European Union
EU to tackle obstacles
to cross-border
provision of
occupational pensions
The European Commission has issued
a communication on the issue of tax
harmonisation for cross-border
provision of occupational pensions
which aims to complement the
Commission's proposed Pension Fund
Directive issued in October 2000.
Although it focuses on occupational
pension provision, it also recognises
that many of the proposals may also
apply to individual pension provision
and life assurance services. The main
issues covered by the communication
are:
•The impact of the EC Treaty on the
free movement of workers.
The Commission sets out its views on
how the EU Treaty rules on the free
movement of capital, labour and
services apply to cross-border provisionand concludes that Member States are
required by these rules to eliminate
discriminatory treatment in relation to
membership of occupational schemes
established in other EU States for
mobile workers. It further proposes
examining the national rules for
evidence of discrimination, taking the
necessary steps, including legal action,
to ensure their compliance with the EU
Treaty rules. For workers who do not
move between the EU States, the
Commission recognises that current
community law permits Member States
to require that a scheme fulfils certain
domestic criteria in order for it to gain
tax approval in that Member State.
•Dealing with the diversity of
Member States' tax systems.
It addresses the more deep-rooted
problems of double taxation and
non-taxation arising from the diversity
of national tax systems. The
Commission provides an overview of
the differing tax systems that apply to
occupational pension provision. A
large majority of Member States
operate the EET system (Exempt
contributions, Exempt investment
income and capital gains, Taxed
benefits), but five have adopted
different regimes. The Commission
identifies the problems for individuals
working and retiring in Member States
using different taxation systems.
It also recognises the additional
problem that many do not extend the
tax relief available domestically to
contributions paid to occupational
pension schemes established in other
Member States. Wider application of
the EET system is recommended,
although it is recognised that this is
not a complete solution, particularly in
view of the relative reliance on the
State social security benefits in
different Member States. The
Commission therefore proposes that
Member States should undertake a
detailed study on how these problems
can be addressed in the short term by
a better co-ordination of tax rules. It
does not envisage proposing
legislative measures to harmonise
Member States' pension taxation
systems.
The Commission also recommends
further investigation of ways in which
a pan-European pension plan could be
made operational to enable employees
of multinationals to belong to the
same occupational plan regardless of
where they are employed. It highlights
the structure proposed by the
European Federation for Retirement
Provision which envisages a scheme
with separate sections, each of which
would be approved by the relevant
Member State.
•Safeguarding Member States' tax
rules.
The Commission considers how
Member States can ensure improved
application of their tax laws in the
case of cross-border pension provision
and safeguard tax revenues.
It recommends that Member States
agree on an automatic exchange of
information in respect of benefits paid
by occupational schemes in one
Member State to individuals resident
in another. The framework for this
already exists under the Mutual
Assistance Directive.
The Commission proposes that
details of the information exchange
procedures should be developed in
the Committee established by the
existing Directive.
The news contained in the
Newsbriefs section of The
Multinational is drawn from the News and Issues section of the Watson Wyatt website.
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