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Crisis-hit Commission acts on pensions tax

EUROPE – The European Commission, in turmoil today with the collpase of José Manuel Barroso’s team, has taken action against Belgium and Italy over discriminatory pension taxation rules.

The Commission has referred Belgium to the European Court of Justice and has also formally requested Italy to end discrimination. The move followed Barroso’s decision to withdraw his proposed commission before a key vote by MEPs.

He said: “I have come to the conclusion that if a vote is taken today, the outcome will not be positive for European institutions or for the European project.”

Meanwhile, the wheels of the administration have continued to turn. The Commission issued a statement saying it has decided to refer Belgium to the Court of Justice because Belgium is too slow in changing its discriminatory pension taxation rules.

It said: “The main problem is that, under Belgian legislation, pension contributions paid to foreign funds are not tax deductible while contributions paid to domestic funds are.”

The Commission had asked Belgium to change its law last December – but the country replied that it would do so but not until September 2005.

And it has also requested Italy to change its pension taxation rules. “In Italy, also, pension contributions paid to foreign funds are not tax deductible while contributions paid to domestic funds are.”

“The Commission insists that Member States quickly remove any remaining tax discrimination against occupational pension funds of other Member States,” said taxation and internal markets Commissioner Frits Bolkestein.

“The Court of Justice has been very clear in its judgments on pension taxation issues so there is absolutely no reason for Member States to drag their feet in opening up their pension markets."

Chris Verhagen, director general of the European Federation for Retirement Provision, told IPE that the moves against Italy and Belgium were part of the normal course of action for the Commission, regardless of its current problems. “When a policy has been decided then the administration takes action.”

As for the impact of the crisis at the Commission on the EU pension fund directive, Verhagen said there should be no delay to its implementation by member states. “They must implement it one way of the other – or they will be taken to court. It’s in the directive.”

Leonardo Sforza, head of research and EU affairs at Hewitt Associates, said the crisis would not impact legislation already in the works. “For example, this will change nothing on the deadline imposed to member states for the implementation of the so-called pension fund directive by September 2005.”

“Similarly, this situation does not open any ‘grace’ period for member states against whom an infringement procedure has been opened for not compliance with EU principles, as it is the case in the area of tax discrimination for foreign based pension funds.”

He added the actions against Belgium and Italy “show clearly the determination of the Commission in office to be active until the end of its mandate”.

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