In two recent rulings, the European Court of Justice handed down judgments regarding two controversial conditions that the Netherlands applied to international pension value transfers. These concern employees who have accrued pension rights in the Netherlands and want to ‘carry over’ that amount to a foreign pension fund when switching to a job abroad.
One of the annulled conditions was that the foreign pension fund could not have more generous early payout options than those in the Netherlands. Income tax still must be paid in the Netherlands if payment occurs before the retirement age. Moving abroad and then having the pension accrued in the Netherlands paid out (early) was made virtually impossible by this condition imposed by the Netherlands.
The Netherlands also required that the intended foreign pension fund accept liability for paying Dutch tax obligations on (future) pension payments. Almost no fund is willing to give such a statement. This liability requirement served as a future enforcement measure to prevent unintended use of tax deductions for pension accrual.
The European Commission considered these two conditions to violate the right to free movement of workers because the Netherlands thereby obstructed accepting employment abroad. This would also apply to foreigners working in the Netherlands who might want to return to their home country after several years.
The ruling by the European judges means that these two specific conditions may no longer be imposed immediately for an international individual pension value transfer. For the Netherlands, countering the tax consequences of early pension payout abroad can only be addressed if agreements are made in tax treaties with other countries. However, with several countries there is (still) no tax treaty.
A major legal dispute between the Netherlands and the European Commission is the fact that Brussels believes that the reserves of Dutch pension funds must be counted as part of Dutch taxable assets. The Netherlands disputes this and argues that pension funds are collective property of employers and unions, and not government property. In other EU countries, pension money is collected (by the government) as ‘taxes,’ whereas in the Netherlands it is a earmarked levy (‘deferred wages’).
State Secretary Van Rij of Finance said in a response that certain provisions of the Pension Act and tax regulations will now need to be amended. To monitor these tax-related routes, the Tax Administration will keep track of which countries such pension value transfers take place to and the amounts involved.
When and how this will be implemented is still unclear. What is certain, however, is that Brussels will monitor whether the Netherlands adapts its Pension Laws in these respects to comply with European law.