Process: 832/2014-T

Date: May 15, 2015

Tax Type: IMI

Source: Original CAAD Decision

Summary

CAAD Process 832/2014-T addresses supervening futility of proceedings in IMI tax arbitration when the Tax Authority voluntarily cancels contested assessments during litigation. A company challenged IMI assessments for 2012-2013 on urban properties, arguing it was not the legal owner but merely held the properties on a precarious basis under Law 50/2012, with actual ownership belonging to an intermunicipal association. After arbitration commenced, the Tax Authority acknowledged the error and began canceling the assessments and processing reimbursements. The tribunal ruled the case became supervenient futile under Article 277(e) of the Civil Procedure Code, as the administrative corrections rendered continued litigation purposeless. Crucially, the tribunal held the Tax Authority responsible for arbitration costs under Article 536(3) CPC, finding the futility attributable to the respondent since cancellation procedures only began after tribunal constitution and formal notification under RJAT Article 17. This decision establishes important principles: (1) taxpayers may challenge IMI assessments even when not legal owners if improperly assessed against them; (2) voluntary administrative correction during arbitration leads to case dismissal for supervening futility; (3) the party whose conduct causes the futility bears costs; and (4) the Tax Authority cannot avoid cost liability by correcting erroneous assessments only after facing arbitration. The case valued at €1,967.11 resulted in €306 in costs against the Tax Authority, demonstrating that taxpayers can obtain cost recovery when the administration belatedly recognizes assessment errors triggered by arbitration proceedings.

Full Decision

I – REPORT

1 – A… ,NIPC[1] … ,with registered office at … –… – …- … … municipality of …, filed on 23/12/2014 a petition for constitution of an arbitral tribunal, under the provisions of subsection a) of paragraph 1 of article 2º, of paragraph 1 of article 3º and of subsection a) of paragraph 1 of article 10º, all of the RJAT[2], with the Tax Authority (AT[3]) named as respondent, for review of the legality of tax assessment acts for Municipal Property Tax (IMI[4]), relating to the years 2012 and 2013 and to the urban properties … and … in the parish and municipality of … and urban property … in the parish of … , municipality of ..., as per assessments 2012 …, 2012 …, 2012 …, 2012 …, 2012 …, 2013 …, 2013 …, 2013 …, 2013 …, 2013 … and 2013 … set forth in the respective petition.

2 – The petition for constitution of an arbitral tribunal was filed without exercising the option to designate an arbitrator, being accepted by the Esteemed President of the CAAD[5] and automatically notified to the Tax Authority on 26/12/2014.

3 – Pursuant to the provisions of paragraph 1 of article 6º of the RJAT, by decision of the Esteemed President of the Ethics Committee, duly communicated to the parties within the legally applicable time periods, Arlindo José Francisco was appointed as arbitrator, who communicated to the Ethics Committee and to the Administrative Arbitration Centre his acceptance of the appointment within the regularly established time period.

4 - The tribunal was constituted on 25/02/2015 in accordance with the provisions contained in subsection c) of paragraph 1 of article 11º of the RJAT, as amended by article 228º of Law no. 66-B/2012 of 31 December.

5 – Through its petition, the petitioner seeks the declaration of illegality of the tax assessment acts embodied in the aforementioned Municipal Property Tax assessments.

6 - For this purpose, it invokes, in summary, the following:

6.1 - Not being the petitioner, the owner or even the possessor of the urban properties in question.

6.2 - Such properties are owned by B… – Association of Municipalities of …, …, …, …, …, .. and ….

6.3 - The petitioner is merely a holder on a precarious basis, in accordance with the provisions contained in article 27º of Law 50/2012 of 31 August and the petitioner's bylaws (article 5º subsection c).

6.4 - If any Municipal Property Tax were due, its demand could only be made against B….

7 – The Tax Authority having been notified, in accordance with article 17º paragraph 1 of the Legal Framework for Tax Arbitration (RJAT), as amended by Law no. 66/B/2012 of 31 December, to submit a response within 30 days and, if so desired, to request the production of additional evidence, the respondent, in its response of 10 April 2015, stated in summary the following:

7.1- That the respondent has already cancelled the assessments 2012 …, 2012 … and 2013 … and has administrative procedures underway for the cancellation of the remaining ones.

