Eastern High Court rules in favour of former UN staff in landmark pension tax case
By its decision, the court confirms that specific parts of pension payments from the United Nations Joint Staff Pension Fund (UNJSPF) to former UN staff are tax-free when received by retired UN personnel in Denmark.
Plesner represented all three former UN staff members before the court.
Background of the case
The case concerned three former staff members, previously employed by WHO, UNEP and UNON. They had been working in Denmark and abroad. During their service, contributions were payable to their pension schemes with UNJSPF. One third was taken from the salaries of the employees, while their respective employers contributed the remaining two thirds. When receiving the disputed pay-outs from the pension scheme after retirement, the three former staff members were resident in Denmark.
The case was brought to court by the Ministry of Taxation, which argued that the UN "staff assessment" mechanism constitutes an internal UN tax and that the employer pension contributions had been made on a pre-tax basis (i.e. disregarded for purposes of the alleged UN tax). Consequently, the Ministry argued, the pension pay-outs equivalent to the employees' contributions to UNJSPF were taxable according to section 53 A (5) of the Danish Pension Taxation Act.
The Eastern High Court's judgment
As the cases involved a principal matter of interpretation of Danish law, the case was referred to the Eastern High Court, which rejected the Ministry's claims entirely. The court found that staff assessment is an internal equalisation and financing mechanism within the UN system. Its purpose is to ensure budgetary neutrality among Member States and to equalise differences in national taxation of UN staff. Staff assessment is not levied by or paid to any state or public tax authority, and changes in staff assessment rates do not affect employees' net salaries in a manner comparable to changes in national taxation.
Since staff assessment did not amount to a tax, section 53 A (5) of the Danish Pension Taxation Act did not apply, and the disputed part of the pension pay-outs could be received free from Danish taxation.
Significance
During the case proceedings, the Ministry of Taxation informed that the test cases now decided formed part of a larger body of similar cases, where more than 1,000 cases had been selected for audit by the tax authorities. Thus, the ruling sets an important precedent for the vast majority of former UN staff who have retired in Denmark and receive a pension from the UNJSPF. It provides important legal clarity on how the UN's internal salary system interacts with Danish pension taxation rules. The decision of Eastern High Court has not been appealed by the Ministry of Taxation, and the decision will necessitate an update of the Danish Tax Agency's Legal Guidance .
The cases were argued before the Eastern High Court by Søren Lehmann Nielsen and Jef Nymand Hounsgaard.