Process: 69/2019-T

Date: June 28, 2019

Tax Type: IRC IVA

Source: Original CAAD Decision

Summary

This CAAD arbitration case (Process 69/2019-T) demonstrates the procedural consequence of supervening uselessness (inutilidade superveniente da lide) when the Tax Authority voluntarily revokes contested tax assessments during pending arbitration proceedings. A..., Lda. challenged multiple IRC (Corporate Income Tax) and IVA (Value Added Tax) assessments totaling €94,540.54, alleging illegality of tax corrections under Article 99(1)(a) of the CPPT and violation of the principle of material truth discovery per Article 58 of the LGT. The company filed the arbitration request on February 4, 2019, contesting four IRC assessments and numerous IVA assessments with compensatory interest. However, before the arbitral tribunal could rule on the merits, the Tax Authority issued two administrative dispatches revoking all contested acts: the Deputy Director-General for VAT revoked the IVA assessments on April 15, 2019, and the Deputy Director-General for IRC revoked the corporate tax assessments on May 13, 2019. The Tax Authority then requested extinction of proceedings pursuant to Article 277(e) of the Code of Civil Procedure, applicable to tax arbitration through Article 29 of the RJAT. This case illustrates that when the Tax Authority exercises its self-review powers (revogação) and eliminates the contested administrative acts during litigation, the dispute becomes moot because there is no longer any act to challenge. The arbitral tribunal confirmed its jurisdiction and the parties' legal standing but proceeded to declare the proceedings extinct due to supervening futility, as the object of the dispute ceased to exist following the administrative revocations.

Full Decision

ARBITRAL DECISION

I – REPORT

1. On 4 February 2019, A..., Lda., Tax Identification Number ..., with registered office at ..., s/n, ...-... Matosinhos, filed a request for constitution of an arbitral tribunal, pursuant to the combined provisions of articles 2nd and 10th of Decree-Law no. 10/2011, of 20 January, which approved the Legal Framework for Arbitration in Tax Matters, as amended by article 228th of Law no. 66-B/2012, of 31 December (hereinafter, abbreviated as RJAT), seeking the declaration of illegality of the following tax acts, in the amount of € 94,540.54:

i. Assessments no. 2018..., no. 2018..., no. 2018... no. 2018 ... relating to Corporate Income Tax (IRC);

ii. Assessments no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018 ..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., and compensations no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. ..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018 ..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018... and no. 2018..., relating to Value Added Tax (IVA) and compensatory interest.

2. To substantiate its request, the Claimant alleges, in summary, the illegality of the assessment of the corrections made by the Tax Authority (AT), pursuant to articles 2nd, no. 1 paragraph a), 3rd and 10th, of Decree-Law no. 10/2011, of 20 January, article 99th, no. 1 paragraph a) of the Tax Code of Procedure and Tax Process (CPPT) and the violation of the principle of material truth discovery, as set forth in article 58th of the General Tax Law (LGT).

3. On 5 February 2019, the request for constitution of the arbitral tribunal was accepted and automatically notified to the Tax Authority.

4. The Claimant did not proceed with the appointment of an arbitrator, therefore, pursuant to the provisions of paragraph a) of no. 2 of article 6th and paragraph a) of no. 1 of article 11th of the RJAT, the Chairman 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.

5. On 27 March 2019, the parties were notified of these appointments and did not manifest any intention to challenge any of them.

6. In accordance with the provisions of paragraph c) of no. 1 of article 11th of the RJAT, the Collective Arbitral Tribunal was constituted on 16 April 2019.

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

8. On 29 April 2019, the Respondent submitted a motion in the proceedings with the following content:

"The DIRECTOR-GENERAL OF THE TAX AUTHORITY AND CUSTOMS AUTHORITY (AT - Autoridade Tributária e Aduaneira), party respondent in the proceedings referenced in the margin, hereby informs that, by dispatch of the Most Excellent Deputy Director-General with delegated competences in the area of VAT, Dr. B..., issued on 15/04/2019, the assessment act contested in the present proceedings was revoked.

In these terms, extinction of the proceedings is requested due to supervening futility of the dispute, pursuant to article 277th, paragraph e) of the Code of Civil Procedure (CPC), applicable by operation of article 1st of the Administrative Procedure Code (CPTA) and article 29th of the RJAT."