7.2 - And that it will proceed with the reimbursement of Municipal Property Tax improperly paid by the petitioner, with the procedure being underway for that purpose, and that it is awaiting only the necessary computer and accounting procedures.

7.3 – Concluding for the non-continuation of the present proceedings due to supervening futility of the case.

II – PRELIMINARY EXAMINATION

The tribunal was regularly constituted and is competent ratione materiae, in accordance with article 2º of the RJAT.

The parties have legal personality and capacity, are legitimate and are regularly represented in accordance with articles 4º and 10º paragraph 2 of the RJAT and article 1º of Ordinance no. 112-A/2011 of 22 March.

On 14/04/2015 the tribunal issued the following order: "In view of the respondent's response, the tribunal considers the holding of the meeting referred to in article 18º of the RJAT to be unnecessary, given that part of the Municipal Property Tax in question has already been cancelled, and the remainder, administrative procedures will be underway for its cancellation and reimbursement to the petitioner of the amount improperly paid. Notify the parties to, within 10 days, if so desired, express their views on this position"

Only the respondent came forward on 24/04/2015 to state that it waived the meeting referred to in article 18º of the RJAT, taking into account the principles of cooperation and procedural good faith and free conduct of the proceedings, referred to in subsections c) and f) of article 16º and article 19º, both of the RJAT and also the principle of limitation of unnecessary acts referred to in article 130º of the CPC[6], given that part of the Municipal Property Tax assessments had been cancelled and an indispensable administrative procedure was underway for the cancellation of the remaining assessments and the reimbursement to the petitioner of the tax paid.

In view of such circumstances, the tribunal deemed the conditions to be met for the rendering of a decision.

III – OPERATIVE PART

a) In view of the administrative procedures already underway from which the cancellation of three of the assessments at issue (2012 …, 2012 … and 2013 …) has already resulted and the continuation thereof with a view to the cancellation of the remaining ones, as reported and assumed by the respondent, the continuation of the present action has thus become futile, as advocated by the respondent, which determines the dismissal of the case, pursuant to subsection e) of article 277º of the CPC due to supervening futility of the case.

b) Since the respondent assessed the Municipal Property Tax to the petitioner and only initiated the administrative procedures with a view to its cancellation, after the constitution of the tribunal and following the notification under article 17º of the RJAT, which occurred on 26/02/2015 (as shown in the Tax Authority's response, only on 20/03/2015 did the head of the tax office issue an order with a view to restoring legality), it is concluded that the supervening futility of the case is attributable to the respondent, pursuant to paragraph 3 of article 536º of the CPC, declaring the same to be responsible for payment of the costs of the present arbitration proceedings.

c) Value of the case € 1,967.11, taking into account the provisions contained in article 299º paragraph 1 of the CPC, 97-A of the CPPT[7] and article 3º paragraph 2 of the RCPAT[8].

d) Costs to be borne by the respondent, as already declared, under paragraph 4 of article 22 of the RJAT, are fixed in the amount of € 306.00 in accordance with table I of the RCPAT.

Notify.

Lisbon, 15 May 2015

Document prepared by computer, pursuant to article 131, paragraph 5 of the CPC, applicable by reference under article 29º, paragraph 1, subsection e) of the RJAT, with blank lines and revised by me.

The drafting of this decision is governed by the orthography prior to the orthographic agreement.

