Finally tax barriers accross Europe, which prevented multinationals from using pan-European pension schemes to save costs and reduce risks, are breaking down.

21 September 2006

AMSTERDAM - Multinational companies could be missing an opportunity to save costs and reduce risks by continuing to operate separate pension schemes across Europe due to tax discrimation. But finally these barriers are breaking down.

Mercer Human Resource Consulting report that the biggest barrier to cross-border pensions - which pool assets and liabilities from schemes in different countries - has been the discriminatory tax treatment applied by EU member states to pension arrangements established in other states.

As more tax hurdles are being eliminated for cross-border pension schemes, there is increasing opportunity for large companies to save money, increase management efficiency and improve governance procedures by implementing pan-European pension arrangements.However, traditionally, authorities have offered favourable tax treatment to pension arrangements in their own country, but have not extended these to those in other states.

Now, most EU states have agreed not to discriminate on tax. Speaking at a seminar in association with the European Commission, Yvonne Sonsino, Principal at Mercer, said: "People have talked about pan-European pensions for years, but only now are they becoming a viable option for multinational companies. The tax barriers are breaking down and there is a huge opportunity for employers to benefit from the cost savings these arrangements offer."

While there are still significant issues to overcome, such as the need to comply with social and labour laws in each country involved in a cross-border scheme, Mercer believes the benefits will outweigh the disadvantages if the asset volume is large enough.  By pooling scheme assets across countries, companies can benefit from lower investment management fees, greater risk control and reduced transaction costs.  Additionally, it takes less time to oversee one plan than to manage multiple schemes.

Companies that employ lots of expatriate staff who frequently change location could benefit in particular.

"Pan-European pensions make it easier for employees to work in different EU countries without their bprivilegesenefits being reduced, so companies can gain from having a more flexible workforce," said Sonsino.

"More multinational companies are now realising that cross-border schemes could be the way forward for their European pension arrangements," she said.

Peter Schonewille of the European Commission, said, "It is a priority for the European Commission to ensure the single market for occupational pension provision works efficiently.  Since the Commission issued its Pension Taxation communication in April 2001, it has worked closely with EU member states to eliminate any remaining tax barriers.  It will continue to do so until all the barriers have been lifted."

He added, "We urge organisations to inform the Commission of any remaining tax barriers they are aware of, so we can take appropriate action."

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