Process: 720/2016-T

Date: April 18, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

CAAD arbitration case 720/2016-T addressed an IMT assessment of €18,052.75 challenged by A... S.A. relating to Article 270(2) of the Portuguese Insolvency Code (CIRE). The taxpayer filed for arbitration on December 2, 2016, and the arbitral tribunal was constituted on February 14, 2017. However, the Tax Authority revoked the contested IMT assessment on March 15, 2017, after the tribunal's constitution but during the arbitral proceedings. This revocation led to a preliminary objection of supervening uselessness of the dispute (inutilidade superveniente da lide), a procedural termination ground under Article 277(e) of the Code of Civil Procedure. The tribunal accepted this objection, finding that the revocation rendered examination of the assessment's illegality unnecessary. The decision provides important guidance on procedural costs allocation when tax assessments are revoked post-tribunal constitution. The case highlights the two-phase structure of CAAD proceedings: the procedural phase (Chapter II of LFATM) where the Tax Authority may revoke acts within 30 days of notification, and the judicial phase (Chapter III) beginning with tribunal constitution. Once the tribunal is constituted, any revocation triggers cost allocation rules under Article 536(4) CCP, which presumes supervening uselessness is attributable to the party whose conduct caused it, potentially making the Tax Authority liable for arbitration fees despite the case's termination.

Full Decision

ARBITRAL DECISION

I - Report

A - Identification of the Parties

Claimant: A..., S.A., with registered office located at ..., number ..., parish of ..., ...-... Porto, holder of the tax identification number for legal entities NIPC: ..., hereinafter referred to as the Claimant or taxpayer.

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

The Claimant filed a request for the constitution of an Arbitral Tribunal in tax matters and a request for an arbitral pronouncement, under the provisions of paragraph a) of article 2(1) and paragraph a) of article 10(1), both of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter briefly referred to as LFATM).

The request for the constitution of the Arbitral Tribunal was accepted by the President of CAAD, and in accordance with the provisions of paragraph c) of article 11(1) of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Tax Authority was notified on 2016-12-16.

The Claimant did not proceed with the appointment of an arbitrator, therefore, under the provisions of article 6(1) and paragraph b) of article 11(1) of Decree-Law No. 10/2011, of 20 January, as amended by article 228 of Law No. 66-B/2012, of 31 December, the Deontological Board appointed Rita Guerra Alves as Arbitrator, with the appointment being accepted by her under the legally foreseen terms.

On 2017-01-25, the parties were duly notified of this appointment, and did not express any intention to reject the appointment of the arbitrators, under the terms of article 11(1), paragraphs a) and b), of the LFATM and articles 6 and 7 of the Deontological Code.

The Single Arbitral Tribunal was regularly constituted on 2017-02-14, to examine and decide on the object of this dispute, and the Tax and Customs Authority was automatically notified on 2017-02-14, as stated in the respective minutes.

B - Request

1. The present Claimant petitioned for the declaration of illegality of the tax assessment act:

1.1. regarding the Municipal Tax on Onerous Property Transfers (IMT) No. ..., in the amount of €18,052.75 (eighteen thousand, fifty-two euros and seventy-five cents);

1.2. as well as the condemnation of the TA to refund to the Claimant the tax paid, as well as the condemnation to pay default interest and procedural costs.

C - Preliminary Judgment

2. The request for an arbitral pronouncement is timely, as it was presented within the deadline provided for in paragraph a) of article 10(1) of the LFATM.

3. The parties have legal personality and capacity, are legitimate regarding the request for an arbitral pronouncement and are duly represented, under the terms of articles 4 and 10 of the LFATM and article 1 of Administrative Order No. 112-A/2011, of 22 March.

4. The Arbitral Tribunal is materially competent, under the terms of articles 2(1), paragraph a), and 30(1), of Decree-Law No. 10/2011, of 20 January, with respect to the examination of the request for an arbitral pronouncement formulated by the Claimant.

5. Both parties agreed to waive the holding of the meeting provided for in article 18 of the LFATM.

6. The proceedings do not suffer from defects or nullities that would invalidate it, therefore it is necessary to proceed to the examination of the merits of the request.