9. On 20 May 2019, the Respondent submitted a motion in the proceedings with the following content:

"The DIRECTOR-GENERAL OF THE TAX AUTHORITY AND CUSTOMS AUTHORITY (AT - Autoridade Tributária e Aduaneira), party respondent in the proceedings referenced in the margin, hereby informs that, by dispatch of the Most Excellent Deputy Director-General with delegated competences in the area of Corporate Income Tax (IRC), Dr.ª C..., issued on 13/05/2019, the assessment act contested in the present proceedings was revoked.

In these terms, extinction of the proceedings is requested due to supervening futility of the dispute, pursuant to article 277th, paragraph e) of the Code of Civil Procedure (CPC), applicable by operation of article 1st of the Administrative Procedure Code (CPTA) and article 29th of the RJAT."

10. The Arbitral Tribunal has material jurisdiction and is regularly constituted, pursuant to articles 2nd, no. 1, paragraph a), 5th and 6th, no. 2, paragraph a), of the RJAT.

The parties have legal capacity and standing, are legitimate and are legally represented, pursuant to articles 4th and 10th of the RJAT and article 1st of Ordinance no. 112-A/2011, of 22 March.

The proceedings do not suffer from any defects.

Thus, there is no obstacle to consideration of the case.

Having examined all matters, it behooves us to deliver:

II. DECISION

A. FACTUAL MATTERS

A.1. Facts Established as Proven

1. By dispatch of the Most Excellent Deputy Director-General of the Tax Authority and Customs Authority (AT) with delegated competences in the area of VAT, issued on 15/04/2019, the following acts were revoked:

i. ii. Assessments no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018 ..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., and compensations no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. ..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018... no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018... and no. 2018..., relating to Value Added Tax (IVA) and compensatory interest.

2. By dispatch of the Most Excellent Deputy Director-General of the Tax Authority and Customs Authority (AT) with delegated competences in the area of Corporate Income Tax (IRC), issued on 13/05/2019, the following acts were revoked:

i. Assessments no. 2018..., no. 2018..., no. 2018 ... no. 2018... relating to Corporate Income Tax (IRC).

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 for the Factual Matters Proven and Not Proven

With regard to the factual matters, the Tribunal need not rule on everything that was alleged by the parties; rather, it is incumbent upon it to select the facts that matter for the decision and to distinguish proven from unproven matters (see article 123rd, no. 2, of the CPPT and article 607th, no. 3 of the CPC, applicable by operation of article 29th, no. 1, paragraphs a) and e), of the RJAT).

Accordingly, the relevant facts for adjudication of the case are selected and delineated in function of their legal relevance, which is established in view of the various plausible solutions to the question(s) of law (see former article 511th, no. 1, of the CPC, corresponding to the current article 596th, applicable by operation of article 29th, no. 1, paragraph e), of the RJAT).

Thus, taking into account the positions assumed by the parties, in light of article 110th/7 of the CPPT, and the documentary evidence filed in the proceedings, the above-listed facts were considered proven, with relevance to the decision.

B. ON THE LAW

The subject matter of the present proceedings consists of the following tax acts:

i. Assessments no. 2018..., no. 2018..., no. 2018... no. 2018 ... relating to Corporate Income Tax (IRC);

ii. Assessments no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018 ..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., and compensations no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. ..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018 ..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018...., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018..., no. 2018... and no. 2018..., relating to Value Added Tax (IVA) and compensatory interest.

As results from the facts established as proven, by dispatches of the Most Excellent Deputy Director-General of the Tax Authority and Customs Authority with delegated competences in the area of VAT, issued on 15-04-2019, and the Most Excellent Deputy Director-General of the Tax Authority and Customs Authority with delegated competences in the area of Corporate Income Tax (IRC), issued on 13/05/2019, the tax acts referred to were revoked.

In light of what has occurred, it becomes futile to proceed with the present dispute, insofar as continuation thereof will not result in any effect on the disputed substantive legal relationship, which the parties agree upon, moreover.

Indeed, supervening futility of the dispute exists when, by fact occurring during the pending of the case, the solution of the litigation ceases to have interest and utility, which justifies extinction of the proceedings (see article 277th, paragraph e), of the Code of Civil Procedure). As noted by LEBRE DE FREITAS, JOÃO REDINHA, RUI PINTO, supervening futility or impossibility of the dispute "occurs when, by fact occurring during the pending of the proceedings, the plaintiff's claim cannot be maintained, by virtue of the disappearance of the subjects or object of the proceedings, or finds satisfaction outside the scheme of the remedy sought. In either case, the solution of the litigation ceases to be of interest – in the former, due to impossibility of achieving the intended result; in the latter, because it has already been achieved by another means".

