In view of the fact that a massive trend of claims was filed by investment funds, based on the European Union Court of Justice (CJUE) case law (Aberdeen, Santander), a new opportunity is open to pension funds.
Indeed, the European Commission (EC), supported by the EY network of member firms, has launched a study aiming to identify potential discriminations on EU investments made by pension funds.
The outcomes of the study, to be published soon, reveal that the potential discriminations on EU investments are much more numerous than expected (more than 70, involving at least 20 Member States).
This large number can be notably explained by tax exemption benefiting domestic pension funds, whereas non-resident pension funds incurred a withholding tax (WHT) on outbound revenues. In other cases, domestic pension funds benefit from a taxation on a net basis (i.e., deductibility of technical reserves), leading to a de facto exemption of the income.
EY assisted the EC in a new study, whose goals were to identify potential tax obstacles on cross-border investments made by pension funds and life insurers (in the framework of their unit-linked contracts). The starting point of the study was the Commission/Finland CJEU case law whereby the Court ruled that technical reserves booked by Finnish pension funds being directly linked to the income received and leading to a de facto exemption of such income put resident and nonresident pension funds in a comparable situation. As a result, resident and non-resident pension funds should benefit from the same tax treatment.
Why act now?
Results of 2017 EY study
The study clearly shows that almost all the EU Member States distinguish between residents and nonresidents on the taxation of a more-or-less range of revenue deriving from investments made on their own jurisdictions (dividends, interest, real estate revenue, capital gains).The EC intends to challenge any sources of the potential discriminations, which can be categorized as follows:
All of the above situations should lead to restricting the free movement of capital (protected by Article 63 of the Treaty on the Functioning of the European Union) as they discourage nonresidents from making investments in a Member State, or discourage Member States’ residents from doing so in other States; for this reason, they must be abolished to achieve a true single market for capital.
To read this latest Insurance Alert in full please click here or on the link in the banner below, and if you’d like to discuss any of the areas covered don’t hesitate to get in touch with me, or your usual EY contact.