Euro Tax Flash from KPMG's EU Tax Centre

On June 4, 2026, the Court of Justice of the European Union gave its decision in case C-837/24 regarding the comparability of the Portuguese municipal real estate transfer tax (IMT) with Directive 2008/7/EC concerning indirect taxes on the raising of capital.

The Court clarified that the Directive prohibits Member States from applying indirect taxes on the contribution in kind of shares in companies owning immovable property upon the formation of a capital company, where that contribution qualifies as a restructuring operation within the meaning of the Directive.

The Capital Duties Directive

Directive 2008/7/EC concerning indirect taxes on the raising of capital (the “Capital Duties Directive” or the “Directive”) establishes a harmonized EU framework governing the taxation of transactions involving the raising of capital by companies. Under the Directive, Member States are prohibited from imposing indirect taxes on specific transactions, including contributions of capital (Article5(1)(a)) and certain reorganizations (Article5(1)(e)).

Under Article 6(1) of the Directive, Member States are nevertheless allowed to levy certain taxes, including: duties on the transfer of securities (Article 6(1)(a)), transfer duties – including land registration taxes, on the transfer of businesses or immovable property to a capital company (Article 6(1)(b)), and transfer duties on assets transferred to a capital company where the consideration consists of something other than shares in that company (Article 6(1)(c)).

Facts of the case

The plaintiff was a public limited company incorporated under Portuguese law and established through contributions in kind, made by its sole shareholder. Those contributions consisted of shareholdings in several other companies, including a limited liability company whose assets included two immovable properties. As a result of the asset contribution transaction related to its formation, the plaintiff acquired 100 percent of the shares in the real estate company and, consequently, indirect ownership of the two immovable properties.

Under Portuguese law, real estate transfer tax (Imposto Municipal sobre Transmissões Onerosas de Imóveis – IMT) is levied on transfers of immovable property for consideration. Its scope extends beyond direct transfers of real estate and, in certain circumstances, also captures indirect transfers through the acquisition of shares in companies holding immovable property. For IMT purposes, such share acquisitions are treated as transfers of the underlying real estate. In these cases, the IMT tax base is determined by reference to the value of the underlying property.

On that basis, and following a tax audit of the plaintiff’s shareholder, the Portuguese tax authorities took the view that the contribution in kind of shares in a real estate owning companies to the share capital of the plaintiff was subject to Portuguese IMT. The plaintiff challenged this position before the Portuguese Tax Arbitration Tribunal (Centro de Arbitragem Administrativa – CAAD), arguing that the relevant IMT provisions were in breach of the Capital Duties Directive.

The Tax Arbitration Tribunal had doubts as to whether the Portuguese rules were compliant with the Directive and therefore referred several questions to the CJEU for a preliminary ruling, including:

• whether the Portuguese IMT applied to the incorporation of the company constitutes an indirect tax,
• whether the transaction that resulted in the formation of the plaintiff falls within the scope of the Capital Duties Directive,
• whether the Directive precludes the imposition of such a tax or whether it could nevertheless fall within one of the Directive's exceptions, in particular those relating to duties on the transfer of securities or assets.

On February 12, 2026, Advocate General (AG) Juliane Kokott recommended that the Court find that Portuguese IMT levied on transfers for consideration of shares in companies owning immovable property does not constitute an indirect tax on the raising of capital within the meaning of the Directive and is therefore not prohibited by that Directive. 

Deviating from the AG’s opinion, the CJEU ruled that the Directive precludes national legislation imposing a tax on a restructuring operation that involves the formation of a capital company whose capital is fully paid up through contributions of shares in companies holding immovable property.

Analysis of whether the disputed transaction falls within the scope of the Directive

The Court recalled that the Capital Duty Directive fully harmonizes the circumstances in which Member States may impose indirect taxes on the raising of capital. As a result, indirect taxes may be levied only in the limited situations expressly permitted by the Directive. The Capital Duties Directive prohibits Member States from imposing any form of indirect tax on the formation of capital companies resulting from certain transactions, including capital contributions and certain restructuring operations. The Court then noted that, in the case at hand, the formation of the plaintiff qualifies as a restructuring operation that falls within the scope of the Directive¹.

Analysis of whether the tax under dispute represents an “indirect tax”

Regarding the concept of “indirect tax”, the Court recalled that (as consistently held in its case-law²), given the aim of the Directive, this notion must be interpreted broadly so that the tax prohibition laid down in Article 5 of the Directive is fully effective in practice. Conversely, the Directive does not prevent Member States from imposing direct taxes.

