The OECD must ensure its proposed tax framework fully includes pooling vehicles used by pension funds, and does not disadvantage insurance companies in any way, industry groups have urged. 

Responding to an OECD consultation on its model tax convention, drawn up by the think tank as part of its work with G20 nations around base erosion profit shifting, PensionsEurope said it was important to ensure the streamlined tax framework also applied to pension funds using pooled vehicles for their investment. 

The new convention aims to remove inconsistencies hampering pension funds’ ability to establish their country of residence due to the numerous bilateral tax agreements struck between nations, allowing investors to reclaim tax more easily.

PensionsEurope also expressed concern at wording within the convention that pension investors used wholly owned entities – such as collective investment vehicles – that were resident “in the same state” to hold assets, noting that the wording could, for example, cause problems for a German pension fund using a Luxembourg-based vehicle for its activities.

To remove any doubts that vehicles based in other states were permissible, PensionsEurope suggested the OECD employ wording that a vehicle was based in a state that had entered a tax treaty with the pension provider’s home state.

The Danish industry association, Forsikring & Pension (F&P), raised concerns that the insurance industry – largely responsible for the provision of pension benefits in the country – could be disadvantaged by the framework, despite its being subject to the same domestic regulation as pension funds.

“Thus, it is very important to clarify explicitly that they in this role receive the same treatment and are also covered by the definition of ‘recognised pension fund’ in the OECD Model Tax convention – to ensure a level playing field,” the association said.

“If life insurance companies are not covered by the definition, an essential part of the Danish workforce may be taxed more heavily than in other countries organised in a different way.”

F&P also echoed concerns across the pensions industry that only pension funds exclusively providing pension benefits would be classed as recognised pension funds by the convention, instead endorsing the use of “almost exclusively”.

The view was shared by the Dutch Pensions Federation, which said it was “too restrictive” to apply to pension funds in the Netherlands.

For its part, PensionsEurope noted that the OECD’s initial report on the matter recognised pension funds would “exclusively or almost exclusively” provide retirement benefits and urged a return to the phrasing.

“This addition,” it said, “would guarantee that a fund should be a recognised pension funds when the purpose is to administer or provide retirement or similar benefits, while other activities would be allowed and subordinated to the main activity of retirement provision.”