Information;Order — ECLI:EU:C:2021:1013
Date: 2021-12-13
Language of the case: Portuguese
Court formation: Eighth Chamber
Subject matter: Free movement of capital
Procedure: Reference for a preliminary ruling
Origin: Portugal

Summary C-224/21 – 1 
Case C-224/21 
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged: 
29 March 2021 
Referring court: 
Tribunal Arbitral Tributário (Centro de Arbitragem 
Administrativa – CAAD) [Tax Arbitration Tribunal (Administrative 
Arbitration Centre – CAAD) (Portugal)] 
Date of the decision to refer: 
12 February 2021 
Applicant: 
VX 
Defendant: 
Autoridade Tributária e Aduaneira (Tax and Customs Authority) 
  
Subject matter of the main proceedings 
This request for a preliminary ruling has been raised in the course of a dispute 
between VX, a Portuguese national resident in France, and the Autoridade 
Tributária e Aduaneira (Tax and Customs Authority; ‘the Tax Authority’), in 
which the former seeks a declaration as to the unlawfulness of the IRS [personal 
income tax] assessment for the year 2016 carried out by the latter. In that 
assessment, the Tax Authority charges tax on all of the capital gains realised by 
VX from the disposal of a property which he owned in Portugal rather than on 
50% of those capital gains, as it would if he were a resident. 
Subject matter and legal basis of the request for a preliminary ruling 
In this case, it falls to be determined whether Article 43(2) of the Código sobre o 
Rendimento das Pessoas Singulares (Personal Income [Tax] Code; ‘the CIRS’) 
(according to which 50% of capital gains realised by residents are taxable) may be 
EN 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-224/21 
 
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applied to the taxation for IRS purposes of capital gains realised from the disposal 
of immovable property situated in Portugal by a non-resident in the case where, on 
his income tax return, that person chooses to be governed by the general regime 
applicable to non-residents. 
Questions referred 
1. Must Article 63 TFEU, read in conjunction with Article 65(1) TFEU, be 
interpreted as meaning that it precludes a personal income tax scheme which 
a Member State operates as part of direct taxation and which, in the case of 
non-resident taxable persons and earnings from capital gains realised 
through the sale of immovable property situated in that Member State, 
combines two legal regimes, under one of which (i), a special proportional 
flat rate of 28% is applied to all earnings from capital gains (the tax base), 
calculated in accordance with the general rules for the determination 
(quantification, quantum) of such earnings, while, under the other (ii), the 
rules for residents apply, meaning that, once earnings realised from capital 
gains have been calculated in accordance with those general rules, account is 
taken of only half (50%) of those earnings (the tax base) and those earnings 
(50% of the capital gains) are ― compulsorily ― cumulated (by increment, 
aggregation) with the other income which the taxable person has earned 
worldwide that year, in order then to determine the tax rate applicable to the 
totality of those incomes on the basis of the general schedule applicable to 
residents (comprising rates, arranged by band, ranging from 14.5% to 48% 
which can be increased by a maximum rate of 5% if the total amount of 
income exceeds certain thresholds), that tax rate being applicable, in the case 
of non-residents, exclusively to the abovementioned income, that is to say to 
capital gains from property, which are taken into account in the proportion 
of 50% (whereas, in the case of residents, the rate so calculated is applied to 
the abovementioned income and the other income earned that year)? 
– It is to be noted that a non-resident taxable person must opt for one or 
other of the available regimes on the income tax return which he or she 
is in any event obliged to submit in the Member State [in question] 
(Portugal), whether he or she chooses to be taxed under the general 
regime for non-residents [set out in point (i) above] or elects to be 
taxed under the regime applicable to residents [as set out in point (ii) 
above], and on which he or she must tick one of those two options. It 
must be observed that the obligation for non-residents to file a return 
(submission of a form 3 income tax return) existed even before the 
adoption of the legislative amendment whereby the possibility of 
opting for the regime applicable to residents was included on the 
official form. 
– It may be noted that, when opting to be taxed under the regime 
applicable to residents, a non-resident must specify (on the return 
AUTORIDADE TRIBUTÁRIA E ADUANEIRA 
 
