Tax Connect Flash

Case-Law: Free Movement of Capital

The Portuguese Tax Benefit Statute establishes a special tax regime applicable to Collective Investment Undertakings (“CIU”) incorporated under Portuguese law, according which certain categories of income (investment income, real estate income and capital gains) are not subject to corporate income tax in Portugal.

Recently, two arbitral decisions (decisions no. 90/2019-T and 194/2019-T) were issued analysing a potential tax discrimination, at light of the free movement of capital, against CIU incorporated in other Member States of the European Union (to which the abovementioned tax benefits cannot apply).

In arbitral decision no. 90/2019-T it was at stake the withholding tax on the dividends distributed by a Portuguese company to a CIU incorporated in Germany, while in arbitral decision no 194/2019-T the issue concerned to the tax treatment of a Portuguese branch of a CIU incorporated in France.

In both decisions, the Arbitration Tax Court has come to the conclusion that the distinction between resident and non-resident CIU goes against the free movement of capital foreseen in Article 63 of the TFEU and, therefore, CIU incorporated in other Member States of the European Union should also benefit from the tax exclusion provided for in the Portuguese Tax Benefit Statute.

Based on this case-law, there are strong grounds to claim the application of the tax exclusion on investment income, real estate income and capital gains obtained in Portugal by CIU incorporated in other Member States of the European Union.

Please contact the authors or your CMS advisor for further assistance.