Contents
►This section describes which Danish pension providers are liable to pay tax on yields from pension plan assets.◄
►The section contains:◄
►
- Rule
- Background and description of pension providers liable to PAL taxation
- Basis of taxation
◄
Rule
► ◄►The following pension providers are liable to PAL taxation:◄
►1a) Pension providers domiciled in Denmark which the Danish Financial Supervisory Authority (Finanstilsynet) has granted a licence or a concession to operate as a life insurance company or a pension fund in Denmark. ◄
►1b) Pension funds which have been granted a licence in a country that has implemented Council Directive 2003/41/EC of 3 June 2003 on the activities and supervision of institutions for occupational retirement provision and which perform pension fund activities in Denmark through a permanent establishment, cf. Section 21 b of the Danish Supervision of Company Pension Funds Act (Lov om tilsyn med firmapensionskasser). ◄
►1) Pension funds which are not liable to taxation under Section 3(1), Item 9 of SEL. ◄
2) ► The Social Pension Fund (Den Sociale Pensionsfond).◄
3) ►The Labour Market Supplementary Pension Fund (Arbejdsmarkedets Tillægspension (ATP)). ◄
►4) The Employees' Capital Pension Fund (Lønmodtagernes Dyrtidsfond (LD)).◄
►5) Assistance and support funds approved under Section 52 PBL and other assistance and support funds having pension-like objectives.◄
►6) Labour market-related life assurance limited companies comprised by Section 307 of the Danish Financial Business Act. ◄
►7) Administration estates through administrators covered by ◄
►a) Sections 253-258 of the Danish Financial Business Act,◄
►b) Part 8 of the Danish Supervision of Company Pension Funds Act or ◄
►c) similar supervisory legislation in another country within the European Union or in a country with which the Community has concluded an agreement for the financial area ◄
►which administer a closed portfolio of pension commitments from a liquidated pension fund covered by Item 1 or a closed portfolio of life insurance policies from a liquidated labour market-related life assurance limited company covered by Section 307 of the Danish Financial Business Act. ◄
►8) Pension funds established before 28 November 2007 ◄
►a) whose Articles of Association stipulate that no new members may be admitted and ◄
►b) where the agreed contributions cannot be raised after 28 November 2007.◄
►It is a condition that the pension fund has chosen taxation pursuant to this subsection in connection with the transition to taxation under PAL. The choice is binding. ◄
9) ►Life insurance companies which are liable to taxation under the Danish Corporation Tax Act, including life insurance companies which perform insurance activities in Denmark through a permanent establishment. ◄
10) ►Insurance companies which are domiciled in Denmark or perform insurance activities in Denmark through a permanent establishment provided that such insurance companies have a closed portfolio of life insurance policies from a liquidated life insurance company. ◄
►11) Administration estates through administrators ◄
►a) covered by Sections 253-258 of the Danish Financial Business Act or ◄
b) ►similar supervisory arrangement in another country within the European Union or in a country with which the Community has concluded an agreement for the financial area ◄
►which administer a closed portfolio of life insurance policies from a liquidated life insurance company covered by Item 10 or 11.◄
Background and description of pension providers liable to PAL taxation
Re 1a+b)
►Pension funds are still liable to taxation under PAL in respect of yields concerning equity. See Section 7 of PAL. Taxation of equity also comprises the increase in the non-allocated bonus reserves. The taxation is temporary as the transfer of non-allocated bonus reserves with individual interest etc. means that a deduction is granted, whereas the pension savers are ultimately liable to taxation in respect of the amount transferred. ◄
►The pension funds mentioned under 1b must be taxed on the part of the yields from the pension plan assets which are allocated to equity in the permanent establishment. The equity allocated to the permanent establishment can be fixed based on the solvency margin for the pension plans belonging under the branch. ◄
►The purpose of pension funds comprised by the Danish Supervision of Company Pension Funds Act is to ensure pension in the form of retirement pension, disability pension, surviving spouse pension and children's pension in connection with employment in a private company. ◄
►
◄
Pension funds covered by the Danish Financial Business Act have a wider sphere of activities. The purpose of these pension funds (the so-called lateral pension funds, i.e. nationwide occupational pension funds) is to ensure similar pension under uniform rules for members with specific educational backgrounds or members employed in specific companies. Lateral pension funds also include pension funds the members of which are self-employed persons within the same industry.
