On 18 April 2013, Advocate General (AG) Sharpston opined that VAT charged on management services provided to a pension fund could not be deducted by the employer that had established the pension fund and paid for the services – see PPG Holdings BV5.

The management services were directly and immediately linked to the non taxable activity of the fund (generating investment income), which was a separate legal entity. The AG acknowledged that, had PPG Holdings (PPG) outsourced its obligation to establish the fund to an insurance company, any VAT payable to the insurance company would have been deductible. The principle of fiscal neutrality did not alter her opinion because, as stated in Finanzamt Frankfurt am Main v Höchst v Deutsche Bank AG6, that principle was not a rule of primary law and partly competing activities could have different VAT treatments.

However, the AG stated that the expenses incurred by PPG in establishing the pension fund were incurred for the purposes of its business and might, therefore, be deductible.

The AG further opined that the services provided to the pension fund did not fall within the exemption from VAT on management services provided to special investment funds. Following the decision in Wheels Common Investment Fund Trustees Limited and others v HMRC7 the pension fund was not a “special investment fund” within the meaning of Article 13B(d)(6) of the Sixth Directive (77/388/EEC, recast from 1 January 2007 by Directive 2006/112/EC) because the members did not bear the risk arising from management of the fund and PPG made contributions to comply with its legal obligations to its employees.

Click here for the AG’s opinion.