SWEDEN - The European Commission has asked Sweden to end its "discriminatory" pension tax legislation under which tax deductions apply to pension contributions made into domestic funds but not foreign funds.
The newly elected Commission said the formal request sent to Sweden demonstrated its “commitment to continue the work commenced by the previous Commission on the elimination of tax obstacles to the cross-border provision of occupational pensions”.
“The main problem is that, under Swedish law, pension contributions that an employer makes on behalf of his employees to foreign pension funds are not tax deductible while contributions paid to domestic funds are,” the Commission said.
Commenting on the decision, Taxation and Customs Commissioner Laszlo Kovacs (pictured) said: “The European Commission is determined to tackle tax discrimination against occupational pension funds of other Member States.
“The Court of Justice has in its judgement in the Skandia case provided very clear guidance on pension taxation and Sweden must bring its law into line with that judgement without delay.”
The Commission said current legislation in Sweden made it “less attractive” for insurers established elsewhere within the EU or the European Economic Area (EEA) to sell insurance policies in Sweden and “dissuades employers from subscribing to foreign insurance policies”.
“The Commission therefore considers that the Swedish legislation constitutes an obstacle to the freedom to provide services and the free movement of capital guaranteed by the EC Treaty and the EEA Agreement.”
In October, the Swedish government proposed to amend its rules by reducing the yield tax rate from 27% to 15% for policies taken out with insurers established within the EEA. However, the proposal does not note any changes to the existing rules concerning the deductibility of premiums paid to foreign insurers, an aspect of the Swedish legislation that the European Court of Justice found to be incompatible with the Treaty in its June 2003 decision in Skandia.
“Similarly, the proposal would involve no changes with regard to the compliance burden of a holder of a foreign policy,” the Commission said.
“Thus, the proposal will not, even if adopted, be sufficient to bring Swedish legislation in line with EU law.”
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