Judgement: C‑312/22. – FL | It violates EU law if a Member State classifies interest income from foreign investments based on whether it was paid by a domestic or foreign bank.
In the underlying case, a Portuguese individual held money in Swiss securities. The interest on these securities was paid by a Swiss bank.
The Portuguese tax authority classified the income from interest as “other income” within the consolidated tax base, which, due to progressive taxation, resulted in a significant portion of the individual’s income falling under the highest 40% tax rate.
The individual contested the tax authority’s determination because, under Portuguese law, if the interest on the same Swiss securities had been paid by a Portuguese bank, only a 20% withholding tax would apply (besides, the interest income would be exempt from tax in Switzerland). According to the European Court of Justice, such a discriminatory rule violates the principle of the free movement of capital. Member States may exceptionally justify unequal treatment with a “overriding reasons in the public interest”, but the Portuguese government did not invoke such a reason in this case.