Thus, if, by virtue of new facts occurring during the pending of the proceedings, the aim sought with the claim deduced in court has already been achieved by another means, then the decision to be rendered does not involve useful effect, so that, in that regard, supervening futility 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 questioned act, has been prejudiced insofar as the suppression of that act and its effects from the legal order has been achieved by another route, after the proceedings were initiated. In fact, the subsequent enactment of an express act of revocation of the disputed assessment (see article 79th, no. 1 of the LGT) implies that the proceedings pertaining to the consideration of the legality of those assessments is extinguished by supervening futility of the dispute, given that, because their effects have been eliminated by the revocatory annulment, the consideration, in relation to such assessments, of the alleged defects for their invalidity loses utility, leaving the challenge claim against them without object.

In these terms, this Tribunal deems it verified that supervening futility of the dispute exists with respect to the request for annulment of the tax act that is the subject of the present proceedings, which implies extinction of the corresponding proceedings pursuant to the provisions of article 277th, paragraph e) of the CPC, applicable by operation of article 29th, no. 1, paragraph e) of the RJAT.

*

With the arbitral request for annulment of the tax acts, the Claimant joined the request for condemnation of the Respondent to payment of indemnificatory interest, and it appears that the decision revoking the assessments relating to Corporate Income Tax (IRC) makes no mention of the payment of indemnificatory interest.

Nevertheless, as written in the Award delivered in arbitral proceedings 215/2018-T of CAAD, cited by the Respondent:

"It is important to bear in mind in this regard that administrative annulment is taken by initiative of the Administration and, constituting a unilateral act, its effects do not depend on the manifestation of will of the interested private party. On the other hand, the arbitral request relating to indemnificatory interest can only be understood as a claim of an accessory or consequential nature in relation to the main request, implying that the proceedings should continue for the incidental consideration of the legality of the questioned act only for the purpose of determining whether the requested compensation by way of indemnificatory interest is warranted.

The fact is that administrative annulment determines the destruction of the effects of the annulled administrative act (article 165th, no. 2, of the Administrative Procedure Code (CPA)), with its consequent elimination from the legal order, so that a situation of supervening impossibility of the dispute by lack of procedural object is verified.

Furthermore, article 172nd of the CPA, under the heading "Consequences of administrative annulment", reproduces the provisions of article 173rd of the CPTA, applicable to the execution of sentences of annulment of administrative acts, establishing a set of duties to perform with respect to the act administratively annulled that correspond to those equally imposed on the Administration if contention annulment occurs within the scope of a challenge proceeding. Which gives rise to the supposition that the consequences resulting from the annulment of an administrative act are fundamentally identical, regardless of whether the annulment results from an act of the Administration itself or from a court decision rendered in a challenge proceeding (in these precise terms, Carlos Fernandes Cadilha, "Implications of the New Administrative Procedure Code Regime in Administrative Procedural Law", in Judging no. 26, May-August 2015, page 31).

Being one of the duties in which the Administration is placed, as a result of the administrative annulment of the act, the reconstitution of the situation that would have existed if the act had not been performed, through the execution of the repristinatatory effect of the annulment, nothing prevents that within that scope indemnificatory interest is owed for improper payment of tax obligation, in consonance with that also established in article 43rd of the General Tax Law.

And it is not excluded, in any case, that the Claimant may raise an indemnificatory claim in autonomous civil liability action.

What cannot be denied is that the present arbitral proceedings, as a consequence of the administrative annulment of the questioned acts, cannot proceed due to supervening impossibility of the dispute."

Indeed, the request for indemnificatory interest should be considered a mere accessory or consequence of the decision on the main request, as, moreover, has been reiterated by the jurisprudence of superior state courts, which thereby conclude that such request does not count toward the calculation of the matter value.

Whence, it is not viable to continue the futile proceedings for consideration of the request for indemnificatory interest.

*

The present action was, in a causally adequate manner, a consequence of the tax acts that constitute its subject matter, acts that were revoked by the Tax Authority itself, which, in doing so, also caused extinction of the dispute.

In this manner, it is understood that it is the Respondent that should be held responsible for the corresponding costs, pursuant to article 536th, no. 3 of the CPC.

*

C. DECISION

In these terms, this Tribunal decides that the present dispute is judged to have supervening futility, absolver the Respondent of the proceedings and condemning the same to payment of the costs of the proceedings, in the amount fixed below.

