Brussels, 8 October 2009
The European Commission has decided to refer Spain and Portugal to the over restrictive provisions on exit tax European Court of Justice for their tax provisions which impose an exit tax on companies which cease to be tax resident in these countries. The provisions are incompatible with the freedom of establishment provided for in Article 43 of the Treaty and Articles 31 of the EEA Agreement.
Since the Spanish and Portuguese tax rules on exit taxes on companies were not amended to comply with the reasoned opinions sent to them in November 2008 ( ), the Commission has decided to refer the cases to the Court of Justice.
Under Spanish law, when a Spanish company transfers its residence to another Member State or when a permanent establishment ceases its activities in Spain or transfers its Spanish located assets to another Member State, unrealised capital gains must be included in the taxable base of that financial year, whereas unrealised capital gains from purely domestic transactions are not included in the taxable base.
Under Portuguese law, in case of the transfer of seat and place of effective management of a Portuguese company to another Member State or in case a permanent establishment ceases its activities in Portugal or transfers its Portuguese located assets to another Member State
the taxable base of that financial year will include any unrealised capital gains in respect of the company's assets whereas unrealised capital gains from purely domestic transactions are not included in the taxable base;
the shareholders of the company that transfers its seat and place of effective management abroad are subject to tax on the difference between the company's net assets (valued at the time of the transfer at market prices) and the acquisition cost of their participation.
The Commission considers that such immediate taxation penalises those companies that wish to leave Portugal and Spain or to transfer assets abroad, as it results in less favourable treatment as compared to those companies which remain in the country or transfer assets domestically. The rules in question are therefore likely to dissuade companies from exercising their right of freedom of establishment and, as a result, constitute a restriction of Article 43 EC and the corresponding provision of the EEA Agreement.
The Commission's opinion is based on the EC Treaty as interpreted by the Court of Justice of the European Communities in its judgment of 11 March 2004, in Case C-9/02, De Lasteyrie du Saillant, as well as on the Commission's Communication on exit taxation ( of 19 December 2006).
The Commission's case reference numbers are 2007/2365 (exit tax for companies in Portugal) and 2007/2382 (exit tax for companies in Spain).
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