1. 

By this action, the European Commission asks the Court to declare that the Portuguese Republic has failed to fulfil its obligations under Articles 21, 45 and 49 TFEU and Articles 28 and 31 of the Agreement on the European Economic Area of 2 May 1992 (OJ 1994 L 1, p. 3, ‘the EEA Agreement’) in adopting and maintaining in force legislation providing that a taxable person who either exchanges shares and transfers his place of residence abroad or transfers assets and liabilities relating to an activity carried out on an individual basis in return for shares in a non-resident company must, in relation to the transactions in question, in the former case, include any income not taxed in the last fiscal year in which the taxable person was still regarded as a resident taxpayer whereas, in the latter case, he does not benefit from a deferment of tax resulting from those transactions.

2.

In addition to Articles 21, 45 and Article 49 TFEU, the EEA Agreement and the Código do Imposto sobre o Rendimento das Pessoas Singulares (Personal Income Tax Code, ‘the CIRS’) are central to this action.

3.

Article 28 of the EEA Agreement provides that:

‘1.   Freedom of movement for workers shall be secured among EC Member States and EFTA States.

2.   Such freedom of movement shall entail the abolition of any discrimination based on nationality between workers of EC Member States and EFTA States as regards employment, remuneration and other conditions of work and employment.

3.   It shall entail the right, subject to limitations justified on grounds of public policy, public security or public health:

4.   The provisions of this Article shall not apply to employment in the public service.

5.   Annex V contains specific provisions on the free movement of workers.’

4.

Article 31 of the EEA Agreement provides that:

‘1.   Within the framework of the provisions of this Agreement, there shall be no restrictions on the freedom of establishment of nationals of an EC Member State or an EFTA State in the territory of any other of these States. This shall also apply to the setting up of agencies, branches or subsidiaries by nationals of any EC Member State or EFTA State established in the territory of any of these States.

Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of Article 34, second paragraph, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of Chapter 4.

2.   Annexes VIII to XI contain specific provisions on the right of establishment.’

5.

According to Article 10 of the CIRS, entitled ‘Capital gains’:

‘1.   Capital gains are any gains realised, other than those regarded as business or professional income, capital income or income from immovable property, arising from:

…

…

3.   Gains shall be deemed to have arisen at the time when any of the acts referred to in paragraph 1 is effected, without prejudice to the provisions set out in the following subparagraphs:

…

4.   A gain that is subject to personal income tax shall be made up of:

…

8.   In the case of an exchange of shares on the terms referred to in Article 73(5) and Article 77(2) of the [CIRC], the allocation, by virtue of that exchange, of the securities representing the company’s capital to the partners in the company acquired shall not entail taxation of those securities if they continue to value the new shares at the level of the old ones for tax purposes. That value shall be determined in accordance with the provisions of this code, without prejudice to the taxation of any cash equivalent values that may be assigned to them.

9.   In the case referred to in the foregoing paragraph, it should also be noted that:

10.   The provisions of paragraphs 8 and 9 shall also apply mutatis mutandis to the allocation of shares in the case of mergers or the division of companies to which Article 74 of the [CIRC] applies.

…’

6.

Article 38 of the CIRS provides as follows:

‘Contribution of assets to form company capital

1.   No taxable result shall be calculated concerning the formation of company capital resulting from the transfer by a natural person of all the assets used in the exercise of a business or professional activity, provided all the following conditions are satisfied:

2.   The provisions of the preceding paragraph shall not apply if the assets transferred include assets for which taxation of profits has been deferred for the purposes of Article 10(3)(b).

3.   The profits resulting from the transfer for valuable consideration, on whatever basis, of the capital holdings received in return for the transfer referred to in paragraph 1 shall, within five years of the date of transfer, be classed as business and professional income and regarded as net income under Category B. During that period, no transactions in shares benefiting from neutrality arrangements shall be made, failing which the profits shall be deemed to have been made from the date of such transactions and shall be increased by 15% for each year or part of year since the assets were contributed to the formation of the company’s capital and be added to the income for the year in which the transactions were recognised.’

7.

On 17 October 2008, the Commission sent the Portuguese Republic a letter of formal notice, in which it expressed the view that that Member State had failed to fulfil its obligations under Articles 18, 39 and 43 EC and Articles 28 and 31 of the EEA Agreement by taxing unrealised capital gains in the case of exchanges of shares where a natural person transfers his residence to another Member State or in the event of transfer to a company of assets and liabilities connected with the exercise by a natural person of an economic or professional activity if the company to which the assets and liabilities are transferred has its seat or registered office abroad.

8.

The Portuguese Republic responded to that letter of formal notice by a letter dated 15 May 2009 disputing the Commission’s position.

9.

