Pan-European pensions win in ECJ case
On Thursday March 21, 2002, the general advocate Jacobs presented his conclusions to the European Court of Justice (ECJ) in the Rolf Dieter Danner case. Danner is a physician who emigrated from Germany to Finland. Being a tax resident in Finland, he continued to pay social security contributions into the German ‘Berliner Ärzteversorgung’. The ‘Berliner Ärzteversorgung’ is a compulsory occupational pension scheme that doctors in Berlin have to adhere to. Upon leaving Berlin, affiliates have the option to continue to contribute in this pension scheme. This is what Danner did. The Finnish tax authorities, however, denied tax deduction of the payments to the German pension scaheme on the basis of the Finnish tax code.
The general advocate questions whether if this Finnish tax regulation is in line with several articles of the treaty:
q Article 49 (freedom to provide services)
q Article 56 (freedom of movement of capital)
q Article 12 (discrimination against nationalities)
q Article 87 concerning state aids
In his comments, Jacobs mainly focuses on article 49. The conclusion of Jacobs is straightforward: article 96 of the Finnish tax code does not comply with the European Treaty.
Finland is arguing that the freedom to provide services could be restricted by considerations of four different types:
q Maintaining the coherence of the Finnish tax system
q Efficiency of tax controls
q Avoiding tax fraud
q Keeping the integrity of the tax base
The ECJ is already familiar with the fiscal coherence argument as it has been argued in former cases. Finland claims that a link should exist between a tax deduction up front and a taxation of the benefit later on. The general advocate does not accept this argument. Jacobs notes that, even so the contributions to the ‘Ärzteversorgung’ are not deductible, benefits will be taxable in Finland. The Finnish tax system is not symmetric on this point and the argument of fiscal coherence has to be rejected.
Furthermore, Finland is arguing that tax controls have to be efficient and should help avoid tax fraud. Jacobs however believes that the absence of tax deductibility violates the principle of proportionality: it should be possible to reach the aim of efficient tax control without imposing such radical means as the non-deductibility.
In most cases, the court is following the recommendations of the general advocate. For this reason his conclusions are extremely encouraging for European cross-border pension product providers.
The Danner case could definitely pave the way for the European cross-border pensions market and open new opportunities for financial centres trying to promote the idea of cross-border pension vehicles. For the time being Ireland (for special purpose insurance companies) and Luxembourg (with international pension funds) seem to be perfectly well prepared to enter this market.
Fernand Grulms is director of PECOMA International, a pension consulting firm in Luxembourg and member of the International Benefits Network (IBN). Contact firstname.lastname@example.org