Information;Order — ECLI:EU:C:2021:1014
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-647/20 – 1 
Case C-647/20 
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:  
1 December 2020 
Referring court:  
Tribunal Arbitral Tributário (Centro de Arbitragem 
Administrativa – CAAD) [Tax Arbitration Tribunal (Administrative 
Arbitration Centre – CAAD), Portugal] 
Date of the decision to refer:  
10 November 2020 
Appellant:  
XG 
Respondent:  
Autoridade Tributária e Aduaneira (Tax and Customs Authority) 
  
Subject matter of the main proceedings 
These proceedings seek to determine to what extent the system for the taxation of 
capital gains arising from transactions in immovable property carried out by 
Portuguese nationals not resident in the European Union may be distinguished 
from the system of taxation applicable to Portuguese nationals resident in 
Portugal. 
Subject matter and legal basis of the request for a preliminary ruling 
Determination of the conformity of a personal income tax assessment made in this 
particular case with the law applicable under the Portuguese legal system. 
Article 267 TFEU 
EN 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-647/20 
 
2  
Question referred for a preliminary ruling 
‘May capital gains arising from a property transaction consisting in the sale of an 
immovable property purchased by a Portuguese national not resident in the 
European Union be subjected to a discriminatory system of taxation which is more 
onerous by comparison with that which is applied to residents, who benefit from a 
50% reduction of the capital gains forming the basis of the calculation of income 
tax, in accordance with the provisions of Article 65(1)(a) TFEU?’ 
Provisions of EU law relied on 
Articles 63(2), 64(1) and 65(1)(a) TFEU. 
Provisions of national law relied on 
1 Articles 10, 43 and 72 of the Código do Imposto sobre o Rendimento das Pessoas 
Singulares (Personal Income Tax Code; ‘the CIRS’). 
‘Article 10 – Capital gains 
1. Capital gains are gains realised, other than those regarded as business or 
professional income, capital income or income from immovable property, arising 
from: 
(a) the transfer for valuable consideration of rights in rem in immovable 
property or from the use of any private assets for the purposes of the 
business or professional activities pursued on an individual basis by the 
owner of such assets; 
[…]’ 
‘Article 43 – Capital gains  
1. The amount of income classified as capital gains is represented by the 
balance of the difference between capital gains and capital losses occurring in the 
same year, determined in accordance with the following articles. 
2. The balance referred to in the foregoing subparagraph, in respect of 
disposals made by residents as provided for in Article 10(1)(a), (c) and (d), 
whether positive or negative, shall be taken into account as to only 50% of its 
amount’. 
‘Article 72 
1 – Capital gains and other income obtained by persons not resident in Portuguese 
territory that are not attributable to a permanent establishment situated in that 
territory and that are not subject to withholding tax providing full discharge of tax 
AUTORIDADE TRIBUTÁRIA E ADUANEIRA 
 
3 
liability shall be taxed at the specific rate of 25%, or 15% in the case of income 
from property, without prejudice to paragraph 4. 
2. Income obtained by persons not resident in Portuguese territory that are not 
attributable to a permanent establishment situated in that territory shall be taxed at 
the rate of 25% 
[…] 
7. Residents of another Member State of the European or of the European 
Economic Area, provided, in the latter case, that there is an exchange of 
information on tax matters, may elect, in respect of the income to which 
paragraphs 1 and 2 apply, for such income to be taxed at the rate which would 
apply under the table established by Article 68(1) had the income been obtained 
by persons resident in Portuguese territory. 
8. In order to determine the tax rate referred to in the previous paragraph, all 
income shall be taken into account, including income obtained outside that 
territory, on the same terms that apply to residents.’  
Brief presentation of the facts and the main proceedings 
2 XG has his tax residence in the United States of America. 
3 On 13 April 2018, XG acquired from X, under a succession upon death, 50% of a 
flat.  
4 Y acquired the remaining 50% of that flat, also under a succession upon death. 
5 On 17 October 2018, XG and Y sold the flat for a total price of EUR 220 000. 
6 On 17 October 2018, XG was a Portuguese national. 
7 On 25 June 2019, XG filed the relevant income tax return (IRS [Personal Income 
Tax] Form 3), for the tax year 2018, in which he included the disposal of the 
immovable property and provided the following values in table 4 of Annex G, 
relating to capital gains and other such income: 
Value on disposal: EUR 110 000; 
Value on acquisition: EUR 76 188.13; 
Costs and expenses: EUR 5 412. 
8 On 30 July 2019, the Tax and Customs Administration (‘the AT’) made an 
assessment to personal income tax (‘IRS’) in the amount of EUR 7 951.96 for the 
2018 tax year, and determined in that assessment that the total income received by 
XG in that year amounted to EUR 28 399.87. 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-647/20 
 
