Section 56: Meps’ Pay, Allowances and Pensions under European Parliament Statute
Summary
1.Section 56 extends the application of “double taxation relief” under the Income and Corporation Taxes Act 1988 (ICTA) to European Community tax deducted from the pay, transitional allowances and pensions of members of the European Parliament (MEPs) under the new Statute for Members of the European Parliament (2005/684/EC, Euratom). The section also amends the Income Tax (Earnings and Pensions) Act 2003 (ITEPA) to provide that payment of transitional allowances to MEPs under the Statute will be treated as termination payments in line with the current treatment of other, similar payments.
Details of the Section
2.Subsection (1) provides that Part 18 of ICTA (double taxation relief) will apply to tax paid for the benefit of the European Communities on certain types of income under the Statute as if it were payable under the law of a territory outside the UK.
3.Subsection (2) provides for the amendment of section 291 of ITEPA (termination payments to MPs and others ceasing to hold office) by treating payments of transitional allowances under the Statute in the same way as termination payments to MEPs under the similar, existing scheme under the European Parliament (Pay and Pensions) Act 1979.
Background Note
4.By decision of the European Parliament, the Statute for members of the European Parliament (2005/684/EC, Euratom) has been adopted. It sets out common pay and conditions for MEPs effective from the first European Parliament following elections in 2009. Newly-elected MEPs will be subject to the pay and conditions defined in the Statute although those re-elected may choose to retain their existing remuneration package.
5.The consequence of the new salary payment regime is that Members of the European Parliament will be paid by the European Community, which will be subject to tax by the Community (“tax for the benefit of the communities”). Those members who are UK resident for tax purposes will also be liable for UK tax on their earnings.
6.The normal method for relieving this kind of double tax is to give credit for the tax suffered in the overseas jurisdiction by way of a “double tax treaty”. However, because the UK does not have a double tax treaty with the European Community, the double tax cannot be relieved in this way.
7.However, the UK can give credit for double taxation suffered unilaterally where a treaty is not in existence or the treaty does not help with the specific income in point.
8.The issue and therefore the need for this section is that section 790(4) of ICTA refers to “credit for tax paid under the law of the territory outside of the United Kingdom”. As the European Community is not a “territory”, legislation is needed to extend this provision to the European Community.
9.Therefore when an MEP’s salary is taxed by the European Community and (to the extent the MEP is UK resident) the UK, this section will extend Part 18 of ICTA and allow the MEP to claim credit relief (against the MEP’s UK tax liability) for the tax paid in the European Community.
10.The section also provides that payments of transitional allowance under the Statute will be treated as termination payments from 6 April 2009, thereby bringing their tax treatment into line with that of the similar resettlement grants payable under the existing arrangements for MEPs as well as payments to Westminster MPs and members of the devolved assemblies and the greater London Assembly under similar, existing schemes.
