The Court of Justice of the European Union (CJEU) has held that an employer is entitled to recover VAT not only on administrative services but also on investment management fees relating to its DB occupational pension scheme, provided it does not pass the costs on to the pension scheme.
A taxable person has the right to recover VAT where the costs of the services are part of the taxable person's general costs and have a direct and immediate link with the taxable person's economic activity as a whole. The CJEU decided that this can apply to a sponsoring employer even though the costs relate to a pension scheme which is a separate legal entity. Whether the costs do in fact form part of the taxable person's general costs is for the national court to decide. The ruling applies only to DB schemes, but we understand there is a Danish case pending in relation to DC funds.
Possible VAT reclamation by employers
The decision is somewhat surprising, as it does not follow either the Advocate-General's Opinion or the existing practice of HMRC and other national tax authorities, but it seems to open up the possibility of employers claiming back VAT paid on investment management costs in recent tax years and, for employers who have not previously paid these costs directly, to do so in future.
Note that this does not affect the judgment in the Wheels case earlier this year. That case did not relate to fees paid by an employer but rather to management fees paid by a common investment fund in which the assets of several DB pension schemes were pooled. It was held that a common investment fund of this type was not a "special investment fund" which is exempt from VAT.
Click here for the CJEU's judgment in the PPG Holdings case.
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