EC Gets Tough On Pension Fund Tax Discrimination
The European Commission on Wednesday warned that France, Belgium, Portugal
and Spain must bring their tax treatment of pension funds from other EU member
states in line with their treatment of domestic funds, or face the possibility
of legal action. In a statement, in which it was explained that the Commission considers preferential
treatment of domestic pension funds to be incompatible with EU rules on the
free movement of workers and capital, Internal Market Commissioner, Frits Bolkestein
explained that: "The Commission is determined to tackle tax discrimination against occupational
pension funds in other member states." He continued: "Unless member states end tax discrimination, the EU will continue to
deny future pensioners the full potential benefits of a pan-EU single market
for pensions." If the four countries fail to act on this matter within the next two months,
the EC has threatened to launch legal proceedings, as it has already done in
the cases of Denmark, Ireland, and the UK. According to the Commission, the Spanish Government has admitted that the current
Spanish provisions are not compatible with EU law, and has announced that it
intends to make the necessary amendments of its legislation before 23 September
2005 (which is the deadline for the implementation of the pension funds Directive
2003/11). The Commission, however, estimates that this timetable is not sufficient.
France, meanwhile, has also admitted in its reply to the letter of formal notice
that the assessment made by the Commission is correct and that the French tax
rules are not compatible with the Treaty freedoms, and has committed to changing
its legislation. However, it has not provided full details or a timetable and
some proposed amendments still impose certain conditions which, according the
Commission, constitute an obstacle to the Treaty freedoms. The Belgian Government has not yet provided any definitive reply as to its
intentions with regard to the points raised by the Commission, and Portugal
has argued that its tax legislation is coherent with EU law, in that there is
a link between tax deductibility of contributions and taxation of pensions in
case of Portuguese pension funds and between the non-tax deductibility of contributions
and the non-taxation of pensions in case of foreign pension funds (similar to
the coherence accepted by the Court in the Bachmann judgement, C-204/90 of 28
January 1992). However, the Commission has warned that it is of the opinion that such cohesion
does not exist in the Portuguese legislation. .
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