1. VAT and Financial Services Ramona Azzopardi, WH Partners

2. VAT will be a simple tax on the supply of goods and services Anthony Barber MP, Chancellor of the Exchequer 1972 2

3. Overview 2013-2014 CJEU case law - VAT treatment supplies from Non-EU company to its EU branch when branch is member of a VAT group - Occupational Pension Schemes - VAT treatment 3

4. Scandia America Case  Established principle in EU VAT Law that supply of services from headquarters of a company to its branch is generally not subject to VAT  Up to September 2014 companies have been able to make cross border supplies of services to EU branches without incurring VAT  The position became more complicated after delivery of judgment C-7/13 4

5. Skandia America Case 5 Swedish Company Swedish branch US Company Swedish Company Swedish VAT Group

6. Skandia America Case  US Company without an establishment in the EU purchased IT services from third parties and supplied those services to its branch in Sweden  Swedish branch was part of a Swedish VAT group  No VAT was applied on the supply between US Company and Swedish branch – considered as a single entity 6

7. Skandia America Case  Swedish tax authorities took the view that supplies from US Company to Swedish branch were subject to Swedish VAT and referred the matter to CJEU  Skandia argued that supplies from US Company to Swedish branch should be disregarded for VAT purposes in terms of the principle of FCE Bank (2006) 7

8. Skandia America Case  CJEU concluded that cross-border supply made by the US company to the Swedish branch was for VAT purpose a supply by the US company to the VAT group of which the Swedish branch was a member  The supply made by non-EU business to VAT group constitutes a taxable, standard transaction for VAT purposes to which reverse charge mechanism applies 8

9. Skandia America Case  The judgment does not threaten the established principle that there is no supply by headquarters to its branch in a simple case where branch is not part of a VAT group  Impact financial services companies whose business are exempt or partly exempt which use branches to conduct overseas business and use VAT groups to minimize VAT leakage 9

10. Skandia America Case Will principles extend to EU companies? 10 Skandia America Case 10 UK Company UK branch Malta Company UK Company UK VAT Group

11. Occupational Pension Schemes 2013-2014  Occupational Pension Schemes qualify as Special Investment Fund (SIF) in terms in terms of article 135(1)(g) of the EU VAT Directive 2006/11?  The key difference between a number of VAT lawsuits brought by pension funds to the EU court lied in the structure of the schemes themselves 11

12. Occupational Pension Schemesn 2013-2014  Wheels Common Investment Fund, 2013  PPG case, 2013  ATP case, 2014 12

13. Wheels Fund – background  Wheels Common Investment Fund Trustees (WT) acts as trustee for various defined benefit occupational pension schemes established by Ford Motor Company;  Further to JP Morgan Fleming Claverhouse Investment Trust where CJEU exemption extended to AUT and OEIC WT investment manager sought to recover back VAT paid by WT 13

14. Wheels Fund Question referred to the CJEU Whether assets of a defined benefit pension scheme and the investment funds in which they are pooled could be considered as special investment funds for the purposes of the exemption 14

15. Wheels Fund CJEU – DB schemes are not comparable to UCITS : - The scheme was not open to the public only to employees of a particular employer; - The scheme members do not bear the risk arising from the management of the investment fund; - The employer only enters the scheme to fulfill its legal obligations 15

16. PPG case  PPG set up a defined benefit pension fund for its employees into which the companies of the group paid contributions  The pension fund was set in a separate entity to PPG  A subsidiary of PPG contracted with various service providers for the administration/asset management/auditing and consultancy to be provided to the fund 16

17. PPG case  Costs where paid by the subsidiary and not passed to the fund  The subsidiary sought to deduct VAT incurred as input tax in acquiring these service however this was disallowed by the Dutch Tax Authority  Question to CJEU (i) PPG could deduct as fully taxable person (ii) services could be exempt pension fund qualifying as a SIF 17

18. PPG case CJEU held that : A taxable person who has set up a pension fund in the form of a legal and fiscal separate entity in order to safeguard the pension rights of this employees is entitled to deduct VAT incurred on management/operation of the fund provided that there is a direct and immediate link between these costs and the taxable business activities of the employer 18

19. PPG case  Not necessary to answer the second question as to whether the pension fund was a special investment fund such that the management services were exempt since the first question was answered in the positive  CJEU noted that the same question had been answered in the negative in Wheels Common Investment Fund Trustees Ltd (C-424/11)). 19

20. ATP case ATP provides the following services to a pension fund : (i) administrative tasks mainly the provision of information and advice to the employers and the employees(pension customers)in relation to the retirement scheme (ii) system maintenance of a platform from which ATP provides the services to pension funds 20

21. ATP case  (iii) services in relation to payments into and disbursements from pension funds Following the SDC (C-2/95) ATP informed the Tax authorities in Denmark that it will not charge VAT on its services. The Danish authority confirmed that no VAT was due on (iii) but rejected the claim in respect of (i)(ii)on the basis that pension funds differ from SIF 21

22. ATP case  The matter was referred to the CJEU to determine whether the pension fund would qualify as a SIF  CJEU quoted from Abbey National and JP Morgan Fleming funds which are not UCITS within the meaning of the Directive may be still considered to be SIF if the fund displays characteristics identical to those of UCITS  The CJEU held that the essential characteristics of a SIF is the pooling of assets of several beneficiaries enabling the risk borne by those beneficiaries to be spread over a range of securities 22

23. ATP Case  CJEU concluded that pension funds may fall within the exemption on the following basis : - Funded by the person to whom the retirement benefit is to be paid; - Savings are invested using risk-spreading principle; - Pension customers bear the investment risk; 23

24. ATP Case Irrelevant : - contributions are paid by the employer; - pension fund is based on collective agreement/ legal requirement; - funds accumulated paid lump sum or in installments; - contributions are deductible under income tax law or - that it is possible to add an insurance element 24

25. ATP case The CJEU held that ATP case is different from Wheels case where the fund had number of characteristics of a special investment fund but it constituted an employment related benefit where the member did not bear and investment risk 25

26. ATP Case Services classified as management of SIF? CJEU remitted back to the national court to decide in line with EU principles however made the following comments: - Management can be broken down into a number of services - Services provided by third party manager must form a distinct whole and be specific to and essential for the management of SIF 26

27. ATP case 27  Management services includes those services listed under the hearing’ Administration in Annex II to Directive 85/611 but that list is not exhaustive;  Examples of services are computing income and price of units or shares, the valuation of assets, accounting, the preparation of statements for the distribution of income, the provision of information and documentation for periodic accounts/tax /VAT returns and income forecast.

28. Pension Schemes  Depends on structure of the pension scheme  Analogy between SIF and pension schemes but not an analogy between defined benefit pension schemes and defined contribution pension schemes  In Malta management services provided to a ‘retirement scheme’ as per the Special Funds (Regulation) Act are VAT exempt. The Act does not distinguish between DB or DC 28

29. Thank You ramona.azzopardi@whpartners.eu 29