EUROPE – The European Commission today issued a communication as opposed to a full-blown directive on the issue of tax harmonisation for cross-border provision of occupational pension schemes.

In a statement on the expected move, the Commission says it believes bringing a communication represents the best way to apply freedom of movement rules that already exist on a non-discriminatory basis in the Treaty of Rome.
This it says obliges member states to eliminate discrimination against pension institutions established in other member states.

However, the proposal does not lack teeth, with the Commission warning it will take member states to the European Court of Justice to ensure compliance with the Treaty.

The Commission says it is seeking a co-ordinated approach adapted to the diversity of member states rules, rather than an attempt to achieve harmonisation.

Taxation Commissioner, Frits Bolkestein, comments: “ This initiative presents comprehensive solutions to deal with the many existing tax obstacles to the cross border provision of occupational pensions.
“ A fully functioning internal market for occupational pensions is essential to ensure that citizens are able to exercise their rights to free movement.”

A full-blown directive, the Commission adds, would at best do no more than reiterate treaty rights and at worst make unconditional treaty rights “hostage” to the political process.

Due to the unanimity rule in Europe on taxation questions the Commission says it is unlikely that the Council of Europe would agree on anything but the most limited measures concerning taxation of short term postings of employees abroad.
“ A directive limited to posted workers would go much less far than the requirements of the treaty itself,” says the Commission

In essence the Commission’s proposals dictate that workers belonging to a scheme approved for tax purposes in their home state who then move to another member state cannot be refused tax reductions on contributions on the grounds that the scheme does not meet the conditions for tax approval in the new state.

Equal treatment will also have to be applied in relation to any yield and benefit tax.

Consequently, national rules denying equal treatment to pension schemes operated by pension institutions established in other member states will be seen as being in breach of the EC Treaty and legal action may be taken by the Commission.