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VAT Now Payable On EU Pension Scheme Management Fees

By Ulrika Lomas,, Brussels

11 March 2013

The European Court of Justice has agreed with HM Revenue and Customs that VAT is payable on fund management fees incurred by occupational pension funds.

Wheels Common Investment Fund Trustees Ltd had argued that a fund it managed on behalf of the Ford Motor Company should be treated as a "Special Investment Fund." Such funds, which are concerned with the collective investment in transferable securities of capital raised from the public, are exempt from VAT. However, although the fund in this instance represented the assets of several pooled pension schemes, the court ruled that it was not a fund open to the public, but rather "an employment-related benefit which employers grant only to their employees."

The court also observed that members of the scheme do not bear the risk of the management of the fund, and that the pension amount received is based on salary and length of service rather than on the assets' performance. Further, the employer is not comparable to a private investor: instead, "the contributions which he pays into the retirement pension scheme are a means by which he complies with his legal obligations towards his employees."

Lorraine Parkin, Head of Indirect Tax at Grant Thornton UK LLP, was quoted as saying in response that: "A significant amount of money was riding on this judgment. Had the judgment been that occupational schemes were to be regarded as Special Investment Funds, it may have been possible for schemes to have claimed substantial sums, via the fund managers, to recoup the VAT previously charged by them. This ruling from the CJEU means that this will no longer be possible which is no doubt a blow to many funds but probably has HM Treasury breathing a sigh of relief."

TAGS: court | tax | investment | value added tax (VAT) | employees | retirement | United Kingdom | fees | HM Revenue and Customs (HMRC) | HM Revenue and Customs (HMRC) | European Union (EU) | Europe

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