Gone are the days when the EU turned a blind eye to national tax practices which discriminate against foreign based pension funds.

Following a ruling in June by the European Court of Justice (ECJ) and new action taken by the European Commission (EC) in July, even the most sceptical will recognise that the European legal environment for pensions is changing for the better.

On 26 June, in the Skandia/Ramstedt case, the ECJ clearly stated that Swedish tax rules on nondomestic pension funds are illegal. This is because pension contributions paid to non- Swedish funds do not receive the same tax deductibility advantages granted to domestic funds. The Court has rejected all arguments put forward by the Swedish Government to justify the different tax treatment for national and foreign pension funds. Sweden is now obliged to change its rules and, in principle, pension fund members and sponsor companies taxed in that country can already claim for the ruling to be applied, and for such discriminatory practices to be stopped in the future.

Sweden is just one of a number of countries to be brought to book for this kind of infringement. A few days after the ECJ's ruling, on 10 July, the European Commission decided to bring Denmark to the European Court of Justice (ECJ) as well as opening infringement procedures against the UK and Ireland -- questioning the compatibility of their national tax rule on foreign pension funds with the EU single market principles.

The EC is also pursuing investigations opened last February into similar allegations against Belgium, France, Portugal, Spain and Italy. The cases against the UK and Ireland are still in the first stage of the infringement procedure. National authorities have been formally requested to provide information about, and justification for the compatibility of their tax regime with EU law.

However, there is some concern following a preliminary answer issued by the Commission on 17 July to a parliamentary question put forward by Caroline Jackson, Member of the European Parliament. In this, the Commission confirmed its "serious doubt about the compatibility of the United Kingdom rules as far as they limit tax deductibility of contributions to domestic occupational pension schemes" and announced follow-up actions in that respect.

If you would like further information please contact Leonardo Sforza on (32) 2 743 8611.