Navigation path

Left navigation

Additional tools

Other available languages: FR DE ES


Brussels, 8th July 2004

Pension taxation: Commission refers Spain to Court and requests UK to end discrimination

The European Commission has decided to refer Spain to the Court of Justice because pension contributions paid to non-Spanish funds are not tax deductible while contributions paid to domestic funds are. Although Spain has admitted in the previous correspondence that the legislation is incompatible with EU law, it is not willing to modify its legislation until the implementation of the Pension Fund Directive which is foreseen for 23 September 2005. This proposed timetable is not acceptable. The Commission has also decided to send a formal request to the United Kingdom to amend its legislation. The Commission considers that the beneficial tax treatment of domestic schemes is incompatible with the freedoms mentioned in the EC Treaty (Articles 39, 49 and 56). This is a follow-up to the action taken by the Commission in February 2003 (see IP/03/179), July 2003 (IP/03/965) and December 2003 (IP/03/1756) in accordance with the April 2001 Communication on the elimination of tax obstacles to the cross-border provision of occupational pensions (see IP/01/575 and MEMO/01/142).

“It is unacceptable that some Member States still practise tax discrimination against foreign pension funds” said Taxation and Internal Market 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. I am pleased, however, that the Commission's action so far has led to undertakings from Belgium, Ireland, Portugal and France to change their pension tax legislation and we look forward to them confirming that such changes have been implemented."


Pension contributions paid by the employer are exempt from income tax in the hands of the employee and the employee is able to deduct from income tax the contributions he pays himself if the contributions are paid to pension institutions established in Spain. However, if the contributions are paid to pension institutions not established in Spain, the employee cannot deduct the contributions he pays himself and he is subject to income tax on the employer’s contributions.

The Commission considers that this Spanish legislation discourages foreign pension providers from offering their services on the Spanish market and discourages individuals from taking out voluntary pension insurance with foreign institutions. The Spanish Government wrote to the Commission announcing that it intended to make the necessary amendments of its legislation, but not before the deadline for the implementation of the pension funds Directive 2003/11, namely 23 September 2005.

Despite the fact that the Commission advised Spain that this was not sufficient (see IP/03/1756) Spain has not changed its legislation and therefore the Commission has decided to refer Spain to the Court of Justice.

United Kingdom

In the UK, the exemption from income tax of contributions paid by the employer in the hands of the employee and the deductibility of the employee’s own contributions depends on the form of the pension arrangement (a trust) and the presence of a representative in the respective Member State to fulfil the administrative duties.

The Commission has decided to formally request the UK to amend its legislation by extending the favourable tax treatment to contributions paid to schemes not fulfilling these specific national requirements. 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 the UK does not provide a satisfactory response the Commission may refer the case to the Court of Justice.

The Commission is aware of the complete overhaul of the pension system in the UK which is currently before the UK Parliament. However the UK Government has not thus far provided sufficient information to the Commission on how it intends to tackle the problems of incompatibility with EU legislation that the Commission raised in the letter of formal notice sent to the UK in July 2003 (see IP/03/96).

For further information see:

Side Bar