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Brussels, 16 May 2007

Direct taxation: Commission considers that the Portuguese Tax amnesty was contrary to EC Law

The European Commission considers that the 2005 Portuguese tax amnesty did not respect the free movement of capital, since it provided for regularization at a preferential penalty rate of 2.5% for investments in Portuguese government bonds (instead of 5% in any other assets).Therefore, the Commission has sent a reasoned opinion under Article 226 of the EC Treaty requesting Portugal to eliminate this violation of the EU law by applying the same fiscal treatment to all regularizations made in 2005. If Portugal does not take the necessary steps to comply with the EU law, the Commission may decide to take that Member State to the Court of Justice.

"The rules of the Internal Market forbid any discrimination of investments made by individuals in other Member States" said EU Taxation and Customs Commissioner László Kovács. "Investment held in other Member States should be taxed in the same way as investments held in the Member State of residence, even on the occasion of tax amnesties ".

The law called "Tax amnesty for undeclared funds held abroad (RERT)" approved by the Portuguese Parliament in 2005 constituted a restriction on the free movement of capital guaranteed by the EC Treaty. The amnesty law allowed to disclose and to regularize undeclared funds held abroad by filing a confidential statement before 16 December 2005. It required resident individuals to pay a penalty equal to 5% of the value of the relevant investments; however, a reduced tax rate of 2.5 % applied to regularized Portuguese government bonds as well as to any amount of other investments reinvested in Portuguese government bonds at the occasion of the regularization procedure.

Persons making use of the amnesty were thus dissuaded from keeping their regularized assets in other forms than Portuguese government bonds. Such a difference in treatment constituted a restriction on the free movement of capital, guaranteed by Article 56 of the EC Treaty.

The Commission's case reference number is 2005/4932 (Portugal).

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