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itself) the total amount of all the income he has earned worldwide 
during the year.  
2. Must Article 63 TFEU, read in conjunction with Article 65(1) TFEU, be 
interpreted as meaning that it precludes a personal income tax scheme which 
a Member State operates as part of direct taxation and under which, while, in 
the case of (a) residents, earnings from capital gains, reduced by 50% (the 
tax base), are compulsorily cumulated with any other income which the 
taxable person may have earned worldwide during the same year (with no 
opt-out option), the sum thereof determining the resident’s total annual 
income, to which the progressive tax rates, arranged by band, that comprise 
the general schedule are applied (after personal reductions and deductions 
have been made), in the case (b) of non-residents, a special flat rate is 
applied to total earnings from capital gains (the tax base) (once the value of 
those earnings has been determined in accordance with the same rules as 
apply to residents)?  
– It should be noted that, in case (a), the progressive rates range between 
14.5% and 48%, and the upper marginal rate can be increased by up to 
5% if the total amount of income exceeds a certain threshold, while, in 
case (b), the special rate is 28%. 
Provisions of EU law relied on 
Treaty on the Functioning of the European Union (TFEU): Articles 18, 63 and 
65(1)(a) and (3). 
Provisions of national law relied on 
Decreto-Lei n.º 442-A/88, de 30 de novembro, que aprova o Código do Imposto 
sobre o Rendimento das Pessoas Singulares (Decree-Law No 442-A/88 of 
30 November 1988 adopting the Personal Income Tax Code): recitals 3 and 12 of 
the preamble and Articles 1, 9, 10, 13, 15, 18, 44, 45, 46, 50, 51, 55, 57, 58, 65, 
68-A, 70, 72, 113, 130, and 
‘Article 22. Cumulation 
1. The tax base for the IRS is arrived at by cumulating income of all classes 
which has been earned during the year, once the reductions and deductions 
provided for in the following sections have been made. 
[…] 
3. The following shall not be cumulated for taxation purposes: 
a) income earned by taxable persons not resident in Portuguese territory, 
without prejudice to the provisions of Article 72(8) and (9); […]’ 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-224/21 
 
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‘Article 43. Capital gains 
1. The value of income classified as capital gains is equal to the balance of the 
difference between capital gains and capital losses realised in the same year, 
calculated in accordance with the provisions of the following articles. 
2. The balance referred to in the previous paragraph, whether positive or 
negative, shall be taken into account in the proportion of only 50% of its value, in 
the case of any transfers as provided for in Article 10(1)(a), (c) and (d) which have 
been made by residents. […]’ 
‘Article 68. General tax rates 
1. Tax shall be charged at the rates set out in the following schedule: […]’ 
‘Article 113. Annual accounting and tax information return  
1. Persons liable to IRS shall, each year, submit an accounting and tax 
information return, on the official form, in respect of the previous year, in the case 
where […] or where they are obliged to submit any of the annexes thereto. […]’ 
Decreto-Lei n.º 398/98 de 12 de dezembro, que aprova a Lei Geral Tributária 
(Decree-Law No 398/98 of 12 December adopting the General Law on Tax) 
(LGT): Articles 4, 5 and 6. 
Constituição da República Portuguesa (Constitution of the Portuguese Republic) 
(CRP): Articles 67, 103 and104 
Brief presentation of the facts and the main proceedings 
1 VX is resident for tax purposes in France. 
2 In 2007, he acquired free of charge an urban property located in Portugal with a 
value for tax purposes of EUR 40 443.02. 
3 En 2016, VX sold the property, the value of which at that time was 
EUR 80 164.29, for EUR 55 000.00. 
4 VX submitted a form 3 income tax return for the year 2016. On it he declared 
income from properties located in Portugal, but did not declare the capital gain he 
had realised from selling the [aforementioned] property. 
5 On the form 3 income tax return, VX ticked, in table 8 (Residence for tax 
purposes), option B (Non-residents) and, under that option, box 4 (Non-resident) 
and box 7 (permitting him to choose to be taxed under the general regime). 
6 The Tax Authority made a number of corrections to the return, adding to it an 
annex G, in which it recorded the sale of the [aforementioned] property, with a 
AUTORIDADE TRIBUTÁRIA E ADUANEIRA 
 
