Action brought on 23 March 2004 by the Commission of the European Communities against the Kingdom of Denmark

(Case C-150/04)

(2004/C 190/06)

An action against the Kingdom of Denmark was brought before the Court of Justice of the European Communities on 23 March 2004 by the Commission of the European Communities, represented by R. Lyal and S. Tams, acting as Agents, with an address for service in Luxembourg.

The applicant claims that the Court should:

Facts and pleas in law:

The Danish legislation concerning inter alia deductions for payments into life insurance and pension insurance schemes is contrary to the provisions of the EC Treaty governing the freedom to provide services, the free movement of workers, freedom of establishment and the free movement of capital and cannot be justified on ground of overriding public interest, as established in the Court's case-law.

Freedom to provide services (Article 49 EC)

The failure to allow deductions and exemptions for payments to foreign pension insurance schemes leads to a situation where policy-holders residing in Denmark are precluded from setting up pension insurance schemes with pension institutions established in Member States other than Denmark. Foreign pension institutions are de facto precluded from offering their services on the Danish market. The requirement of being established in Denmark therefore constitutes a restriction on the freedom to provide services from Member States other than Denmark.

Free movement of workers and freedom of establishment (Articles 39 and 43 EC)

The Danish rules which do not allow deductions for payments into foreign pension insurance schemes affect principally migrant workers and self-employed persons from other Member States. Workers and self-employed persons who move to Denmark and who have already set up pension insurance schemes in other Member States have to join new pension insurance schemes with pension institutions established in Denmark in order to obtain the same tax advantages as workers who have set up pension insurance schemes in Denmark.

Free movement of capital (Article 56 EC)

The requirement that the pension institution must be established in Denmark in order for the insured to obtain the tax relief precludes policy-holders from setting up pension insurance schemes with pension institutions established in other Member States. The Danish provisions thus lead to a situation where restrictions are placed on the free movement of capital in the form of payments into and out of pension insurance schemes.

Overriding public-interest grounds

The need to ensure effective fiscal supervision, as relied on by the Danish Government, cannot justify the Danish deduction provisions, which place a restriction on the abovementioned freedoms. The provisions are contrary to the principle of proportionality, since effective fiscal supervision and prevention of tax evasion can be ensured through measures which are less restrictive than the Danish rules, such as a requirement that taxpayers provide the necessary information as a precondition for obtaining the tax deduction or a requirement of cooperation with the tax authorities in other Member States in accordance with Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation. (1)

The Court's case-law recognises that coherence of the tax system requires that the Member State, in so far as it allows for deductions for payments into pension insurance schemes made in another Member State, must be able to tax the amounts paid out from the pension insurance schemes.

There is to be coherence, however, in relation to the individual taxpayer and a close connection between deductions for payments into the scheme and the taxation of payments out of the scheme.

In the Commission's view, the symmetry in the tax treatment of payments in and payments out for domestic and foreign schemes is insufficient where in domestic schemes payments in give rise to a tax deduction or exemption and payments out are taxed, whereas for foreign schemes payments in do not give rise to a deduction but neither are payments out taxed.

The tax advantage granted for pension insurance schemes set up with domestic pension institutions consists primarily of a deferment of the tax owing on an amount equal to the payments made into the scheme. The tax deferment makes domestic pension insurance schemes particularly attractive, even though the payments out are taxed at a later time. The presence of taxation ‘symmetry’ for foreign pension insurance schemes does not compensate for that lost tax advantage.

Denmark must recognise that pension insurance schemes set up in pension institutions established in other Member States must be covered by the same tax advantages as domestic pension insurance schemes. It is only in cases where Denmark is not entitled to tax payments out from the pension insurance scheme that it can be relevant to consider the aspect of coherence of the tax system. Denmark can tax all payments out from schemes to policy-holders residing in Denmark, regardless of whether the scheme has been set up in Denmark or elsewhere. Denmark only loses that right if the policy-holder moves his or her place of residence to another country.

The Commission also finds that the necessary coherence of the Danish tax system has not been established, in that Denmark has entered into double-taxation conventions with a number of countries, which means that the coherence of the tax system is not attained for individual taxpayers in terms of a close connection between deductions for payments in and taxation of payments out of the scheme.

Double-taxation conventions which follow the OECD model ensure that payments out of pension insurance schemes are not taxed either in the country where the insured resides or in the country where the pension institution is established. It follows from those conventions that payments out of pension insurance schemes can be taxed only in the country where the pension beneficiary resides. Those agreements imply that Denmark has waived the right to tax payments from pension institutions established in Denmark. This is true regardless of whether or not the payments into the pension insurance scheme have given rise to tax deductions in Denmark. On the other hand, Denmark may tax all pension payments to policy-holders resident in Denmark, even though the payments into the scheme were made in one of the countries which is party to the convention.

Other double-taxation conventions contain provisions which allow policy-holders to deduct payments into foreign pension insurance schemes. People who move to Denmark from one of those countries can thus maintain their pension insurance schemes in their home country and deduct the payments into the schemes from their taxable income in Denmark. The deduction provisions in those conventions show that the Danish rules not allowing for tax deductions for payments into foreign pension schemes are not consistent.

(1)  OJ 1977 L 336, p. 15.