Brussels, 19/04/2001 (Agence Europe) - On Thursday, the European Commission adopted a Communication on the removal of tax obstacles to the cross border provision of occupational pensions (see yesterday's EUROPE, p.8). It warned that it will "monitor Member States' national rules in this field and take necessary steps to ensure their compliance with the Treaty, in particular with the rules on non-discrimination".
The Commission responsible for the Internal Market, Frits Bolkenstein, told the press that "this initiative present comprehensive solutions to deal with the many existing tax obstacles that prevent people from benefiting from their fundamental rights in terms of free movement, leading to mismanagement of resources and a loss of competitiveness". According to him, more than two million employees are "discouraged from contributing to occupational pensions in another Member State due to discriminatory differences". By discrimination, the Commission means the privileged treatment given to national schemes and in particular the more favourable rules concerning the deductibility of contributions or the taxation of benefits. The aim is to ensure the same possibility for deduction for a national pension fund as a foreign fund, added Mr Bolkestein.
Presently, even if it is difficult to establish a precise picture of the differences between Member States, it appears that Luxembourg and Germany have a system of non-deductibility of pension funds, while Austria and Greece do not have any restrictions on deductibility. The Netherlands allows to deduct contributions paid to foreign institutions and Ireland allows deductibility, without the law foreseeing it.
Partisan to tax competition, Mr Bolkenstein wants neither a harmonisation of legislation, nor the adoption of a Directive, but calls for the respect of existing Community law, applied directly, which requires that the Member States eliminate any barrier to the free movement of capital, services and people. If the Member States do not act sufficiently quickly to put an end to discrimination, the European Commission will refer to the Court of Justice, he threatened, when nevertheless specifying that his intention is to act with "diligence", but without haste, within a couple of months, needed to examine the situation in the Member States. He invited the companies and employees to inform the Commission of cases of discrimination they face, and felt that the removal of tax obstacles would allow companies to centralise their arrangements within a single scheme and to gain economies of scale. As an example, he estimated that a "large multinational" would thus save EUR 40 million.
At the same time, the Commission recommended that the Member States implement a system of automatic information exchanges in the field of occupational pensions, adding that the framework needed to do so already exists in the Directive on mutual assistance in the field of direct taxation (77/799). The European executive also wants to avoid the double taxation and double exemption that stems from the heterogeneity of tax systems. Differences may present a problem when an employee takes his pensions in a Member State after having worked in another. It happen, as an example that pensions are taxed when contributions are not deductible. The report favours a more wide ranging use of the approach applied in 11 Member States (the EET system: exempt contributions, exempt investment income and capital gain of the pension institution, taxed benefits). The Commission recognises that the homogenisation of rules will take time and suggests that the Member States start with a better coordination of their fiscal policies.