EC To Examine UK And Irish Pension Tax Legislation

by Ulrika Lomas, for LawAndTax-News.com, Brussels

11 July 2003

The European Commission on Wednesday referred Denmark to the European Court of Justice (ECJ) and launched infringement proceedings against the United Kingdom and Ireland over their tax treatment of pension contributions.

Accusing Denmark of 'discrimination' because of its practice of taxing pension contributions made to non-Danish funds but exempting contributions to domestic funds, the EC argued that this stops foreign pension providers from offering their services on the Danish market (thus contravening the principle of the freedom to provide services), and also acts to dissuade workers from taking out voluntary pension insurance with foreign institutions (in violation of the free movement of workers and capital principle).

In the UK and Ireland, the Commission explained in a statement:

'The exemption from income tax of contributions paid by the employer in the hands of the employee and the deductibility of the employee's own contributions depends on the form of the pension arrangement (a trust) and the presence of a representative in the respective Member State to fulfil the administrative duties.'

It went on to add that: 'The Commission has serious concerns about the compatibility of these tax rules with EU law and is therefore seeking more information from both Member States.'

Internal Market Commissioner, Frits Bolkestein confirmed this, announcing that:

'The Commission is determined to stamp out tax discrimination against foreign pension funds. We have already warned Member States that we regard such discrimination as illegal, and the Court of Justice has endorsed the Commission's position.'

The EC is also taking legal action against Portugal, France, Spain, Belgium, and Italy over their taxation of occupational pension schemes.

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