Unconvinced by that response, on 3 November 2009 the Commission issued a reasoned opinion to the Portuguese Republic, in which it reaffirmed the position expressed in its letter of formal notice and called upon it to take the necessary steps to comply with that reasoned opinion within two months of receipt.

10.

The Portuguese Republic replied to that reasoned opinion by restating its position as expressed in its response to the letter of formal notice.

11.

Unsatisfied with the Portuguese Republic’s response, the Commission sent it a supplementary letter of formal notice, dated 8 October 2011, in which it referred to the updated version of Article 10(9)(a) of the CIRS, indicating that the position it expressed in the letter of formal notice and the reasoned opinion remained unchanged.

12.

Following the Portuguese Republic’s response to that supplementary letter of formal notice, in which that Member State continued to dispute its alleged failure to fulfil obligations, the Commission sent that Member State a further reasoned opinion in which it both reiterated its complaint that Articles 10 and 38 of the CIRS infringed Articles 21, 45 and 49 TFEU and Articles 28 and 31 of the EEA Agreement and invited the Member State to comply with that further reasoned opinion within the space of two months.

13.

Since the Portuguese Republic maintained, in its reply of 23 January 2013, that it considered the Commission’s position to be incorrect, the Commission decided to bring the present action.

14.

Written observations have been lodged by the Commission and the Portuguese Government. Those parties and the German Government presented oral arguments at the hearing on 16 March 2016.

15.

According to the Commission, the Portuguese Republic’s rights of defence have been fully respected, even though there are differences between the application and the documents in the administrative procedure, since those minor changes are the result of clarifications sent by the Portuguese Republic to the Commission during that administrative procedure, in particular in its response to the further reasoned opinion.

16.

As to the substance, the Commission refers to two situations: first, capital gains resulting from a share exchange and, secondly, the transfer to an undertaking of assets and liabilities relating to an activity carried on by a natural person.

17.

In the first case, the Commission considers that the Portuguese legislation (Article 10(9)(a) of the CIRS) penalises persons who decide to leave Portuguese territory, since they are treated differently from those who remain in the country. If the shareholder or partner is no longer resident in Portugal, the capital gains resulting from a share exchange form part of the taxable income for the calendar year in which the change of residence occurred. The amount of the capital gain corresponds to the difference between the actual value of the shares received and the value of the older shares at the time of their purchase.

18.

On the other hand, if the shareholder or partner continues to reside in Portugal, the value of the shares received is the same as that of those transferred. There is therefore no capital gain unless an additional monetary payment is made. If no such payment is made, the capital gains tax will be levied only if and when the shares received have been definitively divested.

19.

The Commission bases its position on the judgments of 11 March 2004, de Lasteyrie du Saillant (C‑9/02, EU:C:2004:138) and of 7 September 2006, N (C‑470/04, EU:C:2006:525), maintaining that the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), is not applicable since it was concerned with legal persons.

20.

In the second case, that of the transfer to an undertaking of assets and liabilities relating to an activity carried on by a natural person, the Commission considers that the Portuguese Republic ought to apply the same rule, whether or not the legal person to which the assets and liabilities are transferred has its seat or registered office in Portuguese territory.

21.

Under Article 38(1)(a) of the CIRS, the transfer to a company of assets and liabilities relating to the exercise of an economic or professional activity by a natural person in exchange for shares is exempt at the time of transfer if, among other conditions, the legal person to which the assets and the liabilities are transferred has its seat or registered office in Portugal. In that case, taxation occurs only when and if the legal person which received those assets and those liabilities has divested itself of them.

22.

However, such tax treatment does not apply if the legal person to which the assets and liabilities were transferred has its seat or registered office outside Portugal. In that case, capital gains tax is applicable on transfer.

23.

In the Commission’s view, that twofold difference in tax treatment is contrary to Article 49 TFEU and Article 31 of the EEA Agreement and goes beyond what is necessary to ensure the effectiveness of the tax system.

24.

While not formally pleading that the action is inadmissible, the Portuguese Republic considers that the changes made by the Commission in the application are not mere clarifications of the complaint but substantial amendments to the original subject matter of the dispute as set out in the original reasoned opinion and the further reasoned opinion. Those differences should result in the action being dismissed from the outset.

25.

As to the substance, the Portuguese Republic maintains that its legislation in no way affects the free movement of persons or the freedom of establishment.

26.

First, the rules concerning the taxation of capital gains resulting from a share exchange where the natural person transfers residence (Article 10 of the CIRS) could not be considered incompatible with the fundamental freedoms provided in Articles 21, 45 and 49 TFEU and Articles 28 and 31 of the EEA Agreement, given that they are duly justified by overriding reasons in the general interest concerning the coherence of the national tax system and the protection of its integrity.

27.

