EUROPE - Unequal tax treatment of foreign pension funds in the EU took a step closer to being eradicated this week after ABP claimed it had made a "breakthrough" with the Norwegian government and the European Commission (EC) referred Germany to the European Court of Justice (ECJ) over its existing legislation.
Norway is the latest country to return dividend tax paid by ABP, which has now claimed €60m in dividend tax payments from several countries, including Sweden, Denmark, Germany, Austria, France, Italy, Spain and Portugal. The €210bn civil service pension fund said it had claimed back €3m from the Norwegian government, a figure that could eventually rise to €10m, as part of its ongoing campaign to win back dividend tax paid on investments in foreign juridictions.
Meanwhile, the EC has referred Germany to the ECJ over its dividend tax legislation, which it says discriminates against overseas pension funds. Last October the Commission requested that Germany amend its legislation, but the deadline for this has now been passed. (See earlier IPE-story: EC pursues Germany on pension dividends)
The Commission considers such legislation to be inconsistent with the fundamental European Treaty freedom to move capital. "If a member state levies a higher tax on dividends or interest paid to foreign pension funds, these funds might be dissuaded from investing in companies in that member State," the EC stated.
It is the latest in a line of 14 infringement proceedings by the Commission against member states. Proceedings against three - Czech Republic, Estonia and Slovenia - have since been closed, following rectification of the discrimination, while four - Finland, Portugal, Spain and Germany - are awaiting a determination from the ECJ. (See earlier IPE-stories: Finland referred to ECJ over pension tax rules)
ABP recently won important court victories in Spain and France. The French high court ruled that French legislation must be adjusted in order to cancel the unequal treatment of non-French pension funds. ABP said the Inland Revenue of France was currently considering whether the Dutch scheme complies with the conditions for exemption of dividend tax.
In Spain the court of justice ruled that the dividend tax for foreign pension funds hampers free movement of capital and is therefore conflicting with EU legislation. But ABP revealed that Spanish authorities had lodged an appeal, which has so far blocked repayment.
"Recent rulings have increased our conviction that the difference in treatment between local and foreign pension funds is not justified," ABP stated.
Pension consultancy Towers Watson welcomed the Commission's referral of Germany to the ECJ as a move towards a level playing field for pension funds in Europe.
"Having largely eliminated unlawful tax discrimination in relation to contributions payable to a ‘foreign' pension fund, the European Commission is determined to remove discrimination in the area of dividend and interest payments", said Dave Roberts, senior consultant at Towers Watson.