H - Issues to be Decided

7. Considering the positions of the parties assumed in the arguments presented, the following constitute the central issues to be resolved, which must therefore be examined and decided:

8. Those alleged by the Claimant:

8.1. The declaration of illegality of the tax assessment act regarding the Municipal Tax on Onerous Property Transfers (IMT), ... which set a tax to be paid of €18,052.75 (eighteen thousand, fifty-two euros and seventy-five cents);

9. Those alleged by the Respondent:

9.1. Preliminary objection of the supervening inutility of the dispute.

J - Preliminary Objection of Supervening Inutility of the Dispute

10. The TA in its response raised the objection of supervening inutility of the dispute, because the assessment act was revoked expressly and in full, and the said IMT assessment act, subject to the present arbitral challenge, was revoked by decision of 2017-03-15 by the head of the Amadora Tax Office – ...

11. The Claimant, notified to pronounce itself on the Respondent's response and consequently on the revocation of the decision, raised no objection to the termination of the present proceedings due to supervening inutility of the dispute.

12. However, the Claimant alleges that the procedural costs of the present arbitral proceedings fall upon the Respondent because it is attributable to it the supervening inutility or impossibility of the dispute.

13. In view of the above, the revocation of the impugned assessment act renders it unnecessary to examine its illegality and leads to the conclusion that supervening inutility of the dispute has occurred.

14. The supervening inutility of the dispute is a cause for termination of the proceedings, under the terms of article 277, paragraph e) of the Code of Civil Procedure (CCP), applicable subsidiarily as provided in article 29(1) of the Legal Framework for Arbitration in Tax Matters.

15. As regards the condemnation to costs, and considering this matter, given that the revocation of the act was made on 2017-03-15, that the request for the constitution of the present Arbitral Tribunal was on 2016-12-02, and that the TA was notified on 2016-12-16 and that the tribunal was constituted and the parties were notified on 2017-02-14, and in view of the legal provisions identified below:

16. From the LFATM, two distinct phases result: the procedural phase (Chapter II of the LFATM) and the judicial phase proper (Chapter III of the LFATM), with the transition between phases marked by the constitution of the Arbitral Tribunal.

17. The request for the constitution of the Arbitral Tribunal is directed to the President of CAAD, within the deadlines and with the formalities provided in article 10 of the LFATM, and must be preceded by the payment of the initial arbitration fee, with a proof of which must be attached to it (see article 10(2), paragraph f), of the LFATM).

18. The acceptance of the request for the constitution of the Arbitral Tribunal marks the beginning of the procedural phase, during which the respondent entity may, within thirty days from the date of notification of the request for the constitution of the Arbitral Tribunal, "proceed to the revocation, ratification, amendment or conversion of the tax act whose illegality was raised, executing, when necessary, a substitute tax act", and in that case, must notify the President of CAAD of its decision (see article 13(1) of the LFATM).

19. After the thirty-day period from the date of notification of the request for the constitution of the Arbitral Tribunal has elapsed, without the Respondent having adopted any of the conduct provided for in article 13(1) of the LFATM, and with the taxpayer having chosen not to appoint an arbitrator, the CAAD appoints the arbitrator(s), notifies the parties of the appointment (article 11(1) of the LFATM) and, if they do not object to such appointment, communicates to them the constitution of the Arbitral Tribunal, within the ten subsequent days (article 11(1), paragraph c) and article 11(8) of the LFATM).

20. Once the Arbitral Tribunal is constituted, the tax arbitral proceedings begin (article 15 of the LFATM), followed by the procedure that will culminate in the final decision.

21. As regards the responsibility for the payment of costs in such situations, the rules contained in article 536 of the CCP apply, subsidiarily applicable to tax arbitral proceedings, by virtue of article 29(1), paragraph e), of the LFATM.

22. It results from article 536(4) of the CCP: "It is deemed, in particular, that the supervening inutility of the dispute is attributable to the respondent when this results from the voluntary satisfaction, by the latter, of the claim of the claimant, outside the cases provided for in article 535(2) and unless, in case of agreement, the parties have agreed on the apportionment of costs."

23. It is undoubtedly clear that, given the above and considering that the revocation of the act in question was subsequent to the phase provided for in article 13(1) of the LFATM, the termination due to supervening inutility of the dispute is attributable to the Respondent, under the terms of article 536(4) of the CCP, and responsibility for costs falls upon the Respondent.

