UK/SWITZERLAND - UK pension funds investing in Swiss companies will get their tax at source on dividends refunded under a new amendment to bilateral agreements signed today.

The same applies to Swiss retirement institutions investing in the UK once both national parliaments have passed the new legislation.

In the amendment to the 1977 double-taxation convention, pension funds are now eligible for exemption from tax at source on dividends for the first time.

Taxation of pension benefits will also change under the protocol signed by the Swiss ambassador and UK's paymaster-general in London today. In future, lump sum payments may be taxed only by the state in which they arise.

Furthermore, pension contributions made in one country will be made deductible in the other country under certain circumstances.

Elsewhere, the European Financial Services Round Table (EFR) published a proposal on how to overcome obstacles in the creation of third-pillar pan-European pensions.

In its report entitled "Pan-European Pension Plans - From Concept to Action" the EFR noted it is "not entirely true" that different tax regimes are the biggest hurdle for pan-European pension provision.

The think-tank consisting of leading asset managers, banks and insurance companies suggests that the pension should "qualify for tax treatment in the country where the planholder pays taxes".

The pan-European pension provider "could be required to set up compartments [similar to sub-accounts] for every country that has special rules regarding the tax deductibility of the pension contributions or benefits," the EFR suggests.

It pointed out that while tax harmonisation would be preferable but "not likely to occur in the medium term". The EFR added "problems caused by different tax rules should be removed irrespective of the development" of pan-European pensions.