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Dutch Pension Tax Rules Breaching EU Law

Monday, June 4, 2012

The European Commission has sent a formal request to the Netherlands to remove restrictions in place on allowances for elderly taxpayers that have redomiciled to retire in another European Union member state.

Under Dutch legislation introduced from June 1, 2011, elderly Dutch taxpayers are only entitled to receive an allowance, known as 'koopkrachttegemoetkoming oudere belastingplichtigen' (purchasing power allowance for elderly taxpayers) if they can demonstrate that at least 90% of their world income is taxable in the Netherlands.

This condition means that the allowance is not available to those people living outside of the Netherlands, such as Dutch expatriates. Under European Union (EU) law, entitlement to an old age benefit cannot be conditional on the pensioner living in the member state where he or she claims the benefit. Additionally, EU law on the free movement of persons stipulates that member states should not introduce discriminatory policies regarding where a taxpayer chooses to retire whilst retaining their pension. Under EU law, the Netherlands must pay the allowance of EUR33.65 (USD42) per month to recipients of a pension who have chosen to live in another EU member state, Liechtenstein, Norway, Iceland or Switzerland.

The Commission's request takes the form of a 'reasoned opinion' under EU infringement procedures. The Netherlands now has two months to inform the Commission of measures taken to bring its legislation into line with EU law, otherwise the Commission may decide to refer the country to the European Court of Justice.