ECJ - Recent Developments in Direct Taxation 2012

S. 205Portugal: Fazenda Pública v. Itelcar – Automóveis de Aluguer Lda (C-282/12) and Commission v. Portuguese Republic (C-38/10)

S. 2071. Fazenda Pública v. Itelcar – Automóveis de Aluguer Lda (C‑282/12)

1.1. Facts of the case

Fazenda Pública v. Itelcar is a case on the Portuguese thin capitalization regime in force as amended after the Lankhorst-Hohorst case. According to this thin capitalization regime under the Corporate Income Tax Code (CIRC), interest payments by a taxpayer subject to corporate income tax to an entity that is neither a resident in Portuguese territory nor in an EU Member State and with which there is a special relationship may not be deducted from taxable income if these payments exceed at any date of the taxable period twice the share capital participation held by the non-resident company.

Every type of credit granted to the taxpayer is taken into account for the thin capitalization ratio and independently of the remuneration agreed and there is no reclassification of income. Moreover, it is possible for the taxpayer to prove that it would have obtained the same level of indebtedness and the same terms at arm’s length – if it had not formed part of the same group of compani...