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EU Steps Up Fight Against Tax and Pension Obstacles

Expat Briefing Editorial Team
22 April, 2014


In a follow-up to the European Commission’s announcement in January 2014 regarding its commitment to removing tax and other obstacles hindering EU citizens living or working in other member states, Brussels has announced a series of further initiatives to progress its work in this area.

Eurostat statistics show that from the end of 2012 show there were around 14.1m EU citizens residing in an EU Member State other than their own, or 2.8 percent of the total EU population. 10 percent of the population (aged 15 and over) have lived and worked in another country at some point in the past. For 38 percent of that group (of persons having experience of mobility), the last move was for less than a year ('a few weeks or less' for 8 percent and from 'a few months to less than one year' for 30 percent); 13 percent stayed from 'one to less than two years'. Close to one European in five (17 percent) envisage working abroad at some time in the future.

However, EU citizens may suffer tax disadvantages:

  • because of the location of their investments or assets, the location of the taxpayer herself or due to the mere change of the taxpayer's residence;
  • in respect of their contributions to pension schemes, receipt of pensions or transfers of pension and life insurance capital;
  • in respect of their self-employed activities carried-out in another State or due to the mere relocation of such activities;
  • because of the refusal of certain tax deductions or tax benefits;
  • in respect of their accumulated wealth.

On April 14, the Commission announced the launch of two consultations, an expert group, and new web pages as part of its review into discriminatory tax rules affecting individuals.

The newly created expert group has been appointed to look principally at elements of direct taxation that may affect an individual's cross-border activities. In particular, the Commission wants to obtain from the expert group further information on the tax problems that individuals are facing when migrating, working cross-border or investing in another EU country and their scale, together with ideas for solutions. Personal income taxation and inheritance taxation will be particularly focussed on. However, if need be, the group may also look at other taxes that affect the mobility of persons, such as the taxation of vehicles and the taxation of e-commerce. The problems identified so far include lack of information that would assist foreign citizens in fulfilling their tax obligations in another country, language barriers and difficulties in getting the right documents (certificates, receipts, statements). Sessions are to run throughout this year.

The first of the two consultations covers tax problems faced by citizens who are active across borders, and is designed to inform the Commission about the actual tax problems encountered by individuals in cross-border situations and about any good practices that EU countries’ tax administrations apply in order to prevent these problems. The Commission intends to use the information provided in the replies to propose recommendations for all EU tax administrations.

The other consultation focuses on problems related to inheritance taxation. It follows up on the Commission’s Recommendation to Member States on this issue in 2011 on how, by some small adjustments to their national laws, they could prevent double taxation of inheritances and gifts in the Single Market. The new consultation is designed to inform the Commission about how the situation has evolved since then. The information received will be used to prepare a report on the progress made in removing double taxation of inheritances in the EU.

Both consultations will run until July 3, 2014.

While citizens can already get basic information about cross-border tax issues on the web site of Your Europe, the new web pages published on the web site of the Directorate General for Taxation and Customs Union are intended to provide further and more in-depth information about citizens’ rights under EU law in the tax area and how citizens can find more information or get in contact with the competent services within national tax administrations.

Commenting on the initiatives, Tax Commissioner Algirdas Šemeta said: "The strength of the European Union relies on people being able to move freely within the Single Market to work, study and retire. It is essential that everyone is tax compliant, but tax compliance must be made easy too. This needs particular attention in cross-border situations, where double taxation must be eliminated."

The Commission intends to analyse the information gathered through the public consultation and the work of the expert group as well as through studies carried out by external experts and decide on appropriate next steps. These might include for example new recommendations that all EU countries apply the same good practices in order to eliminate cross-border tax obstacles. The Commission is also scheduled to publish a report this year on progress made in eliminating double taxation of inheritances within the EU. However, as to when concrete action will be taken to remove tax obstacles for mobile individuals and expats, no timescale has been given.


Pensions

Nevertheless, two other pieces of good news for expats also filtered out of the EU recently relating to pensions.

On April 15, European Parliament passed a draft law that will allow workers who have been part of a supplementary pension scheme for at least three years to maintain their entitlement if they move to another EU member state.

Current EU rules protect the statutory pension rights of workers who move between member states, but these provisions do not apply to pension schemes that are financed or co-financed by employers. This has meant that workers have risked losing entitlements they have accrued in one member state, if the state to which they move deems that they were not built up over a long enough period. Members of European Parliament added a clause stipulating that cross-border workers must also benefit from the same level of protection.

The draft still needs to be formally approved by the Council of Ministers, and member states will have four years to put it into effect.

Rapporteur Ria Oomen-Ruijten said that the passing of the draft text was "a big step forwards for the free movement of workers and a boost for a social Europe." She added: "a good pension is a necessity now that Europeans can expect to live much longer."

Legislation on the issue was first tabled by the European Commission in 2005, and was revised in 2007. It was then blocked due to differences between pension schemes in different member states, and the need for a unanimous vote. However, the implementation of the Lisbon Treaty opened the way for the draft to pass by a qualified majority vote and prompted renewed negotiations.

On the same day as the EP vote, the European Insurance and Occupational Pensions Authority (EIOPA) and the National Bank of Slovakia held an international conference to discuss the prospect of creating a single EU market for private pensions.

EIOPA, the EU's body responsible for regulatory and cross-border oversight in the areas of insurance and pensions, was established by the European Commission with the aim of restoring trust in the financial system following the 2007/2008 financial crisis. Part of its mandate is to protect consumers and propose greater harmonization between the regulations of member states' financial systems.

Explaining the purpose of the conference, Gabriel Bernardino, Chairman of EIOPA, said: "The creation of a single market for personal pensions in the EU can play an important role in filling the current ‘pension gap’ and, thus, [raise] the overall adequacy of pensions for all EU citizens. Furthermore, it has the potential to mobilize more sustainable long term investment into the EU economy."

Of interest to the UK will be the future interplay between the proposed new single European pensions market and HMRC rules in connection with the transfer of UK pensions abroad to approved schemes, such as Qualified Recognised Overseas Pensions Schemes (QROPS).

However, as we have stressed in previous Briefings on European initiatives, the EU legislative machine tends to move at a snail’s pace. The Commission’s attacks against tax obstacles feels like an almost never-ending process, while proposals to improve pension portability and improve the cross-border market for pensions within the EU generally have been on the agenda for several years with very little progress having been made. The intent is good, but we advise not to get too excited that the latest announcements in these areas will lead to swift changes!




 

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Meanwhile the UK Government plans to make it more difficult for UK taxpayers to emigrate to Australia and the other former Dominions and take their pensions with them.

"Little England" as a province of Brussels is not pleasant to see, especially as we near the 200th anniversary of Waterloo.

Dr Terry Dwyer
Dwyer Lawyers
www.dwyerlawyers.com.au

Dr Terry Dwyer, 3 years ago.
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