PensionsEurope has welcomed the European Commission’s proposal to amend several directives relating to direct taxation, while also expressing reservations and recommended changes.

Changes to direct taxation include to the Parent-Subsidiary Directive (PSD) and the Faster and Safer Relief of Excess Withholding Taxes (FASTER).

PensionsEurope said exempting qualifying pension organisations from withholding taxes in dividend payments through changes to the PSD aligned with the objectives of the Savings and Investments Union and the commission’s simplification agenda.

It voiced its support for the proposed simplification of EU direct taxation that will reduce barriers between member states, particularly the withholding tax exemption as it felt cross-border institutional investment within the EU could be fostered, allowing those pension funds to retain the dividends received for the benefit of members and beneficiaries.

The association also argued that the withholding tax exemption would help deepen EU capital markets and improve their liquidity, reducing administrative burden for pension funds.

However, PensionsEurope noted it had reservations about certain elements of the proposal and make suggestions for their potential improvement.

It argued that the definition of a pension institution under PSD was too narrow, while the proposed application of the relevant PSD provision for those institutions was too late.

“The definition does not capture the EU landscape of pension funds, which is not aligned with the objectives of the supplementary pensions package to strengthen the supply and demand of supplementary pensions across the EU,” PensionsEurope stated.

“For consistency reasons and to ensure smooth FASTER procedures, the concept of a pension institution in that directive must be aligned with the one in PSD, drawing on the definition provided in EMIR.

“Furthermore, EU policymakers should also recognise that pension funds commonly invest through non-transparent investment funds for diversification purposes and consider ensuring the application of the withholding tax exemption to those types of investment funds.”

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