Select Committee on European Scrutiny First Report


COM(01) 214

Commission Communication on the elimination of tax obstacles to the cross-border provision of occupational pensions.

Legal base:
Document originated: 19 April 2001
Deposited in Parliament: 27 April 2001
Department: Inland Revenue
Basis of consideration: EM of 5 May 2001
Previous Committee Report: None
Discussed in Council: 7 May 2001 ECOFIN
Committee's assessment: Politically important
Committee's decision: Cleared


30.1  The Commission estimates that around 25% of the Union's active population is covered by an occupational pension scheme and that around 5.1 million European citizens aged 15 years and over reside in a Member State other than their Member State of origin. At present, tax obstacles to cross-border provision of occupational pensions can impede citizens who wish to take up employment or residence outside their home state. These tax obstacles prevent a fully functioning single market in occupational pensions and may also prevent European businesses from choosing the most efficient way of providing pensions for their employees by centralising their pension provision.

The document

30.2  Although the Communication has no legal status, it gives the Commission's view on how Member States should strike a balance between their Treaty obligation to allow persons, services and capital to move freely within the internal Market and their legitimate social policy aims pursued through tax policies relating to occupational pensions.

30.3  The Commission argues that the EC Treaty obliges Member States to eliminate discrimination against pension institutions established in other Member States. It also argues that recent case law from the European Court of Justice supports this view. It considers that the most effective and immediate method of tackling tax obstacles to cross-border pension provision is to apply the rules that already exist in Articles 39, 43, 49 and 66 of the EC Treaty on free movement of capital, free movement of labour and the freedom to provide services. The Commission considers that national rules should grant the same tax deductions for contributions to domestic pension institutions as for contributions to those established in other Member States, and that, for tax purposes, benefits should be treated equally.

The Government's view

30.4  In her Explanatory Memorandum of 5 May 2001, the then Economic Secretary to the Treasury (Melanie Johnson) told us that in principle the UK Government supports efforts to overcome tax obstacles to the cross-border provision of occupational pensions. The Minister outlined the action called for by the Commission and the Government's position:

    "The Commission calls for action on:

    "—  Alignment of tax treatment to exempt contributions to a scheme, exempt Investment Income within the scheme and tax the pension and benefits. As the UK already uses this tax treatment no new legislation would be required.

    "—  Elimination of discrimination against schemes established in other Member States. The Government already makes available generous reliefs to overseas schemes, where those schemes are similar to UK established schemes. The Government will however consider any areas that could be construed as being discriminatory.

    "—  Protection of Member States tax revenues from pensions through Exchange of Information (EoI) using existing provisions in Mutual Assistance Directive (77/799/EEC) of 19 December 1977. The Government is responsible for instigating EoI under the proposed Savings Directive and intends to contribute fully to the discussions on how to react to this Communication.

    "—  Proposals for unilateral, bilateral and multi-lateral approaches to removing double taxation and exemption. The UK has already included in Double Taxation Agreements specific rules that deal with the taxation treatment of contributions and pensions.

    "—  Part of the new strategy, which the Commission adopted on 28 February this year to open up pan-European labour markets by 2005. The Government will consider these proposals carefully."

30.5  We understand that no progress was made in ECOFIN on 7 May 2001 and that France remains firmly opposed to the Commission's proposals.


30.6  We broadly support the aim of removing tax obstacles to cross-border provision of occupational pensions. We note that, in pursuit of this aim, the Commission has adopted a non-legislative approach, which we welcome. Finally, we note that the approach will have limited effect in the UK. We clear the document.

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Prepared 30 July 2001