The European Commission has opened infringement proceedings under Article 226 EC Treaty against nine Member States for discriminating against foreign pension funds. The Member States in question - Czech Republic, Denmark, Lithuania, the Netherlands, Poland, Portugal, Slovenia, Spain and Sweden - exempt their domestic pension funds from corporation and/or income tax and do not charge withholding tax on dividend and interest paid to domestic pension funds. Foreign pension funds, however, are not afforded the same tax treatment, which means that they pay higher taxes than domestic funds. This makes it more difficult for foreign pension funds to invest in those Member States, in breach of EC Law, in particular Article 56 of the EC Treaty on free movement of capital.

The taxation of pension funds in a further five Member States - Estonia, Germany, France, Italy and Austria - is being examined by the European Commission. It remains to be seen whether infringement proceedings will be brought against those states. This publication is written as a general guide only. It is not intended to contain definitive legal advice which should be sought as appropriate in relation to a particular matter.