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European ruling opens door for DC management VAT exemption

Danish case wins landmark European court case

DANISH PENSION PROVIDER ATP has won a landmark European court case on value-added tax (VAT) for defined contribution (DC) management charges, reports sister publication Professional Pensions.

The ruling could open the door for UK schemes to reclaim tax on management and administration services.

PensionDanmark and its administrator ATP PensionService A/S challenged Netherlands tax body Skatteministeriet in the Court of Justice of the European Union (CJUE) case, arguing DC schemes are investment funds for VAT purposes and should be exempt from the tax.

The providers also argued administration services constitute management activities, and should also be free from VAT.

The judgment accepted PensionDanmark and ATP’s arguments, thereby ruling that admin services from 1991 to present will be VAT exempt.

PensionDanmark head of tax Maj-Britt Klemp said: “We are very pleased with the verdict. We are obligated to give our members the best possible conditions and thereby manage our members’ savings at the lowest possible cost.

“PensionDanmark is a member-owned pension fund and a VAT exemption will thereby benefit the members.”

The case will now return to the Danish High Court, which originally referred the matter for CJEU consideration.

The outcome follows advice from European Advocate General Cruz Villalón that suggested DC schemes are special investment funds (SIFs) for tax purposes (PP Online, 23 December 2013).

It marks the third European ruling on pension funds’ tax treatment in the last 12 months.

A similar challenge over the VAT status of defined benefit (DB) schemes, taken to the CJEU by the National Association of Pension Funds (NAPF) and the Wheels Common Investment Fund in an attempt to recoup £2bn for UK schemes, failed in March 2013 (PP Online, 11 March 2013).

In July, a judge ruled that DB sponsors could claim VAT paid on administration and management costs in the firm’s day-to-day running of the scheme (PP Online, 25 July 2013).

However, HM Revenue and Customs (HMRC) took a “narrow” view of the ruling in its subsequent guidance, which lawyers suggested could actually raise VAT costs (PP Online, 13 February).

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