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value on acquisition of EUR 40 443.02 euros, corrected to EUR 44 487.32 after 
adjustment for inflation, and a transfer value of EUR 80 164.29. 
7 The capital gain realised from selling the property was determined by subtracting 
the value on acquisition from the transfer value and applying to the result, equal to 
EUR 35 676.96, a tax rate of 28%. 
8 The assessment generates a tax liability of EUR 10 733.77, which includes 
EUR 9 989.55 for the taxation of non-accrued income. 
9 En 2019, VX submitted a request for review of that assessment, on the ground that 
it was unlawful, on which no decision was taken. 
10 Consequently, VX brought the present action. 
Main arguments of the parties in the main proceedings 
11 VX submits that the legal regime governing the taxation of capital gains from 
property transactions within the context of the IRS, as applied in the 
aforementioned assessment and set out in Article 43(2) of the CIRS, is unlawful 
because it infringes EU law, inasmuch as it does not apply the limit of 50% of the 
tax base to capital gains obtained by a resident in another Member State of the 
European Union. 
12 The Tax Authority considers that there is no unlawfulness whatsoever. It takes the 
view that, although there is Court of Justice case-law to the effect that the 
provision at issue (Article 43(2) of the CIRS) and the legal regime applicable to 
non-residents pursuant to it are contrary to EU law by virtue of the 
aforementioned case-law, the legislature has already amended the legal regime 
applicable to non-residents in this regard. The income tax returns which taxpayers 
must complete have themselves already been duly amended to reflect that 
legislative change. 
13 On completing his form 3 income tax return, VX indicated in the boxes relating to 
residence, that he was a non-resident and that he chose to be governed by the 
general regime applicable to non-residents. If he had wished to be taxed at the 
rates laid down in Article 68 of the CIRS, that is to say as a resident, he should 
have indicated as much in the relevant boxes (option permitting him to choose the 
rates laid down in Article 68 of the CIRS and the sum of all income earned 
abroad). 
14 It also notes that the contested provision (Article 43(2) of the CIRS) relates to the 
determination of taxable income, not capital gains, and is not therefore applicable 
to this case. 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-224/21 
 
