Brussels, 19 April 2001
Commission to tackle tax obstacles to cross-border provision of occupational pensions
The European Commission has proposed a comprehensive strategy to address the tax obstacles that currently can act as a major disincentive to individuals wishing to contribute to pension schemes outside their home Member State and pension institutions that wish to provide pensions across borders. The Commission will monitor Member States' national rules in this field and take the necessary steps to ensure their compliance with the Treaty, in particular with the rules on non-discrimination. Where necessary, the Commission will initiate legal action against Member States. In addition, the Commission suggests measures to safeguard Member States' tax revenues in cases of cross-border pension provision. The Commission also suggests a co-ordinated approach to eliminate the tax obstacles, particularly double taxation, which arise from the diversity of Member States' occupational pension taxation systems. The initiative was promised by the Commission at the 23-24 March Stockholm European Council and forms part of the Commission's new strategy to open up pan-European labour markets by 2005 adopted on 28 February (see IP/01/276). The new tax initiative complements the Commission's October 2000 proposal for a Directive on occupational retirement provision that would facilitate cross-border pension provision and investment (see IP/00/1141).
"This initiative presents comprehensive solutions to deal with the many existing tax obstacles to the cross-border provision of occupational pensions" commented Taxation Commissioner Frits Bolkestein. "A fully functioning Internal Market for occupational pensions is essential to ensure that citizens are able to exercise their rights to free movement which are enshrined in the EC Treaty and thus to enhance labour mobility."
The Commission initiative addresses the tax aspects of cross-frontier pension provision:
How EC Treaty rules apply
First the Commission sets out its views on how the EC Treaty rules on the free movement of capital, labour and services apply in the area of cross-border pension provision. The main conclusion is that Member States are required by the Treaty to eliminate discrimination against occupational schemes established in other Member States. Discrimination means privileged treatment of domestic schemes, in particular more favourable rules on deductibility of contributions or taxation of benefits. The Commission intends to examine the relevant national rules and take the necessary steps to ensure their compliance with the fundamental freedoms of the Treaty, including, where necessary, bringing cases before the Court of Justice. This will remove the main tax obstacles to cross-border pension provision, and, together with the Pension Fund Directive proposed in October 2000, allow a fully functioning Single Market for occupational pensions.
Exchange of information
A corollary to eliminating discriminatory rules in the field of cross-border pension provision, the Commission recommends that Member States agree on automatic exchange of information on supplementary pensions. This would meet Member States' concerns about enforcement of taxes in the case of cross-border pension provision. A Community legislative framework for information exchange already exists (in particular, the Mutual Assistance in Tax Matters Directive - 77/799). The Commission proposes that the detailed arrangements for automatic information exchange in the field of occupational pensions be developed with Member States in the Committee provided for in the existing Directive.
Mismatch of tax systems
Finally the Commission addresses the more deep-seated problems of double taxation and non-taxation arising from the mismatch of tax systems. Different Member States have different rules in terms of whether they tax or exempt pension contributions, investment income and capital gains of the pension institution, and pension benefits. These differences can create problems where an employee spends his working career in one Member State but retires to another. This can mean his pension being taxed where the contributions were not tax deductible or the pension not being taxed even though the contributions were deductible. The report recommends wider application of the approach applied already in 11 Member States (the "EET" system of Exempt contributions, Exempt investment income and capital gains of the pension institution, Taxed Benefits).
However, the Commission acknowledges that completely uniform rules for supplementary pensions will not be easy to achieve while the relative reliance on statutory social security and occupational pension schemes varies so significantly from one Member State to another. The Commission therefore also explores how double taxation and double non-taxation problems can be addressed in the short-term by better co-ordination of Member States' taxation rules. Solutions could include unilateral tax relief, bilateral solutions or a multilateral convention or co-ordinating measures at European Union level. The Commission is prepared to assist Member States in undertaking a detailed study of existing bilateral provisions that could provide solutions if applied more generally.
The full text of the Communication on the elimination of tax obstacles to the cross-border provision of occupational pensions is available on the Europa internet site: http://ec.europa.eu/taxation_customs/whatsnew.htm