Process: 750/2016-T

Date: August 28, 2017

Tax Type: IMT

Source: Original CAAD Decision

Summary

In CAAD Process 750/2016-T, a taxpayer challenged an IMT assessment of €15,050.00 related to property acquired during insolvency liquidation proceedings. The taxpayer purchased two rural properties from the insolvent estate of 'B… Ltd.' in November 2012, claiming exemption under Article 270(2) of the Insolvency and Company Recovery Code (C.I.R.E.), which exempts from IMT transfers of businesses or establishments within insolvency plans or carried out during liquidation of the insolvent estate. The taxpayer presented exemption documents at the public deed, but the Tax Authority later issued an additional IMT assessment, rejecting the exemption claim. The taxpayer initiated CAAD arbitration in December 2016, citing Supreme Administrative Court precedents (judgments 0968/13 and 013560/15) and previous CAAD decisions supporting the broad interpretation of Article 270(2) C.I.R.E. to include individual real property sales during insolvency liquidation, not just transfers of businesses as universalities. However, during the arbitration proceedings in March 2017, the Tax Authority's Reply informed that the Head of Tax Justice Division had approved the taxpayer's prior administrative review application (reclamação graciosa) on February 21, 2017. Consequently, the Tax Authority argued for termination due to supervening futility of the dispute, as the taxpayer's claim was already satisfied administratively. The taxpayer agreed in June 2017, requesting termination with costs and legal fees to be borne by the Respondent. This case illustrates the procedural outcome when the Tax Authority concedes during arbitration by granting a pending administrative complaint, rendering the judicial proceedings moot and raising questions about cost allocation in such scenarios.

Full Decision

ARBITRAL DECISION

I - REPORT

1. On 22 December 2016, the taxpayer A…, holder of Tax Identification Number…, resident at Street…, …, in Leiria, (hereinafter referred to as "Applicant") requested the constitution of an arbitral tribunal, under the terms of Articles 2 and 10 of Decree-Law No. 10/2011, of 20 January (Legal Framework for Arbitration in Tax Matters, hereinafter referred to only as "RJAT").

2. The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and notified, on 29 December 2016, to the Tax and Customs Authority (hereinafter referred to as "TA" or the "Respondent").

3. The Applicant seeks the pronouncement of the Arbitral Tribunal with a view to declaring the illegality of the tax assessment act for Municipal Property Transfer Tax (IMT) in the amount of € 15,050.00 (fifteen thousand and fifty euros).

4. In the request for arbitral pronouncement, the Applicant opted not to appoint an arbitrator. Under the terms of paragraph a) of Article 6(2) and paragraph b) of Article 11(1) of RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Deontological Council of CAAD appointed as arbitrator of the sole arbitral tribunal the Honourable Dr. Olívio Mota Amador who, within the applicable period, communicated acceptance of the appointment.

5. The parties were notified, on 10 February 2017, of the appointment of the arbitrator, and did not manifest any intention to refuse the appointment of the arbitrator, in accordance with Article 11(1), paragraphs a) and b) of RJAT and Articles 6 and 7 of the Deontological Code.

6. In accordance with the terms of paragraph c) of Article 11(1) of RJAT, as amended by Article 228 of Law No. 66-B/2012, of 31 December, the Arbitral Tribunal was constituted on 3 March 2017.

7. On 22 March 2017, the Respondent, duly notified for this purpose, submitted its Reply.

8. The Arbitral Tribunal, by order dated 4 June 2017, granted the Applicant a period of 10 days to state its position on the termination of the proceedings due to supervening futility of the dispute alleged by the Respondent in the Reply.

9. The Applicant, on 23 June 2017, informed that it was notified by the TA of the approval of the administrative review application it had submitted and that the proceedings should be declared terminated, due to supervening futility of the dispute, with the appropriate legal consequences, namely, costs and legal representation charges to be borne by the Respondent.

10. On 17 August 2017, the Arbitral Tribunal dispensed with the holding of the meeting provided for in Article 18 of RJAT, as there was no need for the production of evidence to be taken, which it did under the principles of tribunal autonomy in the conduct of proceedings, and in order to promote celerity, simplification and informality thereof (see Articles 19(2) and 29(2) of RJAT). The Tribunal further set 1 September 2017 as the deadline for rendering the arbitral decision.

