In response to parliamentary questions, the Deputy Minister of Finance has presented his views on the impact the judgment in ATP PensionService A/S will have on the Dutch pension sector.
1. The judgment in ATP PensionService A/S
In the judgment rendered on March 13, 2014 in the ATP PensionService A/S case (“ATP”), the Court of Justice of the European Union (“CJEU”) ruled that pension funds that operate a Defined Contribution (“DC”) Plan qualify as a common investment fund within the meaning of the VAT exemption for the management of common investment funds if:
(i) the pension funds are ultimately financed by their participants;
(ii) the contributed funds are invested according to the principle of risk-spreading; and
(iii) the investment risk is borne by the participants.
Furthermore, administrative services related to the operation of pension plans can also be considered ‘management’ if the service provider establishes the rights of the participants by setting up accounts into which the contributions are paid and accounts for them in the pension plans. This also includes accounting services and services related to payments and transfers to and from the relevant accounts.
What this judgment means for the Dutch practice is that asset management services provided to pension funds that operate a DC plan are VAT exempt. The pension administration services provided to pension funds administering a DC pension plan should also be able to fall under the exemption. Given the conditions the CJEU has attached to qualifying as a common investment fund, it would appear that pension funds that operate plans other than a DC plan will also qualify for the exemption, for example, some Collective Defined Contribution (“CDC”) and Defined Benefit (“DB”) plans.
To date, however, the Dutch tax authorities has been very cautious in dealing with the implications of the ATP judgment.
2. The letter from the Deputy Minister of Finance
In his letter, the Deputy Minister of Finance identifies three categories of pension funds on which he takes the following positions:
- Collective DB plans: the VAT exemption does not apply;
- Individual DC plans: the VAT exemption applies, with reference being made to the Premium Pension Institution (premiepensioeninstelling; “PPI”) as an example of such plans;
- Collective DC and other plans: the VAT exemption may apply depending on the facts and circumstances. The basis for the VAT treatment is the comparability of the specific plan with the two categories mentioned above. The letter appears to imply that certainty can be obtained from the tax inspector responsible for the particular pension entity, which − if the implication is correct − is rather puzzling as Dutch service providers usually obtain certainty from their own tax inspector.
The VAT exemption will continue to apply to asset pooling, whereby two or more pension funds (or other institutional investors) place all or part of their equity in a separate fund.
According to the Deputy Minister, transactions relating to pension and contribution payments that are performed by a third party as an independent service to a pension institution are, and were, VAT exempt. The ATP judgment does not change this.
The Deputy Minister does not feel compelled to reconsider the limitation to the VAT exemption for cost-sharing groups in respect of pension administration services (to take effect as of January 1, 2015) as a result of the ATP judgment. VAT must be charged on these services as of that date. However, the VAT exemption will apply if these services are to be regarded as ‘management’ services and if the particular pension fund qualifies as a common investment fund.
In our view, the letter from the Deputy Minister of Finance does not change the way in which pension funds and service providers should deal with the implications of the ATP judgment. We expect that the letter from the Deputy Minister will not change the position taken by the Dutch tax authorities with regard to the ATP judgment i.e. that it does not, in principle, apply to Dutch pension funds.
However, we consider that the judgment provides a sufficient basis for claiming the VAT exemption, also if the pending appeal against the judgment of the District Court of The Hague dated July 8, 2011 (no. AWB 09/8541 08) is taken into account. The latter case deals specifically with the question whether the VAT exemption applies to management services provided to a Dutch pension fund.
4. What are your options?
We recommend that you do not withdraw any pending notices of objection. Should the Dutch tax authorities request you to further substantiate your notice of objection, we suggest that you do so, otherwise you may inadvertently adversely affect your claim to the VAT exemption.
Pension funds that have not yet filed a notice of objection against the VAT due on management services provided by foreign providers should still do so. Also, if you have not already done so, we recommend that you request your Dutch service providers to file a notice of objection. Service providers that provide management services should file a notice of objection as soon as possible, if they have not already done so, in order to preserve their rights.
Moreover, in response to the cancellation of the VAT exemption for cost-sharing groups in respect of pension administration services, it would be advisable if service providers and pension funds identify the opportunities created by the ATP judgment, as well as other opportunities that may be available to keep the provision of services fully or partly exempt from VAT as from January 1, 2015.
The advisors of the Indirect Tax Financial Services Group of KPMG Meijburg & Co would be pleased to help you as 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.