EC Takes Portugal To Task Over 2005 Amnesty Terms

by Lorys Charalambous, Tax-News.com, Cyprus

01 February 2008

The European Commission has decided to refer Portugal to the European Court of Justice (ECJ) because of its 2005 tax amnesty legislation, which provided regularization at a preferential penalty rate of 2.5% for investments in Portuguese government bonds (instead of 5% for any other assets).

The Commission considers that the tax amnesty did not respect the EU rules on free movement of capital, given that it dissuaded taxpayers from regularizing assets in forms other than Portuguese government bonds.

"The rules of the Internal Market forbid any discrimination of investments made by individuals in other Member States" explained EU Taxation and Customs Commissioner László Kovács.

"Investments held in other Member States should be taxed in the same way as investments held in the Member State of residence, even on the occasion of tax amnesties," he added.

The law, known as "Tax amnesty for undeclared funds held abroad (RERT)", which was approved by the Portuguese Parliament in 2005, constituted a restriction on the free movement of capital guaranteed by the EC Treaty, the EC reiterated.

The amnesty law allowed the disclosure and regularization of undeclared funds held abroad by filing a confidential statement before 16 December 2005. It required resident individuals to pay a penalty equal to 5% of the value of the relevant investments.

However, a reduced tax rate of 2.5% applied to regularized Portuguese government bonds as well as to any amount of other investments reinvested in Portuguese government bonds at the time of the regularization procedure.

Persons making use of the amnesty were thus dissuaded from keeping their regularized assets in forms other than Portuguese government bonds.

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