EUROPE – Last week’s tax communication on cross-border pension provision by the European Commission (EC) has been welcomed by consultant PricewaterhouseCoopers (PWC), although the adviser warns that the UK government will have to come up with a response to the EC over its own tax treatment on contributions made to overseas pension plans.

Praising Commissioner Bolkestein’s initiative, which shifts the responsibility from the European Union to member states to tackle tax relief for members of pension plans in other countries, Rosemary Bustin, a senior manager at PricewaterhouseCoopers, notes:
“Without this tax initiative, the proposed directive risked being a damp squib. Companies would not have enrolled their employees in a pension plan in another country if it meant that they or their employees faced higher tax bills.”

Bustin adds that the UK government already gives unilateral tax relief to foreign posted workers, and has bilateral agreements with Denmark, France and Ireland.
Such agreements, however, she stresses, are based on the fact that the UK government accepts that the posted worker’s retirement plan is similar to a UK approved plan; a condition, which might have to be dropped in light of the EC announcement.

“Moreover, UK nationals do not generally receive tax relief on pension contributions paid to a plan in another EU member state. The UK government will therefore have to come up with a response to the commission,” says Bustin.