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Brussels, 13 January 2005

Commission takes Portugal to Court over discriminatory rules on tax relief for capital gains from home sales

The European Commission has decided to refer Portugal to the European Court of Justice because Portugal has not amended its legislation according to which capital gains from home sales attract tax relief only if the proceeds are reinvested in a Portuguese home. The Commission considers that the disallowance of tax relief where the proceeds are used to acquire homes in other Member States is contrary to EC Treaty rules, including those on the free movement of persons. Portugal has not responded satisfactorily to the Commission's formal request of July 2004 to change its law (see IP/04/938).

Articles 10, 44, 45 and 46 of the Portuguese Income Tax Act (CIRS) contain rules on the taxation of capital gains. Capital gains resulting from the disposal of immovable property intended for use by the taxpayer or his family as a permanent abode are exempted from income tax under, amongst others, the condition that the realisation value is reinvested in other immovable property which is used solely for the same purpose and is located on the Portuguese territory.

The application of the latter condition means that persons who sell their Portuguese home and buy a home in another Member State in order to live there do not benefit from the tax relief provided for reinvestment in a Portuguese home. This affects foreign nationals who have lived temporarily in Portugal as well as Portuguese nationals who move abroad and thus migrant workers in particular but also any other person wishing to make use of his right to free movement within the EU.

The Portuguese authorities consider that the restriction is justified, arguing that the tax exemption should only apply where the house purchased will be a permanent abode in Portugal for the purchaser. Furthermore, they maintain that, while the Portuguese State has a constitutional obligation to assist the purchase and maintenance of homes, this should not extend to homes outside of Portugal.

However, the Commission considers that these arguments are not a valid justification for the territorial limitation of the tax relief and the inherent violation of the EC Treaty rules on the right of residence in other Member States, free movement of workers, freedom of establishment and free movement of capital (Articles 18, 39, 43 and 56), as well as the corresponding provisions of the European Economic Area (EEA) Agreement.

The latest information on infringement proceedings against the Member States is available on the following site:

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