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UK Investment Trusts Launch Legal Action Against Customs Department

by Robin Pilgrim, LawAndTax-News.com, London

23 January 2004

The Association of Investment Trust Companies (AITC) and JP Morgan Fleming Claverhouse Investment Trust have joined forces to launch legal action against the UK's Customs and Excise department, they announced on Wednesday.

The two bodies revealed that they decided to launch a test case in order to challenge the fact that VAT is charged on the management fees of investment trusts in the UK, whilst unit trusts and open-ended investment companies are exempt.

According to Daniel Godfrey, director general of the AITC:

“The Government’s continued refusal to grant investment trusts the same VAT exemption as that accorded to authorised unit trusts and OEICs is contrary to the European Union’s Sixth VAT Directive. This discrimination costs the shareholders of investment trust companies £30 million a year and is the reason why we have launched this case."

Robert Walther, Chairman of the JPMorgan Fleming Claverhouse Investment Trust plc supported Mr Godfrey's assertions, adding that:

“VAT on management fees costs our shareholders in excess of £300,000 a year, a cost the company would not have to bear if it were a unit trust or OEIC. This is undoubtedly unfair and we are working with the AITC to secure an exemption from VAT for the long-term benefit of our shareholders.”

According to the AITC, the discrimination against investment trusts stems from the way the Government has interpreted European legislation.

Under the Sixth EU VAT Directive ‘special investment funds’ are entitled to an exemption from the VAT that they would otherwise pay on the costs of outsourcing their management services.

However, the UK Government has interpreted this entitlement in a way that means that authorised unit trusts and OEICs are currently eligible for this exemption, yet despite carrying out essentially the same activities and competing in the same markets, investment trusts do not receive the same tax exemption.

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