Investment trusts seek 300 mln stg from UK government after ECJ VAT ruling

Investment trusts seek 300 mln stg from UK government after ECJ VAT ruling

	Published : Thu, 28 Jun 2007 12:58 By : Agencies Print this Story

LONDON (Thomson Financial) - The investment trust industry today claimed victory in a landmark case that could pave the way for repayments up to 300 mln stg as the European Court of Justice (ECJ) ruled that trusts should be exempt from VAT on management expenses.

Experts said the ECJ ruling could now set the scene for even bigger claims from other investment vehicles such as pension funds.

The Association of Investment Trust Companies and JP Morgan Claverhouse Investment Trust had said that UK's tax authorities (HMRC) had been too restrictive in implementing the European directives concerning the management of 'special investment funds'. They argued that management fees charged to investment trusts should enjoy the same VAT-free status as unit trusts and OEICs.

The ECJ today ruled that discrimination against any closed-ended investment funds 'does not appear justified'.

The HMRC said: 'We are considering the judgement carefully, but note that it is for the referring tribunal to finally decided the case on its facts based on the guidance given to it by the ECJ.'

Daniel Godfrey, director general of the AIC, has called on the government to start refunding investment trusts and to make changes to the law to reflect the ECJ judgement.

'VAT has been unfairly charged on the management expenses of investment trusts since 1990, to the detriment of their shareholders. We have been trying to persuade the government that it was unfair to give an exemption to unit trusts and OEICS, but not investment trusts, for nearly ten years and so we are very pleased, but not surprised, by this result,' he said.

According to the AIC, the judgement will save the investment trust industry around 40 mln stg a year in VAT on an ongoing basis and that the amount of VAT to be refunded in respect of past payments could be as high as 300 mln stg.

Reacting to the announcement, Marc Welby, a director of VAT at tax specialists Chiltern, said: '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.

'Furthermore, this decision is likely to see the floodgates open to claims by numerous other forms of pooled investments, such as pension funds, unit linked life assurance policies, investment clubs and venture capital trusts. It will open the door to claims to recover hundreds of millions of pounds wrongly paid over in VAT over the last 17 years.'

raji.menon@thomson.com; www.thomsonimnews.com

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