EU Orders Portugal To Amend Capital Gains Tax Law

by Ulrika Lomas, Tax-News.com, Brussels

20 July 2004

The European Union has ordered Portugal to amend its tax legislation relating to capital gains on the proceeds of home sales, arguing that the laws are applied in such away as to inhibit the free movement of individuals.

Under Portugal’s current capital gains tax regime, homeowners are exempt from tax on profits made from selling property if this money is reinvested in another Portuguese property. However, this exemption does not extend to those who sell their home in Portugal and buy another home in a different member state.

The EU Commission notes that this law affects both foreign nationals who have lived temporarily in Portugal and Portuguese nationals who move abroad. In particular, the law discriminates against migrant workers and any other person wishing to make use of the free movement of persons within the EU.

Consequently, the Commission considers that the territorial limitation of the tax relief violates EC Treaty rules on the right of residence in other Member States, free movement of workers, freedom of establishment and free movement of capital.

Portugal now has two months to respond to the Commission’s Reasoned Opinion or face possible court action at the European Court of Justice.

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