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Pension fund trustees may be liable to account for VAT Back  
A recent Irish case may impact VAT treatment of activity of Irish pension funds, writes Terry O’Neill.
The Irish High Court recently ruled in the Cadbury Ireland Pension Trust Limited Case that pension fund trustees are carrying on an economic activity for VAT purposes. Consequently the Court held that they are required to register and account for Irish VAT on the receipt of certain services from overseas suppliers, while they are also entitled to input VAT recovery, subject to the normal VAT recovery rules.

While a number of Irish pension funds had already applied this treatment, this ruling will require certain pension funds to bring their VAT compliance and VAT liabilities up to date and to change their processes going forward so that VAT is properly accounted for and claimed on an ongoing basis.

The facts
The facts of the case were that the pension fund trustees for the Cadbury pension schemes received services from a supplier in the UK. The pension fund trustees’ functions were of a fiduciary nature, imposed on them by the trust deed i.e. maximising value of fund for benefit of its members. The services received from the UK company were incurred for the purposes of those functions. The issue was whether or not those functions constituted an economic activity for VAT purposes. The Court found that the Trustees were engaged in a business activity.

Interaction with other cases
Although the Court’s findings were not a surprise, it is an interesting and topical development following the recent European Court of Justice (‘ECJ’)’s decision involving JP Morgan Claverhouse Investment Trust. This case concerned the UK’s interpretation of the VAT exemption for the ‘management of special investment funds’. The UK legislation had excluded Investment Trust Companies (‘ITCs’) from availing of the exemption.

While referring the case back to the referring Tribunal, the ECJ confirmed the principle that VAT exemption should apply to the management of a wide range of funds including many closed ended funds such as ITCs.

However it failed to consider whether VAT exemption extended to the management of pension funds. Accordingly, in the context of Irish pension fund trustees having to assess whether they need to account for VAT on investment management services from abroad, the JP Morgan Claverhouse decision provides an interesting angle which the trustees may wish to pursue to minimise the VAT cost to the fund.

What next?
Following the Cadbury decision, it is likely that Irish Revenue will take a keen interest in the VAT compliance position of Irish pension funds especially in relation to whether they have an obligation to register for VAT and account for VAT on certain services received from overseas providers. Pension fund trustees should review their VAT status to ensure that they and their funds are fully VAT compliant. In order to minimise the pension funds exposure to interest and penalties, consideration should be given to making a voluntary disclosure of any VAT liabilities identified. Particular attention should be paid to cases where foreign Investment Managers have been appointed within the last 4 years.

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