Foreigners pay more

Portuguese tax law operated for residents of Portugal a progressive tax rate of up to a maximum of 42% on the entire income. Capital gains from the sale of property were subject to capital gains tax of 50%. Non-residents were taxed on income accruing to them in Portugal. The 50% limit on capital gains did not apply to them but they paid capital gains tax at 25% on gains made in Portugal. The claimant a German resident was taxed accordingly on a property which she inherited from her husband. She appealed and the court sought a preliminary ruling from the European Court of Justice.

The question referred was whether it was contrary to article 56 of the EC Treaty (freedom of movement) for non-residents to be taxed at a higher rate of tax than would be levied on Portuguese residents.

The European Court of...