Knowledge

TELLES' tax team, led by partner Miguel Torres, recently won an important case before the CJEU that could have a significant impact on Portuguese case law.

The case concerned an action brought before the Administrative Arbitration Centre (CAAD) against the tax assessment of a Portuguese taxpayer who, following the sale of shares in a French company, was refused by the tax authorities the application of the regime provided for in Article 43(3) of the Portuguese Tax Code to the gains realised on the sale. The tax authority refused to apply the scheme provided for in Article 43(3) of the Tax Code - which provides that the balance of capital gains and losses of micro and small companies not quoted on regulated or unregulated stock markets may be taxed at only 50 per cent of their value - on the ground that this scheme could be applied only to capital gains arising from the sale of shares in Portuguese companies.

In the action brought before the CAAD, the TELLES team, made up of Of Counsel, José Pedroso de Melo, and Associate, Carlos Avelino, challenged the legality of this arrangement, believing that it infringed structural principles of Community law by making investments in companies established in Portuguese territory more attractive to the detriment of those established in other Member States.

As this was a groundbreaking issue, CAAD decided to ask the CJEU to rule on it by way of a CJEU for a preliminary ruling, which ultimately favoured the argument put forward by TELLES. According to established case-law, "Article 63 of the Treaty on the Functioning of the European Union must be interpreted as meaning that of the Treaty on the Functioning of the European Union must be interpreted as meaning that it precludes a tax practice of a Member State in the field of personal tax practice of a Member State which reserves a tax advantage consisting in a reduction by half of the taxation of capital gains arising on the transfer of shares only to transfers of shares in companies established in that Member State, to the exclusion of transfers of shares in companies established in other Member States', that is to say 'Member States', and thus precludes a difference in tax treatment of that income based solely on the place of establishment of the companies in which the capital is invested.

According to José Pedroso de Melo, "this decision, which is now to be confirmed by the by the Portuguese courts, is an important milestone in the taxation of in the taxation of capital gains earned by Portugal and will open the door to proceedings to recover taxes illegally collected by the Portuguese tax authorities in operations of this nature".