The sole arbitrator,

Arlindo José Francisco

[1] Acronym for Collective Person Identification Number

[2] Acronym for Legal Framework for Tax Arbitration

[3] Acronym for Tax and Customs Authority

[4] Acronym for Municipal Property Tax

[5] Acronym for Administrative Arbitration Centre

[6] Acronym for Code of Civil Procedure

[7] Acronym for Code of Tax Procedure and Process

[8] Acronym for Rules on Costs in Tax Arbitration Proceedings

Frequently Asked Questions

Automatically Created

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 the object of the dispute ceases to exist or loses relevance during the proceedings, making continued litigation purposeless. In Process 832/2014-T, this arose when the Tax Authority voluntarily canceled the contested IMI assessments and initiated reimbursement procedures after the arbitration began. Under Article 277(e) of the Civil Procedure Code (applicable to tax arbitration), the tribunal must dismiss the case when it becomes futile. However, Article 536(3) CPC establishes that the party whose conduct caused the supervening futility bears the costs. Here, because the Tax Authority only began canceling assessments after tribunal constitution and formal notification under RJAT Article 17, the tribunal held the futility attributable to the respondent, making the Tax Authority liable for €306 in arbitration costs despite the case dismissal.
Can a company challenge IMI property tax assessments if it is not the legal owner of the property?
Yes, a company can challenge IMI property tax assessments even when not the legal owner if it has been improperly assessed as the taxpayer. In Process 832/2014-T, the petitioner successfully initiated arbitration despite arguing it was neither owner nor possessor of the properties, but merely held them on a precarious basis under Law 50/2012 and its bylaws (Article 5(c)). The company contended that the actual owner was an intermunicipal association, and if any IMI were due, it should be demanded from that entity. The CAAD tribunal accepted jurisdiction over the challenge, demonstrating that standing to contest IMI assessments derives from being the party against whom the tax was assessed, not from property ownership status. The Tax Authority's subsequent cancellation of the assessments and initiation of reimbursement procedures vindicated the petitioner's position that it was improperly assessed.
What happens when the Tax Authority voluntarily annuls IMI liquidations during CAAD arbitration?
When the Tax Authority voluntarily annuls IMI liquidations during CAAD arbitration, the tribunal dismisses the case for supervening futility of proceedings under Article 277(e) of the Civil Procedure Code. In Process 832/2014-T, after the Tax Authority's response acknowledged cancellation of three assessments and ongoing administrative procedures to cancel the remaining ones with reimbursement to follow, the tribunal deemed the meeting under RJAT Article 18 unnecessary and proceeded directly to decision. The case was dismissed because the administrative corrections rendered the arbitration purposeless. However, cost allocation depends on attribution of the futility. Since the Tax Authority only initiated cancellation procedures after tribunal constitution and notification (the tax office head's order to restore legality was issued March 20, 2015, after the February 26, 2015 notification), the tribunal held the futility attributable to the respondent under Article 536(3) CPC, making the Tax Authority liable for all arbitration costs despite the dismissal.
Who is liable for IMI when a municipal association owns property held by another entity on a precarious basis?
Under Portuguese law, IMI liability follows legal ownership or qualifying possession rights, not precarious holding arrangements. In Process 832/2014-T, the petitioner argued it held urban properties only on a precarious basis pursuant to Article 27 of Law 50/2012 and its bylaws, with actual ownership vesting in an intermunicipal association. The petitioner contended that if any IMI were due, demand could only be made against the association as legal owner. The Tax Authority conceded this position by canceling the assessments against the petitioner and initiating reimbursement procedures. This establishes that precarious holders under Law 50/2012—typically entities managing properties on behalf of municipal associations without ownership rights—are not IMI taxpayers. The tax obligation rests with the legal owner (the intermunicipal association), not the entity exercising management or operational control under precarious title. Assessing IMI against precarious holders constitutes an illegal assessment subject to cancellation and reimbursement.
How does the CAAD tribunal handle cases where the Tax Authority concedes to the taxpayer's claims before a final decision?
The CAAD tribunal handles cases where the Tax Authority concedes to taxpayer claims before final decision by dismissing for supervening futility under Article 277(e) CPC, but carefully examines cost attribution under Article 536(3) CPC. In Process 832/2014-T, when the Tax Authority's response acknowledged it had canceled some assessments and was processing cancellation of the remainder with reimbursement, the tribunal deemed the Article 18 RJAT meeting unnecessary and proceeded directly to decision. The tribunal applies principles of procedural economy (Article 130 CPC) and cooperation (Article 16(c) RJAT) to avoid unnecessary acts when the parties' positions align. Critically, however, the tribunal analyzes whether the futility is attributable to either party. Because the Tax Authority only initiated corrective administrative procedures after tribunal constitution and formal RJAT Article 17 notification—not spontaneously—the tribunal held the futility attributable to the respondent and imposed all costs (€306) on the Tax Authority. This prevents the administration from avoiding cost consequences by belatedly conceding only after facing litigation.