Secondly, it argues that deferment of taxation on the assets transferred until the time of realisation of the capital gain (Article 38 of the CIRS) guarantees respect for the principle of economic continuity, making it possible to ensure that the corresponding income is actually taxed, hence the rule making such deferment dependent on whether or not the entity to which the assets are transferred is a company with its seat or registered office in Portuguese territory.

28.

In the case of other entities, in the absence of harmonisation measures it would be impossible to ensure that the principle of continuity were respected or that the assets or liabilities transferred were subsequently taxed, since it would be the State of residence and not the Portuguese State that had competence in respect of those entities. The rules at issue are therefore consistent with the fiscal principle of territoriality.

29.

At the hearing, the Federal Republic of Germany intervened in support of the Portuguese Republic’s position. In essence, it takes the view that the two provisions at issue are justified since they seek to tax profits generated in Portuguese territory before the Portuguese Republic loses its power of taxation. In the Federal Republic of Germany’s view, the distinction between natural and legal persons has no foundation, in particular since it creates a risk that the principles laid down in the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), might be circumvented. In addition to that judgment, ( 2 ) it also relies on the judgments of 7 September 2006, N (C‑470/04, EU:C:2006:525) and of 12 July 2005, Schempp (C‑403/03, EU:C:2005:446). ( 3 )

30.

The purpose of the pre-litigation procedure is to give the Member State concerned an opportunity to comply with its obligations under EU law or to avail itself of its right to defend itself against the complaints made by the Commission.

31.

In the judgment of 22 June 1993, Commission v Denmark (C‑243/89, EU:C:1993:257, paragraph 13), the Court held that ‘in actions brought under Article 169 the pre-litigation stage defines the subject matter of the proceedings and this cannot subsequently be widened. The possibility for the State concerned to be able to submit its observations constitutes a fundamental guarantee under the Treaty and an essential requirement for the proper conduct of the procedure for establishing a Member State’s breach of obligations’. ( 4 )

32.

The Court also held, in the judgment of 9 April 2013, Commission v Ireland (C‑85/11, EU:C:2013:217, paragraph 17), that that requirement cannot go so far as to mean that in every case the formal statement of objections set out in the reasoned opinion and the form of order sought in the application must be exactly the same, provided that the subject matter of the proceedings as defined in the reasoned opinion has not been extended or altered. ( 5 )

33.

In my opinion, the Commission was in this case sufficiently precise in its definition of the alleged infringement and the reasons why it considered that the Portuguese Republic had failed to fulfil its obligations.

34.

It is clear that there has been no change to the subject matter of the dispute, as defined in the reasoned opinion and the further reasoned opinion, in so far as it concerns the conformity of Articles 10 and 38 of the CIRS with Articles 21, 45 and 49 TFEU and Articles 28 and 31 of the EEA Agreement.

35.

The changes made in the action merely clarify the content of the articles of the CIRS which the Commission had already identified during the pre-litigation procedure and explain the effects which are provided for therein and which the Commission considers to be contrary to EU law.

36.

Accordingly, the fact that, in its application, the Commission slightly amended the wording of some parts of its request does not support the conclusion that the substance of the request as originally formulated has been extended or in any way amended. The subject matter of the dispute has remained clearly circumscribed and defined from the beginning of the administrative procedure to the present litigation stage, not only in the reasons advanced by the Commission but also in the clear indication of the articles of the CIRS to which it objects. Furthermore, the Portuguese Republic has had the opportunity to fully exercise its rights under the infringement proceedings.

37.

It follows that the Commission has not extended or amended the subject matter of the action and has not therefore infringed Article 258 TFEU (ex Article 226 EC). Therefore, the case is in my view clearly admissible.

38.

This case concerns the compatibility with the fundamental freedoms enshrined in the FEU Treaty and the EEA Agreement of the exit taxation of capital gains realised by natural persons ( 6 ) and requires the examination of two questions:

39.

In a situation where the taxable person transfers his residence abroad, that provision provides for immediate taxation of the capital gains resulting from a share exchange. The difference between the actual value of the shares received and the value of the older shares at the time of their purchase must be included in the taxable income for the calendar year in which the change of residence took place.

40.

That taxation is different for taxable persons who maintain their place of residence in Portugal, because the value of the shares received is the same as that of the shares transferred unless an additional monetary payment is made, which will be taxable immediately. If no such payment is made, the capital gains tax will be levied only if and when the shares received have been definitively divested.

41.

The question is therefore whether that difference in tax treatment constitutes a restriction on the freedoms of movement enshrined in Articles 21, 45 and 49 TFEU and Articles 28 and 31 of the EEA Agreement and, if so, whether it may be justified.

42.

Regarding the objections based on infringement of the articles of the FEU Treaty, I would point out that Article 21 TFEU, which sets out in general terms the right of every EU citizen to move and reside freely within the territory of the Member States, finds specific expression in Article 45 TFEU with regard to freedom of movement for workers and in Article 49 TFEU with regard to freedom of establishment. ( 7 )

43.

