PensionDanmark has received more than DKK200m (€26m) in value-added tax (VAT) compensation after its victory over the Danish government in the European Court of Justice (ECJ).

The DKK170bn labour market pension fund argued that defined contribution (DC) schemes shared enough characteristics with special investment vehicles (SIV) to be exempt from VAT charges on administration and investment management services, counter to the view of the Danish tax authority (Skatteministeriet).

The ECJ ruled in PensionDanmark’s favour, with the tax authority now settling with the scheme to the tune of DKK200m plus interest.

ATP took the legal case on behalf of PensionDanmark as it believed it should not be charging its client VAT for services.

Under EU legislation, investment funds where the asset owner solely holds the risk, and assets are investment spread over numerous securities, are exempt from VAT for administration and investment services.

ATP and PensionDanmark began challenging the Skatteministeriet in 1992 on the basis the pure-DC funds it operates match the requirement.

After disputed rulings and appeals from both side over 22 years, the ECJ ruled all pure-DC funds in the EU should be exempt from tax, causing alterations to tax law in Denmark and other DC markets, such as the UK.

PensionDanmark CFO Anders Brunn said: “Today, we are both pleased and relieved it has literally paid off to continue this case for so many years.

“More importantly, this will benefit our members through even lower administration fees.”

The decision in March last year was a landmark ruling for the European DC industry, with the ECJ agreeing DC funds should receive identical tax treatments as some investment funds.

In its ruling, the ECJ said member states should exempt VAT on DC funds without prejudice, although after proving they met risk-bearing criteria.

It listed the following charges to be exempt: “Transactions, including negotiation, concerning deposit and current accounts, payments, transfers, debts, cheques and other negotiable instruments, but excluding debt collection and factoring and management of special investment funds as defined by member states.”

However, other VAT compensation disagreements remain in Europe.

Dutch engineering firm PPG challenged its tax authority regarding VAT paid on investment costs for the defined benefit (DB) pension scheme it sponsors.

The ECJ ruled in its favour, agreeing pension schemes were an employer responsibility, and that investment and administration costs incurred were business costs and thus VAT exempt.

The UK’s tax authority, HM Revenue and Customs (HMRC), began re-thinking its stance on VAT for pension funds after the ATP and PPG victories.

It previously revealed interpretations that potentially increased tax liability for sponsors before retreating after significant opposition and pressure.

A separate case brought by the UK Wheels Common investment fund and the National Association of Pension Funds (NAPF) against HMRC failed in the ECJ on the basis DB schemes did not share enough characteristics with SIVs to be VAT-exempt.