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NAPF loses £2bn tax case against HMRC

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3rd Apr 2013
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UK defined benefit pension funds are not special investment funds and are therefore not exempt from paying VAT on investment management services, the Court of Justice of European Union (CJEU) has ruled.

The judgment means that pension schemes will continue to pay about £100m a year in VAT and will not be able to make backdated claims to 1990 that could have totaled £2bn, according to the National Association of Pension Funds (NAPF).

The long-running case against HMRC was brought by the NAPF and Wheels Common Investment Fund (WCIF), with its underlying Ford pension schemes.

The action began in 2008 following a ruling in the European Court on JP Morgan Fleming Claverhouse Investment Trust plc. The court stated then that investment trusts were special investment funds and should be exempt from paying VAT on investment management services.

The NAPF and WCIF brought the case because they believed that pension funds have similar characteristics and should have a similar exemption.

A tribunal hearing held in London in February 2011 referred the matter to the CJEU to interpret the scope and meaning of the VAT exemption.

NAPF chief executive Joanne Segars, said: “This has been a long struggle, and unfortunately the judgment is deeply disappointing. Pension funds were set up to be vehicles that are free from tax, and they should not be paying these VAT charges.

“The European Commission is currently reviewing the VAT Directive, and we will be making strong representations as to why the management of pension funds should be VAT exempt under the proposed change to the current VAT regime. We will be taking this matter up with the Commission as a matter of urgency."

Amanda Brown, partner at KPMG, which advised the NAPF and WCIF on the case, said: “This judgment is disappointing. The EU Commission’s own review of the EU VAT regime for financial services suggests that the management of pension funds will be treated as VAT exempt. I think the CJEU missed an opportunity to ensure that the current provisions reflect what is in practice the investment decisions that the vast majority of small investors take.”

In related NAPF news, Lindsay Tomlinson has been appointed non-executive director at Legal & General Group, the financial services company.  

Tomlinson, a former director of the Financial Reporting Council, spent a large part of his career with Barclays Global Investors (BGI), joining the business in 1987.

He held a range of senior management roles and became UK CEO in 1994 and Pan European CEO in 1996, later becoming the firm's vice-chairman and following BlackRock's acquisition of BGI in 2009, he remained with the combined firm through the integration process before retiring in 2011. 

He was previously chairman of the NAPF, a position he held from 2009 to 2011 and is chairman of the Code Committee of the Takeover Panel.  

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