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Brussels, 13 January 2006

Direct tax: Commission acts against Germany over legislation concerning the pension-savings grant

The European Commission has sent Germany a formal request to amend its legislation on the pensions savings grant that is available to individuals in order to encourage them to make provision for their old age. The Commission considers that the unequal treatment of residents and non residents by certain aspects of this legislation is contrary to the EC Treaty provisions on the free movement of workers and persons. The request is in the form of a Reasoned Opinion under Article 226(1) of the EC Treaty. If Germany does not reply satisfactorily to the reasoned opinion the Commission may refer the matter to the Court.

The German pensions savings grant (the "Altersvorsorgezulage") provided for in Sections 79 to 99 of the Income Tax Act (the Einkommensteuergesetz or EStG) is designed to encourage individuals to make their own capital-based provision for their old age (“Riester-Rente”) and to complement the social security pension. However, there are three restrictions on the availability of this grant which are not in conformity with EU law:

  • The condition for entitlement to the grant is full tax liability. Non-resident workers in Germany that earn less than 90% of their family income in Germany cannot benefit from the grant, although such persons pay their social security contributions in Germany.
  • It is not possible to use the grant-aided capital for the acquisition of an owner-occupied dwelling, unless it is situated in Germany. That means that it is impossible for frontier workers to use their savings capital to buy a dwelling in their State of residence.
  • The grant must be repaid if a person’s full tax-liability ceases. This case usually arises when migrant workers return home after retirement, but can also, for example, involve German citizens retiring abroad.

The Commission takes the view that, through these rules, the Federal Republic of Germany has infringed Article 12 of the EC Treaty that prohibits discrimination on grounds of nationality; Article 18 that allows free movement of EU citizens; Article 39 of the EC Treaty that provides for the free movement of workers; and Article 7 of Regulation No 1612/68 that requires a national of a Member State who works in another Member State to be given the same social and tax advantages as national workers in that other Member State.
The latest information on infringement procedures concerning all Member States can be found at:

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