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Dutch Pension Federation to fight for tax exemption after ATP win

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The Dutch Pension Federation will use the European Court of Justice’s (ECJ) ruling on VAT exemption for defined contribution (DC) schemes to fight for similar rights for the industry-wide schemes it represents.

The organisation, a lobby group for 300 of Netherlands’ pension schemes, told IPE yesterday’s decision by the ECJ was a big step forward towards the country’s industry-wide schemes also gaining exemption.

In a landmark ruling for DC schemes, the ECJ ruled in favour of Danish pension provider ATP, who challenged its tax authority over whether it should be charging its clients VAT on its services.

It fought for DC schemes to be exempt from VAT on its management costs, both investment and administrative, on the basis schemes should be classed as a special investment funds (SIFs).

The ECJ agreed with this position, and said given members own the assets, and bear all investment risk, DC schemes share enough characteristics to be exempt.

It is the latter of these points which the federation will lead its case with the Dutch tax authority.

A spokesman for the lobby group said the group welcomed the ECJ’s decision.

“In the near future we will have strong discussions about this decision, and how we can take any conclusions about whether the investment risk is with the member or not,” he said.

“It is a key point. We think the investment risk [in industry-wide schemes] is with the member because of the reduction in pension rights due to the investment risk of pension funds.

“You can see there is a relationship,” he added.

The case for non-DC schemes being exempt from VAT charges on management costs has been ruled on by the ECJ before.

The Wheels Common Investment Fund and UK lobby group the National Association of Pension Funds (NAPF), challenged the UK government on the matter for DB schemes to be classed as SIFs, thus VAT exempt.

After going to the ECJ, it ruled in favour of the tax authority, as members did not bear the investment risk.

However, UK regulation does not permit rights cuts for DB schemes, or have as strict a funding requirement, as seen in the Netherlands.

On yesterday’s ruling, Paul Lee, head of investment affairs at the NAPF, said the decision was great for DC schemes, but bemoaned the lack of cohesion in regulation.

“Pension schemes have always been intended to be tax transparent, and it is good to see that delivered at least on the DC side,” he said.

“What is disappointing is this is another situation where DC schemes are favoured in advance of DB schemes, where the finding was exactly the opposite.

“The Court has taken its judgment on what the meaning of the law is. One of the intentions of tax law is that there should be fair treatment between similar vehicles.

“The analogy being made between DC schemes and SIFs, means they should benefit. We are not getting any analogy between DB schemes and DC schemes.”

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