Wealth Transfers, Taxation and the Valuation of Private Firms: A Constitutional Court Decision Regarding the Proportionality Principle

This note analyses, from a legal and economic perspective, Portuguese Constitutional Court Ruling 750/2022, which declares the legal provision setting out the method for valuing private (unlisted) corporations, for the purposes of the taxation of equity transfers for no consideration, unconstitutional. This valuation method has been the cornerstone of computing tax liability in respect of stamp duty which, in this scenario, works as a tax on wealth transfers. The Court decided that the resulting valuation under the formula was disproportionate, stating that the share values derived therefrom were exorbitant and out of sync with the economic reality of the company.