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BeeHive  >  BeeLines  >  More euro-rumblings on the company pension front!

More euro-rumblings on the company pension front!

Pensions taxation isnít the most riveting subject in the world, I know that, and any European pensions tax development is a subset of that subject with ĎYawn!í written all over it, I know that too, but get this. A couple of things have happened in the last few weeks that I think will one day turn out to have important and far-reaching ramifications on company pension schemes within these shores. Itís a long story, but Iíll try to give you a flavour of it.....

It starts with what has been happening in Denmark recently. I know thatís boring and youíve got better things to do with your time than read about Danish pensions, but hear me out, there is a point to it. Whatís happened in Denmark is that the European Commission has just decided to refer Denmark to the Court of Justice, and thatís a pretty serious step. Theyíre doing it because pension contributions made by Danish companies into non-Danish pension funds are not given any tax concessions, whereas they would be if they were paid into Danish approved funds. The Commission takes a dim view of this as it is contrary to the principles of freedom to provide services and it also restricts the free movement of labour within the European Union. (For the propeller-heads among you thatís effectively a breach of articles 49, 39 and 56 respectively of the EC Treaty.) The thing is, this is the second step the EC has taken against Denmark this year. The first, back in February, was when they were given a formal request to amend their legislation to bring it in line with EU law. They didnít comply with that request, so the next stage is that Denmark is now being referred to the Court of Justice on this issue of discrimination.

So whatís this all got to do with UK pensions? Well, the Commission has decided it has serious concerns about the way the UK and the Irish tax systems treat pension contributions in this respect too, and they have issued so-called Ďletters of formal noticeí to both States. This is effectively the first stage on the road that Denmark is already some way down, and constitutes our own initial involvement in formal infringement procedures. The UK has two months to reply to the request for information on its tax legislation and its effects in practice and the next stage could well be a request from the EC that we change our legislation. But what sort of changes are we talking about here? And how important are they?

Well, for a start what the Commission is trying to do is to make it possible for mobile workers to get equal tax concessions on pension contributions they make and those their employers make on their behalf, wherever they happen to be working in the EU. They are also looking to allow multi-national companies to centralise the occupational pension schemes they run for their employees in different EU countries into one single scheme. This would, of course, enable large employers to benefit from considerable savings and economies of scale, but it is a long way from where we are at the moment.

Clearly, this is something that is going to run and run, but itís entirely in line with the direction set earlier this year when the EC adopted the recent Pensions Funds Directive. You may remember I wrote a number of BeeLines on that at the time, mainly because we nearly lost our right to tax-free cash in the UK because of what looked like a little misunderstanding. I said at the time that we need to keep a close eye on all things European if we want to understand the future direction pensions are likely to take over here. This latest rumbling from over the horizon is something Iíll be watching closely and Iíll report back to you from time to time as things develop. For a start itíll be interesting to see where the Danish stuff ends up.....

Steve Bee
16 July 2003

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