The Court of Justice of the European Union (CJEU) has given its judgment in Wheels Common Investment Fund Trustees Ltd and others v Commissioners for Her Majesty’s Revenue & Customs4.


Article 135(1)(g) of Council Directive 2006/112/EC on the common system of value added tax (and its predecessor provision in Article 13B(d)(6) of the Sixth VAT Directive (77/388/EEC)) exempt from VAT “the management of special investment funds as defined by Member States”. The Sixth Directive was in force until 31 December 2006, when Directive 2006/112 came into effect. Article 135(1)(g) is enacted in English law by Schedule 9 to the Value Added Tax Act 1994, which exempts from VAT the management of an authorised unit trust scheme and an open-ended investment company. Following the 2007 CJEU decision in JP Morgan Fleming Claverhouse Investment Trust plc and another v Commissioners for Her Majesty’s Revenue & Customs 5, this exemption was extended from 1 October 2008 to cover closed-ended collective investment undertakings such as investment trust companies.

The facts of the case

Wheels Common Investment Fund Trustees Ltd (WCIFT) was a fund that pooled the assets of several defined benefit (DB) pension schemes sponsored by the Ford Motor Company. Fund management services were provided to WCIFT by Capital International Ltd (Capital), which levied VAT on these services.

Following the Claverhouse decision, Capital claimed repayment of VAT on its services provided to WCIFT over the period 1 July 2004 to 30 June 2007. The application was refused by HMRC, so WCIFT filed a claim in the First-tier Tribunal (Tax Chamber) (FTT). In February 2011, the FTT stayed the proceedings and referred to the CJEU several questions regarding the correct interpretation of Article 13B(d)(6) of the Sixth Directive and Article 135(1)(g) of Directive 2006/112. In particular, the CJEU was asked whether the words “special investment fund” in the two Articles were capable of including a DB scheme established by an employer for the benefit of its employees and/or a common investment fund in which the assets of several such schemes are pooled for investment purposes.

The CJEU was also asked whether a member state could define “special investment fund” so as to exclude a DB scheme or common investment fund while including collective investment schemes covered by Council Directive 85/611/EEC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) (the UCITS Directive).

The decision of the CJEU

The CJEU ruled that neither a DB scheme nor a common investment fund in which the assets of several such schemes were pooled constituted a “special investment fund” under Article 135(1)(g) or Article 13(B)(d)(6) (paragraph 29). Member states could determine the scope of the exemption in the two directives in compliance with the objectives of the directives and the principle of fiscal neutrality (paragraph 18). This principle precluded economic operators who were carrying out the same transaction from being treated differently. Similar suppliers of services (which were in competition with each other) should likewise not be treated differently. The question to be decided was, therefore, whether a common investment fund was identical to funds that were special investment funds within the two Articles or was sufficiently comparable to the latter to be in competition with them.

On making a comparison with funds that were collective investment undertakings within the meaning of the UCITS Directive or which displayed features that meant they were in competition with such undertakings (as was the case with investment trust companies), a DB scheme or common investment fund could be distinguished on several grounds:

  • The sole object of a collective investment undertaking within the UCITS Directive was the collective investment in transferable securities of capital raised from the public. By contrast, a common investment fund in which the assets of several DB schemes were pooled could not be regarded as a collective investment undertaking within the UCITS Directive. A common investment fund was not open to the public, but was an employment-related benefit available to the employees of the scheme’s sponsoring employer (paragraph 25).
  • A common investment fund could not be considered as sufficiently comparable to a collective investment undertaking so as to be in competition with it. In particular, the members of a pension scheme did not bear the risk arising from the management of the investment fund in which the scheme’s assets were pooled. The investment returns generated on units purchased in a collective investment undertaking depended on the investment performance of the investments, whereas a DB pension depended on the employee’s length of service and salary (paragraph 27). 
  • From the employer’s perspective too, its contributions to a DB scheme were paid as a means of satisfying legal obligations to its employees (paragraph 28).


Press reports suggest that the failure of this case will deny DB schemes in the UK the prospect of a £2 billion windfall in reclaimed VAT. The big question is whether the outcome would have been different if a defined contribution (DC) scheme had been party to the case. While it is true that DC schemes are not open to the general public, the second objection raised by the court (that DB members do not bear the investment risk) would not apply to a DC scheme. It is perhaps only a matter of time before a DC scheme raises this point.

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