EC Challenges Sweden's Tax on Foreign Pension Fund Payments

January 9, 2007 ( - The European Commission announced Tuesday that it was taking Sweden to the European Court of Justice because it taxes payments to foreign pensions and not those paid to domestic pension funds.

The commission said that Sweden discriminated against foreign pension funds and stifled competition because the premiums paid by Swedish employers into the funds in another European Union member state were not given the same treatment as those paid into a Swedish-based fund, according to Reuters.

According to a Commission press release , under the Swedish tax legislation, premiums paid by employers for occupational pension insurance taken with insurers established in other European Union member states or the European Economic Area (EEA) countries are taxed as salary in the hands of the employee and pension payments are tax exempt. Meanwhile, contributions to domestic plans are exempt and only pension payments are taxed.

The Commission contended that the law deters employers from subscribing to foreign insurance policies.

“The taxation of foreign pension insurance premiums as benefits of the employee makes the subscription of foreign policies unattractive not only because the taxation takes place earlier than in cases where the occupational pension insurance has been taken out with Swedish insurers, but also because the marginal progressive tax rate applicable to the employee’s income is likely to be higher during his/her active working life than it is after his/her retirement,” according to the news release.

The Commission is bringing the case to the European Court of Justice because Sweden refused to follow a previous ruling about the law.