Tax Planning International, May 2014
European Union: An occupational pension scheme working on the "defined contribution" principle could benefit from VAT-exempt management services
The Court of Justice of the European Union (CJEU) delivered on March 13, 2014 its judgment in the case of ATP Pension Service A/S (C-464/12). The Court ruled that an occupational pension scheme working on the ‘‘defined contribution’’ principle could be considered as a special investment fund for VAT purposes and benefit from VAT-exempt management services pursuant to article 135.1.g) of the EU VAT Directive 2006/112. The judgment also contains interesting developments regarding the type of services that could be exempt as management services of special investment funds or as payment services.
ATP Services A/S is a Danish company providing services to Danish occupational schemes. ATP’s main customer is PensionDanmark, which is an occupational pension fund. PensionDanmark administers pension schemes, on behalf of several trade unions and employers’ organisations covering a total of more than 600 000 members employed in private and public undertakings. ATP Services A/S carries out administrative tasks, consisting, inter alia, in the provision of information and specific advice to employers and employees (pension customers) as well as services related to payments into and disbursements from pension funds, by opening an account for each pension member, managing this account, crediting the amounts due to the employee’s account, initiating payments to be made to the pension customers. As from July 2002, ATP has considered that its services could be considered as exempt payment services. The Danish VAT authorities have refused this position, ATP contested the position of the Danish VAT authorities and the case was finally referred to the Court of Justice of the European Union.
The Court ruled that pension schemes working on the ‘‘defined contribution’’ principle may be considered as special investment funds under Article 135.1.g) of the EU VAT Directive 2006/11 because they are funded by the employees who bear the investment risk of the fund.
The Court also ruled that establishing the rights of pension customers vis-a-vis pension funds through the opening of accounts, the crediting to such accounts of the contributions paid, as well as accounting services and account information services such as those listed in Annex II to the UCITS Directive1, could all be considered as VAT-exempt management services as per article 135.1.g) of the EU VAT Directive 2006/112.
Lastly, the Court ruled that the creation of accounts within the pension scheme system, the crediting of those pension customers accounts with contributions paid and ancillary transactions could be considered as VAT-exempt payment services pursuant to Article 135.1.d) of the EU VAT Directive 2006/112.
What is the impact for Luxembourgish businesses?
The decision of the Court is welcomed because it further clarifies the VAT treatment of services to pension funds. In this respect, we would remind you that, last year, the Court decided in the Wheels case2 that a retirement pension scheme working on the ‘‘defined benefit principle’’ could not be treated as a special investment fund because the members of the scheme do not bear the risk arising from the management of the fund. The level of risk borne by the beneficiary of the fund is clearly a key criterion for the Court in determining whether it can be treated as an investment fund for VAT purposes.
The ruling also more clearly defines the type of services that could be exempt as management services of special funds and as payment services.
These rulings add to the Court’s ruling last year in the PPG case3, that an employer could, under certain conditions, recover VAT on pension fund investment management and administrative costs. The combination of these three cases now offers a clearer view of the VAT rules applicable to pension funds and should encourage all businesses concerned to examine the potential impact on their specific situation and arrangements.
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1 Council Directive 85/611/EEC of December 20, 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), as amended by Directives 2001/107/EC and 2001/108/EC of the European Parliament and of the Council of January 21, 2002.
2 C-424/11, March 7, 2013, see our alert “VAT on management services rendered to pension schemes”, March 2013.
3 C-26/12, July 18, 2013, see our alert “PPG Holdings: CJEU judgment on the VAT recovery of pension fund costs”.