Taken as a whole, those provisions are intended to facilitate the pursuit by citizens of the European Union of occupational activities of all kinds throughout the European Union and they preclude measures which might place those citizens at a disadvantage when they wish to pursue an economic activity in the territory of another Member State. ( 8 )

44.

It is settled case-law that all measures which prohibit, impede or render less attractive the exercise of the free movement of persons ( 9 ) must be regarded as restrictions on that freedom. ( 10 )

45.

In this case, Article 10(9)(a) of the CIRS is liable to restrict the exercise of that right since, at the very least, it has a deterrent effect on taxable persons resident in Portugal who wish to become established in another Member State.

46.

Under the national legislation at issue, a transfer of residence outside Portuguese territory entails immediate taxation of a taxable person’s capital gains resulting from a share exchange, that is to say the inclusion in the taxable income for the calendar year in which the change of residence took place of the difference between the actual value of the shares received and the value of the older shares at the time of their purchase, which is not the case for taxable persons who continue to reside in Portugal. In the latter case, the value of the shares transferred is in fact the same as that of those received and tax is chargeable only on any additional monetary payment.

47.

Furthermore, there is no reason to consider (and the Portuguese Republic has not advanced one) that those two types of taxable persons are not in a comparable situation. ( 11 )

48.

In as much as for one a capital gain is taxed whereas for the other the capital gain is at first deemed not to exist, that difference in treatment places persons who transfer their residence abroad at a disadvantage. ( 12 )

49.

It is very tempting (since this is an ‘exit tax’ or imposition à la sortie) to refer to the judgment of 11 March 2004, de Lasteyrie du Saillant (C‑9/02, EU:C:2004:138), in which the Court held that ‘the principle of freedom of establishment laid down by Article 52 of the EC Treaty (now, after amendment, Article 43 EC) must be interpreted as precluding a Member State from establishing, in order to prevent a risk of tax avoidance, a mechanism for taxing as yet unrealised increases in value such as that laid down by Article 167 bis of the French General Tax Code, where a taxpayer transfers his tax residence outside that State’.

50.

The Portuguese Republic maintains, however, that the situation covered by the provision at issue is different from that which the Court examined in the judgment of 11 March 2004, de Lasteyrie du Saillant (C‑9/02, EU:C:2004:138), since the present case concerns a tax on realised capital gains and not, as in that judgment, a tax on unrealised capital gains.

51.

In my opinion, that difference is not relevant, since the key point of the judgment of 11 March 2004, de Lasteyrie du Saillant (C‑9/02, EU:C:2004:138), was not whether the capital gains were unrealised or realised but the difference in the tax treatment of capital gains according to whether or not the taxable person concerned left the national territory.

52.

Furthermore, while the Court did indeed rule in the judgment of 11 March 2004, de Lasteyrie du Saillant (C‑9/02, EU:C:2004:138), that the French legislation concerning the taxation of as yet unrealised capital gains where the taxable person transfers his tax residence to another Member State constituted a restriction on the freedom of establishment, it in no way ruled out the possibility of there also being a restriction on fundamental freedoms in other circumstances. Moreover, the Court has already held there to be a restriction on the freedom of establishment in cases involving the exit taxation of capital gains actually realised by taxable persons. ( 13 )

53.

I think the distinction made by Article 10 of the CIRS creates a restriction that is in principle incompatible with Articles 21, 45 and 49 TFEU.

54.

According to settled case-law, national measures which are liable to hinder or make less attractive the exercise of fundamental freedoms guaranteed by the Treaty may nevertheless be allowed if they pursue an objective in the public interest, are appropriate to ensuring the attainment of that objective and do not go beyond what is necessary to attain the objective pursued. ( 14 )

55.

Among the overriding reasons in the general interest that the Court has already allowed in connection with national tax legislation restricting a fundamental freedom guaranteed by the Treaty, the Portuguese Republic relies on the coherence of the tax system and the need to maintain a balanced allocation of powers of taxation between Member States in accordance with the principle of territoriality. ( 15 )

56.

It should be noted that the burden of proof in that regard lies with the Portuguese Republic. ( 16 )

57.

As regards justifying its legislation by the need to preserve the coherence of its national tax system, the Portuguese Republic argues in particular that that legislation is essential for ensuring that coherence, given that the tax advantage granted in the form of deferred taxation ends when later taxation is no longer possible, as happens when the taxable person concerned ceases to be resident. According to the Portuguese Republic, the three conditions for which the Court has already accepted fiscal coherence as a justification for a restriction are satisfied: (i) there is a direct link between the granting of a tax advantage and the offsetting of that advantage by a particular tax levy; (ii) the deduction and the levy relate to the same taxable event; and (iii) they concern the same taxable person.

58.

