Pensions and VAT - More Swings and Roundabouts

    View Authors August 2013

    The Court of Justice of the European Union recently issued a judgment which may catch the eye of many in the pensions and tax sectors, due to its potential impact on HMRC's policy on the recovery by employers of VAT relating to pension plan costs. In Fiscale eenheid PPG Holdings BV cs te Hoogezand v Inspecteur van de Belastingdienst/Noord/kantoor Groningen, the Court was asked to decide whether a company, which set up a separate pension fund under its national legislation, could recover the VAT paid on services relating to the management and operation of the pension fund under current EU legislation.

    The Court decided that a company can recover the VAT paid on services relating to the management and operation of the pension plan, as long as there is a direct and immediate link between the payments and the company’s business. The Court only slightly expanded on what it meant by this "direct and immediate link", stating that the link would depend on whether the company recoups the cost of the pension services directly through its business (i.e. within the price of the goods/services it provides).

    In the UK, HMRC already allows VAT to be recovered on some, but not all, pension services costs, including initial set-up and day-to-day management costs. The question is whether it must now extend this treatment to other pension fund costs, such as those for investment services, or whether HMRC’s policy is already in line with the Court's "direct and immediate link" proviso.


    In a previous publication “Pensions and the VAT merry-go-round” we speculated about whether a favourable decision in PPG might offer employers greater opportunity to recover VAT incurred on pension fund costs. The decision of the CJEU may be a significant step in this direction but further clarity is needed regarding the impact of the decision in the UK and HMRC’s stance on this issue. Looking ahead and depending on the stance which HMRC ultimately takes, sponsoring employers who enjoy better VAT recovery than their associated pension plans may wish to make protective claims on the back of the decision in PPG.