Company pension funds and lateral pension funds are treated in the same way for tax purposes. Both types of pension funds are covered by Section 2, Item 4 of PBL, cf. Section 3 of PBL.
►The background for the continued taxation of the yields concerning equity in pension funds and the other pension funds mentioned is to avoid that these yields are taxed much more leniently than in life insurance companies. In connection with the change of taxation of yields from pension plan assets to individual level, it was never the intention to grant tax relief to the pension funds in connection with this change.◄
Re 2)
►Pension funds exempted from the tax liability under Section 3(1), Item 9 of SEL must be taxed under PAL on the yields from pension plan assets which accrue to equity. ◄
►Pension funds covered by Section 3(1), Item 9 of SEL and which are approved by SKAT are characterised in that the fund only covers public sector employees. These pension funds are subject to the same terms with respect to the purpose of the fund and the placement of the funds as pension funds covered by the Danish Financial Business Act or the Danish Supervision of Company Pension Funds Act .◄
►For information about the background for the tax liability of the pension funds mentioned, see above under Re 1).◄
Re 3)
►The Social Pension Fund is still liable to taxation under PAL. The Social Pension Fund is used to ensure certain pension improvements. Since the Social Pension Fund is set up for pension purposes, the fund is, as is most appropriate, taxed under PAL. It is not possible to change the tax liability to individual level as no persons have a legal claim on disbursements from the fund. ◄
Re 4)
►ATP will still be liable to taxation at provider level. ATP is a supplement to the national pension and is a part of the first pillar of the pension system. ATP is a compulsory pension plan without the option of withdrawal and has the structure of a collective insurance scheme. This means that ATP is based on collective risk sharing. Until 1 January 2002, a person's contributions to ATP were dependent on his or her employment situation and contribution category. ◄
►ATP pension is calculated ◄
►
- partly based on the contributions paid by the individual person over the years and
- partly based on when the contributions are paid to ATP and the size of the bonus.
◄
►There is thus no clear connection between the deposit and ATP's commitment in relation to the pension holder. It is therefore difficult to break the ATP plan down into individual levels.◄
Re 5)
►LD will still be liable to taxation at provider level. LD was established by Act no. 7 of 9 January 1980. Following the passing of the Danish Payment of Cost-of-Living Allowances Act (Dyrtidsindbetalingsloven), two cost-of-living allowance portions were suspended in the 1977-79 collective agreement period (see Act no. 230 of 2 June 1977 on temporary payment from the Danish state to ATP of certain cost-of-living allowance portions). The deposit of the individual salary/wage earner with LD is disbursed as a one-off payment when the person in question becomes a pensioner or otherwise retires from the labour market. LD is being discontinued, and contributions can no longer be made. LD is thus still liable to taxation at provider level. ◄
Re 6)
►Assistance and support funds approved under Section 52 of PBL and other assistance and support funds having pension-like objectives are liable to taxation under PAL. It is not possible to change the tax liability under PAL to individual level for assistance and support funds as, first of all, it is not possible to identify the persons that are entitled to payments from the fund for more than one year at a time. Secondly, there is no suitable distribution ratio for the yields. ◄
►An assistance and support fund is characterised in that the only objective allowed for the fund is to support persons who have previously been employed in the employer's company. The support can also be granted to the spouses, divorced spouses, cohabitees, children or grandchildren of these employees. The recipient has a legal claim on this pension-like support for one year at a time only.◄
Re 7)
►Labour market-related life assurance limited companies comprised by Section 307 of the Danish Financial Business Act will still be liable to taxation under PAL. Labour market-related life assurance limited companies are life assurance limited companies which meet the conditions set out in Section 307 of the Danish Financial Business Act. A labour market-related life assurance limited company can only provide collective plans on the same terms as lateral pension funds (nationwide occupational pension funds). The labour market-related life assurance limited company can thus only take out policies in the same way as lateral pension funds. ◄
