Tax Obstacles for Cross-border Pensions in EU : A case study on pension related cases and their impact on national tax provisions
Abstract: Ever since the barriers between the Member States have diminished, more and more European Union (EU) citizens have chosen to work in a different State than their home state. Problems have occurred because of this cross border activity when workers have chosen to keep their pension funds taken in the home state, while working in the second State. These problems are caused by the national tax systems but also of the different tax rules that Member States have on pensions. Generally, most Member States’ pension systems are divided into three pillars. The first pillar is the social security scheme. The second one is the occupational scheme while the third pillar is the individual pension scheme. Together, the second and third pillars are recognized as supplementary pensions, since they supplement the pension incomes that arising from the first pillar. This thesis concerns the taxation of national persons who are covered by some type of occupational or private pension scheme. Most of the States do not allow deduction for premiums paid to these pensions that are taken with insurance companies established outside their territory. In a number of cases the ECJ has ruled that tax legislations that do not allow deductions of premiums or in some way prohibit the free movement shall be seen as discriminatory. The famous Bachmann case has been the only exception, where the ECJ ruled that the Belgian discriminatory rules could be justified in order to preserve the cohesion of the national tax system. The cohesion principle can be invoked if there exist a direct link between the deduction of contributions and the liability to tax the sums that will be paid to the beneficiary. Even though other justification grounds such as the effectiveness of fiscal control, the preservation of the tax base and the preservation of the tax neutrality has been invoked by Member States in various cases, the ECJ has not accepted them. Up to this point it is only Belgium that has succeeded to get the ECJ on its side. Conclusions can be drawn that the EC Treaty’s fundamental rights cannot be set aside by the Member States’ wish to preserve various tax protections, except when it is considered to be an absolute necessity, which has proven to be very seldom. Conclusion have been drawn that the ECJ has, through its judgments, had an immense impact on the national tax rules. Even though direct taxes are considered to be a part of a nation’s sovereignty, the ECJ has in an indirect way interfered with this sovereignty by invoking the EC Treaty’s free movement rules. The Court has thereby indicated that the Member States cannot freely construct their tax rules since they have to be consistent with the EC Treaty rules. Conclusions have also been drawn that the ECJ’s rulings are important for the strengthening of the supplementary pensions. EU citizens should be able to move freely between Member States and should keep their supplementary pensions in the State where they have been taken out and should not worry about ending their current pension funds in order to conclude new contracts in the State where they work, in order to be allowed deductions of contributions.
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