UK: AG Opinion: Management Services For DC Pension Schemes Are VAT Exempt

Last Updated: 12 February 2014
Article by Michael Cant

Summary and implications

In the Danish case of ATP PensionService (ATP) (C-464/12), the Advocate General (AG), legal adviser to the European Court (the CJEU), has stated his opinion that:

  • management services provided to defined contribution (DC) pension schemes are VAT exempt; and
  • DC schemes should be differentiated from defined benefit (DB) schemes.

The decision of the CJEU may not necessarily follow the opinion of the AG but if the CJEU does agree then DC schemes across the EU could achieve considerable cost savings going forward and be able to reclaim VAT wrongly paid for management services in the past.


ATP provides administrative services to pension funds − for example, dealing with payments into and out of the funds and advising both employees and employers on pension funds. It mainly acts for DC pension schemes.

Originally, ATP accounted for VAT on all its services. From June 2002 it stopped, informing the Danish tax authority that it considered its services were exempt from VAT. The tax authority contested this and the case has moved through the courts until questions were referred to the CJEU for a preliminary ruling.

The argument for ATP's services being VAT exempt focused on whether they comprise the "management of special investment funds" and the Danish court asked the CJEU to rule on whether the term "special investment funds" includes DC pension schemes.

Legal framework

As a general rule VAT is payable on the supply of services for consideration by a taxable person. At a European level, there is an exemption to this rule for the "management of special investment funds". The wording of the exemption leaves it to the individual member states to specify what falls within the definition of "special investment funds".

AG's opinion

The AG acknowledged that the wording of EU law leaves it to the member states to define "special investment funds". However, he identified limits to this discretion, principally that the member states cannot undermine the purpose of the exemption or go against the principle of fiscal neutrality.

The purpose of the exemption

The purpose of the exemption is to enable individuals to invest collectively, thereby spreading risk, without incurring the additional cost of VAT. The AG regarded the goal of a DC pension scheme as aligned with the purpose of the exemption.

Principle of fiscal neutrality

Fiscal neutrality prohibits the application of different VAT treatments on equal or similar services which are in competition with each other, since it would lead to a distortion of competition.

Relevant criteria

When looking at whether DC pension schemes are comparable with and in competition with other special investment funds, the AG suggested the only relevant criteria for comparison derive from considering the purpose of the exemption, namely whether the pension fund allows for:

  • the pooling of assets of several investors; and
  • the spreading of risk.

For there to be pooling of assets, investors must enjoy an unconditional legal right in respect of the investment assets. It does not matter if the investor cannot realise their right at will − for instance, before retirement − but it must not be lost on death of the investor.

For there to be spreading of risk, the investors must bear the costs and risks of the investments. This is generally the case for a DC pension scheme.

Irrelevant criteria

The AG considered it irrelevant when comparing special investment funds to consider:

  • the purpose of the investment − for instance, whether saving for a pension or other purpose;
  • whether the employer pays the contributions to the fund;
  • if the pension funds are agreed collectively between employers, employees and the funds rather than individually;
  • whether the contributions to the funds are tax deductible; and
  • the form of any payments out of the fund, for instance a lump sum or life annuity.

In light of the above, the AG concluded that a DC pension fund which allows for the pooling of assets of several investors and the spreading of risk will be a "special investment fund", provided the investors bear the cost and risk of the investment and retain their legal right to the assets. Therefore, management of such DC pension funds fall within the VAT exemption.


In light of the AG's opinion, the CJEU now has to give its preliminary ruling on the questions referred to it before the case returns to the Danish court for a final ruling.

An AG's opinion is not binding on the court, although it will usually be followed. If the AG's opinion is followed here, then the outcome of the ATP case will contrast with the decision in the Wheels case (C-424/11), which ruled that the management services for DB pension schemes are not VAT exempt. The difference in the outcome of these two cases hinges on who bears the risk of the investment in each type of scheme. As the investors in a DC pension scheme bear the risk of the investment then, in the AG's opinion, such funds fall within the purpose of the VAT exemption for "special investment funds" and so management services for such funds should be VAT exempt.

After the Wheels case, advisers were generally confident that the position in relation to DC schemes would be different to that in DB schemes. The AG's opinion supports this view. What remains unclear is whether the position in relation to self-invested personal pensions (SIPPs) is affected, although it seems unlikely as with a SIPP there is no pooling of assets among investors. If the AG's opinion is followed by the CJEU, DC schemes across the EU could achieve significant cost savings going forward and no doubt will be looking to recover "VAT" wrongly paid in the past. The position in the UK may be complicated by the existing arrangements put in place by employers to minimise VAT loss.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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