11. The position of the Applicant, in accordance with the terms of the petition for constitution of the Arbitral Tribunal, is, in summary, as follows:

11.1. Under the terms of Article 270(2) of the Insolvency and Company Recovery Code (C.I.R.E.) "Likewise exempt from municipal property transfer tax are the acts of sale, exchange or transfer of the business or its establishments included in the scope of insolvency plans, payment plans or recovery plans or carried out in the course of liquidation of the insolvent estate."

11.2. The transfer at issue in the present proceedings is a transfer effected through sale, in the course of liquidation of the insolvent estate, and therefore the exemption provided for in Article 270(2) of C.I.R.E. should apply.

11.3. In this sense the Supreme Administrative Court has already decided, in the context of proceedings No. 0968/13, judgment dated 11/11/2015, and No. 013560/15, judgment dated 20/01/2016, whose reasoning is adhered to in full.

11.4. The same understanding has also been adopted by the Arbitral Tribunal, as evidenced by the decisions rendered in the context of proceedings Nos. 99/2015-T, 95/2015-T, 693/2015-T and 664/2015-T.

11.5. In the present case the requirements for the application of the IMT exemption provided for in Article 270(2) of C.I.R.E. are met, because said exemption applies, not only to sales or exchanges of businesses and establishments as universality of assets, but also to sales and exchanges of real property (as elements of their assets), provided that they are framed within the scope of an insolvency plan or payment plan, or carried out in the course of liquidation of the insolvent estate.

11.6. In these terms, the act of IMT assessment in the amount of 15,050.00€ (fifteen thousand and fifty euros) should be declared illegal and annulled, for violation of Article 270(2) of C.I.R.E. and of the general principles of administrative activity, namely those set forth in Articles 3, 4, 6, 7, 8, 9 and 10 of the Administrative Procedure Code (CPA).

12. The Respondent in its reply informed the Arbitral Tribunal that the Head of the Tax Justice Division – Litigation, of the Finance Directorate of Leiria, by order dated 21 February 2017, approved the Administrative Review Application submitted by the Applicant. Consequently, the Respondent concludes "(…) by the existence, in the present case, of supervening futility of the dispute, given that the claim the Applicant intended to assert in court is already satisfied, and therefore the useful effect of the present action is completely depleted, the continuation thereof bringing no beneficial consequences for the Applicant.".

II – CLEARING UP OF MATTERS

13. The arbitral tribunal is materially competent and is regularly constituted, in accordance with Articles 2(1)(a), 5(2), and 6(1) of RJAT.

14. The parties have legal personality and capacity, are entitled to sue, and are duly represented, in accordance with Articles 4 and 10 of RJAT and Article 1 of Ordinance No. 112-A/2011 of 22 March.

15. The Respondent raised the supervening futility of the dispute, a preliminary issue whose analysis should precede knowledge of the merits of the claim.

16. No other exceptions requiring knowledge have been raised.

17. The proceedings are not affected by any defects that would invalidate it.

III – FACTS

18. Proven facts

Based on the documentary evidence attached to the proceedings, the following facts are considered proven:

A) The Applicant acquired, on 28 November 2012, by public deed executed at the Notarial Office of …, the following real property:

(i) Rural property consisting of land with vineyard, olive and fruit trees, situated at…, Street of …, parish of …, municipality of Leiria, registered in the rural property record under No.…, described in the Land Registry Office under No. …/…;

(ii) Rural property, consisting of pine and eucalyptus plantation, situated at …, parish of …, municipality of Leiria, registered in the rural property record under No.…, described in the Land Registry Office of Leiria under No. …/….

B) The properties, identified in the previous subparagraph, were part of the assets of the company "B…, Ltd.", Tax Identification Number nº…, the acquisition having taken place in the course of insolvency proceedings of said legal entity, which proceeded in the Judicial Court of Leiria, under No. …/10… TBLRA.

C) The Applicant submitted in the public deed referred to in subparagraph A), the guides issued by the TA, with no value to be assessed, regarding IMT and Stamp Tax, and the documents proving the exemption from IMT and Stamp Tax were archived in the Notarial Office of … in accordance with Article 270(2) and paragraph d) of Article 269 of C.I.R.E.

D) The Applicant was notified, on 20 November 2015, to exercise the right of prior hearing, regarding the additional assessment of IMT relating to the acquisition of the properties identified in subparagraph A), because the TA understood that the exemption provided for in Article 270(2) of C.I.R.E. should not be granted in the case of isolated sale of goods by the transferor/insolvent party.

