“Towards a Single Market for Occupational Pensions Without Tax Obstacles” May 25| 9:00 AM – 9:45 AM Peter Schonewille, European Commission, DG TAXUD/E/3 Competence Centre for Pension Research, University of Tilburg Email: peter.schonewille@ec.europa.eu, Phone: + 32 2 29 55 919
AGENDA • EU�tax�developments�since�San�Diego�2003: – Cross�border�contributions – Cross�border�transfer�of�capital – Pan�European�pension�funds – Discriminatory�taxation�of�investment�results�(dividends,� interest,�real�estate) – Asset�pooling
FOR NON-EU LAWYERS • Harmonisation�of�pension�taxation�rules�very�unlikely • Tax�Directive�would�require�unanimous�support�of�27� Member�States • Creation�of�level�playing�field�in�EU�will�come�via�anti� discrimination�provisions�of�EC�Treaty • If�necessary,�via�European�Court�of�Justice
EET, TEE, ETT, TTE • Dominant�system�in�EU�is�EET:�contributions�Exempt,� results�of�fund�Exempt,�benefits�Taxed • TEE:�Luxembourg,�Germany�(is�moving�to�EET),�Poland,� Hungary • ETT:�Sweden,�Denmark,�Italy,�Cyprus • TTE:�normal�savings,�without�tax�subsidy
CROSS-BORDER DEDUCTIONS • Problem�was�that�many�EET�or�ETT�states�did�not�give� tax�relief�for�pension�contributions�paid�to�pension�funds� established�in�other�Member�States� • Commission�started�infringement�cases�against�nine�(of� the�old�15)�EET/ETT�Member�States�for�not�allowing� cross�border�deduction
COURT RULINGS • ������������� ������� ,�Case�C�150/04�of�30�January� 2007�and� ������������� ������� ,�Case�C�522/04�of�5� July�2007: Tax�relief�for�contributions�paid�on�pension�contracts�with� domestic�providers�and�no�such�relief�for�contributions� paid�to�institutions�in�other�Member�States�is�against�the� EC�Treaty
DISCRIMINATION ELIMINATED • Pension�funds�can�now�receive�contributions�from�all� Member�States�without�tax�discrimination,�only�situation� in�Bulgaria�(€ 360�per�annum)�remains�unclear • Conclusion:�Main�tax�barrier�for�cross�border�labour� mobility�and�pan�European�pension�funds�has�been� eliminated
PENSION CAPITAL TRANSFER • Mobile�workers�may�wish�to�transfer�their�pension�capital� to�fund�of�new�employer • Multinationals�with�pan�European�fund�may�want�to� centralise�pension�capital�in�pan�European�fund • Otherwise�they�need�to�continue�to�operate�their�old� funds�+�new�pan�European�fund
OUTBOUND RESTRICTIONS • European�Court�of�Justice�in�the�same ������������� ��������� C�522/04:�If�domestic�transfers�are�tax�free� taxation�of�outbound�transfers�is�forbidden • This�case�should�help�to�convince�other�Member�States� to�change�their�law�where�necessary
LIMITED INFORMATION • In�this�stage�only�Belgium,�Greece,�Lithuania,� Luxembourg�and�the�Netherlands�appear�to�allow� outbound�transfers�and�have�no�tax�discriminations • Infringement�cases�will�come • Please�send�email�to�Commission�if�you�encounter�tax� discrimination
PAN-EUROPEAN PENSION FUNDS
PENSION FUND DIRECTIVE Officially:�“Directive�2003/41/EC�of�the�European� Parliament�and�of�the�Council�of�3�June�2003�on�the� activities�and�supervision�of�institutions�for�occupational� retirement�provision�(IORPs)”
PURPOSES DIRECTIVE • Help�to�create�a�Single�Market�for�occupational�pensions • Set�minimum�standards�for�prudential�supervision • Provide�a�single�passport�for�cross�border�pension� provision • Guarantee�a�high�degree�of�security�for�workers�and� companies�
REVISION DIRECTIVE • Commission�is�examining�whether�solvency�rules�should� be�changed • Commission�organises�Wednesday�27�May�2009� conference�in�Brussels • Will�be�for�new�Commissioner�for�the�Internal�Market�to� decide�on�way�forward�
THE MARKET
