to Article 29(1) of Decree-Law 10/2011 (RJAT), supervening futility is a ground for extinction of proceedings. In tax arbitration, this commonly arises when the Tax Authority revokes the contested assessment after the taxpayer files the arbitration request. The tribunal must determine whether the futility is attributable to the claimant or respondent for purposes of allocating costs under Article 536 CPC. Generally, if the Tax Authority voluntarily satisfies the taxpayer's claim by revoking the assessment, futility is attributed to the AT, which bears costs. However, timing matters: if revocation occurs before the procedural deadlines in Article 13(1) RJAT expire, or if the taxpayer files arbitration knowing the act was already revoked, futility may be attributed to the claimant, who then bears arbitration costs.
What happens when the Portuguese Tax Authority revokes a tax assessment during pending CAAD arbitration proceedings?
When the Portuguese Tax Authority revokes a tax assessment during pending CAAD arbitration proceedings, the legal consequences depend on the timing of the revocation. Article 13(1) of Decree-Law 10/2011 (RJAT) grants the AT thirty days from notification of the arbitration request to revoke, ratify, amend, or convert the challenged tax act. If revocation occurs within this period, the AT must notify the President of CAAD. Revocation after the arbitral tribunal is constituted typically leads to extinction of proceedings due to supervening futility under Articles 277(e) and 287(e) of the Code of Civil Procedure, applied subsidiarily per Article 29(1) RJAT. The critical issue becomes cost allocation under Article 536 CPC. If the AT voluntarily satisfies the taxpayer's claim through revocation after the tribunal is constituted, the supervening futility is attributed to the AT under Article 536(4) CPC, meaning the AT bears arbitration costs. However, if revocation occurs before the tribunal is constituted or before the Article 13(1) deadline expires, as in Process 673/2018-T, the claimant may be deemed responsible for the futility and must pay costs. The taxpayer's claim for compensatory interest is typically dismissed when futility is attributed to the taxpayer rather than the AT.
Can a taxpayer challenge an Additional Municipal Property Tax (AIMI) liquidation through CAAD tax arbitration?
Yes, a taxpayer can challenge an Additional Municipal Property Tax (AIMI) liquidation through CAAD tax arbitration under Decree-Law 10/2011 (RJAT). Article 2(1)(a) of the RJAT establishes the jurisdiction of tax arbitral tribunals to resolve disputes regarding 'the legality of tax acts,' which encompasses AIMI assessments. AIMI is a municipal property surtax introduced in Portugal that applies to individuals and companies holding property portfolios above specified thresholds. Taxpayers may contest AIMI assessments on various grounds, including calculation errors, valuation disputes, exemption eligibility, or other legality issues. To initiate arbitration, the taxpayer must submit a request for constitution of an arbitral tribunal to the President of CAAD within the time limits specified in Article 10 RJAT, accompanied by proof of payment of the initial arbitration fee per Article 10(2)(f). The request must identify the contested tax act and state the grounds for challenge. As demonstrated in Process 673/2018-T, AIMI assessments are subject to the same arbitration procedures as other tax matters, including the possibility of revocation by the Tax Authority and extinction of proceedings due to supervening futility if the contested act is eliminated before the tribunal renders a decision.
What is the legal basis for requesting tax arbitration under Decree-Law 10/2011 (RJAT) in Portugal?
The legal basis for requesting tax arbitration under Decree-Law 10/2011 (RJAT) in Portugal is established in Articles 2 and 10 of the statute. Article 2(1) defines the jurisdiction of tax arbitral tribunals, with Article 2(1)(a) covering disputes regarding 'the legality of acts of tax assessment or determination of taxable income, of tax acts regarding withholding, of acts that refuse requests for tax benefits or tax exemptions, and of other tax acts that affect the rights or legally protected interests of taxpayers.' Article 10 governs the procedural requirements for initiating arbitration. Under Article 10(1), the taxpayer must submit a request for constitution of an arbitral tribunal to the President of the Center for Administrative Arbitration (CAAD) within the applicable time limits. Article 10(2) specifies mandatory contents, including identification of parties, description of the contested act, statement of grounds, legal basis, and proof of payment of the initial arbitration fee. The RJAT establishes a two-phase structure: the procedural phase (Chapter II) during which the tribunal is constituted and the AT may revoke or amend the contested act under Article 13(1), and the proceedings phase (Chapter III) after tribunal constitution when the substantive dispute is adjudicated. Taxpayers must comply with formalities to ensure admissibility, and the Tax Authority has standing as automatic respondent per Article 10(2) and Ordinance 112-A/2011.
How does the CAAD arbitral tribunal handle cases where the disputed tax act has already been revoked by the Tax Authority?
When the CAAD arbitral tribunal encounters cases where the disputed tax act has been revoked by the Tax Authority, the tribunal applies the doctrine of supervening futility of proceedings (inutilidade superveniente da lide) to terminate the arbitration. As demonstrated in Process 673/2018-T, the tribunal first determines the timing of the revocation relative to key procedural milestones: the filing of the arbitration request, notification to the AT, and constitution of the tribunal. The tribunal then applies Articles 277(e) and 287(e) of the Code of Civil Procedure subsidiarily under Article 29(1) RJAT, which establish supervening impossibility or futility as grounds for extinction of proceedings. The crucial determination is attribution of responsibility for the futility under Article 536 CPC. Article 536(4) provides that futility is 'attributable to the defendant or respondent when this results from the voluntary satisfaction by such party of the claim,' meaning the AT normally bears costs when it revokes an assessment during arbitration. However, if revocation occurs before the tribunal is constituted or within the thirty-day period granted by Article 13(1) RJAT for the AT to respond, the claimant may bear responsibility and costs if the arbitration was filed despite the revocation. The tribunal issues a decision upholding the exception of supervening futility, extinguishing the proceedings, and allocating costs accordingly. Any claims for compensatory interest are dismissed when futility is attributed to the claimant.