►If labour market-related life assurance limited companies are not liable to pay PAL tax, they will not be taxed as they are exempted from taxation under Section 3(1), Item 18 of SEL. As labour market-related life assurance limited companies are allowed to provide collective plans on the same terms as lateral pension funds only, it would be natural that labour market-related life assurance limited companies follow the same rules in PAL as pension funds. ◄
Re 8)
►When a pension fund etc. is put under administration, the administration estate through the administrator is subrogated to the pension fund's obligations. The administrator acts on behalf of all the members. The individual member cannot make any claims against a pension fund in bankruptcy or under administration. It is thus the administrator that decides what will happen with the funds of the administration estate, including the deposit of the individual pension saver. ◄
►The yields from the pension plan assets will, however, still have to be distributed between the equity and the pension capital according to the contribution principle or the applicable distribution principle if the contribution principle is not applied. The most appropriate solution would thus be that the yields from pension plan assets allocated to equity in respect of administration estates through an administrator in pension funds and labour market-related life assurance limited companies are taxed under Section 1(2) of PAL. The part of the yields from the pension plan assets allocated to the pension capital and thus the individual plans will be taxed under Section 1(1) of PAL at individual level. ◄
Re 9)
►The pension funds in question are so-called discontinuation pension funds. In connection with the transition to taxation under PAL, they can select to continue to be taxed at provider level. As the pension funds are being discontinued and often cannot determine taxation of yields from pension plan assets at individual level without extensive changes being made, they can choose to continue in accordance with the current rules until termination. It is a condition that the pension fund does not admit new members and does not receive supplementary contributions. The choice is binding. ◄
Note
►The condition that the agreed contributions may not be increased after 28 November 2007 has been inserted to ensure that the discontinuation pension funds do not compete with others. If, for example, the discontinuation pension fund allows the acquisition of services not agreed before 29 November and which the pension holder/sponsor company would otherwise have acquired from another pension provider, the discontinuation pension fund would again be competing with other pension providers and would thus no longer meet the condition for being covered by the taxation at provider level under Section 1(2), Item 9 of PAL. ◄
►If, prior to 29 November 2007, it appears from the Articles of Association or the pension fund regulations that the sponsor company must contribute funds in the event of undercoverage in the discontinuation pension fund, the contribution is not regarded as an ‘increase in the agreed contribution' but as the performance of an existing agreement.◄
Re 10-12)
►Life insurance companies liable to taxation under SEL are a special category of companies liable to PAL taxation. These life insurance companies are taxed under PAL at provider level on the increase in the non-allocated bonus reserves according to an inventory principle. The taxation is temporary as the transfer of non-allocated bonus reserves with individual interest etc. means that a deduction is granted, whereas the pension savers are ultimately liable to taxation in respect of the amount transferred. ◄
►The objective of the taxation is to neutralise the interest advantage at individual level in connection with the postponement of taxation for products with interest bonus entitlement so that the effective tax rate for these products remains 15 per cent after the change of taxation. ◄
►The same is proposed for administration estates for liquidated life insurance companies.◄
Basis of taxation
►The pension providers mentioned above under items 3-6 and 9 must determine the basis of taxation under Section 6 of PAL. See section B.5.1, Basis of taxation for providers mentioned in Section 1(2), Items 3-6 and 9 of PAL.◄
►The pension providers mentioned above under items 1, 2, 7 and 8 must determine the basis of taxation under Section 7 of PAL. See section B.5.2, Basis of taxation for pension providers mentioned in Section 1(2), Items 1, 2, 7 and 8 of PAL.◄
►Life insurance companies and insurance companies etc. mentioned above under items 10-12 must determine the basis of taxation under Section 8 of PAL. See section B.5.3, Taxation of non-allocated funds in life insurance companies, insurance companies etc. Section 1(2), Items 10, 11 and 12 of PAL. ◄