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Brussels, 31 January 2008

Direct taxation: Commission takes Portugal to the Court due to its discriminatory 2005 tax amnesty legislation

The European Commission has decided to refer Portugal to the European Court of Justice (ECJ) because its 2005 tax amnesty legislation, which provided regularization at a preferential penalty rate of 2.5% for investments in Portuguese government bonds (instead of 5% in any other assets). The Commission considers that the tax amnesty did not respect the free movement of capital given that it dissuaded regularizing assets in forms other than Portuguese government bonds.

"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. "Investments 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)", which was 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 the disclosure and regularization of 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 forms other 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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