Advocate General Decides In Abbey’s Favour In Key Tax Case

by Robert Lee, Tax-News.com, London

12 September 2005

UK-based bank Abbey took a major step towards overturning a VAT demand of more than £100 million (US$184 million) after an opinion by an Advocate General to the European Court of Justice's (ECJ) which, if the court agrees with the ruling, could have widespread implications on costs incurred by the fund management industry.

According to the recommendation of ECJ Advocate General Juliane Kokott, the UK government was not entitled under EU law to impose VAT on certain fund management services that Abbey had outsourced to third parties.

The case went to the ECJ after Britain's VAT and Duties tribunal asked the court to rule on whether national governments are entitled to decide which types of fund management service qualify for a VAT exemption under the Sixth VAT Directive. In Kokott's view, while national governments may decide which type of funds can be exempt, the management activities eligible for an exemption must be decided at EU level.

Whilst the Advocate General's opinion is not binding on the ECJ, the court reaches the same conclusion in about 80% of cases. A final ruling is expected within the next six months.

An Abbey spokesperson has revealed that the total VAT bill relating to fund management services stood at £101 million at the end of 2004. The bank's annual report stated that it would make "no specific provision" for the VAT bill because it was felt that it had a strong legal argument not to pay it.

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