4  
9 The AT applied a rate of 28% to all of the capital gains obtained by XG. 
10 On 2 September 2019, XG paid the amount corresponding to the assessment of his 
personal income tax, in the amount of EUR 7 951.96 euros. 
11 Despite having paid the amount assessed as being due, XG brought an action 
before the arbitration tribunal on the ground that the national legislation 
discriminates between residents and non-residents and infringes the TFEU. 
Consequently, he claims that the contested tax document should be declared 
unlawful and, therefore, annulled, that the overcharged tax he has already paid 
should be refunded to him, and that he should be awarded default interest. 
Essential arguments of the parties to the main proceedings 
12 XG claims that the rules of the CIRS on which the AT relied in order to make the 
assessment in question are not consistent with the provisions of the TFEU which 
establish the principle of non-discrimination. In particular, he takes the view that 
there is discrimination because the system applicable is different depending on 
whether or not nationals are resident in Portugal. 
13 XG states that, in his capacity as a non-resident, he was subjected to higher 
taxation than would have been applied to him if he had been a resident for tax 
purposes in Portugal and that that additional levy hinders investment by non-
residents, as compared with residents, in the national property sector. In other 
words, the tax system is less favourable to non-residents. 
14 The AT defends the lawfulness of applying the provision contained in 
Article 43(2) of the CIRS to non-residents in Portugal. In its view, two approaches 
are available depending on the taxpayer’s place of residence. 
15 First, as regards persons resident in the EU or in the EEA, Article 43(2) of the 
CIRS, read in conjunction with the provisions contained in Article 72(9) and 10 of 
the same Code, is consistent with the provisions of Article 63(2) TFEU. 
16 Secondly, as regards persons resident in third countries, of whatever nationality, 
the aforementioned provision is consistent with EU law inasmuch as it is covered 
by the exception to the principle of non-discrimination that is provided for in 
Article 64(1) TFEU. 
Brief presentation of the grounds for the request for a preliminary ruling 
17 The Tribunal Arbitral (Arbitration Tribunal) considers that Article 43 of the CIRS 
is applicable in the present case, although it has doubts about its validity. 
18 The referring court notes first of all that the legislative evolution of the CIRS can 
be summarised in three stages exhibiting clearly defined characteristics: 
AUTORIDADE TRIBUTÁRIA E ADUANEIRA 
 
5 
(i) the initial version, which entered into force on 1 January 1989, resulted from 
Legislative Decree No 442-A/88 of 30 November 1988 and laid down a 
common system for all taxpayers regardless of their place of residence; 
(ii) the version resulting from Law No 109-B/2001 of 27 December 2001, 
which, with effect from 1 January 2002, limited the reduction of capitals 
gains obtained to 50% for residents, and at the same time created a specific 
25% rate applicable to the taxation of such transactions when realised by 
non-residents; and 
(iii) the version of Article 43 resulting from Law No 67-A/2007 of 31 December 
2007, which entered into force on 1 January 2008, under which persons 
resident in other Member States of the European Union and the European 
Economic Area were permitted to choose the system of taxation applicable 
to residents. 
19 In accordance with Article 43(2) of the CIRS, the 50% reduction cannot be 
applied to the taxation of capital gains which XG, in his capacity as a non-
resident, obtained from the property transaction completed by him, but is available 
under that provision to persons resident in Portugal. 
20 The current version of Article 43(2) of the CIRS was not in force on 31 December 
1993 since it was not incorporated into the CIRS until the aforementioned system 
was amended by Law No 109-B/2001 of 27 December 2001, effective from 
1 January 2002. Consequently, given that that provision was not in force, no 
derogations from the principle of non-discrimination can be created on the basis of 
the exception provided for in Article 64(1) TFEU. 
21 That exception applies only to movements of capital to or from third countries 
involving direct investment, with the result that it does not seem possible to bring 
the facts of the case within the scope of that legislative provision. 
22 Consequently, the discriminatory system could be applied only under 
Article 65(1)(a) TFEU. However, that system is limited by the reservation 
established in paragraph 3 of that article, which prevents measures and procedures 
which draw a distinction in relation to non-resident taxpayers from effectively 
constituting a means of arbitrary discrimination or a disguised restriction on the 
free movement of capital. 
23 The referring court considers that Article 43(2) of the CIRS differentiates for no 
reason, that is to say arbitrarily, between the situation in which XG finds himself 
and that of resident EU citizens who acquire immovable properties by inheritance 
and convert them into capital, since residents benefit from a reduction in the 
calculation of capital gains realised from a previous acquisition free of charge, 
whereas non-residents in the same situation must pay tax on the totality of their 
capital gains. 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING – CASE C-647/20 
 
6  
24 The referring court considers that, in this regard, the application of the provision 
contained in Article 43(2) of the CIRS is completely arbitrary. 
25 In the order for reference, the national court cites the judgment of the Court of 
Justice of 11 October 2007, C-443/06 ‘the judgment in Hollmann’). It states that, 
in that case, in a situation identical to the one forming the subject of the 
proceedings before it, the Court of Justice held that ‘Article 56 EC must be 
interpreted as precluding national legislation, such as that in dispute in the main 
proceedings, which subjects capital gains resulting from the transfer of immovable 
property situated in a Member State, in this case Portugal, where that transfer is 
made by a resident of another Member State, to a tax burden greater than that 
which would be applicable for the same type of transaction to capital gains 
realised by a resident of the State in which that immovable property is situated’. 
26 The referring court also refers to the order of 6 September 2018, C-184/18, in 
which the Court of Justice, in a situation similar to that at issue in the present case, 
held that the aforementioned provision could not be applied, stating that 
‘legislation of a Member State, such as that in dispute in the main proceedings, 
which subjects capital gains resulting from the transfer, by a resident of a third 
country, of immovable property situated in that Member State to a tax burden 
greater than that which would be applicable for the same type of transaction to 
capital gains made by a resident of that Member State constitutes a restriction on 
the freedom of movement of capital which, subject to verification of the relevant 
facts by the referring court, does not fall within the exception provided for in 
Article 64(1) TFEU and cannot be justified by the reasons provided for in 
Article 65(1) TFEU’.