Exit taxation of companies in Portugal

• Author: João Félix Pinto Nogueira
• Position: PhD in Law. Post-doctoral Researcher at Lusíada Lisbon University
• Pages: 1-20

European Tax Studies 1/2010

News and Commentary - Exit Tax: Comparative Analysis in a EU Perspective (n. 1/2009)

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Exit taxation of companies in Portugal

João Félix Pinto Nogueira1

1. Introduction

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“Should I stay or should I go...”? The implementation of the EU’s internal

market, characterized in the Treaty on the functioning of the European

Union (TFUE) as “an area without internal frontiers in which the free

movement of goods, persons, services and capital is ensured”2, together

with the persistence of considerable differences between the factual and

normative conditions found by companies in the twenty-seven Member

States of the Union converts the previous question from a well-known song

refrain into an omnipresent sound bite, echoing in the minds of CEO’s and

CFO’s all across Europe.

Under the European perspective, the transfer of an economic activity is not

seen as a negative side effect of the internal market. From the very

beginning, treaties recognized the need to protect the freedom of

establishment, enclosing a “right to take up and pursue activities as self-

employed persons and to set up and manage undertakings, in particular

companies or firms”3.

In order to achieve an effective internal market, obstacles to this freedom

of establishment have to be abolished, which requires also changes in the

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1 PhD in Law. Post-doctoral Researcher at Lusíada Lisbon University. The author can be

contacted at joaofelixpintonogueira@gmail.com

2 See art. 26 (2) TFEU.

3 See § 2 of art. 49 TFEU. The aim is very broad and, in the words of the Court,

encompasses the possibility of a “Community national to participate, on a stable and

continuous basis, in the economic life of a Member State other than his State of origin and to

profit therefrom, so contributing to economic and social interpenetration within the

Community in the sphere of activities as self-employed persons”. See ECJ, 30 November

1995, C-55/94, Gebhard, para. 25.

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European Tax Studies 1/2010

News and Commentary - Exit Tax: Comparative Analysis in a EU Perspective (n. 1/2009)



field of direct taxation. In this field, exit taxes is4, certainly, one of the most

discussed topics. These rules have an obvious impact in the internal market

and all across Europe discussions are having place on whether these rules

are compatible with EU Law.

This discussion is also taking place in Portugal. In November 2008 the EU

Commission has sent a reasoned opinion concerning the exit tax rules on

companies (reference no. 2007/2365). As Portugal hasn’t introduced any

changes or conveniently justified its rules, the case was referred to the

Court of Justice of the EU (hereinafter CJEU) - case number 38/10. Several

other countries have also cases pending before the court5.

The purpose of this paper is to examine the compatibility of those

Portuguese corporate exit taxes with EU Law. We will depart from a concise

description of the rules targeted by the Commission and currently under the

Court’s review. Subsequently we will focus in applicability, to companies, of

CJEU’s case law on individuals. At a later stage we will focus again in the

Portuguese system, in order to ascertain whether it can be said in line with

the previously described EU law requirements.

2. The Portuguese normative framework

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2.1 The adoption of the rules

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In the above mentioned procedure it is questioned whether the rules of

arts. 83º to 85º (formerly arts. 76-A, 76-B and 76-C) of the Portuguese

Corporate Income Tax Code (hereinafter PCITC)6 can be considered as

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4 As the taxes levied by a domestic provision, based on the assumption that the transfer

of residence of a company should be treated as a dissolution or alienation of its assets (with

the taxation of the accrued gains). We will use this concept with a broad meaning as not only

companies but also other entities (other than individuals), considered as “taxable persons”,

will be considered in this study.

5 An updated list of this cases can be obtained by searching “exit tax” in the following list

of ECJ cases. The EFTA Surveiling Authority has also initiated a procedure against Norway

(Decision 70-10-COL, 10 March 2010, “to send a letter of formal notice to Norway regarding

exit taxation of companies transferring to other EEA States”).

6 In Portuguese “Código do Imposto sobre as Pessoas Colectivas”, Decree-Law no. 442-B/88,

30 November.

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