Taxing Times for Europe

Taxing Times for Europe


The European Union may have come up with a number of annoyingly pernickety directives to counteract tax avoidance, and in so doing limit personal choice when it comes to where to invest overseas and offshore, but it’s not just the likes of the average expatriate who has been targeted by the EU – oh no, there are taxing times in Europe for the likes of Spain and Portugal too!

The European Commission, which oversees the smooth running of all things fair and just across the 27 EU member states, has taken direct and decisive action against Portugal already over its property taxes, and now it’s targeting Spain, Romania, Bulgaria and Portugal over the taxation of dividends.

If you owned a property in Portugal but were not Portuguese, it used to be a fact that you were treated disadvantageously and differently to Portuguese citizens when you sold your property. What’s more, you used to be treated unfairly if you attempted to reinvest your capital gains in real estate elsewhere in Europe. Then along came the European Commission and they decided that Portugal needed to play fairly.

No longer do you have to reinvest gains made from the sale of your property in Portugal to benefit from a particular tax break that the nation offers – now you can reinvest in real estate in any other EU member state and still receive the same benefit. Portugal may now remove the tax break altogether, but at least we’ll all be treated the same way!

Additionally, the European Commission determined that the way Portugal treated non-resident property owners when it came to capital gains was unfair. Residents enjoyed a tax break, non-residents did not. The European Court of Justice handed down a ruling that effectively told Portugal to stop being so unfair and also breaching EU rules and the basic code of conduct of fairness that all EU member states really need to have at their core.

Portugal is back in the firing line again though – they really don’t seem to have a good handle on this whole fairness and equality thing. But hey, they are not alone. Joining them in a case that relates to the taxation of dividends are Spain, Romania and Bulgaria. We can forgive the latter two as they are new members and they need time to adjust perhaps but Spain and Portugal really should know better by now. So, they have been given some ‘reasoned opinion,’ which is basically the second stage in infringement proceedings by the EC.

The problem relates to the fact that in Spain and Portugal, dividends paid to foreign pension funds are taxed more heavily than dividends paid to domestic pension funds – ah, that old ‘one rule for us and another for them’ chestnut.

Bulgaria is under fire because inbound dividends paid to companies may be taxed more heavily than domestic dividends for example, and Romania is being chastised because outbound dividends paid to companies may be taxed more heavily than domestic dividends.

It’s nice to see that it’s not just the lowly individual expatriate whose life is made more difficult on a daily basis by the inner workings of the European Union as well as the European Commission’s bid for balance and fairness in all things European.