UK/EUROPE - Pan-European pensions moved one step closer yesterday as the European Court of Justice found in favour of Rolf Dieter Danner.
The landmark case involved German national Danner who challenged Finnish tax restrictions on contributions paid to his German pension scheme. Finnish income tax law does not grant the same tax privileges to voluntary contributions made to foreign companies as it does to a Finnish one. In March 2000 the case was taken to the ECJ.
In March this year, the Advocate General gave his support to the challenge; a strong indicator of the eventual outcome.
According to law firm Eversheds, the ruling effectively breaks down tax barriers between Finland and the UK in the first instance and is likely to have a ripple effect, breaking down tax barriers between all EU member states.
Eversheds partner, Howard Lewis, believes that the case has set a strong legal precedent for member states to give tax relief for pan-European pension arrangements.
“I think the floodgates tend to move quite slowly in Europe but what this judgement shows is that if someone brings a similar case in another jurisdiction the outcome is pretty inevitable. It is just a matter of time if other tax authorities hold fast.”
Eversheds added that UK multinationals would now be able to plan to for crossborder arrangements and achieve considerable savings in compliance costs as well as reaping the benefits associated with competition. Pensions group partner at law firm DLA, Michael Forkin, also said that the judgement could “probably be applied to a broader range of pioneering situations”.
“It remains to be seen whether a State's tax rules containing no clear national bias but which have detailed approval requirements special to that tax jurisdiction, will come to seen as ‘indirect’ barriers to the freedom of movement of services.
“More progress has been made towards tax harmonisation by this judgement than the Advocate General's opinion might have led us to expect.”
Denton Wilde Sapte solicitor Martin McFall said: “The refusal to allow tax deduction of contributions to foreign institutions discriminated on grounds of nationality.
“Was it justifiable on the grounds of providing a cohesive tax system, fiscal control, preventing tax evasion or protecting the integrity of the tax system? The answer to all these grounds was no.”
Another significant move to harmonise tax relief may also be boosted by a legal battle between Skandia and the Swedish government.
In this instance life insurer Skandia has applied to the ECJ Justice to challenge the Swedish government over its refusal to grant tax relief to a member of its Belgium scheme who is now employed in Sweden. The Skandia case is believed to have wider implications because it involves a company requesting a change in tax rules from its own national government.
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