Process: 95/2016-T

Date: October 24, 2016

Tax Type: Outros

Source: Original CAAD Decision

Summary

Process 95/2016-T addresses the jurisdictional and constitutional challenges surrounding the Municipal Civil Protection Tax (TMPC) levied by a Portuguese municipality. The claimant company contested a €9,833.02 TMPC assessment before the CAAD arbitral tribunal, raising fundamental questions about the nature and legality of this municipal charge. The case centers on three critical legal issues: whether the CAAD arbitral tribunal has material competence to adjudicate municipal fee disputes, whether the TMPC constitutes an unconstitutional tax rather than a legitimate fee, and whether the assessment complies with constitutional principles of proportionality and legal substantiation. The claimant argued that municipalities lack constitutional authority to create taxes under Articles 238(1) and 238(3) of the Portuguese Constitution, being limited to establishing fees, tariffs, and prices for actual services rendered. The taxpayer contended the TMPC violated Article 266(2) of the Constitution due to lack of specific counterpart service and disproportionality between payment and purported benefit. Additionally, the claimant alleged the assessment lacked proper legal and factual substantiation required under Article 77 of the General Tax Law. The Tax and Customs Authority raised preliminary objections, asserting the arbitral tribunal's incompetence under Article 2 of the LRAT and Ordinance 112-A/2011, which limit CAAD jurisdiction to state-administered taxes. The Authority argued it lacked standing as municipal fees fall outside its administrative purview, and that the Municipality itself should be the proper respondent. This case exemplifies the ongoing tension in Portuguese administrative law between municipal fiscal autonomy and constitutional constraints on local taxation powers, highlighting critical distinctions between fees (taxas) requiring specific service provision and taxes (impostos) representing general revenue collection without direct counterpart.

Full Decision

Arbitral Decision

I – Report

  1. On 19.02.2016, the Claimant, A…, LDA, taxpayer identification number …, with registered office at street …, numbers … and …, in …, requested from CAAD the constitution of an arbitral tribunal, pursuant to Article 10 of Decree-Law no. 10/2011, of 20 January (Legal Regime for Arbitration in Tax Matters, hereinafter referred to only as "LRAT"), in which the Tax and Customs Authority is Respondent, with a view to annulment or declaration of nullity of the assessment of the municipal civil protection tax (hereinafter "MCPT"), effected by the Municipality of … on 22.10.2015, with no. …, in the amount of 9,833.02 €, with the final payment date of the first instalment being 21.11.2015, in the amount of 4,916.52 €, with the final payment date of the second instalment, in the same amount, being 31.03.2016.

The Claimant further petitions for the reimbursement of sums unduly paid in relation to this assessment, alleging that it has paid the first instalment, in the amount of 4,916.51 €.

  1. The request for constitution of the arbitral tribunal was accepted by the Honourable President of CAAD and notified to the Tax and Customs Authority.

Pursuant to and for the purposes of Article 6(1) of the LRAT, by decision of the President of the Deontological Council, duly communicated to the parties within the applicable legal deadlines, the undersigned was appointed as arbitrator, and communicated acceptance of the assignment to the Deontological Council and the Centre for Administrative Arbitration within the applicable deadline.

The Arbitral Tribunal was constituted on 06-05-2016.

  1. The Claimant, in support of its claim, invokes, in summary, the following:

a) Illegal issuance of the MCPT assessment, given that a judicial challenge is pending in the Tax Court of … initiated by the Claimant against the Municipality of … with a view to annulment or declaration of nullity of the Decision of the Honourable Municipal Councillor for Urban Planning of the Municipal Chamber of …, concerning the urban property located at avenue …, no. …, of the parish of … and Municipality of …, registered in the urban property register under article … of the said parish, imposing the necessity of annulment of the assessment until a decision is rendered in the proceedings initiated by the Claimant.

