The International Taxation of Voluntary Individual Pensions

Marjut Salo

Research output: ThesisDoctoral ThesisMonograph


This dissertation examines the Finnish tax system of voluntary individual pension schemes in cross-border situations. It identifies and analyses a number of problems that result from the interaction of the Finnish tax system with those of some other EU Member States. As a result, in addition to the national legislation, the analysis is extended to tax treaty law and to EU law. The main objectives of taxation of voluntary pensions are to maintain the coherence of the tax system and eliminate double taxation. In an international context these objectives are not always met. This is because the underlying problem with pension taxation in the EU is that it is not in a Member State's fiscal interest to make its national rules compatible with the TFEU, if it means that the country is not able to tax pension income even though it has allowed tax deduction for pension contributions. To avoid a permanent tax loss, Finland, as well as many other EU countries, has introduced tax law provisions aimed at purely cross-border situations. The overall finding is that the provisions of the Income Tax Act are currently not sufficiently adapted to the demands of the international pension market and do not function properly in cross-border situations. However, Finland has taken a step to the right direction by considering itself to be the source state of the individual pension income if it has granted the tax deduction. This way Finland has moved closer to matching the tax relief and taxation of pension income. Nonetheless, the reform has been left half-way, because application of the tax provision may lead to a conflict with the tax treaties. The taxpayers may also be subjected to international double taxation, which is not eliminated by tax treaties or by national law regulations. As a result free movement is restricted in the internal market for pension insurances and from a strictly national perspective, the underlying objectives are only partially met. This dissertation highlights specific situations where Finland should not tax pension benefits even if it has granted the tax relief. Reduction of the tax revenue is a cost that results from complying with the fundamental freedoms of the EU and supporting the objective of saving for retirement. It is recommended that Finland should, among other things, allow deductions of premiums paid towards a foreign PS contract, amend the qualitative requirements which define whether the foreign pension scheme is eligible for beneficial tax treatment, and include the concept of source state to the tax treaties. The goals of developing the tax legislation should ultimately be to ensure a sustainable and adequate financing of future pensions and to achieve an effectively functioning internal market for individual pension schemes. This would substantially benefit and encourage free movement of people and also savings in individual pensions.
Translated title of the contributionThe International Taxation of Voluntary Individual Pensions
Original languageFinnish
QualificationDoctor's degree
Awarding Institution
  • Aalto University
  • Niskakangas, Heikki, Supervising Professor
Print ISBNs978-952-60-5676-0
Publication statusPublished - 2014
MoE publication typeG4 Doctoral dissertation (monograph)


  • voluntary pension insurance
  • PS contract
  • taxation of long-term savings
  • income taxation
  • EU law
  • tax treaties

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