EUROPE - The European Commission is making fresh moves to rectify the discrimination of overseas pension funds by the Spanish and Portugese governments over dividends tax along with legal breaches concerning corporate governance.

Officials at the EC have been pursuant of several European countries over the last year in cases where domestic pension funds have been found to have more favourable dividend taxes, on investments such as listed securities, than overseas pension funds.

The process is seen to be anti-competitive by the EC as it is designed to dissuade overseas pension funds from investing in local companies, as the inter-governmental body attempts to harmonise financial cross-border pension investment barriers.

Spain and Portugal have been part of that process for some time, and have now been sent "reasoned opinions" - the second step of the infringement process - by the EC, to explain why it believes they are restricting the free movement of capital, as protected under Article 56 of the EC and Article 40 EEA rules.

At present, Spain exempts domestic pension funds from tax on their income, and repays withholding tax on the dividends they receive, while Portugal levies a 25% withholding tax on overseas pension funds while making its own exempt from the charge.

The two nations now have two months to reply, as did Germany and Estonia when they were issued with formal notices - the first stage of infringement proceedings - in February this year. (See earlier IPE story: EU issues warnings over tax discrimination)

The Commission previously sent out letters of formal notice to the Czech Republic, Denmark, Lithuania, the Netherlands, Poland, Slovenia and Sweden over this same matter, but several of these - including Denmark and the Netherlands - have altered their tax rules to comply with EC legislation.

At the same time, the European Commission is also concerned about the quality of corporate governance in certain countries and has now issued reasoned opinions to the Czech Republic, Hungary, the Netherlands, and Poland about their failure to implement national laws concerning disclosure requirements at listed and non-listed companies.

Directive 2004/109/EC requires EC member states to ensure there is "appropriate transparency" of information to shareholders by companies issuing securities on regulated markets.

This requirement states there should be rules in place to make sure there is regulated flow of information concerning voting rights, for example, as well as financial reports.

This directive was meant to be implemented by all member states by March 9 2008, but this has been a particularly controversial issue in some countries, including the Netherlands, where there has been strong criticism of moves to tighten some aspects of corporate governance beyond the requirements of other EU members. (See earlier IPE story: Eumedion slams corporate governance rules)

The EC said it was also bringing a case against Italy for its failure to implement the directive.

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