Bolkestein threat to member states over tax regimes

Series Title
Series Details 15/02/01, Volume 7, Number 07
Publication Date 15/02/2001
Content Type

Date: 15/02/01

By Simon Taylor

Commissioner Frits Bolkestein is threatening to take controversial legal action against EU governments over their tax regimes.

He claims his only motive is to break down barriers to a potentially huge market in cross-border pensions, but any move to interfere in domestic tax policy is bound to provoke a storm of protest from member states.

In a confidential internal paper on the future of tax policy, Bolkestein writes that “the Commission cannot, as guardian of the treaties, be lenient on infringements in the tax field”.

He argues that the policy must change and that the EU executive “must now adopt a more pro-active strategy generally in the field of tax infringements and initiate actions where it sees that Community law is being broken”.

Bolkestein's proposal is thought to have received a favourable reaction from his fellow Commissioners.

Taxation experts predict that if his plan is successful it could pave the way to developing a multi-billion-euro market in pan-European pensions.

“If they're serious about this it would not be hyperbole to say that the market could be worth tens, if not hundreds of billions of euro,” said Robin Ellison, pensions tax specialist at the London office of legal firm Eversheds. “There will also be savings for multinational companies worth hundreds of millions of euro.”

Bolkestein is expected to use infringement cases to establish a body of law on the taxation of cross-border company pensions that would provide non-binding guidelines for member states.

The Commission has promised to put pressure on governments to end the discriminatory treatment of company pensions and is planning to issue a strategy paper on their tax treatment in the coming weeks as part of its objectives for the Stockholm summit. The strategy would not attempt to harmonise tax rates but would seek to remove obstacles to citizens working in other member states, while protecting finance ministries' revenues.

Bolkestein admits that in the past the Commission has been “careful in initiating infringements proceedings against member states itself”. But he says the approach has not been an effective way of clarifying Union-wide tax rules because decisions on cases brought by individuals are difficult to apply generally.

In one high-profile case, the European Court of Justice ruled that Sweden broke single market rules by forcing its residents to pay premiums on savings schemes operated by foreign-based companies.

EU states impose different taxes on pensions products, causing problems for companies that try to offer Union-wide retirement schemes. Workers are sometimes taxed twice on their savings and sometimes not at all.

Ellison said the change would pave the way for competition among member states and lower overall taxes. “You can see countries touting for business,” he said, pointing to Luxembourg's recent plans to become the European centre for pensions business.

Bolkestein's effort comes as the Commission looks for new ways to coordinate taxation within the Union in the face of steadfast opposition from member states to legally-binding tax rules.

“Economic operators complain that they are unable to benefit fully from the single market because of a long list of tax obstacles to cross-border business,” he writes. “[But] member states and their national parliaments insist upon the need to retain sovereignty in tax matters.”

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