BELGIUM/FRANCE - The European Commission has begun the first stage of proceedings against the Belgian and French governments to try and reform their tax terms on pensions.

At this stage, the EC is only requesting, under Reasoned Opinion, that authorities alter the rules considered to be discriminatory against investors in other member states and against protectionist business practices.

France has been asked to change withholding tax rules which discriminate against foreign pension and investment funds seeking to in French companies, even though France's Supreme Court, Conseil d'Etat, last year ruled in favour of Dutch pension fund PfZW and said it would rebate tax on dividends to Dutch pension funds. (See earlier IPE story: French Supreme Court acts on pension rebates)

Despite the earlier ruling in favour of Dutch pension funds, French law still imposes a 25% withholding tax on dividends paid to overseas pension funds, albeit this is reduced if there is a bilateral agreement with the member state of the fund.

The EC therefore deems this to be an infringement of the free movement of capital, in much the same way as it has imposed similar decisions on other countries, such as Germany. (See earlier IPE story: EC pursues Germany on pension dividends)

At the same time, Belgium has been asked to change an income tax rule which only provides tax relief on pensions savings to Belgian institutions which invest in Belgian funds, as this is considered to be an infringement of the Third Life Directive.

Discussions appear to have already taken place as Belgian authorities claim, according to the EC, it applies this rule to "safeguard the security of monies invested by pension savers".  However, the EC has found an alternative route and argues Belgium could use the Mutual Assistance Directive to check the information provided by foreign providers or funds.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

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