The case concerned the tax treatment of a €5.3 million capital loss incurred by “A Share-loss S.A.” on the transfer of shares to a related group entity. The loss had been disallowed for tax deduction by the tax authorities under Article 23(7) of the Portuguese Corporate Income Tax Code (IRC), an anti-avoidance provision which prohibits the deductibility of capital losses from share transfers between related parties.
contested this rule on constitutional grounds, arguing that Article 23(7) violates three constitutional principles: (1) taxation according to actual profit, (2) proportionality , and (3) equality. It claimed that the rule acts as an irrebuttable presumption that all such transactions are abusive, even if conducted at market value and for valid economic reasons, and that it unfairly penalizes intra-group transactions compared to those with unrelated parties.
Judgment
The Constitutional Court dismissed the appeal of “A Share-loss S.A.” and upheld the constitutionality of Article 23(7), confirming that the automatic non-deductibility of capital losses from share transfers between related parties does not violate the Constitution.
The Court held that Article 23(7) is a legitimate, specific anti-abuse rule aimed at preventing aggressive tax planning through the artificial shifting of losses within corporate groups. The Court emphasized that the rule targets the transaction itself—not the price or intention—because intra-group transactions inherently carry a high risk of manipulation due to the shared business strategy and legal structure of corporate groups.
The Court rejected the claim that the provision constituted an unconstitutional irrebuttable presumption. It clarified that the rule does not establish a presumed tax fact but instead imposes a legal consequence: the exclusion of capital losses from such intra-group share transfers. It further concluded that this exclusion does not violate the principle of taxation on actual profits, because the legislator has discretion to limit cost deductibility when justified by anti-abuse concerns.
In terms of proportionality, the Court found that the legislature’s choice of a categorical rule—rather than relying on case-by-case anti-abuse procedures or transfer pricing adjustments—was not manifestly excessive given the regulatory aim. The rule was deemed necessary to prevent tax evasion and practically enforceable by the tax authorities.
As to equality, the Court held that the different tax treatment of transactions between related and unrelated entities was objectively justified, due to the heightened risk of manipulation in intra-group transfers. Therefore, the differentiation did not breach the constitutional guarantee of equal treatment.
Click here for English translation.
Click here for other translation