On 13 March 2014, the Court of Justice of the European Union (the “CJEU”) released its decision in the “ATP” case, which was about the VAT treatment of  investment management services provided to defined contribution (“DC”) occupational pension  schemes. The CJEU decided that investment management services supplied to DC schemes that satisfy  certain criteria are exempt from VAT.


Under the terms of the EU VAT Directive, the “management of special investment funds as defined by  member states” is a VAT-exempt supply of services. In 2013, the CJEU decided in the Wheels case  that defined benefit (“DB”) occupational pension schemes were not special investment funds. It had  two main reasons for this decision. First, occupational pension schemes are not open to the public  and are an “employment-related benefit which employers grant only to their employees”. Second,  members of DB schemes “do not bear the risk arising from the management of the investment fund in  which the scheme’s assets are pooled”. (See our March  2013 legal update for more information on  the Wheels case.)

ATP PensionService (“ATP”) provided a range of management services to PensionDanmark, a large  Danish multi-employer DC occupational pension scheme. A dispute arose between ATP and the Danish  tax authorities as to whether ATP should charge VAT on these services. ATP argued that  PensionDanmark was a special investment fund and that the services ATP provided were therefore  exempt from VAT. The Danish tax authorities, however, disagreed. The Danish courts referred a  number of questions to the CJEU, including whether or not pension schemes like PensionDanmark were  “special investment funds”. Decision The CJEU decided that the “essential characteristic of a special investment fund is the pooling of  assets of several beneficiaries, enabling the risk borne by those beneficiaries to be spread over a  range of securities”. The CJEU therefore drew a distinction between DB pension schemes, where the  members receive a pension promise and as such do not bear the investment risk of the scheme, and DC  pension schemes where members do bear the investment risk. It concluded that DC pension schemes can  fall within the definition of “special investment fund” if:

  • the scheme’s funds are invested using a risk- spreading principle; and
  • the members bear the investment risk.


The impact of the CJEU’s decision for DC schemes in the UK will depend on the extent to which they  are currently charged VAT on investment management services. Many DC schemes invest through an  insurance wrapper and therefore benefit from a separate VAT exemption. For those schemes that do  pay VAT on investment management services, the decision will give them grounds to argue that they  should not pay VAT on those services in future, and to try and reclaim VAT paid in the past on  those services (any such claims would be limited to the past four years). However, much may depend  on how HMRC interprets the CJEU’s decision, and we will need to await guidance from HMRC on any  policy changes in light of the decision.

Employers and trustees of DB pension schemes are likely to feel aggrieved by the CJEU’s decision in  this case as they will feel that there is no longer a level playing field between DB and DC schemes  as regards the charging of VAT on services provided to the scheme.