E) The Applicant exercised, on 3 December 2015, the right of prior hearing, having considered the proposed additional IMT assessment unlawful.

F) On 24 August 2016, the TA notifies the Applicant to effect payment of IMT in the amount of 15,050.00€ (fifteen thousand and fifty euros), reiterating the reasoning already invoked when notifying the demonstration of additional IMT assessment.

G) On 9 September 2016, the Applicant filed the Administrative Review Application No. …2016… relating to the additional IMT assessment referred to in subparagraph D).

H) The Administrative Review Application identified in the previous subparagraph was approved by order of the Head of the Tax Justice Division – Litigation of the Finance Directorate of Leiria issued on 21 February 2017.

19. Unproven facts

There are no facts relevant to the decision that have not been proven.

IV – PRELIMINARY ISSUE

20. The Respondent in its Reply raised the issue of supervening futility of the dispute resulting from the order approving the administrative review application issued on 21 February 2017 by the Head of the Tax Justice Division – Litigation of the Finance Directorate of Leiria.

21. The Applicant, as referred to in point 9, was notified to state its position regarding the issue identified in the previous point, having stated that "(…) the proceedings should be declared terminated, due to supervening futility of the dispute, with the appropriate legal consequences, namely, costs and legal representation charges to be borne by the respondent.".

22. The approval by the TA of the administrative review application filed by the Applicant entails the revocation of the IMT assessment act challenged in the present proceedings. This fact, which occurred pending the arbitral proceedings, renders the continuation of the dispute useless, as alleged by the Respondent and the Applicant.

23. Having in mind that the result the Applicant intended to obtain with the present arbitral proceedings has already been fully achieved, the arbitral decision that would know of the merits of the claims formulated by the Applicant appears to be devoid of any useful effect, insofar as supervening futility of the dispute is verified.

24. The supervening futility of the dispute is a cause for termination of proceedings, under the terms of Article 277(e) of the Civil Procedure Code (CPC). The CPC applies subsidiarily in relation to tax arbitral proceedings, under the terms of Article 29(1)(e) of RJAT.

V – COSTS

25. In accordance with Article 22(4) of RJAT, "the arbitral decision rendered by the arbitral tribunal includes the fixing of the amount and apportionment among the parties of the costs directly resulting from the arbitral proceedings."

26. Under the terms of Article 536(3) of the CPC, which applies subsidiarily to tax arbitral proceedings under Article 29(1)(e) of RJAT, in the case of termination of proceedings due to supervening futility of the dispute, "(…) responsibility for costs falls to the claimant or applicant, unless such impossibility or futility is attributable to the defendant or respondent, in which case it is this party that is responsible for all costs." In accordance with Article 536(4) of the same code "It is considered, in particular, that supervening futility of the dispute is attributable to the defendant or respondent when this results from voluntary satisfaction, by this party, of the claim of the claimant or applicant (…)."

27. From the present arbitral proceedings it appears that the IMT assessment which is the object of the present request for arbitral pronouncement was only revoked by the Respondent, through the order of 21 February 2017, that is, after the filing of the request for constitution of the arbitral tribunal with CAAD, which occurred on 22 December 2016.

28. Furthermore, since the request for constitution of the Arbitral Tribunal was accepted by the Honourable President of CAAD on 29 December 2016 and notified to the Respondent on the same date, the highest official of the tax administration service could, in accordance with Article 13(1) of RJAT "(…) within 30 days from notification of the request for constitution of the arbitral tribunal, proceed to revoke, ratify, reform or convert the tax act whose legality has been raised (…)". The Respondent did nothing during that period and the Arbitral Tribunal was constituted on 3 March 2017. Only in the Reply on 22 March 2017 did the Respondent inform the Arbitral Tribunal that it had approved the administrative review application relating to the act which is the object of the present request for arbitral pronouncement.

29. As a consequence of the foregoing, responsibility for the costs, in their entirety, should be attributed to the Respondent, for the purposes of Article 12(2) of RJAT and Article 4(4) of the Regulation of Costs in Tax Arbitration Proceedings.

VI - DECISION

In accordance with the foregoing, this Arbitral Tribunal decides:

a) To declare the present arbitral proceedings terminated, due to supervening futility of the dispute;

b) To condemn the Respondent to pay the costs of the present proceedings.