b) Unconstitutionality of the MCPT assessment due to lack of express indication of the concrete service provision upon which the purported municipal civil protection tax is levied, the tax in question not being able to be considered a tax not only because there is no specific counterpart on the part of the Municipality of …, but also because there is a clear disproportionality between the amount to be paid in relation to the benefit supposedly received by the present defendant, having violated Article 266(2) of the Constitution of the Portuguese Republic.

c) Violation of the principle of fiscal legality and Articles 103(2) and 165(1)(i) of the CRP, inasmuch as Municipalities are constitutionally prohibited from creating taxes, having only legal authority to create fees, tariffs and prices, for the financing of services provided and for the administrative management of assets, as follows from Articles 238(1) and 238(3) of the CRP and the Financial Regime of Local Authorities and Intermunicipal Entities, the assessment in question being null and void.

d) Lack of substantiation of the MCPT assessment inasmuch as the act in question does not indicate, and does not exist, any legal provision applicable that would legitimise the assessment in question, with manifest lack of substantiation of fact and law, or at least its insufficiency, whereby Articles 268(3) of the CRP, Articles 152 and 153 of the CPA and Article 77 of the LGT have been squarely violated.

  1. The ATA – Tax and Customs Administration, called upon to pronounce itself, contested the Claimant's claim, alleging, in summary, the following:

a) Irregularity of the power of attorney submitted on behalf of the Claimant's representative, given that, from the content of the legal power of attorney attached to the request for arbitral pronouncement, it appears that such instrument was granted to a Law Partnership, whereas the exercise of judicial or legal representation is a personal mandate, which cannot be exercised by a legal person, and furthermore, the legal power of attorney attached to the petition was granted exclusively for the exercise of legal representation in a specific judicial proceeding, and not also for all possible other proceedings, as is the present case.

b) Material incompetence of the arbitral tribunal, given that, establishing Article 2(1) of the LRAT, that "The competence of arbitral tribunals comprises the assessment of the following claims: a) The declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account; b) The declaration of illegality of acts of fixing the taxable matter when it does not give rise to the assessment of any tax, of acts of determination of the taxable matter and acts of fixing patrimonial values," Article 2 of Ordinance 112-A/2011, of 22 March is quite clear in establishing that the Respondent binds itself to the jurisdiction of arbitral tribunals constituted at CAAD only when the requests for arbitral pronouncement "(...) have as their object the assessment of claims relating to taxes whose administration is entrusted to it referred to in Article 2(1) of Decree-Law no. 10/2011, of 20 January (...)".

c) Consequently, the Sole Arbitral Tribunal constituted is materially incompetent to assess and decide either any issue related to the (purported) lack of counterpart concerning the MCPT, or the legality of the MCPT assessment itself, inasmuch as such matters do not fall within what is provided for in Article 2 of the LRAT and Article 2 of the Binding Ordinance, which constitutes a dilatory exception that prevents the assessment of the merits of the case [Article 576(1) and (2) and Article 577(1)(a) of the CPC, by virtue of Article 2(e) of the LRAT], which gives rise to the dismissal of the Respondent from the proceeding [Article 278(1) of the CPC, by virtue of Article 2(e) of the LRAT]).

d) The Claimant lacks standing in the present proceeding inasmuch as, given that the tax is administered by the Municipality of …, the Respondent is an entity completely unrelated and alien to the MCPT, and naturally only the Municipality of … would be able to assess the issues raised in the request for arbitral pronouncement, presented by the Claimant, and furthermore, neither the LRAT nor Ordinance 112-A/2011, of 22 March, confer upon the highest official of the Respondent the role of representative of any entity other than the Tax and Customs Authority.

e) Not only in light of the legal relationship which appears to be configured here, but also by virtue of the personal and direct interest in contradicting the Municipality of …, the Respondent's lack of standing to be in proceedings is manifest, which constitutes a dilatory exception, preventing the assessment of the merits of the case [Article 576(1) and (2) and Article 577(1)(e) of the CPC, by virtue of Article 2].

