Portuguese state discriminated non-residents in property capital gains

  • Lusa
  • 19 March 2021

The Court of Justice of the European Union found the Portuguese state guilty of discriminating against non-residents in the taxation of real estate capital gains.

The Court of Justice of the European Union (CJEU) on Thursday found the Portuguese state guilty of discriminating against non-residents in the taxation of real estate capital gains, upholding a complaint filed by a Portuguese immigrant in France.

According to a decision of the CJEU published on Thursday and disclosed by the law firm SLCM, representing a Portuguese citizen who is an immigrant and resident in France, the immigrant will be entitled to recover the overpaid tax.

This decision of the CJEU applies to all non-resident citizens who have realized capital gains and paid the undue tax, with the CJEU ruling that non-resident individuals who sell their real estate in Portuguese territory are discriminated against compared with residents at the time of taxation, which is contrary to the principle of freedom of capital provided for in the Treaty on the Functioning of the European Union.

“In the judgment handed down today [on Thursday], the arguments presented were upheld and the Portuguese state was found guilty. The citizen in question will have the right to recover the excess tax they paid, opening the door for other non-resident citizens in the same situation (Portuguese and of other nationalities) to also obtain a refund of their overpaid income tax,” said SLCM, represented in this case by tax law partner António Gaspar Schwalbach.

António Gaspar Schwalbach, in a written statement sent to Lusa, states that this ruling condemning the Portuguese state is clear and corrects a serious situation of tax injustice, which affects his client and many others who had been unduly overcharged tax.

In the recent past, the Supreme Administrative Court had also ruled on the same matter, now anticipating a major impact on other ongoing cases and also a change in the IRS Code, because Portugal will have to ensure that its tax legislation on this matter is in line with the CJEU ruling.

According to the same source, Portugal had been condemned in the past for subjecting only 50% of resident capital gains to taxation, compared to 100% of non-resident capital gains – in the Hollmann case – a case from 11 October 2007.

“After that conviction, instead of changing the taxation regime for non-residents, Portugal kept the main regime and approved a new subsidiary regime, called the equalization regime, applicable only to residents in another EU member state or the European Economic Area,” said the lawyer of the Portuguese emigrant in France.

The new equal treatment regime already allowed capital gains to be taxed at 50%, but required non-residents to declare all their income to determine the applicable progressive tax rate, the information note on the CJEU ruling said.