Judgment — ECLI:EU:C:2006:685
Date: 2006-10-26
Language of the case: Portuguese
Court formation: Second Chamber
Based on: Treaty establishing the European Economic Community (1957)
Subject matter: Citizenship of the Union;Right of establishment;Taxation;Free movement of workers
Concepts: Equal treatment;Citizenship of the Union;General
Procedure: Action for failure to fulfil obligations - successful
Origin: Portugal

Summary of the Judgment Freedom of movement for persons – Workers – Freedom of establishment – Citizenship of the European Union – Tax legislation (Arts 18 EC, 39 EC and 43 EC; EEA Agreement, Arts 28 and 31) A Member State which maintains in force tax provisions making entitlement to exemption from tax on capital gains arising from the transfer for valuable consideration of real property intended for the taxable person’s own and permanent residence or for that of a member of his family subject to the condition that the gains realised should be reinvested in the purchase of real property situated in its national territory fails to fulfil its obligations under Articles 18 EC, 39 EC and 43 EC, and under Articles 28 and 31 of the European Economic Area Agreement (EEA). A taxable person who decides to sell property that he owns and uses as his own residence in that Member State in order to transfer his residence to another Member State and to purchase a new property there for the purposes of his accommodation, in the exercise of the right of every citizen of the Union to move and reside freely within the territory of the Member States, expressed specifically in Article 43 EC with regard to freedom of establishment and in Article 39 EC with regard to freedom of movement for workers, or in the exercise of the rights conferred by Article 28 of the EEA Agreement with regard to freedom of movement for workers and Article 31 of the EEA Agreement with regard to freedom of establishment, is thereby subjected to less favourable tax treatment than that enjoyed by a person who maintains his residence in the Member State concerned. The need to maintain the coherence of the tax system cannot justify that difference in treatment since, for an argument based on such a justification to succeed, a direct link must be established between the tax advantage concerned and the offsetting of that advantage by a particular tax levy, which is not the case here. Since the contested legislation runs counter to the provisions of the Treaty and the EEA Agreement on freedom of movement for persons, there is no need for a separate examination of that legislation in the light of Article 56(1) EC and Article 40 of the EEA Agreement concerning the free movement of capital. (see paras 13, 21, 43, 45, operative part 1)