On 7 March 2013, the CJEU published its judgement on the long-running Wheels case. The case concerned the VAT treatment of fund management services supplied to common investment funds and defined benefit pension schemes. It was contended that the supply of fund/investment management services to CIFs and DB schemes should be treated as exempt from VAT under the UK VAT rules. Following a refusal by HMRC to allow the Wheels CIF to recover VAT paid on third party investment management fees, the case came before the First-tier Tribunal (Tax Chamber). The Tribunal referred a number of issues to the CJEU for determination.
The EU VAT Directive states that the "management of special investment funds as defined by member states" is a VAT exempt supply. It was argued that CIFs and DB schemes fall within the definition of "special investment funds" as they share the key characteristics of a collective investment fund. The CJEU rejected this argument and distinguished DB schemes and CIFs on the basis that DB schemes are not open to the general public and members of CIFs and DB schemes do not bear the risk arising from the management of the investment fund in which the scheme's assets are pooled.
The outcome of the case will cause disappointment for a number of schemes who were hoping to have the opportunity to reclaim overpaid VAT from HMRC in reliance on a favourable judgement from the CJEU on the Wheels case.