Like many landmark judgements and European directives, the Danner verdict has been labelled by many with that old platitude ‘a step in the right direction’. Add another to the legion of steps in the right direction and the question is whether this latest judgement brings the prospect of pan European pensions any closer.
European institutions have unanimously backed the decision. The EFRP called the ruling significant and went on to say that it is likely to give the Commission a prod in its consultations with member states and their tax systems.
The Brussels-based Comite Europeen des Assurances (CEA), the body representing the European insurance industry, said: “member states can no longer cite mandatory reasons of general good to justify a national discriminatory tax measure.”
It maintains that employees will no longer be penalised fiscally when taking out a voluntary pension insurance with a company in another EU country. It also believes the move will encourage EU-based companies to offer their services on a cross-border basis.
But the ruling is perhaps summed up best and put in context by Simon Dudley, head of the international consulting group at Watson Wyatt. “All these things seem to be pieces in a jigsaw puzzle that need to be fitted together in order to get approval for these things.
“Sometimes we get judgements or cases that come up but don’t fit in very well with the puzzle itself and sometimes lead us off in the wrong direction. The Danner judgement is certainly one piece of the puzzle that fits in well with where everybody wants to go.”
“Whether it will actually lead to people wanting to set up a single pension plan, I’m rather sceptical about that at the moment,” he says, adding that the biggest beneficiary is likely to be multinationals and the way they manage their expatriate workforces.
“What it really does open up now is potentially a much greater ability for companies to retain people in their home country plans when they move them around without getting into major rows about tax deductibility. There have always been ways to manage these but this just makes it more transparent.”
The decision brings to a close a six year saga. Rolf Dieter Danner was a physician of dual German and Finnish nationality who worked in Germany before moving to Finland in the late 1970s. Following his move, he continued to pay contributions to two German pension arrangements whilst also paying contributions to a pension plan in Finland.
In 1996 his claim for an income tax deduction on his contributions was denied on the basis of an amendment to the legislation. He subsequently pursued the matter in the Finnish courts which then referred the case to the European Court to rule on EU law issues raised by the case. At the beginning of October, the ECJ ruled that the Finnish law contravened EU legislation.
Despite the deserved acclaim meeting the judgement, there are undoubtedly problems that remain unsolved. Says Mark Sullivan, European partner at Mercer Human Resource Consulting: “on the face of it, the judgement requires EU member states to treat pension contributions to other states on the same tax basis as if they’d been made locally.
“Potentially, this case offers individuals the opportunity to invest their retirement savings in whichever member state they feel offers the most attractive financial option. It therefore adds another significant piece to the jigsaw of pan-European pensions,” he says.
“However, to achieve true pan-European pension provision, European governments will have to deal with the financial nightmare of harmonising the different tax reliefs on contributions and benefits paid out. There is bound to be resistance from some governments to the potential loss of significant tax revenue that harmonisation would bring.”
This is a sentiment echoed by the EFRP. Permanent representative Chris Verhaegen says the judgment makes the legal basis for launching infringement procedures more secure should member states seek to continue unjustifiable tax discrimination. “We hope that governments will act now upon the judgement and not wait for infringements or otherwise this case may inspire other people to file similar cases with the ECJ.”
Sullivan says that national tax rules continue to present a significant handicap to labour mobility and cross-border pension provision in Europe. “The Danner case is not the first of its kind. We’ve already seen a raft of referrals to the European Court from individuals wanting to maximise their benefits, while governments and national courts also need clarification on what they should do to comply with EU law without losing their tax revenue.”
He believes that other cases will be needed to clarify the outstanding issues. Naturally he refers to the PEPGO case in which a worker employed and taxed in the UK has asked that the Inland Revenue give him tax relief on contributions to a Dutch pension plan. Critically, the difference with Pepgo is that it involves a static, opposed to mobile, employee. Sullivan says a decision in this case will help clarify the impact of the Danner ruling.
Says Dudley: “Pepgo is another piece of the puzzle that is needed that I think will fit in the Danner judgement in terms of moving us forward to a position where you’ve got the complete freedom to join any pension plan that you may have within Europe. We need several of these pieces of the jigsaw puzzle to complete it though.”
Geoffrey Furlonger, director of the pensions group at Lombard and the man spearheading the PePGo case, said the verdict is exactly what they were hoping for and that it should boost their prospects.
“It takes every possible argument justifying cross border discrimination and it basically says that where you’ve got a double tax treaty in place, which is in most European countries, then the argument that ‘we only give tax deductibility because we know that the person is going to retire in our country,’ has been totally destroyed. It totally vindicates our assertion that tax discrimination against cross border pension plans is contrary to European law,” he says.
He maintains that the ruling greatly increases the chances of success in the Pepgo case. He says that the Inland Revenue were waiting for the Danner judgement before showing their hand. “They’ve got a Danner judgement now so it should be pretty soon.”
For Dudley, the Pepgo ruling is highly important. “ Until it happens, I think most governments will resist letting anybody and any one country be members of any other country’s pension plans. I think they’ll try and argue against that at the moment,” he says.
In terms of using the ruling as a basis for harmonising tax, there are doubters. Alan Pickering, chairman of the EFRP, welcomes the court judgement but has doubts over its suitability for this purpose. In an interview with IPE (page 38) on the state of European pensions he said that the consequences are “more psychological than tangible in that the European Court of Justice does not like being used as a surrogate parliament.
“It will produce a judgement on a particular case and on this one it has refused to extrapolate from the particular to the general but because the result is moving us in the right direction, albeit in a bottom up basis.
“Hopefully the judgement will stiffen the resolve of those who want to seek a sensible tax regime through the political route because while I don’t deny the right of anyone to take a case to court, court rulings provide somewhat shifting sands upon which to build a pensions infrastructure.
“I’d rather that we had a sensible political agreement. I think those who share that view will be able to say to those who are not yet convinced ‘look if these cases keep going to court then we’re going to end up in a complex quagmire so let’s to the job properly and sort out the politics.’” Once that’s done, all those steps in the right direction will have finally reached their destination.

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