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Created on Tuesday, 06 October 2009 08:49

Last Updated on Friday, 28 December 2012 18:53

Riester-Rente now also Granted Abroad

This article is about the three complaints of European Commission has on the Riester-Rente, and the judgment of the European Court of Justice of September 10, 2009, re C-269/07.

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Taking the view that the provisions for complementary pensions in §§79 - 99 EStG did not comply with Community law, the Commission European Union sent a letter of formal notice to the Federal Republic of Germany on December 16, 2003, to which the latter replied by letter of February 19, 2004. Germany disputed any infringement of Community law. By letter of December 19, 2005, the Commission sent the Federal Republic of Germany a reasoned opinion calling on it to take the measures necessary to comply therewith within a period of two months of its receipt. That Member State replied to the reasoned opinion by letter of February 20, 2006. Being dissatisfied with the German authorities' reply, on June 1, 2007, the Commission decided to bring action into the European Court of Justice.

Art. 7 I and II of Regulation No 1612/68 EU provides that nationals of Member States may not be treated differently from national workers by reason of his nationality in respect of any conditions of employment and work. He shall enjoy the same social and tax advantages as national workers.

The Commission's action is based on three complaints. By its first complaint, the Commission submits that the German legislation, in so far as it denies cross?border workers who are not fully liable to German tax the right to the bonus, constitutes indirect discrimination on the basis of nationality incompatible with Art. 39 EC and Art. 7 II of Regulation No 1612/68 EU.

According to its second complaint, the prohibition on using the subsidized capital for the acquisition or construction of an owner-occupied dwelling unless the dwelling is situated in the Federal Republic of Germany constitutes indirect discrimination on the basis of nationality incompatible with Art. 39 EC and Art. 7 II of Regulation No 1612/68 EU.

By its third complaint, the Commission claims that the obligation to reimburse on termination of full liability to taxation is contrary to Art. 12 EC, 18 EC and 39 EC as well as Art. 7 II Regulation No 1612/68 EU.

The court holds that, by introducing and maintaining the provisions for complementary pensions in §§79 to 99 EStG , the Federal Republic of Germany has failed to fulfill its obligations under Art. 39 EC and Art. 7 II of Regulation No 1612/68 EU to enable the freedom of movement for workers within the Community and Art. 18 EC, in so far as those provisions:

• deny cross-border workers and their spouses the right to the savings?pension bonus, unless they are fully liable to tax in that Member State;
• prohibit cross-border workers from using the subsidized capital for the acquisition or construction of an owner-occupied dwelling unless the property is situated in Germany, and
• provide that the bonus be reimbursed on termination of full liability to tax in that Member State;

Riester-Renter is a pension plan with state bonuses and privileges exclusively to employees (§§10a I, 79 EStG). Whenever this plan is used in an unjustifiable manner, the privileges will be forfeited. §95 EStG provides that the regulations on unjustifiable bonus use (§§93 f. EStG) are applicable when persons discontinue their domiciliation or habitual residence in Germany. This means that they have to return any paid bonus.

The First Complaint

The Commission considers essentially that, according to the Court's case?law, the savings-pension bonus is a social advantage pursuant to Art. 7 II of Regulation No 1612/68. Since savings?pension contracts were introduced with the aim of supplementing individuals' statutory pensions, the level of which has been reduced, that bonus thus seeks to provide support for payment of contributions and, accordingly, to assist individuals in building up a complementary pension throughout their working lives.

In any event, the concept of social advantage covers, in accordance with the Court's case-law, advantages granted as a result of a beneficiary's residence on the territory of Germany. The Commission correctly considered, cross?border workers share the same concerns for the preparation of their retirement just as much as with workers who reside in Germany by the reduction in the level German statutory pension scheme to which they pay contributions. They may not benefit from the savings?pension bonus in question and are therefore victims of disguised discrimination on the basis of nationality.

