ECJ Rules In Favour Of Cross-Border Pension Provision

by Ulrika Lomas, Tax-News.com, Brussels

07 October 2002

In a judgement last week, the European Court of Justice held that payments made voluntarily into a pension scheme in another member state should be allowed to benefit from tax breaks available in the state where the pension scheme operates. Due to the particular circumstances of the case, it's not clear how dramatic this ruling will turn out to be; but it certainly marks a step forward in the battle to develop truly cross-border European pension schemes.

Rolf Danner, a doctor, has dual Finnish and German nationality. While working in Germany, he began to contribute to two German pension schemes; after moving to Finland, where he now works, he continued to contribute to the German schemes. The Finnish government, like most governments, attempted to tax the contributions more heavily than if they had been made to a Finnish scheme, but the Court ruled that the Finns must apply the same rules as would apply inside Finland.

The words of the Court are general enough: "Governments should not be restricting or disallowing tax deductions applying to contributions to voluntary pension schemes paid to pension providers in other member states"; but it seems unlikely that the intention is to allow complete freedom for pension scheme shopping across the Union.

That is the goal of most multinational companies in Europe, who suffer from constant and expensive problems over pension provision if they move employees between countries. The Union has legislated recently to remove various other barriers to EU-wide pension schemes, and Luxembourg has made available a financial structure, but until now the tax barriers have been insuperable.

There are some agreements between individual pairs of countries that allow continuation of tax privileges for expatriates' social security contributions, but they are very limited. The new ruling will certainly lead to a major extension of cross-border pension provision, but it remains to be seen just how extensive this will be.

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