Sweden Taken To Task Over Discriminatory Pension Taxation

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

11 January 2007

The European Commission announced on Tuesday that it has decided to refer Sweden to the European Court of Justice for its discriminatory pension tax legislation.

Under Swedish tax law, premiums paid by employers for occupational pension insurance taken out with insurers established in other EU Member States or the EEA countries are taxed as salary in the hands of the employee and pension payments are tax exempt; whereas contributions to domestic schemes are exempt and only pension payments are taxed.

The EC argued that:

"The legislation clearly restricts the possibilities for insurers established elsewhere within the EU or EEA to sell insurance policies in Sweden and dissuades employers from subscribing to foreign insurance policies."

"The taxation of foreign pension insurance premiums as benefits of the employee makes the subscription of foreign policies unattractive not only because the taxation takes place earlier than in cases where the occupational pension insurance has been taken out with Swedish insurers, but also because the marginal progressive tax rate applicable to the employee's income is likely to be higher during his/her active working life than it is after his/her retirement."

"The Commission therefore considers that the respective Swedish rules constitute an obstacle to the free movement of persons (Articles 18, 39 and 43 EC; Articles 28 and 31 EEA), the freedom to provide services (Article 49 EC and 36 EEA) and the free movement of capital (Article 56 EC and 40 EEA)."

"Since the Swedish Government did not follow the reasoned opinion issued by the Commission on 25 July 2006, the Commission has decided to refer the case to the European Court of Justice."

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