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Brussels, 29 October 2009

Taxation of outbound dividend and interest payments to foreign pension institutions: Commission takes steps against Germany

The European Commission has sent Germany a formal request to amend its legislation which leads to discriminatory taxation of foreign pension institutions. The Commission's request takes the form of a ‘reasoned opinion’ (second step of the infringement procedure of Article 226 of the EC Treaty). If Germany does not reply satisfactorily to this reasoned opinion within two months the Commission may refer the matter to the European Court of Justice.

In Germany, dividends paid by German companies to German "Pensionskassen" are either subject to a reduced withholding tax rate, or the "Pensionskasse" can benefit from a partial refund of the withholding taxes. However, similar institutions established elsewhere in the EU and the European Economic Area cannot benefit from this reduced rate or partial refund.

For another category of German pension institution, the " Pensionsfonds", the dividends received are taken into account in the annual tax assessment procedure. Therefore, they are taxed on a net basis at the general corporate tax rate of 15 %. However, dividends paid from Germany to similar foreign institutions are subject to a final withholding tax of 25 % on the gross dividend, without the possibility of deducting any costs.

The same rules apply to interest payments paid to "Pensionskassen" and " Pensionsfonds". Therefore, the taxation of interest paid to similar foreign pension institutions is also addressed in the reasoned opinion.

If a Member State levies a higher tax on dividends or interest paid to foreign pension funds, these funds might be dissuaded from investing in companies in that Member State. Equally, companies established in that Member State might have difficulty attracting capital from foreign pension funds. The higher taxation of foreign pension funds may thus result in a restriction of the free movement of capital, as protected by Article 56 EC and Article 40 EEA. The Commission is not aware of any justification for such restrictions.

The Commission's case reference number is 2006/4098.

For the press releases issued on infringement procedures in the taxation or customs area see:

For the latest general information on infringement measures against Member States see:

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