Many member states afford retirement institutions special tax treatment. Pension funds may be exempted from corporate taxation or subject to a special rate. Additionally, many institutions benefit from an exemption, reduced rate or refund of withholding taxes on dividends and interest payments.  

The special regime is usually confined to qualifying, not-for-profit retirement institutions regulated by domestic pension law, which means it does not apply to providers from across the border or the pension plans they administer. Many member states impose a higher effective tax rate on dividends and interest payments made by domestic companies to retirement institutions located abroad. Such tax discrimination is at odds with the EC Treaty, which provides for the free movement of capital. It discourages pension funds from investing in stocks and bonds of foreign companies. 

In 2007, the European Commission started infringement procedures against nine member states following complaints filed by EFRP. The differential treatment of withholding taxes on outgoing dividend and interest payments means that many European pension funds have been paying too much tax for years.  

See also:

Executive summary – Report discriminatory taxation of dividend and interest payments to pension funds – March 2006