The Danish Ministry of Taxation and the ECJ may end up in a new VAT dispute
26 November 2015
The Danish Customs and Tax Administration (SKAT) has just published new guidelines on administrative services to unit trusts and pension funds being exempt from VAT. The Danish Ministry of Taxation suggests a more restrictive VAT practice than the one that can immediately be deduced from a EU judgment about the case. It is doubtful whether the ECJ will agree with the Danish Ministry of Taxation's construction of its decision.
The VAT exemption applying to management services provided to unit trusts will now be extended to include management services provided to pension funds. A number of management services that so far have been deemed to be subject to VAT will now become exempt from VAT. This is the result of the so-called ATP judgment that Plesner conducted before the ECJ and of the guidelines that the Danish Customs and Tax Administration (SKAT) has just arranged to be going out for consultation.
The management of unit trusts is exempt from VAT.
In March 2014 the Court of Justice of the European Union passed its judgment in the so-called ATP case where the Court found that a pension fund is a unit trust in terms of VAT. The Court also found that the services that ATP PensionService provides to its customers may be deemed to be "management of unit trusts" exempt from VAT and "transactions relating to payments and transfers" exempt from VAT. It means that the stage is set for a significant amendment to Danish VAT practice.
The consequence of the judgment passed by the ECJ was a settlement between ATP PensionService and the Danish Ministry of Taxation according to which ATP PensionService and ultimately the pension funds, which were ATP PensionService's customers, were entitled to repayments of significant VAT amounts from the Danish Customs and Tax Administration (SKAT).
As the judgment is of general public importance to a large number of other companies, the Danish Ministry of Taxation has given an account in recently published guidelines of how the Danish Ministry of Taxation believes that the judgment passed by the ECJ is to be construed. The account in the guidelines contains a more restrictive construction than what can immediately be deduced from the judgment passed by the ECJ and it is doubtful whether the ECJ will agree with the Danish Ministry of Taxation's construction.
It is true that the Danish Ministry of Taxation accepts that a pension fund or another pension provider can be deemed to be a "unit trust". However, the Danish Ministry of Taxation dismisses that the concept of management has been extended as the Ministry finds that the services provided by ATP PensionService may be included in the practice so far in respect of which services that may be deemed to be "management of unit trusts".
Moreover, it is true that the Danish Ministry of Taxation accepts that "transactions relating to payments and transfers" have been extended, but the Ministry limits the transactions to services corresponding to services that ATP PensionService provided to PensionDanmark and the Ministry consequently fails to accept the principle expressed by the judgment passed by the ECJ in this respect.
The Danish Ministry of Taxation has therefore set the stage for a restrictive construction of the judgment and against such background we expect that there will be more cases about the right construction of the exemption from VAT in the light of the judgment.
Please do not hesitate to contact us if you would like to discuss the guidelines.