On July 18, 2013, the Court of Justice of the European Union ("CJEU") rendered judgment in the PPG Holdings BV case (C-26/12) concerning the recovery of VAT charged on costs incurred by a company for the operation of a − defined benefit − pension plan. The CJEU also ruled on the VAT treatment of the management of the pension assets placed in company pension funds.
1. The case
PPG Holdings BV (“PPG”) has a defined benefit pension plan for its employees. The pension assets are placed in a separate pension fund so that the mandatory legal separation required under national pension law is met. PPG engages various service providers relating to the management and operation of the pension fund and recovers the VAT charged on the accompanying costs. The questions posed by the Dutch courts were:
(i) can PPG recover the VAT on these costs; and
(ii) can the pension fund be regarded as a special investment fund.
2. The CJEU judgment
The CJEU ruled that the VAT on the costs incurred with regard to the management and operation of their company pension funds are recoverable, if there is a direct and immediate link between the costs and the taxable services provided by PPG. According to the CJEU, this is the case if the costs can be regarded as general costs.
The CJEU also concluded that pension funds with a defined benefit pension plan cannot be regarded as a special investment fund. The management of these pension funds is therefore subject to VAT. The CJEU thereby referred to its judgment in the Wheels Common Investment Fund Trustees Ltd case (C-424/11). See our Tax Alert of March 7, 2013.
Companies with their own pension fund can recover the VAT on the costs incurred with regard to the operation of the pension plan and the management of the pension fund pursuant to the recovery entitlement right in relation to its general costs.
Because pension funds operating a defined benefit plan cannot be regarded as a special investment fund, the VAT exemption for the asset management of special investment funds does not apply to the asset management services provided to these pension funds. This is not surprising, given the judgment rendered by the CJEU in the Wheels Common Investment Fund Trustees Ltd case (C-424/11).
4. What can you do?
As a rule, company pension funds can only recover a limited amount of the VAT charged on the costs invoiced to them. According to the CJEU, a company can recover the VAT charged on costs incurred with regard to the operation of pension plans, provided the costs are included in the price charged for the taxable transactions performed by the company. If the company is entitled to fully recover VAT, it would therefore be more effective for the company to bear the costs. In that case, particular attention should be paid to the contractual relationship with the service providers; it is important to be able to demonstrate that there is a direct link between the costs incurred and the taxable transactions performed by the company.
The tax advisors of the Indirect Tax Financial Services Group of KPMG Meijburg & Co would be pleased to help you determine the VAT consequences, prepare notices of objection and tighten VAT provisions. They can also advise you on how to deal with and anticipate amendments to VAT legislation, policy and case law. They have extensive experience in these matters. Feel free to contact one of these tax advisors or your regular contact at KPMG Meijburg & Co for more information.