In that regard, the Court has already conceded that the need to preserve the coherence of a tax system could justify a restriction on the exercise of the freedoms of movement guaranteed by the Treaty ( 17 ) and has required that, for the same taxable person and the same tax, the tax system in question establish a direct link between the tax advantage concerned and a particular tax levy. ( 18 )

59.

In that regard, it must be observed that the Portuguese Republic merely relies on the need to preserve the coherence of the tax system, without establishing the existence in the national legislation at issue of a direct link between, on the one hand, the tax advantage and, on the other hand, the offsetting of that advantage by any tax levy. It is not even certain that there is ever a levy on the beneficiaries of the advantage in the future.

60.

As regards taxable persons who maintain their residence in Portuguese territory, I am of the opinion that it is clear from Article 10(8) of the CIRS that so long as they continue to value the shares received in return for other shares at the same level for tax purposes, they can always claim the exemption provided for in that provision, making the recovery of the tax from them no more than a future possibility. ( 19 )

61.

Moreover, even if a tax is levied, it may have no connection with the advantage and, in any case, the provision of the CIRS in question does not state clearly from what point in time the tax may possibly be recovered.

62.

As regards the difficulty of recovering a tax payable by a non-resident taxable person (which is concerned more with the effectiveness of fiscal supervision than with coherence), the Portuguese Republic has not in its observations convincingly refuted the Commission’s argument that measures less prejudicial to fundamental freedoms would be possible given the directives that exist on cooperation between national administrations in the field of taxation and on mutual assistance in the recovery of claims relating to taxes. ( 20 )

63.

Regarding the justification based on a balanced allocation of powers of taxation between Member States, the Court has already accepted this in a number of judgments involving the exit taxation of capital gains. ( 21 ) I shall briefly summarise the case-law in question before applying it to the present case.

Balanced allocation of powers of taxation: principles

64.

The first judgments recognising the necessity of ensuring a balanced allocation of powers of taxation in respect of exit taxes are the judgments of 7 September 2006, N (C‑470/04, EU:C:2006:525), concerning the transfer to another Member State of the tax residence of a natural person holding shares in a company and of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), concerning the transfer to another Member State of the seat of a company.

65.

In the name of the necessity of ensuring a balanced allocation of powers of taxation, the Court, citing paragraph 46 of the judgment of 7 September 2006, N (C‑470/04, EU:C:2006:525), held in the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 46), that ‘in accordance with the principle of fiscal territoriality linked to a temporal component, namely the taxpayer’s residence for tax purposes within national territory during the period in which the capital gains arise, a Member State is entitled to charge tax on those gains at the time when the taxpayer leaves the country … Such a measure is intended to prevent situations capable of jeopardising the right of the Member State of origin to exercise its powers of taxation in relation to activities carried on in its territory, and may therefore be justified on grounds connected with the preservation of the allocation of powers of taxation between the Member States’.

66.

In that context, the Court also considered that a Member State was entitled to tax the economic value generated by an unrealised capital gain in its territory even if the gain had not yet actually been realised (judgment of 29 November 2011, National Grid Indus, C‑371/10, EU:C:2011:785, paragraph 49), which implies that a Member State clearly has the right to tax the economic value generated by a capital gain realised on its territory.

67.

Other subsequent judgments have confirmed those principles, in particular the judgments of 6 September 2012, Commission v Portugal (C‑38/10, EU:C:2012:521); of 18 July 2013, Commission v Denmark (C‑261/11, EU:C:2013:480); of 31 January 2013, Commission v Netherlands (C‑301/11, EU:C:2013:47); of 23 January 2014, DMC (C‑164/12, EU:C:2014:20); of 16 April 2015, Commission v Germany (C‑591/13, EU:C:2015:230); and of 21 May 2015, Verder LabTec (C‑657/13, EU:C:2015:331).

Balanced allocation of powers of taxation: proportionality

68.

In order to assess the proportionality of legislation which may in principle be justified by the necessity of ensuring a balanced allocation of powers of taxation, the Court held in the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 51), that a distinction must be drawn between the establishment of the amount of tax and the recovery of the tax.

69.

Moreover, according to the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 52), ‘establishing the amount of tax at the time of the transfer of a company’s place of effective management complies with the principle of proportionality, having regard to the objective of the national legislation at issue in the main proceedings, namely to subject to tax in the Member State of origin the capital gains which arose within the ambit of that State’s power of taxation. It is proportionate for that Member State, for the purpose of safeguarding the exercise of its powers of taxation, to determine the tax due on the unrealised capital gains that have arisen in its territory at the time when its power of taxation in respect of the company in question ceases to exist, in the present case the time of the transfer of the company’s place of effective management to another Member State’.

70.

On the other hand, the immediate recovery of the tax was held to be disproportionate, since there were measures available that were less prejudicial to freedom of establishment than immediate taxation.

