The dispute over whether defined benefit (DB) pension funds should have to pay VAT on investment management services has moved on a step, with the First-tier Tax Tribunal formally referring the case to the European Court of Justice (ECJ).
The case was heard by the UK Tribunal earlier this year, which agreed in February to refer the case to the European Court of Justice (ECJ). Since then, the parties and the Tribunal have been working on the factual outline and questions on which the ECJ would provide the interpretation of EU Law. They have now reached agreement on this and the Tribunals Service referred the dispute to the ECJ this month.
The National Association of Pension Funds (NAPF) and Wheels Common Investment Fund (WCIF) together with its underlying Ford schemes launched the case against HM Revenue & Customs (HMRC) in 2008 following the JP Morgan Fleming Claverhouse Investment Trust plc ruling in the ECJ. The Court held that investment trusts were special investment funds and should be exempt from paying VAT on investment management services.
Joanne Segars, Chief Executive of the National Association of Pension Funds (NAPF), said:
“We are pleased the case is going to the European Court of Justice and we feel we have a strong case. Defined benefit pension funds should be exempt from paying VAT on investment management services.
“It will take some time before the case is resolved, but it is an important issue. A successful outcome would benefit pension scheme members by cutting running costs and increasing the funds available for investment.
“Pension funds should consider working with their investment managers to ensure that any overpaid VAT on investment management services will be protected. This will enable them to claim for a backdated period if the ruling is in the taxpayer’s favour.”
A ruling in favour of the NAPF and WCIF could mean that DB pension funds no longer have to pay an estimated £100m a year in VAT. References to the ECJ are currently taking around 16 months to be dealt with from the date they are submitted.
Notes to Editors:
1. The Wheels Common Investment Fund (WCIF) has £6 billion in assets under management and is a multi-employer scheme which includes a number of Ford Motor Company Limited Pension Funds.
2. The NAPF is the leading voice of workplace pensions in the UK. It speaks for 1,200 pension schemes with some 15 million members and assets of around £800 billion.
3. The issue affects pension funds which have segregated investments managed through asset managers. Investment management services provided through pooled funds and insurance wrappers are already exempt. This means that defined contribution pension schemes will not usually pay VAT on investment management services. Some defined benefit schemes also structure their investments in this way. Local authority funds can generally recover any VAT charged, including that on investment management fees.
Christian Zarro, Press Officer, NAPF, 020 7601 1718 or 07825 171 446, [email protected]