The ECJ has found that Spanish law which taxes unrealised capital gains on the transfer of the place of residence or of the assets of a company established in Spain to another Member State is contrary to EU law. In a judgement delivered in Case C-64/11 Commission versus Spain the ECJ noted that while the tax itself is not unlawful, its immediate application does amount to a restriction on the freedom of establishment.

The ECJ judgement stated that the taxation of unrealised capital gains on assets assigned to a permanent establishment which ceases to operate in Spain does not amount to a restriction on the freedom of establishment. This is on the basis that the tax does not result from a transfer of the place of residence or of the assets of a company resident in Spanish territory to another Member State, but merely from a termination of its activities. Consequently, it is a purely domestic situation according to the ECJ and does not breach the freedom of establishment.

However, the Court did find that the immediate taxation of unrealised capital gains on the transfer of the place of residence or of the assets of a company established in Spain to another Member State amounts to a restriction on the freedom of establishment.

This latest judgement on exit taxes applied by a Member State is consistent with the EJC's previous ruling on a case taken by the Commission against the Netherlands’ exit tax.

Ireland is also subject to infringement proceeds initiated by the Commission over its exit tax rules in respect of companies ceasing to be tax resident in Ireland. To date Ireland has not amended its legislation (section 627 TCA 1997) on exit tax.