71.

In that regard, it is clear from the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:781, paragraph 73), that the taxable person should be offered a choice between, first, immediate payment of the amount of tax on the unrealised capital gains in question and, secondly, deferred payment of the amount of tax, possibly together with interest in accordance with the applicable national legislation. The Court further held in the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:781, paragraph 74), that ‘account should also be taken of the risk of non-recovery of the tax, which increases with the passage of time. That risk may be taken into account by the Member State in question, in its national legislation applicable to deferred payments of tax debts, by measures such as the provision of a bank guarantee’.

72.

Subsequent case-law continued to follow those principles and to clarify them from the point of view of both freedom of establishment and the free movement of capital. ( 22 )

73.

The Commission rejects the Portuguese Republic’s argument based on the necessity of ensuring a balanced allocation of the powers of taxation and on the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), on the grounds that that judgment ‘sets out for the first time the rules for exit taxation which may be compatible with EU law, but only for undertakings. In reality, the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraphs 54 to 58), is not concerned with natural persons, the relevant case-law concerning them being the judgments of 11 March 2004, de Lasteyrie du Saillant (C‑9/02, EU:C:2004:138), and of 7 September 2006, N (C‑470/04, EU:C:2006:525)’. ( 23 )

74.

I disagree with that approach for the following reasons.

75.

The judgment of 11 March 2004, de Lasteyrie du Saillant (C‑9/02, EU:C:2004:138), was handed down before the justification based on a balanced allocation of the powers of taxation appeared in the judgment of 13 December 2005, Marks & Spencer (C‑446/03, EU:C:2005:763). It is not therefore relevant for rejecting the possibility that justification based on that necessity might be admissible in the case of taxation of capital gains realised by natural persons, in particular since the judgment of 7 September 2006, N (C‑470/04, EU:C:2006:525), which the Commission then mentions in paragraph 42 of its application, envisages that possibility and the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), draws on the judgment of 7 September 2006, N (C‑470/04, EU:C:2006:525, paragraph 46), to affirm the right of a Member State ‘to charge tax on those gains at the time when the taxpayer leaves the country’, such a measure being intended ‘to prevent situations capable of jeopardising the right of the Member State of origin to exercise its powers of taxation in relation to activities carried on in its territory, and may therefore be justified on grounds connected with the preservation of the allocation of powers of taxation between the Member States’.

76.

Consequently, in the light of all the Court’s case-law on the exit taxation of capital gains (whether realised or unrealised), I have no hesitation in taking the view that the Portuguese legislation is justified by the objective of ensuring a balanced allocation of powers of taxation between Member States in accordance with the principle of fiscal territoriality linked to a temporal component and that the Portuguese Republic is entitled to tax capital gains arising while the taxable person was resident in its territory and to establish the amount of tax at the time he leaves the country.

77.

I do however consider that national legislation such as that at issue, which provides for immediate recovery of tax in all cases, goes beyond what is necessary to achieve the objective relating to the necessity of preserving a balanced allocation of powers of taxation between Member States, and is therefore disproportionate, since measures less prejudicial to freedom of establishment than such immediate taxation are available.

78.

The taxable person is not in fact offered any choice between, on the one hand, immediate payment of the amount of capital gains tax at issue and, on the other hand, deferred payment of that amount of tax or even payment of that tax in instalments.

79.

Moreover, even if those factors are of no consequence in this case, aside from the five years which separate them I can see only two differences between the judgments of 7 September 2006, N (C‑470/04, EU:C:2006:525), and of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), of which only one may be related to the fact that the former judgment concerns a natural person and the latter a legal person.

80.

The first difference concerns whether or not reductions in value capable of arising after the transfer are to be taken into account. In the judgment of 7 September 2006, N (C‑470/04, EU:C:2006:525, paragraph 54), the Court held that only a tax system which took full account of reductions in value capable of arising after the transfer of residence by the taxpayer concerned could be regarded as proportionate, unless such reductions had already been taken into account in the host Member State. However, in the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785), the Court held that since the profits of a company which transfers its seat are, after the transfer, taxed exclusively in the host Member State, in accordance with the principle of fiscal territoriality linked to a temporal component, it is also for that State, for reasons relating to the symmetry between the right to tax profits and the possibility of deducting losses, to take account in its tax system of fluctuations in the value of the assets of that company which occur after the date on which the Member State of origin loses all fiscal connection with the company (judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 58).

81.

Aware of that difference, the Court justified it in its judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 57), by pointing out that ‘the assets of a company [were] assigned directly to economic activities … intended to produce a profit. Moreover, the extent of a company’s taxable profits is partly influenced by the valuation of its assets in the balance sheet, in so far as depreciation reduces the basis of taxation’.

82.

