NETHERLANDS - The Dutch government has abandoned its opposition to a proposed EU Directive giving pension funds VAT exemption on management services.

"The cabinet is now positive towards the concept directive, in order to create a level-playing field within Europe," Jan Erik van der Werff, spokesman for the Dutch Treasury, told IPE.

That said, he denied the government's decision implies the VAT currently applied on services used by pension funds will disappear.

"We will ask the European Commission for further clarification first. Our final position will be decided by the answers," said van der Werff.

The Dutch Finance ministry last year threatened to veto the new EU Directive, because it feared the loss of tax revenues. However, its spokesman could not provide an indication of the amount involved.

At present, Belgium, Luxembourg and Ireland do not charge VAT on asset management services and building rent among other services, making it more costly for pension funds to use such services in the Netherlands than in other member states.

The cabinet's U turn is likely to be caused by pressure from the pensions sector and the new Holland Financial Centre (HFC), which aim is to improve the attractiveness of the Netherlands for financial institutions.

Although he welcomes the government's change of mind, Robin Fransman, director of HFC, put the issue into perspective, by noting it could takes years before the Directive comes into force.

"The cabinet should abolish the VAT on financial services immediately," he stressed.

The European Commission announced in December it conduct a review of existing legislation on value-added tax (VAT), a key element of which was to look at the
"redefinition of the scope of the exempt services". See earlier IPE story: Review may clarify VAT on pensions-related services)