CJEU Rules Portuguese Banking Solidarity Tax Breaches Freedom of Establishment
Two significant EU court decisions issued in late 2023 are reshaping how multinationals and their advisers think about cross-border branch taxation and the enforceability of the EU Minimum Tax Directive. The Court of Justice of the European Union (CJEU) found that Portugal's additional solidarity tax on the banking sector unlawfully disadvantages branches of non-resident credit institutions, while the General Court separately dismissed a Dutch company's attempt to annul the EU Minimum Tax Directive. Accounting firms and CFOs with EU exposure need to understand both outcomes now.
The Portuguese ASSB: What the CJEU Decided
Background to the Solidarity Tax
Portugal introduced the Adicional de Solidariedade sobre o Sector Bancário (ASSB) in July 2020. The levy applies to the adjusted liabilities and the notional value of off-balance-sheet derivative instruments held by credit institutions. Both Portuguese-resident credit institutions and Portuguese branches of credit institutions resident in other EU Member States fall within scope.
The taxable base can be reduced by deducting own funds and comparable debt instruments. That deduction, however, sits at the heart of the dispute: entities without legal personality, which includes branches, cannot issue own funds under Portuguese law. The practical result is that branches of non-resident credit institutions are unable to claim the same deduction as locally incorporated institutions or locally incorporated subsidiaries of foreign groups.
The Referral and the Court's Analysis
A Portuguese branch of a French credit institution challenged the ASSB on two grounds. First, it argued the tax conflicts with Directive 2014/59/EU, the Bank Recovery and Resolution Directive (BRRD). Second, it argued the asymmetric taxable base constitutes a restriction on the freedom of establishment under EU primary law.
The CJEU disposed of the BRRD point quickly. Directive 2014/59/EU does not seek to harmonise the taxation of credit institutions across the EU. It cannot, therefore, operate as a barrier to a Member State introducing a sector-specific levy like the ASSB. That leg of the challenge failed.
On freedom of establishment, the Court applied its settled case-law: a Member State may not treat non-resident companies operating through a branch less favourably than resident companies in a comparable situation. The Court also confirmed that a levy which uses an apparently objective criterion, but which in practice disadvantages non-residents, amounts to indirect discrimination, which is prohibited.
The CJEU accepted that the ASSB applies on its face to residents and non-residents alike. The problem is the deduction: because branches cannot access the own-funds deduction, their taxable base is structurally higher. That asymmetry constitutes a less favourable treatment for non-resident credit institutions choosing to establish themselves in Portugal through a branch rather than a subsidiary.
Portugal's Justifications Rejected
Portugal advanced two justifications. Neither survived scrutiny.
The first was coherence of the domestic tax system. Under established CJEU case-law, that justification requires a direct link between a tax advantage and a specific offsetting levy on the same taxpayer. Portugal could not demonstrate that the benefit of deducting own funds from the ASSB base was offset by any additional charge falling specifically on resident credit institutions. The justification therefore fell away.
The second was the balanced allocation of taxing rights between Member States. The Court noted an internal inconsistency: Portugal had already chosen not to tax resident institutions and subsidiaries of non-resident institutions with respect to those same deductible items. Invoking taxing rights to justify a less favourable treatment of branches is logically inconsistent with having waived those rights in the first place.
The CJEU concluded that the ASSB legislation breaches the freedom of establishment and is contrary to EU law. Firms advising Portuguese branches of non-EU or other-EU-Member-State credit institutions should review historic ASSB assessments in light of this ruling. Refund claims and ongoing compliance positions both deserve attention.
The EU Minimum Tax Directive Challenge: Why It Failed
The Dutch Applicant's Position
On 15 December 2023, the General Court dismissed a direct challenge (case T-143/23) to Council Directive (EU) 2022/2523, the EU Minimum Tax Directive implementing Pillar Two. The applicant was a Dutch multinational engaged in geotechnical services and ship management, subject to the Netherlands' tonnage tax regime.
The challenge focused on Article 17 of the Directive, which carves out international shipping income from the global minimum tax calculation, provided the strategic or commercial management of the ships concerned is effectively carried out from within the same jurisdiction as the entity. The applicant argued that this location requirement, combined with the absence of any transitional or grandfathering provisions, would erode the value of benefits it had built up under an EU-approved tonnage tax scheme. In its view, the Directive unlawfully disrupted acquired rights.
For context on how Pillar Two confirmed statuses are already playing out at Member State level, see our analysis of EU Pillar 2 qualified status confirmed for Cyprus IIR.