I note that in no subsequent judgment has the Court adopted the reasoning followed in the judgment of 7 September 2006, N (C‑470/04, EU:C:2006:525), or based its reasoning on the distinction between natural persons and legal persons. ( 24 )

83.

The second difference between the two judgments lies in the possibility of asking for a bank quarantee, which is permitted in the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 74), and clarified in the judgment of 23 January 2014, DMC (C‑164/12, EU:C:2014:20, paragraph 66), and subject to a prior assessment of the risk of non-recovery, a possibility which the Court had ruled out in its judgment of 7 September 2006, N (C‑470/04, EU:C:2006:525, paragraph 51), as being disproportionate as regards the need to ensure regularity of fiscal supervision. In view of the objective of the provision of a bank guarantee, as set forth in the judgment of 29 November 2011, National Grid Indus (C‑371/10, EU:C:2011:785, paragraph 74), namely that ‘account should also be taken of the risk of non-recovery of the tax, which increases with the passage of time’, I do not see that there is now anything to prevent a bank guarantee being provided where natural persons are concerned.

84.

Even though, as I have indicated in footnote 15 to this Opinion, the Portuguese Republic mentioned that justification only once in its defence ( 25 ) without developing it further, I shall devote to it the following considerations.

85.

While the Court has already accepted the principle of a justification based on the need to ensure the effectiveness of fiscal supervision, the Court has often held that, apart from the obligations that Member States might impose on taxable persons, EU law already provided effective mechanisms for achieving that objective without restricting the fundamental freedoms of movement.

86.

First, under Directive 2011/16 the competent authority of a Member State may always request the competent authority of another Member State to send it all the information likely to be relevant for its administration and the application of its domestic legislation concerning, inter alia, the taxation of income (including therefore information concerning income taxes payable by a taxable person resident in another Member State).

87.

Secondly, Directive 2010/24 provides for assistance in the recovery of taxes, including, of course, taxes on income and wealth (cf. Article 2(1)(a)) such as personal income tax.

88.

In conclusion, I consider that the Portuguese legislation at issue is incompatible with Articles 21, 45 and 49 TFEU.

89.

The Commission also asserts that, in adopting and maintaining in force Article 10(9)(a) of the CIRS, the Portuguese Republic has failed to fulfil its obligations under Articles 28 and 31 of the EEA Agreement, concerning freedom of movement for workers and freedom of establishment respectively.

90.

It should first be observed that those provisions of the EEA Agreement are similar to the provisions of Articles 45 and 49 TFEU.

91.

However, the case-law concerning restrictions on the exercise of the freedoms of movement within the Union cannot be transposed in its entirety to the freedoms guaranteed by the EEA Agreement, since those freedoms are exercised in a different legal context, ( 26 ) in particular as regards the justification for restrictions based on the need to ensure the effectiveness of fiscal supervision and to prevent tax evasion and avoidance. ( 27 )

92.

It must be observed in that regard that the framework of cooperation between the competent authorities of the Member States, originally established by Directive 77/799/EEC ( 28 ) and currently appearing, inter alia, in Directive 2011/16 and Directive 2010/24, does not exist between those authorities and the competent authorities of a non-Member State where that latter State has not entered into any undertaking of mutual assistance. ( 29 )

93.

In those circumstances, the obligation on taxable persons who transfer their residence abroad to include capital gains in the taxable amount for the last fiscal year for which they were considered resident taxpayers must be considered not to go beyond what is necessary to achieve the objective of guaranteeing the effectiveness of fiscal supervision and preventing tax avoidance in so far as it applies to taxable persons residing in States parties to the EEA Agreement which are not Member States of the European Union and have not concluded an agreement for administrative cooperation and mutual assistance in tax matters with the Portuguese Republic. ( 30 )

94.

It was only at the hearing that the Commission pointed out in that connection, without being contradicted by the Portuguese Republic, that such an agreement for administrative cooperation and mutual assistance existed between the Kingdom of Norway and the Portuguese Republic, but that there was no agreement of that kind between the Portuguese Republic and the Principality of Liechtenstein.

95.

The Commission considered that while the agreement with the Republic of Iceland covered the exchange of information but not mutual assistance for the recovery of tax, instruments ‘very similar’ to those provided for by EU Directives were to be found in the Convention developed by the Organisation for Economic Co-operation and Development (OECD) and the Council of Europe, signed in Strasbourg on 25 January 1988, on mutual administrative assistance in tax matters ( 31 ) and ratified by the Portuguese Republic, the Republic of Iceland and the Kingdom of Norway. The Principality of Liechtenstein has done no more than sign that Convention.

96.

