UK - UK-based pension funds are being urged by its representative bodyto launch a legal challenge to the government's line on value-added tax(VAT) following a recent court ruling on when services are exempt.

The European Court of Justice ruled in the JP Morgan Claverhouse case in June 2007 the "management of special investment funds as defined by Member States" should be exempt from VAT, after it had been charged on services supplied to investment trust companies.

The NAPF has now taken legal advice and its chief executive, Joanne Segars, is subsequently arguing pensions funds should jointly finance a legal challenge to Her Majesty's Revenue & Customs' (HMRC) view it should also be charged on services provided to pension funds.

"After the clarification from the European Court of Justice, there is a strong case that pension funds should not have to pay VAT on investment management services. Instead, they would be able to use these savings to benefit their members," said Segars.

"Litigation is never without risk and it would be expensive for any one pension fund to finance a legal challenge on its own. But if a number of funds agree to share the costs, they could get their money back several times over. Ultimately, it is for pension funds to decide whether they want to challenge HMRC. If we get enough interest from our members, we will co-ordinate a case," she added.

In recent days, the Treasury has attempted to argue the JP Morgan case does not mean it should be applied to the wider market.

However, government in other countries face similar problems, most notably in the Netherlands where pension funds also argue they should be exempt. (See earlier IPE story: Netherlands needs FGRs to become pensions champion)

A review of VAT definitions for financial services was launched last week by the European Commission. (see earlier IPE story: Review may clarify VAT on pensions-related services)

If you have any comments you would like to add to this or any other story, contact Julie Henderson on + 44 (0)20 7261 4602 or email