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Brief presentation of the grounds for the request for a preliminary ruling 
15 The referring court considers it necessary to make this reference for a preliminary 
ruling because it is of the opinion that, when the Court of Justice ruled in the 
judgment in MK (of 18 March 2021, C-388/19) and, prior to then, in the judgment 
in Hollmann (of 11 October 2007, C-443/06) in the way it did, it did not take into 
account all of the factors that might have a bearing on the examination and 
resolution of those cases. It takes the view that, in the [previous] preliminary 
ruling proceedings, not all the information on the domestic legislative framework 
that was relevant to those cases and, in its opinion, essential to their proper 
resolution was provided, this being information of which the Court of Justice was 
never aware and which may give rise to a different outcome [here] [see the 
judgments in Taricco (C-105/14) and M.A.S. (C-42/17) of 8 September 2015 and 
5 December 2017 respectively]. 
16 It must be determined whether or not the domestic tax regime gives rise to 
discrimination prohibited by EU law (rather than to a justified difference of 
treatment). This calls for an interpretation of domestic law, which, in this case, 
comprises a number of provisions considered in isolation. In order to determine 
the objective of those provisions, it is necessary to know and understand, through 
interpretation, the tax regime in question, its subject matter, its content and its 
mode of operation (the referring court describes and expands upon this aspect of 
the Portuguese tax system in some depth in the order for reference). (Furthermore, 
it is the settled case-law of the Court of Justice that the comparability of a cross-
border situation with a domestic situation must be examined with due regard for 
the objective pursued by the national legislature.) 
17 In the tax regime at issue, there are two fundamental provisions which operate in 
conjunction with Article 43(2) of the CIRS (which was the subject of the 
reference for a preliminary ruling in Hollmann): the cumulation provision 
(Article 22 of the CIRS) and the provision establishing a general schedule of 
progressive tax rates, arranged by band, which are determined on the basis of all 
of the income which the taxable person has realised worldwide during the year 
and are applied to the total sum of that income (Article 68 of the CIRS). 
18 In combing those legal principles (unicity: Article 22 of the CIRS, and band-based 
progressivity: Article 68 of the CIRS), the national legislature pursues the 
objectives which led it to establish a single tax on the income (direct taxation) of 
natural persons and which are reflected in the CIRS and in other domestic 
provisions, such as the LGT and the CRP. 
19 Notwithstanding that the judgment in MK was given at a time given when the 
legal framework introduced following the delivery of the judgment in Hollmann 
was already in force, once again the Court of Justice was not provided with 
fundamental information, of potentially decisive importance to the outcome of the 
case, concerning the compulsory cumulation (with no opt-out option) of the 
worldwide income of persons resident in Portugal. Neither was it informed of the 
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crucial fact that, in the case of residents, the tax base made up of income from 
capital gains realised through property transactions is only one of the elements of 
the overall tax base by reference to which the taxable person must be taxed, which 
is determined at worldwide level and includes income of all variety of natures and 
classes which the taxable person realises during the year, and that it is to that total 
sum, once the personal circumstances of the taxable person have been determined 
and taken into account, rather than to income of an isolated class, that a general 
schedule of progressive rates, arranged by band, is applied. Strictly speaking, 
therefore, residents are not subject to a tax rate which applies to capital gains in 
isolation. The tax owed by residents (their tax burden) by virtue of their other 
(annual worldwide) income is thus affected by the cumulation of exceptional 
income from capital gains realised through property transactions, a state of affairs 
that will never arise in the case of non-resident taxable persons. 
20 Thus, only knowledge of the tax regime in question as a whole (as opposed to 
knowledge of one of its provisions which is not properly contextualised), viewed 
within the framework of the tax system of which it forms part, makes it possible to 
determine whether or not the situations under consideration are objectively 
comparable. This explains the conclusion that both the judgment in Hollmann and 
the recent judgment MK compare situations which are not comparable. 
21 The Court of Justice has in its own case-law, in the judgment in Societé Générale 
SA (C-565/18), for example, itself concluded that, ‘in the absence of 
harmonisation at EU level, the disadvantages which could arise from the exercise 
of tax competences by different Member States, to the extent that such an exercise 
is not discriminatory, do not constitute restrictions on the freedom of movement’. 
22 Accordingly, this court considers that: 
i) the fact that, in this context, provision is made for (only) one regime other 
than that applicable to residents, as was the case up until late 2007, does not deter 
non-residents from investing in Portugal; conversely, the free movement of capital 
would be infringed if the legislature simply applied the general regime applicable 
to residents to non-residents, since it would be affording the same treatment to 
different situations; 
ii) the choice which, since 1 October 2008, non-residents have had between the 
general regime for non-residents and the regime for residents (without being 
subjected to an excessive or disproportionate burden) has enabled them to select 
from those two regimes the one most favourable to them and does not give rise to 
the application of a regime not consistent with EU law; 
iii) through the regime established for residents, the national legislature pursued 
legitimate objectives worthy of consideration within the context of the coherence 
and balanced operation of its tax system. Any difference in treatment based on 
residence is justified and is not in any event among the forms of discrimination 
prohibited by Article 65(3) TFEU; 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-224/21 
 
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iv) in laying down the rules in this field, the Portuguese legislature did not fail 
to comply with EU law. 
It further notes that there are several pending cases the outcome of which will 
depend on the answer to be given by the Court of Justice to the questions raised.