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Brussels, 29 October 2009

Direct taxation: The European Commission requests Portugal to amend restrictive exit tax provisions for individuals

The European Commission has requested that Portugal amend its tax provisions which impose an exit tax on individuals. The provisions are incompatible with the free movement of persons. The Commission's request is in the form of a ‘reasoned opinion’, the second stage of the infringement procedure provided for in Article 226 of the EC Treaty. If Portugal does not reply satisfactorily to the reasoned opinion within two months, the Commission may refer the matter to the European Court of Justice.

According to Article 10 (9) a) of the Código do IRS, capital gains or losses arising in case of an exchange of shares will be included in the shareholder's taxable income of the calendar year in which he ceases to be resident in Portugal. The gain or loss will be determined by calculating the difference between the market value of the shares received and the book value of the shares handed over. However, if the shareholder who engages in an exchange of shares maintains his residence in Portugal, the value of the shares received is the value of those handed over; a taxable gain will only arise if there is an additional payment in cash.

In addition, Article 38 (1) a) of the Código do IRS provides that the transfer to a company of assets and liabilities related to an economic or professional activity by a natural person is tax exempt if the legal person to which the assets and liabilities have been transferred has its seat or place of effective management in Portugal , whereas such a transfer is taxed if the legal person has its seat or place of effective management abroad.

The Commission considers that such immediate taxation penalises individuals who decide to leave Portugal or transfer assets abroad, by introducing less favourable treatment for them compared to for those who remain in the country or transfer assets to a resident company. 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 Articles 18, 39 and 43 EC and the corresponding provisions 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 (COM(2006)825 of 19 December 2006).

The Commission's case reference number is 2007/2381.

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For the latest general information on infringement measures against Member States see:

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