The Admissibility Problem
The General Court did not reach the substance. The case foundered on admissibility grounds under Article 263 of the Treaty on the Functioning of the EU (TFEU).
Article 263 TFEU allows individuals and legal entities to seek annulment of EU acts in three situations: where the act is addressed directly to them, where the act is of direct and individual concern to them, or, for regulatory acts, where the act is of direct concern and does not entail implementing measures. The EU Minimum Tax Directive is a legislative act addressed to Member States, not to companies. The third limb was therefore unavailable. The applicant had to show direct and individual concern.
Those two criteria are cumulative and distinct. The Court focused on individual concern. For a party not addressed by a measure to be individually concerned by it, they must be affected by it by reason of attributes peculiar to them, or factual circumstances that set them apart from all other persons in a way comparable to the addressee. The Dutch company could not satisfy that test: its situation as a tonnage-tax taxpayer affected by Article 17 was shared by a potentially wide class of operators across the EU. No attribute was sufficiently specific to differentiate it from that broader group. The challenge was inadmissible and was dismissed accordingly.
What This Means for Tonnage Tax Planning
The dismissal on admissibility grounds means the General Court expressed no view on the merits of the Article 17 argument. The substance of whether the Directive's shipping income exclusion conflicts with existing EU-approved tonnage tax schemes remains untested at EU court level. Groups relying on tonnage tax regimes and seeking certainty on their Pillar Two position cannot draw comfort from this ruling: the door was shut on procedural grounds, not because the applicant's concerns were wrong.
Advisers working with shipping groups, or with any multinational that has sector-specific tax incentives approved under State aid rules, should map the interaction between those incentives and the Directive's exclusion provisions carefully. The EU ViDA implementation roadmap is a separate but parallel reminder that EU tax infrastructure is moving quickly on multiple fronts; see our coverage of the EU ViDA 2026 VAT implementation roadmap for context.
Practical Takeaways for Accounting Firms and CFOs
Branch Structure Reviews
The CJEU's ASSB ruling is a reminder that the choice between operating through a branch and a subsidiary in an EU host state carries real tax consequences. Where a Member State levy uses a deductible element that is structurally inaccessible to branches, that asymmetry is now confirmed as a potential freedom-of-establishment breach. Firms should identify any similar structural mismatches in other EU jurisdictions, not only Portugal.
Refund Exposure and Compliance Positions
Credit institutions or their clients that paid ASSB as a branch without claiming the own-funds deduction should assess whether a refund claim is viable under Portuguese procedural rules, including applicable limitation periods. The CJEU ruling establishes the EU law breach; the domestic procedural steps for recovery are a separate exercise requiring local counsel.
Pillar Two: Merits Arguments Still Open
For groups with tonnage tax or similar regime exposure, the T-143/23 dismissal closes one procedural avenue but leaves the substantive question open. If a Member State implements Article 17 in a way that a specific taxpayer regards as incompatible with an approved State aid scheme, a challenge via national courts, with a potential referral to the CJEU under Article 267 TFEU, remains a possible route. That is a more fact-intensive and jurisdiction-specific exercise than a direct General Court challenge.
FAQs
What is the ASSB and who does it affect?
The ASSB is Portugal's additional solidarity levy on the banking sector, introduced in 2020. It applies to both Portuguese-resident credit institutions and Portuguese branches of credit institutions based in other EU Member States, calculated on adjusted liabilities and notional off-balance-sheet derivative values.
Why did the CJEU find the ASSB to be unlawful?
The Court found that branches of non-resident credit institutions cannot access the own-funds deduction available to resident institutions and subsidiaries. That structural asymmetry in the taxable base results in indirect discrimination against non-resident credit institutions and breaches the EU freedom of establishment under the TFEU.
Can affected branches now reclaim ASSB paid in prior years?
The CJEU ruling establishes the EU law incompatibility, but recovery of past payments depends on Portuguese domestic procedural rules, including limitation periods. Affected entities should take specialist advice on the refund process without delay.
Why was the EU Minimum Tax Directive challenge dismissed?
The General Court dismissed case T-143/23 on admissibility grounds. The Directive is a legislative act addressed to Member States, not companies. The Dutch applicant could not show it was individually concerned by the measure in a way that distinguished it from a broad class of operators in a comparable position.
Does the T-143/23 dismissal mean the shipping income exclusion in Article 17 is legally sound?
No. The Court expressed no view on the substance. The dismissal was entirely procedural. The compatibility of Article 17 with EU-approved tonnage tax schemes remains an open question that could be revisited through national court proceedings and a potential CJEU reference under Article 267 TFEU.
Source: KPMG EU Tax Centre, E-News 189