At the end of 2023, the Court of Justice of the European Union (CJEU) ruled in Case C-472/22 on the compatibility of the Portuguese tax system, in particular Article 43(3) of the Personal Income Tax Code, with the principles of freedom of establishment and free movement of capital, laid down in Article 63 of the Treaty on the Functioning of the European Union.
Under the terms of this article, capital gains from the transfer of shareholdings in micro and small companies not listed on the regulated or unregulated stock exchange markets are only considered at 50% of their value.
In the case sub judice, a French national, tax resident in Portugal, sold the shares he held in a French company, based in France, considered a “small company” for the purposes of Article 2 of the annex to Decree-Law No. 372/2007, income that was eventually considered in full, without the 50% benefit. According to the Tax Authority, this tax benefit is intended to support Portuguese companies and stimulate economic activity in Portugal, so it would only apply to transfers of shares in companies based in Portugal.
However, the CJEU concluded that this provision was contrary to EU law, as it constituted an unjustified restriction on freedom of establishment and the free movement of capital, as it favored investments in national companies, to the detriment of other European companies.
In our opinion, admitting that taxpayers who have invested in companies that carry out an economic activity in Portugal would be subjected to a different treatment from taxpayers who have invested in companies that carry out an economic activity outside Portugal, when Article 63(1) TFEU prohibits precisely such restrictions, would empty this provision of its content. In fact, considering the wording of paragraphs 3 and 4 of article 43 of the CIRS, it does not say that this regime is only applicable to capital gains generated by micro and small companies with their head office or effective management in national territory.
Thus, interpreting these articles in this way would go against the rational and teleological elements of interpretation, as it would lead to a solution that runs counter to the imperative of ensuring the Community principle of the free movement of capital, which should not be taken as intended by a reasonable legislator.
This decision enables all taxpayers who have obtained income from the transfer of shares in companies based abroad and who have been taxed in full, to contest the respective IRS assessment, invoking the benefit provided for in article 43(3) of the CIRS.
