Advocate General's Opinion Is That An Immediate Exit Charge On Unrealised Gains On Branch Assets On Cessation Of Trade Or Transfer To Another EU Member State Breaches Freedom Of Establishment

Advocate General Mengozzi has recently delivered his opinion in the case of European Commission v Portuguese Republic ECJ Case C-38/10. Under Portuguese law, where a Portuguese permanent establishment of a company resident in another EU member state closes down its Portuguese branch activity or transfers assets out of Portugal back to the non-resident company's head office or to a permanent establishment which it has in another member state, there is an immediate charge to tax on the unrealised capital gains which have arisen on the branch's assets or on the assets which are transferred. The European Commission brought infraction proceedings before the ECJ alleging that this "exit charge" breaches freedom of establishment under what is now article 49 TFEU. Applying the reasoning of the ECJ in National Grid Indus BV Case C-371/10, the Advocate General proposes in his opinion that the ECJ should uphold the European Commission's complaint and declare that the Portuguese exit charge is an unlawful restriction on freedom of establishment.

In the National Grid Indus BV case, the ECJ held that, where a company transferred its place of effective management from the Netherlands to another member state, article 49 TFEU did not preclude Dutch legislation under which unrealised capital gains on the company's assets were liable to tax and the amount...