On March 7, 2013, the Court of Justice of the European Union ("CJEU") rendered its judgment in the Wheels Common Investment Fund Trustees Ltd case (C-424/11) on the VAT position of the management of pension funds that implement a defined benefit scheme. The CJEU has also rendered judgment on the VAT position of funds in which these pension funds invest their funds.
1. The case
Wheels Common Investment Fund Trustees Ltd manages an investment fund in which several pension funds of the Ford group have invested their funds. The English court requested a preliminary ruling from the CJEU on whether:
(i) company pension funds implementing a defined benefit scheme; or
(ii) funds in which these pension funds pool their investments;
could qualify as common investment funds. This is relevant as the management of the assets for these (pension)funds would then be VAT exempt.
2. The judgment of the CJEU
On March 7, 2013, the CJEU rendered its judgment in the Wheels Common Investment Fund Trustees Ltd case (C-424/11) and ruled that pension funds that implement a defined benefit scheme do not qualify as a common investment fund. The management of these pension funds is therefore subject to VAT. If these pension funds have invested their funds in a fund set up for this purpose, then this fund also does not qualify as a common investment fund, as these funds are not open to the public and only result from the employment relationship between employer and employee.
Pension funds implementing a defined benefit scheme do not qualify as a common investment fund and therefore the VAT exemption for the management of common investment funds does not apply to management services provided to these pension funds. Also mutual funds in which these pension funds invest their funds do not qualify as common investment funds if these mutual funds are not open to the public and only result from the employment relationship between employer and employee.
4. What are your options?
It is still possible for all or part of the management of the assets of pension funds to be VAT exempt. The CJEU's judgment still allows pension funds to jointly set up a mutual fund with another (pension)fund, provided the mutual fund is comparable to a UCITS fund. By placing its investments with those of other pension funds in a mutual fund, the management of the mutual fund can be VAT exempt, provided the mutual fund is sufficiently similar to a UCITS fund. Furthermore, it is possible in some cases to directly apply a VAT exemption, depending on the mandate provided to the manager.
The tax advisors of the Indirect Tax Financial Services Group of KPMG Meijburg & Co will gladly assist you in determining the VAT consequences, preparing notices of objection and tightening VAT provisions. Their expertise means they can also provide assistance on how to deal with and anticipate on amendments in VAT legislation, policy and case law. Feel free to contact one of these tax advisors or your regular contact at KPMG Meijburg & Co for more information.