In a recent study carried out by the European Commission, yet to be published, it was identified that a large number of EU Member States differentiate between resident and non-resident pension funds when it comes to the taxation of income earned from their investments. This income includes dividends, interest, real estate revenue and capital gains.
The study was based on the 2012 Commission/Finland CJEU case (C-342/10) in which the court put resident and non-resident pension funds in an equal position. This was due to the court ruling that technical reserves booked by Finnish Pension Funds are directly offset against the income earned on investments, leading to an effective tax exemption. Therefore, resident and non-resident pension funds ought benefit from the same tax-exemption treatment in Finland.
The report evidences that tax discrimination between resident and non-resident pension funds remains rampant in at least 20 Member States. This discrimination leads to a restriction in the free movement of capital as it discourages non-resident pension funds from investing in the Member States. As a result of this discrimination, it is impossible to achieve a single capital market.
The aim of the European Commission is to challenge any obstacles to the free movement of capital. Tax discrimimation between resident and non-resident entities is a classic case of such an obstacle. This can be categorised as follows :
- Obvious discriminatory tax treatment
- tax exemption benefits for residents only
- taxation on net basis for residents and
- withholding taxes imposed on non-residents
These are evident in countries such as Germany, Denmark, Spain and The Netherlands.
- Unfair administration burden on non-resident pension funds to submit their claims and document that justifies the basis of their claims
- Further administration burdens due to unclear legislation / requirements resulting in multiple iterations of the reclaim process (e.g.Poland).
The study will show that there are many opportunities for pension funds to file reclaims of the unfair tax on investment income that has been levied by EU countries. Many countries have identified short time windows in the calendar year within which claims can be made. Others have set time-limits beyond which claims will not be considered. These unilateral conditions bring an unwelcome urgency to the process for pension funds.
However, the process of firstly identifying what taxes are eligible for reclaim and secondly preparing the claims for submission is daunting for even the best resourced pension fund. And all claims require evidence from the custodian bank of the income received and the withholding tax charged on that income.
Pension funds can overcome the challenge of navigating the domestic nuances of different tax regimes, and the administrative burden of processing the claims, by working with a partner who is expert in both dimensions of the project. With the right partner, a pension fund can have a review of their European portfolio completed, an estimation of the reclaimable tax computed and the country order prioritised.
Globe Refund is one such partner. Globe Refund’s goal is to help pension funds by providing a thorough understanding of the potential for reclaims in EU countries and a robust filing strategy to protect their claim position. The Globe Refund advantages are:
- Free complete analysis of refund opportunities for the entire portfolio
- File reclaims in relevant jurisdictions, in accordance with their domestic filing requirements and with documentation to evidence the eligibility of the claim based on that particular country’s requirements. (Note that experience in presenting the range of technical arguments to defend the position of the pension fund in front of local tax authorities is essential for the claims to be successful.)
- Track all claims to ensure that full payment is made by the relevant tax authority to the pension fund and report on progress via an on-line tool.
It is strongly advisable for pension funds to gain expert help in order to navigate this complex field and to maximize the tax reclaim opportunities. It is crucial for pension funds to have an effective tax reclaim process. Globe Refund is specialised in the this field with over a decade of relevant experience. Using Globe Refund accellerates your reclaim process and maximises the return that you can achieve for your pension fund.
Stanislas Conte, CEO