The value of the case is fixed at € 15,050.00 (fifteen thousand and fifty euros), in accordance with Article 97-A(1)(a) of the Tax Procedure Code (CPPT), applicable under Articles 29(1)(a) and (b) of RJAT and Article 3(2) of the Regulation of Costs in Tax Arbitration Proceedings.

The arbitration fee is fixed at € 918.00 (nine hundred and eighteen euros), under Table I of the Regulation of Costs in Tax Arbitration Proceedings (RCPAT), to be paid entirely by the Respondent, in accordance with Article 22(4) of RJAT.

Let notification be made.

Lisbon, Administrative Arbitration Centre, 28 August 2017

The Arbitrator

Olívio Mota Amador

Frequently Asked Questions

Automatically Created

What is IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis) and when does it apply in Portugal?
IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis) is Portugal's Municipal Property Transfer Tax levied on onerous transfers of real property ownership. It applies to purchases, exchanges, and other onerous transfers of urban and rural property located in Portuguese territory. The tax is calculated on the property's taxable value (higher of declared price, tax assessment value, or market value) with progressive rates varying by property type and value. IMT is due by the acquirer and must be paid before the deed is executed. Certain transfers are exempt, including those within insolvency proceedings under Article 270(2) of C.I.R.E., gifts between certain family members, and transfers to the State or municipalities.
What does supervening uselessness of proceedings (inutilidade superveniente da lide) mean in Portuguese tax arbitration?
Supervening uselessness of proceedings (inutilidade superveniente da lide) in Portuguese tax arbitration occurs when the object or purpose of the dispute ceases to exist after arbitration is initiated, making continuation of proceedings futile. This happens when the taxpayer's claim is satisfied through other means during the arbitration process—most commonly when the Tax Authority approves a pending administrative review (reclamação graciosa) or hierarchical appeal, annulling or revoking the contested tax act. When supervening futility is verified, the arbitral tribunal terminates the proceedings without deciding the merits, as there is no longer a useful effect or beneficial consequence for the applicant. The key legal issue becomes allocation of costs and legal fees.
How does a taxpayer request tax arbitration through CAAD to challenge an IMT assessment?
To request tax arbitration through CAAD challenging an IMT assessment, the taxpayer must: (1) Submit a written request for constitution of an arbitral tribunal to CAAD under Articles 2 and 10 of Decree-Law 10/2011 (RJAT), within 90 days of the final administrative decision or deemed rejection; (2) Identify the contested tax act (IMT assessment notice), state the amount in dispute, and present legal and factual grounds for illegality; (3) Choose between appointing an arbitrator or allowing CAAD's Deontological Council to appoint one; (4) Pay the initial arbitration fee. The CAAD President accepts the request, notifies the Tax Authority, and the arbitral tribunal is constituted. The Tax Authority then submits a Reply, and the tribunal may hold hearings before rendering a decision within statutory deadlines.
What happens to a CAAD arbitration case when the Tax Authority grants a prior administrative complaint (reclamação graciosa)?
When the Tax Authority grants a prior administrative complaint (reclamação graciosa) during ongoing CAAD arbitration, it typically leads to termination of the arbitration proceedings due to supervening futility of the dispute. Since the administrative review approval satisfies the taxpayer's claim by annulling or revoking the contested tax act, continuation of arbitration serves no useful purpose. The Tax Authority usually invokes this ground in its Reply or through subsequent communication. The arbitral tribunal grants the taxpayer an opportunity to state its position. If both parties agree the claim is satisfied, the tribunal issues a decision declaring the proceedings terminated without adjudicating the merits. The remaining issue concerns allocation of arbitration costs and legal representation fees between the parties.
Who bears the costs and legal fees when a tax arbitration case is terminated due to supervening uselessness?
When a tax arbitration case is terminated due to supervening uselessness after the Tax Authority grants administrative relief, Portuguese arbitration law and jurisprudence generally apply the principle that costs follow the event. Since the taxpayer's substantive claim was vindicated (even if administratively rather than through arbitration), the Tax Authority is typically ordered to bear the arbitration costs and the taxpayer's legal fees. This allocation reflects that the taxpayer was substantially correct and the Tax Authority's initial decision was unlawful, requiring reversal. The arbitral tribunal's decision on costs considers that the taxpayer was compelled to initiate arbitration due to the Tax Authority's illegal act, and administrative concession during proceedings does not absolve the Respondent from cost liability. However, specific allocation depends on each tribunal's assessment under RJAT provisions.