[13443]
April 25, 2001
TO: INTERNATIONAL COMMITTEE No. 32-01
RE: COMMISSION COMMUNICATION ON TAX OBSTACLES OF EU OCCUPATIONAL
PENSIONS
On April 19, 2001, the Commission released a communication to the Council of
Ministers, the European Parliament, and the Economic and Social Committee on eliminating tax
obstacles to the cross-border provision of occupational pensions. The Commission issued a
communication rather than a proposal for a new tax directive, which would have required
unanimous approval by member states. The communication is not binding on the member
states. A copy of the communication is attached.
The Commission’s communication is intended to complement the proposed EU
directive on occupational pensions by addressing the tax aspects of cross-border occupational
pensions.1 The communication does not attempt to achieve harmonization of member state tax
rules but seeks a coordinated approach. Specifically, the communication calls for the
elimination of unduly restrictive or discriminatory tax rules and presents measures to safeguard
member state tax revenues. As the basis for eliminating discriminatory practices, the
Commission looks to the European Community (EC) Treaty, which prohibits discrimination on
grounds of nationality, unequal treatment and other restrictions on the free movement of
workers, freedom of establishment, and free movement of services and capital.
Cross-Border Provision of Pensions
Taxation of Pensions
The Commission takes the view that there are no grounds justifying unequal treatment
of schemes operated by pension institutions established in other member states: national rules
cannot condition the deductibility of pension and life insurance contributions on the
contributions being made to a domestic institution, and equal treatment must be provided for
any yield tax (taxation of income and capital gains of pension assets) and taxation of benefits
under domestic and cross-border schemes.
1 See Memorandum to International Committee No. 22-01 (Mar. 23, 2001) (Parliament’s draft report on the
Commission’s proposal); Memorandum to International Committee No. 38-00 (Oct. 26, 2000) (Commission’s
original proposal).
2In the communication, the Commission makes a distinction between two situations: one
in which citizens who are resident in a member state join a foreign scheme and the other in
which citizens who already belong to a pension scheme move to another member state. In the
first situation, the Commission believes that the member state in which the citizens are resident
may require that the scheme meet conditions for tax approval relating to the nature and level of
benefits, age of retirement, qualifying beneficiaries, and other similar conditions. In the second
situation in which citizens who already belong to a scheme move to another member state,
according to the Commission, the host member state may not refuse to grant tax deduction of
contributions paid to the foreign scheme because the scheme does not meet its conditions for tax
deduction.2
Safeguarding of Member State Tax Rules
Recognizing the concerns of the member states regarding their ability to enforce
properly the tax rules if they allowed their residents to participate in foreign pension schemes,
the Commission’s communication examines ways in which member states can safeguard their
revenues. The Commission discusses a system for exchanging information and its intention to
request that a committee under the Mutual Assistance in Tax Matters Directive hold
consultations in order to agree to the details for the information exchange.
As a possible alternative or supplement to the information exchange, the Commission
also describes a proposal made by industry for pan-European pension institutions that would
allow employees of a multinational company to belong to the same pension institution
regardless of the member state in which they are employed. Under this system, a pan-
European pension institution located in one member state would have different sections, each
section complying with the requirements for tax approval, tax regulations, and social laws of
the member state in which the person is employed. The Commission invites member states to
explore with the Commission how a proposal for pan-European pension institutions could
become operational.
Double Taxation or Non-Taxation of Pensions
The Commission notes that the differences among the national rules for deductibility of
contributions and taxation of benefits may lead to double taxation or non-taxation for workers
moving to another member state or persons retiring to another member state. Member states
generally tax pensioners in their country of residence regardless of the member state in which
their contributions were deducted.
Member states have different pension taxation systems with respect to contributions,
investment income and capital gains, and benefits. Eleven member states have an EET system
(Exempt contributions, Exempt investment income and capital gains, and Taxed benefits); three
have an ETT system (Exempt contributions, Taxed investment income and capital gains, and
Taxed benefits); and two have a TEE system (Tax contributions, Exempt investment income and
2 Under the equal treatment principle, the total tax deduction that the host member state is obligated to grant
would be limited to the deduction granted to domestic pension institutions.
3capital gains, and Exempt benefits).3 Because most member states have an EET system, the
Commission takes the view that an alignment of pension taxation systems on the basis of the
EET principle may be the most practical approach. The Commission welcomes broader
acceptance of the EET principle to reduce the likelihood of double taxation or non-taxation for
workers moving to another member state or for persons retiring to another member state.
The Commission notes that, even among the member states that have an EET system,
there are significant differences in the levels of deductibility of contributions for the second
pillar. These differences may reflect choices by member states in designing their first and
second pillars. As a result, the Commission does not envision proposing legislation to
harmonize member states’ pension taxation systems. The Commission encourages unilateral or
bilateral solutions to the double taxation or non-taxation problem and is prepared to assist
member states in undertaking a detailed study of existing bilateral provisions that could
provide a general solution.
Commission’s Conclusions and Recommendations
The Commission intends to monitor the national rules and take necessary steps to
ensure effective compliance with the EC Treaty, including bringing matters to the European
Court of Justice. The Commission also will examine national tax rules impeding the cross-
border transferability of pension capital. The Commission also invites the Council, the
European Parliament, and the Economic and Social Committee to examine the Commission’s
proposals for an exchange of information and pan-European pension institutions, consider
broader application of the EET principle within the EU, and examine the measures necessary to
eliminate unjustified obstacles to the free movement of workers resulting from the diversity of
member states’ occupational pension taxation systems.
* * *
The Commission’s communication has been forwarded to the Parliament and the
Council of Ministers for discussion. On the EU occupational pensions directive, we understand
that the Parliament will not likely vote on the directive at a plenary session until after the
summer recess.
Please let us know if you have any concerns about the Commission’s communication.
If you have any comments or questions, please contact me at (202) 326-5810 or at
jchoi@ici.org.
Jennifer S. Choi
Assistant Counsel
Attachment
3 Germany applies both the EET and the TEE systems.
4Attachment (in .pdf format)