EU takes Portugal to court over exit taxation for individuals

By added on 31/01/2014

The European Commission has decided to take Portugal to the EU Court of Justice for discriminating against taxpayers who cease to be tax resident there. The Commission considers such provisions to be incompatible with their right to free movement set out in the Treaties, reports the Portugal News.

Under Portuguese tax law, taxpayers no longer resident in Portugal are subject to immediate taxation in case of exchange of shares.

Taxpayers are also taxed immediately in case of transfer to a company located abroad of assets and liabilities related to the exercise of an economic or professional activity.

The Commission considers that such immediate taxation penalises those people who decide to leave Portugal or transfer assets abroad, by introducing less favourable treatment for them in comparison to those who remain in the country or transfer assets to a resident company. Indeed, taxpayers who cease to be resident in Portugal are taxed on the value of their assets at this given moment regardless of the future evolution of the value of their assets, while taxpayers who remain resident in Portugal would be taxed only once the assets are realised on their value at the time of realisation.

The Portuguese rules in question are therefore likely to dissuade individuals from exercising their right of free movement and, as a result, constitute a restriction of community laws.

The Commission sent a reasoned opinion to the Portuguese Authorities on 3 November 2009 and 22 November 2012 formally requesting the Portuguese authorities to amend this legislation. The response given by Portugal to these reasoned opinions was not considered satisfactory.

The Commission’s opinion is based on the EC Treaty as interpreted by the Court of Justice of the European Communities in a judgment reached on 11 March 2004.