f) Furthermore, the Claimant omitted a prior necessary formality, namely that of having lodged a Gracious Complaint at a time prior to the lodging of the request for arbitral pronouncement, a formality which is provided for in Article 16(5) of Law 53-E/2006, of 29 December, whereby, naturally, the possibility of seeking to control the legality of the MCPT assessment is barred, inasmuch as the Sole Arbitral Tribunal lacks material competence to assess an issue which should previously have been the subject of a pronouncement by the administrative entity (Article 16(5) of Law 53-E/2006).

g) The Claimant attributed to the request for arbitral pronouncement the value of € 4,916.51, a value equivalent to the first instalment of the MCPT assessment which it placed in question.

h) However, the Claimant concludes its prayer with the declaration of nullity or annulment of the assessment sub judice, and as results from the MCPT assessment in question, its value amounts to € 9,833.02, which means that the value of the case does not correspond, after all, to the stated € 4,916.51, but rather to € 9,833.02, with which the Claimant does not agree.

i) The Respondent further defended itself by way of objection, sustaining that the assessment of the tax in question by the Municipality of …, which it considers to be a municipal fee, does not suffer from any of the defects invoked by the Claimant.

  1. The Claimant, notified to pronounce itself in writing on the exceptions and other issues raised by the Respondent, did not do so.

  2. Given the absence of any situation provided for in Article 18(1) of the LRAT which would make necessary the arbitral meeting provided therein, the holding of such meeting was dispensed with, on the basis of the prohibition against the performance of useless acts.

The holding of oral submissions was further dispensed with, pursuant to Article 18(2) of the LRAT, "a contrario".

-II-

Assessment of the Issue of Irregularity of the Mandate

  1. First and foremost, it is necessary to resolve the question of irregularity of the legal mandate, raised by the Respondent in its response.

And, it must be said from the outset, it is not correct.

In fact, from the power of attorney in question it appears that the Claimant "(...) Appoints its duly appointed attorneys the (...) Law Partnership RL" (...)" represented by the Honourable Doctors (…), being among the designated the illustrious representative of the Claimant, it becomes quite clear that the exercise of legal representation may be exercised by any one of the attorneys appointed in representation of the partnership.

On the other hand, the power of attorney shows that the broadest legal powers permitted are conferred. The circumstance that the same power of attorney contains the attribution of special powers of representation to settle, compromise or withdraw and ratify proceedings in a specific proceeding, does not restrict the general powers conferred in that same proceeding.

In this conformity, it is held that the alleged irregularity of the mandate, argued by the Respondent, is not established.

On the Value of the Case

  1. The Respondent further alleged that the value of the case does not correspond, after all, to the stated € 4,916.51, a value equivalent to the first instalment of the MCPT assessment, but rather to € 9,833.02, the value corresponding to the value of the assessment in suit and for which the declaration of nullity or annulment of the assessment is requested.

Article 97-A, applicable by virtue of Article 2(e) of the LRAT, under the heading Value of the Case, establishes:

"1 - The values to be taken into account, for the purposes of costs or other purposes provided by law, for actions that proceed in tax courts, are as follows:

a) When the assessment is contested, the value of the amount whose annulment is sought;

(...)"

Accordingly, there is no doubt that the value in question is € 9,833.02, corresponding to the value of the assessment for which the declaration of illegality is petitioned, whereby, as a consequence, the value of the case is fixed at € 9,833.02.

III. Preliminary Issues

Exception of Incompetence of Arbitral Jurisdiction as to Subject-Matter

  1. The Respondent alleges that the Sole Arbitral Tribunal constituted is materially incompetent to assess and decide any issue related to the legality of the MCPT assessment, inasmuch as such matters do not fall within what is provided for in Article 2 of the LRAT and Article 2 of the Binding Ordinance.

Let us examine this.

Pursuant to Article 2(1)(a) of Decree-Law no. 10/2011, of 20 January, the competence of arbitral tribunals comprises the assessment of claims aimed at "The declaration of illegality of acts of assessment of taxes, self-assessment, withholding at source and payment on account."

