Portugal Asked To Repeal Fiscal Exemption On Gains From Privatisation

by Ulrika Lomas, for LawAndTax-News.com, Brussels

07 July 2006

The European Commission this week formally required Portugal to abolish Article 25 of the Portuguese Estatuto dos Benefícios Fiscais (EBF), the Portuguese Tax Relief Regulations, because the scheme violates the EC Treaty’s ban on state aid liable to distort competition.

Following a complaint, the Commission started an investigation and opened a formal procedure in October 2004. The Commission found that Article 25 of the Portuguese EBF confers a selective tax advantage to certain companies, which cannot be justified by the general logic of the Portuguese tax system and is therefore incompatible with the Single Market.

Under the regime, capital gains from privatisation and restructuring processes are tax exempt for public companies and companies controlled by them. The Commission’s investigation concluded that in three out of the four cases where Article 25 has already been applied, the transactions would have anyway been exempted under the normal tax regime and therefore the aid need not be repaid.

EU Competition Commissioner Neelie Kroes stated that:

“These tax advantages to selected companies distort competition in violation of the EU’s state aid rules and have to be repealed”.

The EC has therefore decided that Portugal has unlawfully implemented Article 25 and will have to both discontinue the scheme and recover aid already granted under the provision.

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