ECJ opens door for investment trust VAT windfall
Advocate-general rules that UK VAT regime may be discriminating against closed-ended investment funds
Advocate-general rules that UK VAT regime may be discriminating against closed-ended investment funds
The UK investment trust industry has received a massive boost after an
ECJ advocate general gave
an opinion saying that the current UK VAT rules may be discriminating against
closed-ended investment funds.
In the opinion, advocate-general Kokott said there was no reason why these
funds, which include investment trust companies, should not be eligible for VAT
exemptions, according to experts at
Chiltern .
This means that the industry could be in line for a multimillion-pound VAT
windfall.
Kokott did agree with HM Revenue
& Customs contention that a member state is entitled to
determine the special investment funds whose management is exempt from VAT and
that the exemption does not necessarily apply to the management of all special
investment funds.
He added, however, that this power is fettered by the requirement to ensure
that, in exercising its discretion, it must do so in a way that does not offend
the principles of fiscal neutrality so that competing investment funds must be
treated equally in relation to the charging of VAT.
Marc Welby, director of VAT at tax specialists Chiltern plc, said the opinion
was a massive boost for investment trusts.
‘Although the advocate-general agreed with HMRC’s assertion that they can
determine the funds whose management should be VAT exempt, this may well prove
to be a pyrrhic victory,’ said Welby. ‘The advocate-general has confirmed that
investment trust companies and open-ended funds are comparable in terms of
reducing stock market risk.’
He said the only question that still had to be answered was whether or not
the investor protection afforded by an investment trust company is broadly
comparable to that afforded by unit trust and OEICs.
Paddy Behan, VAT director at Grant Thornton said logic had prevailed in the
opinion.
He said: ‘Another piece of the jigsaw should fall into place for the fund
management industry when the judgment is announced. If the Court follows this
decision, it will bring clarity and consistency to the VAT treatment of
collective investment to the benefit of the investors.’
Further reading:
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