The investment fund industry won a massive victory in the European Court of
Justice today when it was ruled that close-ended funds should not have to pay
VAT on management fees.
The decision is likely to see hundreds of millions of pounds of incorrectly
paid VAT claimed back by fund which have been paying the tax for the last 17
According to tax consultancy Chiltern investment trusts alone could seek to
recover the £40m.
The UK investment trust industry, led by JP Morgan and the Association of
Investment Companies, was challenging UK rules that excluded close-end funds
from the VAT exemption.
The ECJ ruled that blocking the exemption to close-end funds, which include
investment trust companies ‘ does not appear justified’.
Under EU rules member states are left to decide what special investment funds
qualify for VAT exemption, but have to ensure that they do not discriminate
against certain types of funds unfairly.
‘Although in principle the UK VAT Tribunal now has to interpret the decision
of the ECJ and make findings of fact, given the strength of the decision and the
very clear guidance it has given it is inconceivable that the Tribunal will not
find in favour of the appellants,’ Marc Welby, director of VAT at Chiltern,
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