LONDON -- Kvaerner PLC is on the brink of taking a lawsuit to the European Court of Justice in an effort to prove current cross-border taxation of pension assets in the European Union is illegal.
Larry Simpson, chairman of the board of trustees for the London-based Kvaerner PLC Pension Fund, said the engineering firm would consider putting a test case together once it had approval from senior management and the board of trustees.
The next trustee meeting takes place at the end of March.
"I want to do it. . . . The problem is we have a relatively small number of employees in each EU country and we would like to roll each of these pension plans into one master plan for Europe," he added.
The group's European pension assets are worth 2 billion ($3.2 billion).
Kvaerner is one of a group of roughly 15 multinational companies that make up the Pan-European Pensions Group. Others include law firms Linklaters & Alliance and Eversheds PLC, both of London; and consultant William M. Mercer Ltd., also of London. The group was set up in September to sponsor a test case at the European Court of Justice to show that cross-border taxation arrangements prevent the free flow of employees in the European Union. Free flow of goods and labor is one of the key principles of the European Union.
"The European Commission would like freedom of movement, but the national governments are not necessarily as enthusiastic. We think the taxation methodology, not necessarily the rates, should be common across Europe," said Mr. Simpson.
Two other members of the group, so far unnamed, also are considering taking legal action, he said. But Kvaerner has yet to decide which of its subsidiaries will launch the first case and which sovereign power will be targeted first.
To take a case to the European Court of Justice, the plaintiff must have his or her case referred by the courts of a European Union member state. Kvaerner most likely would trigger the lawsuit by transferring a member of staff between two EU countries. The company then would approach the revenue authorities in one of those countries to apply for a refund of any tax payments. If the application were refused, Kvaerner then would be likely to launch an appeal, said Geoffrey Furlonger, chairman of the PEPG and European Partner at William M. Mercer.
Swiss Life (Belgium), Brussels, also is a member of the group but would not consider launching a lawsuit in its own name as the firm is an insurance company rather than a corporate plan sponsor, said Lieven van den Meersche, representative to the PEPG from Swiss Life (Belgium).
"What we really want is a platform on which we really talk European on this issue. . . . The dream of all benefit managers is to look at Europe as one country, but that's a far away dream," he added.
Skeptics have warned it could take up to eight years for the European Court of Justice to make a ruling. But a legal source close to the case said three to four years is more likely.
Cross-border taxation is one the biggest stumbling blocks for multinational companies that want to merge their European pension assets and liabilities.
At this stage, the EU directorate dealing with tax issues has set out only the principles on which it would like cross-border taxation to be managed. These are:
* no discrimination;
* no harmonization; and
* no loss of tax revenue.
"Squaring the circle is much easier," said Adam Lessing, executive director, Goldman Sachs Asset Management International Ltd., London.