Since the Portuguese Republic has disputed the Commission’s assertion that the instruments provided by the EU directives and that Convention are sufficiently alike, I propose that that aspect should be held not to have been adequately established by the Commission; in any case, that aspect was not mentioned (still less analysed by the Commission) in the written procedure and was raised only at a very late stage at the hearing. Neither the Republic of Iceland nor the Principality of Liechtenstein should therefore be considered to have an agreement with the Portuguese Republic for administrative cooperation and mutual assistance in tax matters, as the Court’s case-law requires.

97.

That provision, entitled ‘Contribution of assets to form company capital’, provides that ‘no taxable result shall be calculated concerning the formation of company capital resulting from the transfer by a natural person of all the assets used in the exercise of a business or professional activity’ if ‘the entity to which the assets are transferred is a company and has its seat and registered office in Portuguese territory’ (paragraph 1(a)).

98.

In that case, taxation occurs only if the legal person receiving the assets and liabilities at that time has divested itself of them.

99.

On the other hand, such tax treatment does not apply if the legal person to which the assets and liabilities have been transferred has its seat or registered office outside Portugal. In that case, the capital gains are therefore taxed immediately.

100.

That difference in tax treatment based on whether or not the company which receives the assets and liabilities is located in Portugal amounts to a restriction on the freedom of establishment since it applies to transferors and transferees who are in comparable situations.

101.

In fact, the exclusion of an advantage, if only a cash-flow advantage, in a cross-border situation when that advantage is granted in an equivalent situation in the national territory constitutes a restriction on the freedom of establishment unless that exclusion is explained by an objective difference in situation.

102.

Moreover, the Portuguese Republic does not seriously dispute the existence of a restriction, focusing its defence on the argument, based on respect for the principle of economic continuity, ( 32 ) that it is justified by the need to ensure taxation of the corresponding income in accordance with the principle of territoriality. ( 33 )

103.

The Portuguese Republic refers to the specific consequences of its legislation, which requires the assets and liabilities transferred to be entered in the accounts of the company to which they were transferred, in particular for the purpose of determining the results corresponding to the goods constituting the assets transferred, which are calculated as though no transfer had taken place. The Portuguese Republic infers that, in the case of a transfer to a company whose seat or registered office is outside Portugal, it is not possible for it to tax the transferred assets a posteriori, since the relevant fiscal competence no longer lies with the Portuguese Republic but with the State of residence of the legal person which received those assets.

104.

In the present case, the Commission does not dispute that, where assets and liabilities are transferred to a company whose seat or registered office is outside Portugal, their entry in the accounts is governed by the rules in force in the country where that company has its seat or registered office. It agrees that the national legislation of the Portuguese Republic and of every other Member State must lay down the detailed rules governing the treatment of such situations, including as regards entry in accounting records.

105.

Like the Commission, I think that ‘the answer to the question of the taxation of capital gains occurring at different times differs according to whether the company receiving the transfer at issue has its seat or registered office in Portugal or another country. The provision of specific accounting rules to address such situations should not result in a difference in capital gains tax treatment, as is the case with the Portuguese legislation in force’. ( 34 )

106.

The Portuguese Republic could, in particular, use Directive 2011/16 to request regular information from the competent authorities of the country where the seat or registered office of the legal person to which the assets and liabilities have been transferred is located, in order to check whether it still holds them. If not, it would then, and only then, be necessary to determine the amount of tax on any capital gains payable, as for legal persons receiving assets and liabilities in exchange for shares but having their seat or registered office in Portugal.

107.

Moreover, Directive 2010/24 also establishes mechanisms for cooperation in the field of taxation and for mutual assistance in the recovery of, inter alia, tax claims, which are entirely relevant in situations like those in the present case, where the tax on capital gains payable, if any, has not been paid.

108.

The fact that, following that transfer, competence for the taxation of the assets and liabilities transferred and for their inclusion in accounting records falls to the Member State where the transferee company is resident cannot justify the measure at issue, since the Portuguese Republic is able to establish definitively the amount of tax payable at the time of transfer resulting from the capital gains generated in Portuguese territory before the transfer.

109.

It follows that Article 38 of the CIRS, like Article 10 of the CIRS, goes beyond what is necessary to ensure the effectiveness of the tax system and is therefore incompatible with Articles 21, 45 and 49 TFEU. That provision is also incompatible with Articles 28 and 31 of the EEA Agreement, in so far as it concerns taxable persons resident in States parties to the EEA Agreement which are not Member States of the European Union but which have an agreement with the Portuguese Republic for administrative cooperation and mutual assistance in tax matters. ( 35 )

110.

Under Article 138(1) of the Rules of Procedure of the Court, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the other party’s pleadings. Since the Commission has requested that the Portuguese Republic be ordered to pay the costs and the latter is for the most part unsuccessful, it must be ordered to pay the costs. In accordance with Article 140 of the Rules of Procedure of the Court, the Federal Republic of Germany is ordered to bear its own costs.

111.

In the light of the foregoing, I propose that the Court should: