Source: https://www.eversheds-sutherland.com/global/en/what/articles/index.page?ArticleID=en/Financial_institutions/FIChanges_to_the_VAT_recovery_position_of_pension_fund_manager_s_charges
Timestamp: 2020-07-06 08:53:40
Document Index: 17942890

Matched Legal Cases: ['CJEU ', 'CJEU ', 'CJEU ', 'CJEU ', 'CJEU ', 'CJEU ']

Changes to the VAT recovery position of pension fund manager's- Publications - Eversheds Sutherland
Changes to the VAT recovery position of pension fund manager's charges
HMRC's changes to the VAT recovery position
HMRC issued a Business Brief on 3 February 2014 announcing changes to the VAT recovery position of employers who pay VAT on services relating to the administration and management of pension schemes.
The HMRC Brief makes it clear that HMRC will not pay claims made by employers other than in those specific circumstances. However, it is anticipated that employers and pension funds may look to review the arrangements that are in place with fund managers, in order to achieve greater VAT recovery and to benefit from the favourable judgment of the CJEU in PPG.
Implications for Fund Managers in relation to Defined Benefits pension schemes
The CJEU has previously made it clear, in the Wheels litigation, that the management of defined benefits pensions schemes is subject to VAT. After a transitional period of 6 months from the date of the Brief, HMRC will no longer permit employers to recover the VAT on administrative and day to day management costs (other than in the specific circumstances set out above). Accordingly, there is likely to be an increase in pension fund costs for employers, because of the increase in irrecoverable VAT. In the light of this and the judgement of the CJEU, it is anticipated that both pension funds and employers will look to review their contractual and potentially pricing arrangements with fund managers, in order to take advantage of the CJEU’s judgment in PPG which has stated that both the management and investment costs of a pension fund can be recovered by an employer in certain circumstances.
Implications for Fund Managers in relation to Defined Contribution Pension Schemes
HMRC’s Brief also mentions that fund managers should note that the CJEU is soon to give judgment on the VAT liability of the management services provided in relation to defined contribution schemes (DC) in Case C-464/12 ATP Pension Services A/S. The Advocate General has already opined that VAT exemption should apply to such schemes.
If the CJEU determines that the management of defined contribution schemes is exempt from VAT, relevant pension funds may make claims against fund managers for overpaid VAT. Indeed some pension funds may have already made claims in anticipation of the CJEU judgment. If the CJEU does determine that VAT exemption must apply to DC pension schemes, fund managers will also need to review their contractual arrangements with their clients to ensure that their services are supplied net of any VAT payable. Furthermore, the VAT exemption will mean that there is an increase in irrecoverable VAT for fund managers which will put up their costs and may impact upon the pricing of their services.
Meanwhile, fund managers should ensure that their existing and new contracts cater for any future changes to the VAT liability of their services in relation to defined contribution pension schemes.