CELEX: 62014CN0503
Language: en
Date: 2014-11-11 00:00:00
Title: Case C-503/14: Action brought on 11 November 2014 — European Commission v Portuguese Republic

19.1.2015   
            
            
               EN
            
            
               Official Journal of the European Union
            
            
               C 16/20
            
         
      Action brought on 11 November 2014 — European Commission v Portuguese Republic
      (Case C-503/14)
      (2015/C 016/30)
      Language of the case: Portuguese
      
         Parties
      
      
         Applicant: European Commission (represented by: G. Braga da Cruz and W. Roels, acting as Agents)
      
         Defendant: Portuguese Republic
      
         Form of order sought
      
      The applicant claims that the Court should:
      
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                  Declare that the Portuguese Republic has failed to fulfil its obligations under Articles 21 TFEU, 45 TFEU and 49 TFEU and Articles 28 and 31 of the EEA Agreement in adopting and maintaining in force legislation, in the form of Articles 10 and 38 of the Código do imposto sobre o rendimento das pessoas singulares (Law on the income tax of natural persons) (‘the CIRS’), pursuant to which a taxable person who (i) exchanges shares and transfers his place of residence abroad or (ii) transfers assets and liabilities relating to an activity carried out on an individual basis in return for shares in a non-resident company, must, in the former case, include, in relation to the transactions in question, any income not taxed in the last fiscal year in which the taxable person was still regarded as a resident taxpayer, whereas, in the latter case, he does not benefit from a deferment of tax resulting from the transaction in question;
               
            
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                  Order the Portuguese Republic to pay the costs.
               
            
         Pleas in law and main arguments
      
      
         Pleas in law:
      
      
                  1.
               
               
                  On the one hand, pursuant to Article 10(9)(a) of the CIRS, if the shareholder is no longer resident in Portugal, capital gains resulting from a share exchange will form part of the taxable income of the calendar year in which the change of place of residence occurred. Under that same article, the value of the capital gains corresponds to the difference between the actual value of the shares received and the value of the older shares at the time of their purchase. By contrast, if the shareholder is resident in Portugal, the value of the shares received is the same as that of those transferred, without prejudice to the taxation of any monetary sums paid for the shares which were transferred. That is to say, where a taxable person remains resident in Portugal a share exchange gives rise to the immediate taxation of the capital gains generated only and in so far as an additional monetary payment is made. If there is no such payment, the capital gains tax will be levied only if and when the shares received have been definitively divested. Pursuant to Article 10(10) of the CIRS, the same tax regime is applicable to the allocation of shares in the case of mergers or the division of companies, to which Article 74 of the Código do imposto sobre o rendimento das pessoas colectivas (Law on corporate taxation) applies.
               
            
                  2.
               
               
                  On the other hand, in accordance with Article 38(1)(a) of the CIRS, the transfer to an undertaking of assets and liabilities related to the exercise of an economic or professional activity by a natural person in exchange for shares is tax exempt at the time of transfer if, among other conditions, the legal person to which the assets and liabilities are transferred has its seat or registered office in Portugal. In that case, taxation occurs only when and if the legal person which received such assets and liabilities has divested itself of them. However, such a tax deferment does not apply if the legal person to which the assets and liabilities were transferred has its seat or registered office outside of Portugal. In that case, capital gains tax is immediately applicable.
               
            
         Main arguments:
      
      
                  1.
               
               
                  By its first plea in law the Commission considers that such taxation penalises those who decide to leave Portuguese territory, in that it treats such persons differently from those who remain in the country. The Commission is of the view that the deferment of taxation, in the case of profits made in exchanging shares, should not be reserved to cases in which the tax payer continues to reside in Portuguese territory whilst denied in cases in which the tax payer transfers his place of residence to another EU or EEA Member State. Consequently, the difference in treatment put in place by Article 10 of the CIRS is incompatible with Articles 21 TFEU, 45 TFEU and 49 TFEU and Articles 28 and 31 of the EEA Agreement. Moreover, the protection of the tax credits resulting from pending revenue should be assured in conformity with the principle of proportionality laid down in the case-law of the Court of Justice. In the present case, the Commission considers that the Portuguese legislation goes beyond what is necessary to attain the objectives of ensuring an efficient tax regime, and that the Portuguese legislation should apply the same rule irrespective of whether a natural person keeps his place of residence in Portuguese territory or not.
               
            
                  2.
               
               
                  By its second plea in law the Commission submits that the benefit granted by Article 38 of the CIRS should not, in the light of Article 49 TFEU and Article 31 of the EEA Agreement, be reserved to cases in which the company which receives the assets has its seat or registered office in Portugal. The Commission takes the view that Portugal should apply the same rule irrespective of whether the legal person to which the assets and liabilities have been transferred has its seat or registered office in Portuguese territory or elsewhere. On the same grounds as set out above in relation to the first plea in law, the Commission considers that Article 38 of the CIRS goes beyond what is necessary to attain the objective of ensuring an efficient tax regime. It is of the opinion that taxable persons who exercise their right to freedom of establishment by transferring assets and liabilities abroad in exchange for shares in a non-resident undertaking cannot be subject to taxation at an earlier point in time than is the case for those who carry out such operations with an undertaking based in Portugal.