The Court then noted that whether a levy is direct or indirect must be determined under EU law by reference to its objective characteristics, rather than its classification under national law. In the Court’s view, the Portuguese IMT, as applied in this context, is not a direct tax because it is not imposed on the collection of income or the possession of assets by a taxpayer, but instead is levied on the transfer of shares in companies holding immovable property. Therefore, in the CJEU’s view, the IMT constitutes an indirect tax that falls within the scope of the prohibition laid down by the Directive.

The Court also rejected the arguments of the Portuguese and German Governments that the taxable event was the economic transfer of ownership of immovable property rather than the share transfer itself. In this regard, the CJEU held that the prohibition laid down in Article 5(1) of the Directive is not limited to taxes formally levied on capital contributions or restructurings in the scope of the Directive, but also extends to levies that are equivalent in effect.

Analysis of whether the IMT falls within the permitted exceptions under Article 6

The Court held that the IMT does not fall within any of the exceptions provided for in the Directive. Referring to its settled case-law, the CJEU recalled that Article 6(1)(a), as a derogating provision, must be interpreted strictly and applies only to independent transfers of securities, not to transactions that are merely incidental to a capital contribution or restructuring falling within Article 5 of the Directive. On that basis, the Court concluded that the transaction at issue did not constitute an independent transfer of securities, but was instead an integral part of a restructuring operation.

The Court further noted that it was undisputed that no legal transfer of ownership of the immovable property had taken place, as the assets remained with the original company whose shares were contributed. It also rejected the German Government’s plea that the exception could still apply on the basis of an alleged economic transfer of the property to the plaintiff. In the Court’s view, the intra-group restructuring did not result in any transfer – legal or economic, of ownership of the immovable property.

The prevention of tax evasion and avoidance

The CJEU also rejected Portugal’s plea that the application of IMT could be justified by the objective of combating tax evasion and tax avoidance. The Court acknowledged that, although the Directive does not contain specific anti-abuse provisions, Member States may rely on general principles of EU law to address fraud or abusive practices. However, consistent with its settled case-law, such reliance cannot be based on general presumptions of fraud or abuse.

In this case, the Court noted that the IMT applies automatically to all transfers of shares in companies holding immovable property, irrespective of whether there is concrete evidence of the existence of a fraudulent or abusive practice. Consequently, the CJEU held that the measure under dispute goes beyond what is necessary to achieve the objective of preventing tax avoidance and fraud, and is not consistent with the principle of proportionality.

In conclusion, the Court held that the Directive precludes a Member State from levying a tax such as the Portuguese IMT on the contribution in kind of shares in companies owning immovable property, where a company is created and its capital is entirely paid up by contributing shares in companies owning immovable property within the same group.

The CJEU’s judgment on the Portuguese IMT is likely to also be relevant for Member States that levy real estate transfer taxes and apply look-through rules to companies holding immovable property. The ruling confirms that the Capital Duties Directive generally precludes the imposition of such taxes on transfers of shares in real estate companies carried out in the context of capital contributions and restructuring operations involving contributions in kind.

As noted in the Advocate General’s Opinion, Germany is one such Member State. In a currently pending case, the Federal Fiscal Court may soon need to take the CJEU judgement into account when deciding whether German real estate transfer tax regulations are in breach of the Capital Duties Directive (II R 8/23). Notably, in earlier cases from 2007 (II R 65/06) and 2024 (II R 36/21), the German Federal Fiscal Court ruled against the taxpayer on the compatibility of German real estate transfer tax with the Capital Duties Directive and declined to refer the matter to the CJEU for a preliminary ruling. See a previous tax alert prepared by KPMG in Germany.

The Netherlands is also a jurisdiction that could be affected – for more details please refer to the tax alert prepared by KPMG in the Netherlands.

Austria is another Member State where the CJEU’s reasoning is likely to have an impact. Since July 1, 2025, Austrian real estate transfer tax applies to direct and indirect share consolidations in real estate companies, even where the underlying transactions qualify as capital contributions or restructurings within the meaning of the Capital Duties Directive. For further details please refer to tax alert prepared by KPMG in Austria.

It should be noted that, since other potentially impacted Member States were not parties to the proceedings, the judgment does not have direct operative effect requiring them to amend their legislation. Accordingly, it is not yet clear whether jurisdictions with comparable rules will take steps to align their real estate transfer tax regimes with the Capital Duties Directive in light of the Court’s ruling.

However, the CJEU’s interpretation of EU law is binding on all national courts – and, as a result, national courts in other Member States must take the interpretation at hand into account when assessing the compatibility of similar measures with EU law. Where a conflict arises, they are required, under the principle of primacy of EU law, to disapply any conflicting national legislation.

Should you have any queries, please do not hesitate to contact KPMG’s EU Tax Centre or, as appropriate, your local KPMG tax advisor.