M - Decision

In accordance with the factual and legal grounds set out above, this Arbitral Tribunal decides:

a) Upholds the preliminary objection of supervening inutility of the dispute.

b) Dismisses the remaining claims.

The value of the case is fixed at €18,052.75 of the value of the assessment, taking into account the economic value of the case assessed by the value of the tax assessments contested, and in accordance with this, costs are fixed in the respective amount of €1,224.00 (one thousand two hundred and twenty-four euros), to be borne by the Respondent in accordance with article 12(2) of the Legal Framework for Arbitration in Tax Matters, article 4 of the Regulations on Costs of Tax Arbitration Proceedings and Table I attached to the latter – article 35(10), and articles 43(1), (4) and (5) of the General Tax Law, articles 5(1), paragraph a) of the Regulations on Costs of Tax Proceedings, 97-A(1), paragraph a) of the Code of Tax Procedure and Process and articles 536 and 559, both of the Code of Civil Procedure.

Notify.

Lisbon, 18 April 2017

The Arbitrator

Rita Guerra Alves

Frequently Asked Questions

Automatically Created

What is the IMT tax exemption under Article 270(2) of the Portuguese Insolvency Code (CIRE)?
Article 270(2) of the Portuguese Insolvency Code (CIRE) provides an IMT exemption for property transfers occurring within insolvency proceedings. When property is sold as part of a judicial liquidation process under CIRE, the transaction may be exempt from the Municipal Tax on Onerous Property Transfers. This exemption recognizes the special nature of insolvency asset disposals and aims to facilitate the liquidation process without additional tax burdens that could reduce creditor recovery.
When does supervening uselessness of proceedings (inutilidade superveniente da lide) apply in Portuguese tax arbitration?
Supervening uselessness (inutilidade superveniente da lide) occurs in Portuguese tax arbitration when the dispute becomes moot after proceedings commence, typically when the Tax Authority revokes the contested act. Under Article 277(e) of the Code of Civil Procedure, applicable to CAAD proceedings via Article 29(1) LFATM, this constitutes a ground for procedural termination. The Legal Framework for Arbitration in Tax Matters distinguishes two phases: during the 30-day procedural phase after notification, the Tax Authority may revoke acts freely; after tribunal constitution, revocation triggers cost allocation analysis under Article 536(4) CCP to determine which party bears arbitration fees.
Who is responsible for paying the arbitration fee when a tax case becomes moot at CAAD?
When a tax case becomes moot at CAAD, responsibility for the arbitration fee depends on timing and attribution of supervening uselessness under Article 536(4) of the Code of Civil Procedure. If the Tax Authority revokes an assessment after the arbitral tribunal is constituted, the supervening uselessness is generally attributable to the Tax Authority, making it responsible for arbitration costs. However, if revocation occurs within 30 days of notification during the procedural phase (before tribunal constitution), different cost rules may apply. The tribunal examines when revocation occurred relative to tribunal constitution and notification dates to determine cost allocation.
How can a company challenge an IMT property transfer tax assessment through CAAD arbitration in Portugal?
To challenge an IMT assessment through CAAD arbitration, a taxpayer must file a request for constitution of an arbitral tribunal within 90 days of the assessment notification, pursuant to Article 10(1)(a) of Decree-Law 10/2011 (LFATM). The request must be directed to the CAAD President, include payment proof of the initial arbitration fee, and specify grounds for illegality. The Tax Authority is notified and has 30 days to potentially revoke the act. If no revocation occurs, CAAD appoints arbitrator(s) if the taxpayer doesn't appoint one. After tribunal constitution, formal arbitral proceedings begin under Chapter III of LFATM, culminating in a binding arbitral decision.
What happens to an IMT liquidation when the underlying insolvency transaction qualifies for a CIRE exemption?
When an IMT liquidation relates to an underlying insolvency transaction qualifying for a CIRE Article 270(2) exemption, the assessment should be declared illegal and revoked. If the Tax Authority incorrectly levies IMT on a CIRE-exempt property transfer, the taxpayer can challenge the assessment through administrative review or CAAD arbitration. If the Tax Authority recognizes the error, it may revoke the liquidation either during the 30-day procedural phase or later. Revocation after tribunal constitution renders the arbitral proceedings moot through supervening uselessness, but the taxpayer is entitled to refund of taxes paid plus default interest and potentially arbitration costs if the error is attributable to the Tax Authority.