EUROPE - The European Court of Justice (ECJ) has made its first ruling on tax obstacles to the cross-border transfer of pension capital.

In the case European Commission vs Belgium - case C-522/04 - concerning the tax deduction of contributions paid to other member states, the ECJ ruled in favour of the Commission.

It said that Belgium had previously been in breach of European law when it had limited the tax deductibility of pension contributions to those paid to Belgian pension funds, thereby leaving domestic transfers tax free, while pension capital transferred to a foreign pension fund was taxed.

The Commission had found it unacceptable that pensions paid to persons who moved to other EU states should remain taxable in Belgium under its domestic law, even where under bilateral tax conventions Belgium had ceded its taxation rights over such pensions to other states.

The Commission had also rejected Belgium's requirement that foreign pension funds designate a tax representative in Belgium before offering their services in the country.

However, Belgium had already corrected these infringements by 1 January 2007.

Maria Assimakopoulou, spokesperson for European taxation and customs commissioner László Kovács, said: "This ruling is significant because it is the first ruling in relation to the cross-border transfer of pension capital. As Belgium has already changed its system, it is more of a symbolic ruling and a precedent for other member states to convince them that they have to comply with the system by having the same provisions."

Chris Verhaegen, secretary general of the European Federation of Retirement Provision (EFRP), welcomed the ruling as a breakthrough: "It is a very good outcome for us as representatives of second pillar pension institutions because the court has been very clear in stating that transfers between pension institutions across borders should not be subject to taxation.

"It is very important that employee or employer contributions to second pillar funds can be paid into institutions that are established across borders. And the decision is continuing the line of previous decisions by the court."