THE NATIONAL ASSOCIATION of Pension Funds and Wheels Common Investment Fund have lost their bid to recoup £2bn in backdated VAT on investment management services for defined benefit schemes.
NAPF and WCIF brought a test case to the European Court of Justice in regards to WCIF's Ford pension schemes, claiming that pension funds should be granted the same VAT exemption as special investment funds are with regards to management services, Accountancy Age's sister publication Professional Pensions reports.
The action was brought in 2008 following a European ruling on JP Morgan Fleming Claverhouse Investment Trust which stated investment trusts were special investment funds.
Defined Benefit schemes pay around £100m annually in VAT on investment services. Had the case been successful, funds could have received a £2bn windfall in backdated claims from HM Revenue and Customs.
NAPF chief executive Joanne Segars said the result was "deeply disappointing".
"Pension funds were set up to be vehicles that are free from tax, and they should not be paying these VAT charges," she said.
"The European Commission is currently reviewing the VAT Directive, and we will be making strong representations as to why the management of pension funds should be VAT exempt under the proposed change to the current VAT regime."
Segars added NAPF will take the issue to the commission "as a matter of urgency".
An HMRC spokesman said: "HMRC is pleased that the judgement supports our current policy on the application of the investment fund management VAT exemption."
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