Germany Facing EC Action Over Pensions Saving Incentive

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

17 January 2006

The European Commission announced last Friday that it has sent Germany a formal request to amend its legislation on the pensions savings grant that is available to individuals in order to encourage them to make provision for their old age.

The Commission argued that the unequal treatment of residents and non-residents by certain aspects of this legislation is contrary to the EC Treaty provisions on the free movement of workers and persons.

The request is in the form of a Reasoned Opinion under the EC Treaty. If Germany does not reply satisfactorily to the reasoned opinion the Commission may refer the matter to the Court.

The German pensions savings grant is designed to encourage individuals to make their own capital-based provision for their old age, and to complement the social security pension. However, there are three restrictions on the availability of this grant which are not in conformity with EU law:

• The condition for entitlement to the grant is full tax liability. Non-resident workers in Germany who earn less than 90% of their family income in Germany cannot benefit from the grant, although such persons pay their social security contributions in Germany.
• It is not possible to use the grant-aided capital for the acquisition of an owner-occupied dwelling, unless it is situated in Germany. That means that it is impossible for frontier workers to use their savings capital to buy a dwelling in their State of residence.
• The grant must be repaid if a person’s full tax-liability ceases. This case usually arises when migrant workers return home after retirement, but can also, for example, involve German citizens retiring abroad.

The Commission has taken the view that, through these rules, the Federal Republic of Germany has infringed Article 12 of the EC Treaty that prohibits discrimination on grounds of nationality; Article 18 that allows free movement of EU citizens; Article 39 of the EC Treaty that provides for the free movement of workers; and Article 7 of Regulation No 1612/68 that requires a national of a Member State who works in another Member State to be given the same social and tax advantages as national workers in that other Member State.

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