Where it detects a failure to comply with Community law, the Commission may initiate the procedure for failure to fulfil an obligation provided for in Article 258 of the Treaty on the functioning of the European Union.

Recently, the European Commission has decided to refer Portugal to the European Court of Justice for its tax provisions which oblige non-resident taxpayers to appoint a fiscal representative if they obtain taxable income in Portugal. The Commission considers the provision incompatible with the free movement of persons and the free movement of capital as guaranteed by Articles 18 and 56 of the EC Treaty and Articles 36 and 40 of the EEA Agreement.

The European Commission also has requested that Portugal amend its tax rules for non-resident taxpayers. Non-residents are in certain cases taxed on a gross base and according to flat rates, while residents are taxed on a net base (i.e. they have the right to deduct certain costs) and are taxed according to progressive rates. These differences in treatment may result in a less favourable tax treatment of non-residents than of resident taxpayers, which is contrary to the freedom to provide services and the free movement of capital.