NETHERLANDS - A recent judgement by a Dutch court could put an end to income tax on foreign pension schemes, according to accountants Ernst & Young.

In an article in the Dutch financial daily Financiëel Dagblad, E&Y partner Robert Rouwers cited a judgement in The Hague on July 11. The case was brought by a Dutch lorry driver who participates in a Luxembourg pension scheme. It argued that under EU law the foreign scheme should be levelled with Dutch schemes and hence he should not pay income tax on his contributions.

The Dutch Tax office has appealed against this judgement, though no date for when the hearing has been made public yet. Ernst & Young's Rouwers expects the case to go eventually to the European Court of Justice in Luxembourg.

The matter could be the latest in a line of cases, such as the Danner, Bannerman and Skandia cases, that have shaped EU pensions taxation policy.

The outcome could have a costly effect on Dutch and other EU finances. To the annoyance of many multinational companies, the Dutch system, like other national fiscal systems, discriminates by charging income tax on contributions to foreign pension schemes - the contributions that the employer needs to pay cannot be deducted by the employee.

However, in the national system there is no taxation on pension contributions to national schemes and the employee's contributions can be deducted from the income.

Rouwers told IPE that though the Dutch system does not stimulate the free transfer of employees in the EU, the Dutch Ministry of Finance argues that the regulations are aligned with EU law, as in a certain cases it is possible to fiscally level the foreign scheme with the Dutch scheme, provided a special procedure is followed.

The court in The Hague ruled that the lorry driver did not need to follow these procedures.

According to Rouwers, the judgement raises further questions about the durability of Dutch regulations, particularly in a situation of increasing European integration and globalisation.

"We've been waiting a long time for jurisprudence on this matter, and this is the beginning of something that could become quite big," said Rouwers.

The current system of the European member states is unworkable according to Rouwers. He added: "This case could mean that we are heading to a situation in which we get, fiscally speaking, a European pension."

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