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Brussels, 4 July 2006

Direct tax: Commission decides to refer Germany to the Court over legislation concerning the pension-savings grant (so called "Riester-Rente")

The European Commission decided to refer Germany to the European Court of Justice for not amending its legislation on the pensions-savings grant (Altersvorsorgezulage, so called Riester-Rente). A pecuniary advantage is given to persons building up a supplementary pension under the condition that they are fully liable to income tax in Germany. The Commission considers that the unequal treatment of residents and non-residents is contrary to the Treaty provisions on the free movement of workers and persons. Germany has not changed its legislation despite the Commission's formal request, in the form of a Reasoned Opinion, of 19.12.05 (IP/06/32).

"I fully support Member States to implement social policies aiming at encouraging individuals building up supplementary pension schemes" said László Kovács, the European Commissioner for Taxation and Customs Union. "However, Member States should do so in a non discriminatory way, thus complying with the free movement of workers and persons".

According to the German "Riester- Rente" legislation, a pecuniary advantage is given to encourage individuals to make their own capital-based provision for their old age and to complement their social security pension.

The grant is paid in cash to the pension institution with which the individual has concluded an old age pension contract. Its size depends on the pension contributions paid.

In the opinion of the Commission, three elements of the Riester-Rente are not in conformity with the EU legislation, in particular with Articles 12, 18 and 39 of the EC Treaty and Article 7 of Regulation No 1612/68:

  • To qualify for the grant, the individual has to be fully liable to tax in Germany. Thus, frontier workers commuting to Germany without being taxable there (by virtue of a double taxation agreement) cannot qualify for the grant, although they pay their social security contributions in Germany.
  • It is not allowed to use the grant-aided capital for the acquisition of an owner-occupied dwelling, unless it is situated in Germany. That means that frontier workers cannot use their savings capital to buy a dwelling in their State of residence.
  • The grant must be repaid if the individual ceases to be fully liable to tax in Germany. This arises when migrant workers return home, but can, for example, also involve German citizens migrating upon retirement.

Since the German Government did not follow the reasoned opinion issued by the Commission on 19 December 2005, the Commission has decided to refer the case to the European Court of Justice.

Commission case's reference number is: 2003/2067
For the latest general information on infringement measures against Member States see:

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