EUROPE – A tax expert has suggested a large number of UK employers with defined benefit (DB) pension funds could reclaim VAT tax from HM Revenue & Customs on the day-to-day management of the schemes and the management of investments following a ruling by the EU Court of Justice (ECJ) last week.
Last week, in a case involving Dutch company PPG, the ECJ ruled that an employer, in some circumstances, could reclaim VAT on both day-to-day management and the management of investments.
However, the court emphasised that the management of an occupational pension scheme was not VAT exempt.
Robert Facer, VAT associate at accountancy firm Moore Stephens, told IPE the ECJ's stance on the management of an occupational pension scheme was not surprising.
"It comes in line with both a previous CJEU ruling in the Wheels case in the UK and the Advocate General's opinion on PPG, released in April," he said.
In March, the National Association of Pension Funds (NAPF) and the Wheels Common Investment Fund (WCIF) lost a case against UK HM Revenue & Customs (HMRC) in which they argued pension funds should be exempt from paying VAT.
The ECJ ruled at the time that UK workplace DB pension funds were not special investment funds and therefore not exempt from paying VAT on investment management services.
"However," Facer said, "what is more surprising is the stance taken by the ECJ on day-to-day management of the scheme and the management of investments."
Facer said the ruling on the management of investments was surprising, as the ECJ took a different view to that of the Advocate General, in itself "an unusual event".
More important, he said, the ECJ ruling has given employers the opportunity to recover "substantial" VAT reclaims on costs relating to the management of occupational pension scheme investments.
Facer, who urged pension schemes in the UK to claim VAT tax back from HM Revenue & Customs, said pension schemes were allowed to claim up to four years in tax.
"The decision challenges HM Revenue & Customs' current policy," he said. "It is also causing considerable excitement for businesses that may be able to put in retrospective claims for VAT incurred in the last four years."
Facer nonetheless stressed that only employers having "similar specificities" to PPG could pretend to get VAT tax back.
One of the reasons, according to him, that the ECJ ruled in favour of the Dutch employer was that PPG contracted third parties to supply investment services instead of the third parties being contracted by the scheme itself.
Additionally, in the PPG case, the company set up a pension scheme to fill a particular legal requirement in the Netherlands set under the Dutch pension legislation.
On that point, similar requirements could be found in the UK if compared with the Dutch law, Facer said.
He finally argued that, even though the PPG case concerned a DB scheme, the same principles should apply to DB and defined contribution (DC) schemes.
"We would encourage employers running DC schemes to also make a claim," Facer said.