The European Commission (EC) has taken on board many of the proposals of the European Federation for Retirement Provision (EFRP) for a tax neutral pan-European occupational pensions vehicle for multinational companies in its communication.
In September last year the EFRP mapped out its vision for a European Institution for Occupational Retirement Provision (EIORP), a workable single institution for retirement, which would incorporate individual sections corresponding to national taxation regimes.
In the communication the EC notes the proposal made by industry to enable members of a multinational company to belong to the same pension institution wherever they are employed.
The principle, says the Commission, would ensure that member states are able to maintain their own approach to taxation of pension arrangements for home residents.
Consequently, its suggested format for a pan-European pension institution (PEPI) incorporates a single location for the fund in one member state, but with different sections, each complying with requirements for tax approval and regulations of the state where the member is employed, as well as relevant social law.
Therefore, an employee would continue to pay contributions to the same pan-European pension institution (i.e. multinational pension fund), but to a different section if moving abroad.
The Commission says the transfer of accrued benefits would not be necessary and at retirement a worker would receive benefits from each national section in accordance with the rights required under the applicable national rules.
The proposal says that assets should be divided between each section according to the liabilities at the last available actuarial valuation.
Temporary postings of scheme members, however, may remain in the home section for a certain period, says the Commission, due to the sometimes strong link in some member states between first and second pillar retirement provision.
PEPIs would comply with the rules on payment and collection of tax applicable in the state of work or residence.
The Commission also adds that the broadening of the pan-European remit is also possible: “There seems no reason in principle why it could not provide the basis for more general arrangements for cross-border provision within the EU, covering several companies or entire sectors or professions.”
It notes that the advantage of such an institution with different sections is that the relevant section of the pan-European plan, although subject to the supervisory rules of its state of establishment, would in effect be treated for tax purposes as if it were established in the territory of the scheme member - applying the same rules and procedures as a domestic institution.
“ Member states compliance costs should therefore be lower under pan-European institutions proposal,” says the Commission.
The EC also believes it may be possible to implement such vehicles without new tax legislation, as members states could reach agreements with PEPIs in setting out its obligations in terms of, for example, the provision of information and the collection of taxes.
And the Commission says that both the exchange of information route and the PEPI are not mutually exclusive avenues, noting that smaller cross-border schemes unlikely to go the PEPI route initially.
Consequently, it is inviting member states to explore how the proposal for PEPIs can be made operational.