D. Value of the Proceedings

The value of the proceedings is fixed at € 94,540.54, pursuant to article 97th-A, no. 1, a), of the Tax Code of Procedure and Tax Process, applicable by force of paragraphs a) and b) of no. 1 of article 29th of the RJAT and no. 3 of article 3rd of the Regulation of Costs in Tax Arbitration Proceedings.

E. Costs

The arbitration fee is fixed at €2,754.00, pursuant to Table I of the Regulation of Costs in Tax Arbitration Proceedings, to be paid by the Respondent, once the same gave cause to the present arbitral proceedings, pursuant to articles 12th, no. 2, and 22nd, no. 4, both of the RJAT, and article 4th, no. 5, of the aforementioned Regulation.

Notify.

Lisbon, 28 June 2019

The Presiding Arbitrator

(José Pedro Carvalho)

The Arbitrator Member

(Marta Gaudêncio)

The Arbitrator Member

(Cristina Aragão Seia)

Frequently Asked Questions

Automatically Created

What happens when tax assessments are revoked by the Tax Authority during arbitration proceedings at CAAD?
When tax assessments are revoked by the Tax Authority during CAAD arbitration proceedings, the dispute becomes moot and the proceedings are extinguished due to supervening uselessness (inutilidade superveniente da lide) under Article 277(e) of the Code of Civil Procedure, applicable via Article 29 of the RJAT. The revocation eliminates the contested administrative act, leaving nothing for the arbitral tribunal to adjudicate. The Tax Authority exercises its self-review powers through administrative dispatch, and once all contested acts are revoked, the taxpayer's interest in pursuing the arbitration ceases to exist, resulting in procedural extinction without a decision on the merits.
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 circumstances arising after the arbitration request is filed render the dispute purposeless. This typically happens when the Tax Authority revokes the contested tax assessments through administrative self-review (revogação), eliminating the object of the challenge. Under Article 277(e) of the CPC, applicable to CAAD proceedings through Article 29 of the RJAT, the arbitral tribunal must declare the proceedings extinct because there is no longer a live controversy requiring adjudication. The taxpayer achieves the practical result sought—elimination of the tax debt—making continuation of litigation futile and wasteful of judicial resources.
Can IRC and IVA tax liquidations be challenged simultaneously in a single CAAD arbitration process?
Yes, IRC (Corporate Income Tax) and IVA (Value Added Tax) liquidations can be challenged simultaneously in a single CAAD arbitration process, as demonstrated in Process 69/2019-T. Article 2(1)(a) and Article 10 of the RJAT allow taxpayers to contest multiple tax acts in one arbitration request, regardless of whether they involve different tax types. The key requirement is that all contested acts fall within the monetary and subject-matter jurisdiction of the CAAD. In this case, the claimant successfully brought four IRC assessments and numerous IVA assessments with compensatory interest totaling €94,540.54 in a single proceeding, with the arbitral tribunal confirming its jurisdiction over all contested acts under the RJAT framework.
What are the legal grounds for challenging tax corrections under Article 99(1)(a) of the CPPT?
Article 99(1)(a) of the CPPT establishes the legal grounds for challenging tax corrections through judicial or arbitration proceedings. Taxpayers may contest the substantive legality of tax assessments, arguing that the Tax Authority incorrectly applied tax law, miscalculated taxable amounts, or failed to properly substantiate corrections. Common grounds include violations of substantive tax rules (IRC or IVA codes), procedural irregularities in the inspection process, insufficient evidence supporting the Tax Authority's position, and breach of fundamental principles such as legality, proportionality, and good faith. The burden typically falls on the Tax Authority to prove facts justifying corrections that increase tax liability, while taxpayers must demonstrate illegality of the contested acts.
How does the principle of material truth discovery under Article 58 of the LGT apply to IRC and IVA tax disputes?
The principle of material truth discovery under Article 58 of the LGT (General Tax Law) requires both the Tax Authority and taxpayers to actively collaborate in establishing the true facts relevant to tax determination. In IRC and IVA disputes, this principle obliges the Tax Authority to conduct thorough investigations, gather all relevant evidence, and consider facts favorable to taxpayers, not just those supporting tax increases. Taxpayers must also cooperate by providing requested documentation and information. When challenging tax corrections, taxpayers often invoke violations of Article 58 LGT, arguing that the Tax Authority failed to adequately investigate factual circumstances, relied on insufficient evidence, or ignored exculpatory documentation. Arbitral tribunals apply this principle to ensure decisions rest on complete and accurate factual foundations.