Consortium to challenge EU pensions legislation

Date: 02/07/1998

By Tim Jones

FORTY multinationals are set to launch a test case at the European Court of Justice aimed at busting open the EU pensions market.

At a meeting last week, pensions managers at top companies including tobacco-makers BAT Industries, British Aerospace and food giant Cadbury Schweppes gave a tentative green light to London law firm Eversheds to file a suit in Europe.

All feel that existing European law throws obstacles in the way of establishing a single pension scheme to cover their employees in more than one Union member state at a time when companies are becoming increasingly pan-EU in nature.

The consortium is hopeful of success. “There has been a patchwork of decisions by the ECJ which indicate that a case intended to challenge tax restrictions which prevent the creation of a pan-European pension would be sympathetically heard,” said Harold Lewis, a pensions lawyer at Eversheds.

Eversheds was inspired by the recent landmark ruling by the ECJ in favour of Swedish resident Jessica Safir. In April, the Court found that Sweden's system for taxing life assurance schemes which were bought abroad broke EU single market law.

The Safir case revealed that Swedish residents who bought into a savings scheme with a firm based abroad were forced to pay 15&percent; tax on their premiums, while those who contributed to a similar scheme with a domestic company were given a tax holiday. In the Court's view, this violated the Treaty of Rome's articles designed to guarantee freedom to provide services across Union borders.

Lewis has two other key cases - Bachman (1992) and Wielockx (1995) - in his back pocket. In the Bachman case, a German lawyer working in Belgium paid pension contributions into a German fund but the Belgian authorities refused to offer him tax relief on the same basis applied to domestic savers.

The Court found for the Belgian government, arguing that extending the national tax relief to a foreign scheme could “damage the tax integrity and cohesion” of the home state. “This is the key issue,” said Lewis.

The principle was developed further in the Wielockx case when the ECJ found against the government concerned. On this occasion, it was a Belgian physiotherapist in the Netherlands who was making contributions to a Dutch scheme and the Dutch authorities refused to provide tax relief.

In Wielockx, the Court ruled that providing equivalent relief to foreigners contributing to a domestic fund would not damage the Netherlands' tax integrity and cohesion.

At the moment, the gang of 40 has no Wielockx or Bachman although, given the size of the firms involved, they will have the 300,000 ecu that may be needed to fund the case. “We need to find a plaintiff as well as the money,” admitted Lewis, although he pointed out that many of the firms involved had raised examples of their own which could be used.

To get to the Court, Eversheds will seek to put the case before the UK's tax commissioners and look for a direct reference to the ECJ. If things go smoothly, the whole process could take four years.