UK - The European Commission has told the UK to amend legislation to end the "discriminatory" tax breaks offered to schemes set up on a trust basis.
Exemption of employer contributions from income tax is seen as an “obstacle to the cross-border provision of occupational pensions” and the government risks being taken to the European Court of Justice.
The EC – in a letter to the UK government – says current legislation must be amended to extend the favourable tax treatment to contributions paid to schemes not fulfilling specific national requirements.
EC taxation and internal market commissioner Frits Bolkestein said it was “unacceptable” that some member states still practised tax discrimination against foreign pension funds.
Clerical Medical manager of industry affairs Stewart Mason believes the government may have to make amendments to the Pensions Bill to address the problem.
He expects a three-tier system to eventually emerge:
UK schemes which have to be set up under trust. EU schemes which will not be trust-based.
Overseas schemes outside of the EU under trust but with an administrator in the UK.
The National Association of Pension Funds said the UK was the latest of a number of states, including France, Spain and Italy, to be given an “infringement” notice.
Despite Spain now being referred to the Court of Justice for failing to alter legislation, an NAPF spokesman was confident there was no need to be “overly concerned”.
He said the UK government was likely to use tax simplification reforms to address the problem.
Wragge and Co head of pensions Glyn Ryland said the Spanish case was likely to be resolved once a timescale for change was agreed. But he warned that the commission was not on such clear ground in the case of the UK.
Ryland said the commission was in with a “decent chance” of arguing for discrimination, and would be watching with interest as the Finance Bill went through parliament.
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