Pension groups have welcomed a European Commission proposal on tax, saying it would help ensure that pension funds no longer pay withholding tax on dividends and other profit distributions.
This would in turn also make investments in European stock markets more attractive, they have suggested, supporting the EU’s competitiveness and Savings and Investments Union (SIU) goals.
Adopted last month, the Commission’s tax package aims to simplify EU tax rules and streamline compliance, all in a bid to make the EU more growth- and business-friendly.
The package comprises two proposals: a direct tax omnibus that amends six major laws and a recast of another directive. The omnibus introduces an exemption from withholding tax on all cross-border payments of dividends, interest, and royalties between companies in the EU.
For pension funds, the exemption is brought to life in the context of the so-called Parent and Subsidiary Directive (PSD).
According to the Commission, the exemption introduced by the omnibus will bring savings and benefits of around €5.3bn annually.
Frictions reduced
The Dutch pension federation said the Commission’s proposal rightly recognises the special position of pension funds and aligns with OECD principles. It called on the European Parliament and member states to support the Commission’s approach.
At the European Association of Paritarian Institutions (AEIP), chief executive officer Simone Motto echoed the importance of the Commission proposal recognising the specific role of pension funds as long-term institutional investors.
“By extending the withholding tax exemption under the Parent-Subsidiary Directive to pension institutions, removing the minimum participation threshold, and simplifying the procedures to claim the exemption, the proposal could significantly reduce administrative burdens and tax frictions for pension funds investing across the EU,” he told IPE in a statement.
He said this was directly relevant to the SIU: “If Europe wants to mobilise long-term savings for productive investment, pension institutions need to be able to invest efficiently across the internal market.”
The AEIP also welcomed the proposed link with the FASTER framework, in particular to ensure that relief-at-source and quick-refund procedures are available for publicly traded securities. Motto said this was important because pension funds often invest through normal custody chains and financial intermediaries.
The FASTER Directive obliges member states to adopt either relief at source or quick refund procedures.
Timeline concerns
Of concern, however, is that the relevant provisions concerning the Parent-Subsidiary Directive appear to apply only from January 2037 – “far too late,” said Motto.
The AEIP also believes the practical application of the exemption to pooled investment structures should be clarified.