According to Article 4(1) of the same decree-law, "The binding of the tax administration to the jurisdiction of tribunals constituted pursuant to this law depends on an ordinance of the members of the government responsible for the areas of finance and justice, which establishes, namely, the type and maximum value of the disputes covered."

By Article 1 of Ordinance no. 112-A/2011, of 22 March, the Respondent bound itself to the jurisdiction of arbitral tribunals operating at CAAD, which, pursuant to Article 2, "have as their object the assessment of claims relating to taxes whose administration is entrusted to it referred to in Article 2 of Decree-Law no. 10/2011, of 20 January".

Regardless of the nature of the tax in question, the fact is that it does not emerge from the record that the administration of the municipal civil protection fee is entrusted to the Respondent, nor does such administration result directly from any legal rule. On the contrary, it results from document no. 1 attached to the petition that the assessment sub judice was effected by the Municipality of …, a factuality alleged by the Claimant itself in its request for arbitral pronouncement.

Accordingly, in light of the aforementioned norms, the material incompetence of the arbitral tribunal is manifest.

The incompetence of the tribunal constitutes a dilatory exception that prevents the assessment of the merits of the case [Article 576(1) and (2) and Article 577(1)(a) of the CPC, applicable by virtue of Article 2(e) of the LRAT], which gives rise to the dismissal of the Respondent from the proceeding [Article 278(1) of the CPC, by virtue of Article 2(e) of the LRAT]), thereby also precluding the assessment of the other issues susceptible of resulting in dismissal from the proceeding.

-IV- Decision

Accordingly, the arbitral tribunal decides to uphold the exception of material incompetence of the arbitral tribunal and, as a consequence, to dismiss the Respondent from the proceeding.

Value of the Action: € 9,833.02 (nine thousand eight hundred and thirty-three euros and two cents) pursuant to Article 306(2) of the CPC and 97-A(1)(a) of the CPPT and Article 3(2) of the Regulation of Costs in Arbitration Proceedings.

Costs to be borne by the Claimant in the amount of 918.00 € (nine hundred and eighteen euros) pursuant to Article 22(4) of the LRAT.

Let notification be made.

