ECJ – Recent Developments in Direct Taxation 2014

I. S. 198Introduction

The pending infringement procedure against Portugal, regarding exit taxation of individuals, was formally initiated in 2009 (Infringement Procedure/14/1635, 29 October 2009). A procedural dispute between the Commission and the Portuguese Government delayed the whole process and the infringement procedure has now been renumbered as IP 14/50. Taking into account further developments in the case law of the European Court of Justice, it is herein claimed that it is acte clair that the Portuguese legislation is incompatible with the fundamental freedoms, namely, with the free movement of workers, freedom of establishment and free movement of citizens of a Member State of the European Union. The following paragraphs of this contribution will attempt to substantiate this position.

II. Facts of the Case

According to Article 10 § 9 a) of the Portuguese Personal Income Tax Code (PITC), the transfer of residence, if the taxpayer has benefited from tax neutrality upon a previous exchange of shares, gives rise to the inclusion of the capital gains or losses in the shareholder’s taxable income and corresponding tax in the calendar year when the transfer of residence occurs. In contr...