SEVEN TRILLION • Large�potential�pan�European�pension�market • € 7.000.000.000.000�capital�with�pension�funds�at�stake • Not�all�Member�States�appear�interested • Only�Ireland,�Luxembourg,�Belgium�and�the�Netherlands
NUMBER OF IORPS • 11�November�2008:�CEIOPS�reports�70�IORPS�with� cross�border�activity�in�EU,�31�new�ones�since�entry�into� force�of�Directive.�22�new�IORPS�since�January�2007 • Directive�also�applicable�in�Norway,�Iceland�and� Liechtenstein,�members�of�European�Economic�Area� (EEA)�Agreement
WORLD PERSPECTIVE • Clients�for�pan�European�solutions�are�by�definition� multinationals • Many�multinationals�have�subsidiaries�outside�the� EU/EEA • Pan�European�solutions�will�be�unique�in�the�world
LIABILITY POOLING • If�and�when�the�EU�generates�pension�providers�that� can�deal�with�the�social,�labour�and�tax�law�of�up�to�thirty� different�jurisdictions�these�same�providers�may�be�able� to�deal�with�the�off�shore�arrangements�for�expats�from� non�EEA�States
INTEL EXAMPLE • IORP�in�Ireland • Sections�for�Ireland,�UK,�Poland�and�Hungary�are� operational • Sections�for�Russia,�Egypt�and�Turkey�are�being� developed
THIRD STATES • Under�some�bilateral�tax�treaties,�for�instance,�Belgium� US,�US�will�grant�tax�relief�for�pension�contributions�paid� to�pan�European�pension�fund�for�mobile�worker�who� was�sent�from�Belgium�to�US • Conclusion:�Pan�European�pension�funds�may�also� provide�tax�efficient�solutions�for�expats�working�outside� EU
OBSERVATION • Companies�starting�with�liability�pooling�will�follow�step� by�step�approach�(see�Intel) • Start�where�the�need�is�greatest:�expats/mobile�workers • Start�with�one�other�Member�State,�and�gradually�extend� number�of�Member�States�from�which�contributions�are� paid�into�pan�European�fund
DISCRIMINATORY TAXATION OF INVESTMENT RESULTS OF FOREIGN PENSION FUNDS
INTEREST & DIVIDENDS • In�EET/TEE�States�domestic�pension�funds�exempt�from� tax�on�investment�results • Often�exemption�at�source�of�withholding�taxes�on� dividend�and�interest�payments,�if�there�is�no�exemption� at�source�refund�procedure�for�withholding�taxes • However,�no�exemption�at�source�or�relief�procedure�for� foreign�pension�funds
RESTRICTION • Result:�source�State�levies�higher�tax�on�outbound� dividend�and�interest�paid�to�pension�funds�then�on� domestic�dividends�and�interest • Clear�restriction�of�free�movement�of�capital�of�Article�56� EC�(and�possibly�Article�43�EC�on�freedom�of� establishment) • No�justification�in�sight
DISRIMINATORY TAXATION OF INVESTMENT RESULTS • The�Commission�has�already�opened�infringement� procedures�against�the�Czech�Republic,�Denmark,� Spain,�Lithuania,�the�Netherlands,�Poland,�Portugal,� Slovenia�and�Sweden,�Italy,�Germany,�Estonia,�Austria,� Spain�and�Portugal�for�taxing�the�investment�results�of� foreign�pension�funds,�whereas�domestic�funds�are� exempt
ONGOING PROCESS (1) • 27�November�2008:�Commission�refers�Spain�and� Portugal�to�European�Court�of�Justice�for�levying� withholding�tax�of�18�%�(Spain)�or�25%�(Portugal)�on� dividends�paid�to�foreign�pension�funds�while�exempting� domestic�pension�funds�from�corporation�tax
ONGOING PROCESS (2) • 14�May�2009:�Commission�sends�reasoned�opinion�to� Poland�for�exempting�Polish�pension�funds�from� corporation�tax�while�levying�withholding�tax�of�19�%�on� dividends�and�20%�on�interest�paid�to�foreign�pension� funds
FINANCIAL CONSEQUENCES • Apparently�tens�of�billions�Euro�at�stake • Many�funds�in�Europe�are�filing�claims�with�the�source� States,�as�far�back�as�they�can • They�have�to�safeguard�their�rights�themselves • Commission�works�only�for�the�future
THIRD COUNTRIES
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