British and Dutch pension funds, most notably PGGM, are involved in litigation in the USA or have cases pending which will clarify their tax status and could bring millions of dollars worth of rebates.

The funds hope to claim a rebate on withholding tax from the Internal Revenue Service on the grounds that they should be considered as labour organisations.

PGGM, the fund for Dutch health and social workers, has already lost a case in a District of Columbia Court but has it has taken the case to appeal, and stands to collect $8.5m.

The case will have a bearing on the pending claims of other Dutch firms, according to Michael McNulty, a lawyer in the London office of Whitman, Breed, Abbott and Morgan who represents among others, PGGM and the UK Merchant Navy pension funds. He expects the PGGM matter to be resolved by the end of this year.

McNulty would not name the other firms but explained the legal implications for them. There are other cases but none of them have started, as far as I know. However, the principle in the PGGM case would affect the other cases that I know about,” he said.

The Merchant Navy Officers Pension Fund Trustees and the Merchant Navy Ratings Pension Fund are in dispute over interest on rebated taxes, which could see them receive $2 million. The Merchant Navy funds successfully established their status as labour organisations with the IRS in 1991.

The crux of this dispute is that having received refunds for the period 1985 to 1989, they are now claiming interest on US income taxes. The IRS view is that interest should only be payable from the date when the refund claim was filed, while the funds’ position is that interest should be paid from the date when the taxes were first withheld.

The case has been heard by one US Court, the Court of Claims which found for the Merchant Navy, but the IRS has appealed to the Court of Appeal for the Federal circuit.

Other UK pension funds are involved in proceedings to establish that they are exempt from tax, and if this is decided, the dispute over the interest will have a bearing on how much refund they are entitled to. However, McNulty does not believe that any other funds have received a rebate as yet.

In the early 1990s, several British pension funds were canvassed for business by American law firms who suggested that rebates of this nature could be elicited from the IRS.

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