Netherlands violates freedom of movement principle, ECJ rules

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The Netherlands is violating the principle of freedom of movement with its undue restrictions on pension transfers to other European Union countries, the European Court of Justice (ECJ) in Luxembourg has ruled.

According to Dutch law, workers who move to another EU country are only allowed to take their pension out of the country tax-free if the rules on pension buyouts in the country in question are at least as strict as they are in the Netherlands.

Since the Netherlands effectively bans pension buyouts before pension age, workers who request a pension transfer to another EU country are now routinely required to pay income tax on their accruals by the country’s tax service.

After a Dutch university professor and partner at accountancy firm PwC lodged a complaint about the practice with the European Commission in 2009, the EU’s executive body sided with him and decided to take the Netherlands to court.

The ECJ has now ruled the Netherlands’ restrictions to moving pensions to other EU countries are an undue limitation to the freedom of movement for workers.

Equal treatment

According to the ECJ, Dutch workers who move to a new job in the Netherlands and want to move their pension to another pension scheme should get the same treatment as Dutch workers who move to another EU country.

The Netherlands has therefore been ordered to change its pension law accordingly. In practice, this means it will have to scrap the requirement on pension buyout rules to be at least equally strict.

It may take a while for the Netherlands to change the law. However, according to Hans van Meerten, a pension lawyer and professor of European pension law at Utrecht University, workers can reap the benefits of the judgement with immediate effect.

“Dutch workers can take this verdict to a Dutch court to enforce it,” he said.

This does not, however, mean that any worker can now move to the EU member state with the lowest income tax rate just before retirement, Van Meerten warned.

“Tax treaties take this into account. It’s not the case that people can enjoy the fiscally most advantageous pension after having had the benefit of not paying any income tax in the Netherlands over their accruals for many years.”