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Brussels, 5th February 2003

Pension taxation: Commission tackles discrimination against foreign pension funds in six Member States

The European Commission has sent a formal request to Denmark to amend its legislation under which pension contributions paid to non-Danish funds are not tax deductible while contributions paid to domestic funds are. The Commission has also sent official requests for information to Belgium, Spain, France, Italy and Portugal regarding what appears to be similar discriminatory tax provisions in those Member States. The Commission considers that preferential treatment for domestic pension funds is incompatible with the EC Treaty, which guarantees the free provision of services and the free movement of workers and capital. The Commission's action is in line with its policy of applying the Treaty's rules directly to instances of tax discrimination against pension funds based in other Member States, as announced in its Communication on pensions taxation of 19 April 2001 (see IP/01/575).

"Tax discrimination against foreign pension funds is unacceptable" said Taxation and Internal Market Commissioner Frits Bolkestein. "Workers should not be forced for tax reasons to take out new pension insurance when they take up a job in another Member State and employers should be able to set up pan-European pension funds. Unless Member States stop discriminating against foreign pension funds, we will not have a fully functioning Internal Market for occupational pensions even when the Pension Funds Directive is adopted."

The European Court of Justice ruled in the Bachmann case of 28 January 1992 (C-204/90) that Belgium's rules restricting tax deductibility to contributions paid to Belgian insurance institutions were justified by the need to preserve the cohesion of the Belgian tax system. However, the Commission is of the view that the subsequent European Court judgements in the cases of Wielockx (C-80/94), Jessica Safir (C-196/98) and Danner (C-136/00) limit considerably the scope for Member States to apply different and more cumbersome tax rules to insurance/pension funds established in other EU countries .

The Commission has therefore, on the one hand, formally requested Denmark to change its tax legislation and give pension contributions paid to pension funds located in other Member States the same tax treatment as contributions to domestic funds. The request has been sent in the form of a Reasoned Opinion, the second stage of the infringement procedure provided for in Article 226 of the EC Treaty. If Denmark does not provide a satisfactory response within two months the Commission may refer the case to the Court of Justice.

On the other hand, the Commission has opened infringement proceedings against Belgium, Spain, France, Italy and Portugal, which appear to apply similar discriminatory tax rules to contributions to foreign pension funds. These countries have received letters of formal notice, the first step of the infringement procedure under Article 226.

Commission pensions taxation policy

In its Communication of 19 April 2001, the European Commission identified the elimination of tax obstacles to the cross-border provision of occupational pensions as a priority and presented a broad legal analysis of the problem. It pointed out that not allowing mobile workers tax deduction for pension contributions paid to their original scheme restricts their right of free movement. Equally, the tax discrimination prevents pension funds from making use of their freedom to provide services. Finally, tax discrimination prohibits companies with establishments in different Member States from centralising their occupational pension arrangements into one single scheme for all their employees throughout the Union. Such centralisation would allow companies considerable economies of scale and cut administrative costs significantly. The Commission subsequently wrote to all Member States to ask whether their national pensions tax rules were in conformity with its legal analysis, and, on the basis of the replies received, it is now taking action in those areas where it sees the most serious breaches of the Treaty freedoms.

Pension Funds Directive

The Commission made a proposal in October 2000 for a Pension Funds Directive concerning institutions for occupational retirement provision (pension funds, superannuation schemes, etc) (see IP/00/1141). The aim is to create, at the level of the European Union, a prudential framework strong enough to protect the rights of future pensioners and to increase the affordability of occupational pensions. The proposal for a Directive also seeks to enable an institution in one Member State to manage company pension schemes in other Member States. On 5 November 2002, the Council adopted a common position on this proposal, following the political agreement reached at the Ecofin Council of 5 June 2002 (see IP/02/820). The European Parliament is expected to deliver its second reading report in March 2003.

The latest information on infringement procedures concerning all Member States can be found at the following site:

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