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Commission takes on Denmark over pension taxation

EUROPE – The European Commission has decided to take Denmark to the European Court of Justice over pension tax discrimination, as well as starting infringement procedures against the UK and Ireland.

"The Commission is determined to stamp out tax discrimination against foreign pension funds," said internal market commissioner Frits Bolkestein.

He added: "We have already warned member states that we regard such discrimination as illegal, and the Court of Justice has endorsed the Commission's position."

The ECJ has in the past backed the opening up of European pensions – most recently in the Skandia/Ramstedt case last month. This case followed on from earlier cases such as the Safir case in 1998 and the Danner case of 2002.

“The European Commission has decided to refer Denmark to the Court of Justice because pension contributions paid to non-Danish funds are not tax deductible while contributions paid to domestic funds are,” the Commission said in a statement.

It added that Danish legislation is contrary to the principles of freedom to provide services and the free movement of workers and capital. It said that Denmark has not amended its legislation despite a formal request to do so in February this year.

In February the Commission said it was sending letters of formal notice to Italy, Belgium, Spain, France and Portugal over pension tax discrimination – the first stage of the formal infringement process. Denmark was sent a “reasoned opinion” as a preliminary to court action.

It says Danish law “dissuades foreign pension providers from offering their services on the Danish market and it dissuades individuals from taking out voluntary pension insurance with foreign institutions”.

The Commission also expressed “serious concerns” about whether tax laws in the UK and Ireland were compatible with EU law on pension contributions. It will send letters of formal notice to the two countries; they will have two months to reply.

The Commission’s action was welcomed by the European Pension Group’s Geoffrey Furlonger, who said he was not surprised by the move. “I think this general tax discrimination must stop,” he said.

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