We demonstrate the effect of an ecosystem differentiated insulation by snow on the soil thermal regime and on the terrestrial soil carbon distribution in the pan-Arctic area. This is done by means of a sensitivity study performed with the land surface model ORCHIDEE, which furthermore provides a first quantification of this effect. Based on field campaigns reporting higher thermal conductivities and densities for the tundra snowpack than for taiga snow, two distributions of near-equilibrium soil carbon stocks are computed, one relying on uniform snow thermal properties and the other using ecosystem-differentiated snow thermal properties. Those modeled distributions strongly depend on soil temperature through decomposition processes. Considering higher insulation by snow in taiga areas induces warmer soil temperatures by up to 12 K in winter at 50 cm depth. This warmer soil signal persists over summer with a temperature difference of up to 4 K at 50 cm depth, especially in areas exhibiting a thick, enduring snow cover. These thermal changes have implications on the modeled soil carbon stocks, which are reduced by 8% in the pan-Arctic continental area when the vegetation-induced variations of snow thermal properties are accounted for. This is the result of diverse and spatially heterogeneous ecosystem processes: where higher soil temperatures lift nitrogen limitation on plant productivity, tree plant functional types thrive whereas light limitation and enhanced water stress are the new constrains on lower vegetation, resulting in a reduced net productivity at the pan-Arctic scale. Concomitantly, higher soil temperatures yield increased respiration rates (+22% over the study area) and result in reduced permafrost extent and deeper active layers which expose greater volumes of soil to microbial decomposition. The three effects combine to produce lower soil carbon stocks in the pan-Arctic terrestrial area. Our study highlights the role of snow in combination with vegetation in shaping the distribution of soil carbon and permafrost at high latitudes. Copyright 2012 by the American Geophysical Union.