Member states have different income tax regimes in place for retirement savings. Most countries employ the so-called EET system: pension contributions are exempt from taxation, investment returns are exempt and retirement income is taxed. This encourages retirement saving because accumlated pension savings are not taxed and income tax brackets are often lower during retirement. Other systems (ETT, TET, TEE, EEE) are less common, but are also to be found in Europe.    

National governments are free to decide the appropriate system of taxation. But countries are not allowed to apply different tax rules depending on the location of the pension fund. Such tax discrimination is in conflict with the EC Treaty, which guarantees the free movement of workers, the freedom of establishment and the freedom to provide services. A country may not deny employees the deductibility of pension contributions made to a cross-border pension provider. Allowing member states to do so would put cross-border pension funds at a disadvantage and would even militate against labour mobility.

The European Commission is acting against such tax discrimination by initiating infringement procedures. EFRP welcomes such steps, as tax discrimination constitutes a barrier to the establishment of pan-European pension funds.