EUROPE - The European Commission has decided to refer Sweden to the European Court of Justice for its discriminatory tax legislation on pensions.

Domestic schemes in Sweden pay no tax on contributions but on retirement income. Occupational pension insurance taken with insurers based elsewhere in the EU and European Economic Area gets taxed as salary in the hands of the employee.

Although pension payments are then exempt, the Commission believes that the difference is unfair. Savings with foreign providers will accrue at a far lower rate.

"The legislation clearly restricts the possibilities for insurers established elsewhere… to sell insurance policies in Sweden and dissuades employers from subscribing to foreign insurance policies," noted the Commission in an official statement. It added that tax rates on workers tend to be higher than those in retirement, compounding the disparity. 

This is the third time that Sweden has incurred the wrath of the European authorities for impeding market freedoms in pension provision. The Safir case and the Skandia case previously found that the Nordic State discriminated against the purchase of life insurance abroad and the fiscal advantages of contributions to occupational pension insurance contracts.