Lisbon, CAAD, 24 October 2016

The Arbitrator

Marcolino Pisão Pedreiro

Frequently Asked Questions

Automatically Created

What is the Municipal Civil Protection Fee (TMPC) and how is it classified under Portuguese tax law?
The Municipal Civil Protection Tax (TMPC - Taxa Municipal de Proteção Civil) is a local charge levied by Portuguese municipalities purportedly to fund civil protection services. Under Portuguese constitutional law, this charge occupies contested legal territory. Municipalities are authorized under Articles 238(1) and 238(3) of the Portuguese Constitution to create fees (taxas), tariffs, and prices for specific services provided or asset management, but are constitutionally prohibited from creating taxes (impostos), which are general revenue measures without specific counterpart. The classification is critical: if the TMPC constitutes a true fee, it must correspond to an individualized, divisible service provided to the payer with proportionality between charge and benefit. If it lacks specific service provision and merely finances general municipal functions, it may constitute an unconstitutional tax exceeding municipal legislative competence reserved exclusively to the national parliament under Article 165(1)(i) of the Constitution.
Can the CAAD arbitral tribunal rule on the legality of municipal fees like the TMPC?
The jurisdictional competence of CAAD arbitral tribunals over municipal fees like the TMPC presents a significant legal limitation. Article 2(1) of Decree-Law 10/2011 (LRAT) restricts arbitral tribunal competence to 'the declaration of illegality of acts of assessment of taxes' and related matters, while Ordinance 112-A/2011 Article 2 further limits the Tax and Customs Authority's acceptance of CAAD jurisdiction to taxes whose administration is entrusted to it. Since municipal fees are administered by municipalities, not the Tax and Customs Authority, the arbitral tribunal lacks material competence (competência material) to adjudicate such disputes. In Process 95/2016-T, the Tax Authority raised this as a dilatory exception under Article 577(1)(a) of the Civil Procedure Code, arguing the proper forum would be administrative courts with general jurisdiction over municipal acts, not the specialized tax arbitration system. This jurisdictional gap means taxpayers challenging municipal fees must pursue remedies through ordinary administrative litigation rather than the streamlined CAAD arbitration process.
Why was the Municipal Civil Protection Fee challenged as unconstitutional in Process 95/2016-T?
The TMPC was challenged as unconstitutional in Process 95/2016-T on multiple constitutional grounds. First, the claimant alleged violation of the principle of fiscal legality under Articles 103(2) and 165(1)(i) of the Portuguese Constitution, which reserve tax-creation powers exclusively to the Assembly of the Republic (national parliament), prohibiting municipalities from establishing taxes. Second, the challenge invoked Article 266(2) of the Constitution, arguing the TMPC lacked express indication of concrete service provision constituting the specific counterpart required for legitimate fees. The claimant contended that without individualized, divisible services corresponding to the charge, the TMPC functioned as a disguised tax unconstitutionally exceeding municipal competence. Third, the challenge alleged manifest disproportionality between the €9,833.02 assessment and any purported benefit received, violating constitutional proportionality requirements. The claimant further argued the charge violated Article 268(3) of the Constitution requiring proper substantiation of administrative acts, as the assessment failed to identify applicable legal provisions or factual basis legitimizing the levy, rendering it legally insufficient under Articles 77 of the General Tax Law and 152-153 of the Administrative Procedure Code.
What happens when a taxpayer claims a municipal fee is actually a disguised tax under Portuguese constitutional law?
When a taxpayer claims a municipal fee is actually a disguised tax under Portuguese constitutional law, several significant legal consequences arise. The distinction between fees (taxas) and taxes (impostos) is constitutionally determinative: fees must provide specific, divisible counterpart services with proportionality between charge and benefit, while taxes are general revenue measures without direct quid pro quo. If a purported municipal fee lacks individualized service provision, exhibits disproportionality to benefits received, or functions primarily as revenue generation rather than cost recovery for specific services, it may be declared an unconstitutional tax exceeding municipal legislative competence under Articles 238(1), 238(3), and 165(1)(i) of the Constitution. Such determination renders the charge null and void (nulo), requiring reimbursement of amounts paid and prohibiting future collection. The characterization question involves substantive analysis of: (1) whether specific, individualized services correspond to the charge; (2) proportionality between amount charged and service value; (3) divisibility allowing attribution to specific beneficiaries; and (4) whether the legal framework properly identifies concrete service provision justifying the levy. Courts apply these criteria regardless of the charge's formal designation, examining substance over form to prevent municipalities from circumventing constitutional tax-creation restrictions through nominal relabeling of revenue measures as fees.
How does the proportionality principle apply to municipal civil protection fees in Portugal?
The proportionality principle applies to municipal civil protection fees in Portugal as a fundamental constitutional constraint on municipal fiscal powers. Under Article 266(2) of the Portuguese Constitution and general administrative law principles, municipal fees must exhibit proportionality between the charge imposed and the value of specific services provided or benefits conferred to the payer. In Process 95/2016-T, the claimant alleged 'clear disproportionality between the amount to be paid in relation to the benefit supposedly received,' arguing the €9,833.02 TMPC assessment bore no reasonable relationship to individualized civil protection services rendered. Proportionality analysis involves three dimensions: (1) appropriateness - whether the charge reasonably relates to actual service costs; (2) necessity - whether the amount charged exceeds what is required to fund the specific service; and (3) proportionality stricto sensu - whether the burden imposed on the payer is balanced against benefits received. Excessive charges disproportionate to service value transform fees into disguised taxes, violating constitutional limits on municipal revenue powers. This principle prevents municipalities from using nominal fee designations to impose what are substantively general taxes, requiring demonstrable correlation between charge quantum and individualized, divisible service provision that justifies the financial burden on specific taxpayers.