The European Court of Justice has delivered a judgement in favour of Rolf Dieter Danner in a move that confirms elements of Finnish tax legislation contravene EU legislation.
As expected, the judgement follows the March opinion of the advocate general and the outcome is likely to boost other tax discrimination cases and help bring the reality of pan European pension schemes one step closer.
The case involved German-born Rolf Dieter Danner and challenges as contrary to an article of the EC Treaty a Finnish law that taxes pension insurance contributions made in Finland to a foreign institution.
Danner claimed that Finns wishing to contribute to a scheme outside the country do not receive the same treatment as those paying into domestic schemes. The case focused on whether Finnish legislation violated Article 59 of the European Treaty which deals with the freedom of services.
In its judgement, the ECJ said Article 59: “is to be interpreted as precluding a member state’s tax legislation from restricting or disallowing the deductibility for income tax purposes of contributions to voluntary pension schemes paid to pensions providers in other member states while allowing such contributions to be deducted when they are paid to institutions in the first-mentioned member sate, if that legislation does not at the same time preclude taxation of the pensions paid by the above mentioned pensions providers.”
The EFRP has welcomed the decision. Says permanent representative Chris Verhaegen: “we are delighted and we warmly welcome the ruling. It is a very significant step on the way to establishing pan-European pension funds and schemes.”
Equally important is the boost it gives the European Commission in its consultations with member states on their tax systems. “The judgment makes the legal basis for launching infringement procedures more secure should member states seek to continue unjustifiable tax discrimination.
“We hope that governments will act now upon the judgement and not wait for infringements or otherwise this case may inpire other people to file similar cases with the ECJ,” says Verhaegen.
Danner is the most advanced in a series of test cases. Recently Pepgo, an association of 20 multinational companies, including Swiss Life and construction company Kvaerner, filed a similar complaint to the UK’s Inland Revenue on behalf of an employee at the consultants AMS Management Systems. Geoffrey Furlonger, the man spearheading the Pepgo case, also welcomed the verdict.
“It’s exactly what we wanted, it takes every possible argument justifying cross border discrimination and it basically says that where you’ve got a double tax treaty in place, which is in most European countries, then the argument that ‘we only give tax deductibility because we know that the person is going to retire in our country,’ has been totally destroyed.
“It totally vindicates our assertion that tax discrimination against cross border pension plans is contrary to European law.”
Furlonger says the ruling greatly increases our chances of a victory if the AMS case goes to the European Court of Justice. “We’re pretty sure the Inland Revenue were waiting for the Dannner judgement. They’ve got a Danner judgement now so it should be pretty soon.”
Pepgo is continuing its case as it involves a static, opposed to mobile, employee. “We want to make sure that the general principle regarding discrimination applies to static employees as well.”
Furlonger believes that, in practical terms, the Danner verdict now makes it worth companies thinking about making pan european plans. “They can now go along to the various tax authorities and say: “have you seen the Danner judgement? These are our ideas for a pan european pension plan and I asssume you have no objections etc.,” he says.
The judgement is likely to help the cause of a case Skandia is bringing to the ECJ and challenging Swedish tax laws. “What the Swedish government will now have to do is to show that there is something materially different about the Skandia case significantly different which distinguishes it from the Danner case,” says Furlonger.