The Commission with good right argues that the Federal Republic of Germany's argument concerning fiscal cohesion is not relevant. A Member State may not rely on such an argument where it has itself signed up to a double taxation agreement whereby it may indeed tax pensions received from abroad by persons residing on its national territory, but may not tax national pensions received by persons residing abroad.

It is now necessary to ascertain whether making the grant savings?pension bonus, as a social advantage within the meaning of Art. 7 II of Regulation No 1612/68, subject to the condition that a worker be fully liable to German tax constitutes discrimination within the meaning of Community law. Unless it is objectively justified and proportionate to the aim pursued, a provision of national law must be regarded as indirectly discriminatory if it is intrinsically liable to affect migrant workers more than national workers and if there is a consequent risk that it will place the former at a particular disadvantage.

Accordingly, making the grant savings?pension bonus subject to a condition amounting to a residence requirement constitutes an infringement of Art. 39 EC and Art. 7 II of Regulation No 1612/68. It should also be pointed out that those cross?border workers are most frequently non-nationals, and therefore workers of German nationality satisfy more easily the requirement of full liability to German tax than the cross?border workers concerned; moreover the Federal Republic of Germany does not contest this.

Moreover, the defendant Member State may not rely, in order to show that there has been no discrimination, on the possibility afforded to cross?border workers to benefit from similar or even more advantageous bonuses in the Member State of residence. The savings?pension bonus in question is not an advantage in the form a tax deduction linked to the taxation of income in Germany, but minimum financial aid given by the German State to encourage workers to set up a complementary pension in order to compensate the reduction in the level statutory pension. The fact that cross-border workers may possibly be able to obtain tax reductions in their State of residence does not put an end to the discrimination to which they are subject as regards the grant savings-pension bonus.

The Second Complaint - Subsidized Capital for Acquisition or Construction Dwelling

Pursuant to §92a EStG, a beneficiary bonus may use up to a maximum of EUR 50 000 subsidized capital built up under the savings-pension contract for the acquisition or construction of an owner-occupied dwelling on the national territory. Clearly therefore, the subsidized capital in question may not be used for the acquisition or construction of a dwelling in a border region outside Germany.

As regards, in the second place, protection national social security system, it is apparent that the risk of seriously undermining the financial balance social security system may constitute an overriding reason in the public interest. However, such a risk has not been established in the present case. The Federal Republic of Germany has merely stated that, if beneficiaries own a dwelling, there is no risk that during their retirement they will have to bear the costs of rent and will not have to resort to social security benefits. In addition, that objective can be attained in the same way if the capital savings?pension is able to be used for the acquisition of a dwelling outside Germany.

It follows from the foregoing that this complaint is well?founded and that the Federal Republic of Germany has failed to fulfill its obligations under Art. 39 EC and Art. 7 II of Regulation No 1612/68 EU by denying cross-border workers the right to use the subsidized capital for the acquisition or construction of an owner-occupied dwelling unless it is situated in Germany.

The Third Complaint

As regards the part complaint relating to the discriminatory nature obligation to reimburse any paid bonus on termination of full liability to taxation, it should be borne in your mind that generally all discrimination on grounds of nationality is prohibited (art. 12 EC). The provisions at issue discriminate indirectly against migrant workers and so contradicts art. 39 EC and Art. 7 II of Regulation No 1612/68.

Migrant workers are generally non?nationals and are more likely to leave Germany to work and establish their residence in another Member State and thus more likely to cease being fully liable to German tax. Foreign workers are therefore more likely to be the subject of a disadvantage than German workers.

According to settled case?law, art. 18 EC, which sets out generally the right of every citizen Union to move and reside freely within the territory Member States, finds specific expression in art. 39 EC in relation to freedom of movement for workers. The obligation to reimburse on termination of full liability to German tax is not justified by this provision and therefore not binding among Europeans.

Applicability

Please note that this judgment relates solely to the situation of European cross?border workers whose income is taxable exclusively in their State of residence pursuant to a convention to prevent double taxation concluded by the Federal Republic of Germany with other Member States. In other words, this will not touch the situation when you are subject to taxation outside of the European Union.

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