GERMANY - Lifting the capital gains tax (CGT) exemption for pension funds would create a double burden on pensioners, the association of company-specific pension schemes (VFPK) hs warned.

According to the association the German finance ministry is currentlymulling plans to levy a CGT on pension funds, in response to a warningby the European Commission issued over tax discrimination of foreignpension funds which are tax exempt. (See earlier IPE story: EU issues new warnings over tax discrimination)

But officials have warned making German Pensionskassen and Pensionsfonds - which are currently fully tax-exempt - pay a 25% CGT would cut the retirement vehicle's return and this would, in turn, feed through as pension cuts.

"The pensioners are already paying tax on their benefits paid out from occupational pension schemes," the VFPK noted in a statement.

The tax exemption for German schemes is based on calculations looking at whether a pension fund has a  certain number of members who only receive minimum pay and are therefore receiving only a small pension. Every scheme which does not surpass a certain average amount of pension payout is then tax-exempt.

"Foreign schemes would first have to prove whether they are fulfilling these criteria," a spokesman for the VFPK explained to IPE.

"But if this alleged discrimination is to be ended it probably should not be via an additional burden on German occupational pension schemes," he added.

The VFPK also notes German pension funds are also subject to tax discrimination in other European countries.

However, according to the association's spokesman the proposal to levy a CGT on pension funds is not undisputed.

"The federal government has not commented at all yet but there seems to be a rift within the finance ministry," he explained.

He noted plans to discuss the issue in cabinet, as part of a tax package, on June 4 have been postponed to mid-June.

However, a spokesman for the finance ministry told IPE: "The federal government does not plan any changes to the CGT deduction for Pensionsfonds and Pensionskassen."

No other information has been presented at this stage and the ministry has yet to respond to questions on how the European Commission's warning over tax discrimination will be dealt with.

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email julie.henderson@ipe.com

Topics