Following a commitment made at the Stockholm European Council in March, the EU Commission yesterday issued details of its plans to improve the European tax regime for cross-border provision of pensions. The proposals form part of the EU's new strategy to open up pan-European labour markets by 2005, adopted on 28 February. The new tax initiative complements the Commission's October 2000 proposal for a directive on occupational retirement provision that would facilitate cross-border pension provision and investment.
"This initiative presents comprehensive solutions to deal with the many existing tax obstacles to the cross-border provision of occupational pensions," said EU Tax Commissioner Frits Bolkestein. He added: "A fully functioning internal market for occupational pensions is essential to ensure that citizens are able to exercise their rights to free movement which are enshrined in the EC Treaty and thus to enhance labour mobility."
Currently there are major obstacles that deter employees from contributing to occupational pension schemes outside their home country, and also make it difficult for pension institutions to provide cross-border pensions in the European Union. The Commission is pledging to monitor member states' national rules on pension provision and "take the necessary steps" to ensure their compliance with EC Treaty rules on the free movement of capital, labour and services - in particular regarding rules on non-discrimination. Where necessary, the Commission warns it will take legal action against EU countries for non-compliance.
In addition, the Communication sets out measures to safeguard member states' tax revenues in cases of cross-border pension provision. The Commission also suggests a co-ordinated approach to eliminate the tax obstacles, particularly so-called "double taxation", which arise from the mismatch of countries different pensions' tax systems.
The Commission's 'Communication' to the institutions of the EU on this subject runs as follows:
'The European Commission has proposed a comprehensive strategy to address the tax obstacles that currently can act as a major disincentive to individuals wishing to contribute to pension schemes outside their home Member State and pension institutions that wish to provide pensions across borders. The Commission will monitor Member States’ national rules in this field and take the necessary steps to ensure their compliance with the Treaty, in particular with the rules on non-discrimination. Where necessary, the Commission will initiate legal action against Member States. In addition, the Commission suggests measures to safeguard Member States’ tax revenues in cases of cross-border pension provision. The Commission also suggests a co-ordinated approach to eliminate the tax obstacles, particularly double taxation, which arise from the diversity of Member States’ occupational pension taxation systems. The initiative was promised by the Commission at the 23-24 March Stockholm European Council and forms part of the Commission’s new strategy to open up pan-European labour markets by 2005 adopted on 28 February (see IP/01/276). The new tax initiative complements the Commission’s October 2000 proposal for a Directive on occupational retirement provision that would facilitate cross-border pension provision and investment (see IP/00/1141).'
The full text of the Commission's proposals is at http://www.europa.eu.int/comm/taxation_customs/publications/official_doc/com/taxation/com2001214/com2001214_en.pdf
The Commission's aims are noble, but may be doomed to only partial success at best, since alteration of tax rules is subject to national veto, and anyway at this point the taxation of pensions is almost wholly a national affair. Not only that, but national pensions regimes vary wildly across the Union, with some being 100% state-financed, and others being partly or mostly private.
Last October's directive addressed the issue of a 'common passport' regime for pension providers, under which a pensions provider in one country would be able to offer pensions products to citizens or firms in all 15 member states, and which would widen the range of permitted investments such a provider could utilise. This would amount to a substantial development of the current UCITS rules, which limit pan-EU 'authorised' investment to publicly-listed shares. But it is far from certain when or whether the October directive will come into force. It's possible that it may be effectively gutted after pressure from existing national investment industries, many of which are very backward, and would be opened to damaging competition if passporting was introduced for pensions provision.
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