EUROPE - The European Commission has taken the first step in legal action against Italy over failure to equalise pension ages for men and women in the civil service, while Denmark and Finland have been ordered to amend legislation to stop the discriminatory taxation of foreign pension funds.

The European Court of Justice (ECJ) ruled against Italy in November 2008 for allowing public employees to have different retirement ages based on gender. The pension scheme managed by the National Provident Institution for the Employees of Public Authorities (INPDAP) currently allows women to retire at 60 but men must wait until 65.

The court agreed with the argument put forward by the EC in February 2007 that the scheme was discriminatory on the basis of equal pay for men and women as an occupational pension constitutes pay within the meaning of EC Treaty.

However, Italy has failed to amend the rules of the schemes the Commission has issued the country with a "letter of formal notice" under Article 228 EC over the country's failure to follow the ECJ ruling.

Vladimír Špidla, EU Commissioner for Equal Opportunities, said: "Equal pay for women and men is a founding principle of the EU, but more than seven months after the Court of Justice ruled Italy's civil service pension scheme to be discriminatory, the authorities have yet to act. Italy needs to bring its legislation into line with the Court's ruling as soon as possible or risk further legal action."

Italy has two months to reply to the "letter of formal notice", but if it continues to fail to amend the scheme the Commission will be allowed to open new infringement proceedings against it.

Meanwhile, the Commission has reached the second stage of infringement proceedings against Denmark and Finland over a failure to amend national legislation to stop the discriminatory taxation of foreign pension funds.

In Finland, dividends paid by a Finnish company to a non-resident pension fund are currently subject to a withholding tax on gross income of 19.5%, however Finnish pension funds are taxed under a special regime where only 75% of dividend income on investment assets is subject to corporation tax.

The nominal corporate income tax is 26%, so the resulting tax rate for dividends to Finnish pension funds is 19.5%, the same as non-resident schemes, however tax is calculated on net income rather than gross so the effective tax rate is lower than 19.5% placing foreign schemes at a disadvantage.

Denmark also has a similar difference in treatment between domestic and foreign pension funds as dividends paid to foreign schemes are effectively subject to a tax rate of 15% on the gross amount, while Danish pension funds are subject to a tax of 15% on a net basis.

The Commission argued the difference in the treatments constitutes an obstacle to the free movement of capital and makes cross-border transfer of capital less attractive, and is an "arbitrary discrimination" that cannot be justified on grounds of public policy or security.

It has issued "reasoned opinions" against the two countries, and if Finland and Denmark "do not reply satisfactorily" within two months the Commission may refer the matter to the ECJ.

If you have any comments you would like to add to this or any other story, contact Nyree Stewart on + 44 (0)20 7261 4618 or email nyree.stewart@ipe.com

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