Process: 706/2016-T

Date: April 7, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

In Process 706/2016-T, the Portuguese tax arbitration tribunal (CAAD) addressed the procedural consequences when the Tax Authority revokes a contested IMT assessment after arbitration proceedings have commenced. A…, S.A. challenged an IMT liquidation and requested compensatory interest. After the arbitral tribunal was constituted on 9 February 2017, the Tax Authority revoked the contested act on 14 March 2017 and requested extinction of proceedings due to supervening futility under Article 277(e) of the Civil Procedure Code, applicable via Article 29 RJAT. The tribunal ruled that revocation renders continuation of the dispute not merely futile but impossible, since one cannot annul an act already removed from the legal sphere. Critically, the decision condemns the Tax Authority to bear all procedural costs (€3,060) despite the extinction, applying Articles 527 and 536(3)(4) CPC. The tribunal reasoned that the Tax Authority caused these costs by revoking the act only after proceedings were constituted when it could have done so earlier, and that the revocation itself constituted an implicit acknowledgment of the act's illegality. This precedent establishes that strategic late revocations do not shield tax authorities from cost liability in CAAD arbitration. The ruling valued the proceedings at €141,735.36 and declared extinction due to supervening impossibility, balancing procedural efficiency with accountability for belated administrative corrections. This decision is significant for tax practitioners as it demonstrates that even when substantive claims become moot through revocation, procedural justice and cost allocation remain enforceable, discouraging dilatory administrative tactics.

Full Decision

ARBITRAL DECISION

A…, S.A., with NIF … and registered office in Porto, came, on 29 November 2016, to request the constitution of an arbitral tribunal, with a view to the annulment, as illegal, of the tax assessment act for Municipal Tax on Costly Real Estate Transactions (IMT) with reference …, against which it had filed a gracious appeal. It further requested the condemnation of the Tax and Customs Administration to the payment of compensatory interest which it believes is owed to it for the payment it made.

Having not appointed an arbitrator, the undersigned were appointed by the Deontological Council of CAAD. The appointment was accepted and without the parties having raised any objection, the arbitral tribunal was constituted on 9 February 2017.

The Tax Administration was notified to respond, and came, on 14 March 2017 - still within the deadline for response - to inform that it had revoked the act, and to request the extinction of the proceedings due to subsequent pointlessness of the dispute, invoking article 277º paragraph e) of the Code of Civil Procedure, applicable by virtue of article 29º of the Legal Regime of Tax Arbitration.

The pretension of the Tax Authority was expressly accepted by the Claimant, who requested its condemnation in the costs of the proceedings, based on articles 527º and 536º nos. 3 and 4 of the Code of Civil Procedure, applicable ex vi article 29º of the Legal Regime of Tax Arbitration.

Everything considered:

The revocation of the tax act which constituted the object of the present proceedings makes it, more than pointless, impossible to continue the dispute, since the annulment of an act which, by being revoked, is already outside the legal sphere cannot be conceived.

This implies the extinction of the proceedings, as requested.

And it also entails the condemnation in the costs of the proceedings of the Tax Authority which, by revoking the act after the proceedings had already been constituted, caused it, since it could have done so before, in addition to which, with the revocation, it acknowledged the illegality of the act.

In these terms, considering the legal provisions referred to above, the dispute is declared extinct due to subsequent impossibility, fixing the value of the proceedings at € 141,735.36, and condemning in costs, which are calculated at € 3,060.00, the Tax and Customs Administration.

Notify.

Lisbon, 7 April 2017

José Baeta de Queiroz

(Leonardo Marques dos Santos)

(José Coutinho Pires)

(Text prepared by computer, in accordance with article 138º, no. 5, of the Code of Civil Procedure, applicable by reference of article 29º, no. 1, paragraph e), of the Legal Regime of Tax Arbitration, with blank verses and revised by us, and respecting the spelling prior to the Orthographic Agreement).

Frequently Asked Questions

Automatically Created

What happens when the Tax Authority revokes an IMT liquidation act after arbitration proceedings have begun?
When the Tax Authority revokes an IMT liquidation after arbitration begins, the proceedings are extinguished due to supervening impossibility under Article 277(e) CPC, applicable via Article 29 RJAT. The revocation removes the contested act from the legal sphere, making it impossible to continue disputing its annulment. However, the Tax Authority will typically be condemned to pay all procedural costs if the revocation occurs after the tribunal is constituted, as the late revocation is deemed to have caused unnecessary litigation expenses and implicitly acknowledges the act's illegality.
What is supervening futility of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration?
Supervening futility of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration occurs when events after case initiation render continuation of the dispute pointless or impossible. Under Article 277(e) CPC, applicable to CAAD proceedings via Article 29 RJAT, this includes situations where the Tax Authority revokes the contested act, eliminating the legal object of the dispute. The tribunal cannot annul an act that no longer exists in the legal order, necessitating extinction of proceedings. This doctrine balances procedural economy with the impossibility of delivering meaningful relief.
Who bears the costs when the Tax Authority revokes a contested tax act during CAAD arbitration?
When the Tax Authority revokes a contested tax act during CAAD arbitration, it typically bears all procedural costs under Articles 527 and 536(3)(4) CPC, applicable via Article 29 RJAT. In Process 706/2016-T, the tribunal condemned the Tax Authority to €3,060 in costs because: (1) the revocation occurred after the tribunal was constituted, causing unnecessary litigation expenses; (2) the Authority could have revoked earlier; and (3) the revocation implicitly acknowledged the act's illegality. This cost allocation discourages strategic late revocations and holds tax authorities accountable for belated administrative corrections.
Can a taxpayer claim compensatory interest after the revocation of an illegal IMT assessment?
The decision in Process 706/2016-T does not address compensatory interest claims after revocation, as the proceedings were extinguished before reaching the merits. When the Tax Authority revokes an illegal assessment, the taxpayer's right to compensatory interest under Article 43 LGT depends on whether undue payment occurred and the revocation acknowledges illegality. However, if proceedings are extinct due to supervening impossibility, the tribunal typically does not rule on ancillary claims like interest. Taxpayers may need to pursue compensatory interest through separate administrative channels or ensure the revocation decree explicitly addresses interest entitlement.
How does Article 277(e) of the Civil Procedure Code apply to tax arbitration under the RJAT?
Article 277(e) of the Civil Procedure Code applies to tax arbitration through Article 29(1)(e) of the RJAT (Legal Regime of Tax Arbitration), which incorporates civil procedural rules subsidiarily. Article 277(e) CPC provides for extinction of proceedings when supervening impossibility makes continuation of the dispute unfeasible. In tax arbitration, this occurs when the contested administrative act is revoked, eliminated from the legal sphere, or otherwise ceases to exist. The tribunal cannot issue a meaningful decision annulling an act that has already been administratively revoked, thus triggering procedural extinction while preserving the ability to allocate costs based on who caused the litigation.