EU tax law WEB Wheels Common Investment Fund Trustees and Others - C-424/11

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Wheels Common Investment Fund Trustees Ltd and others, by P. Lasok QC, instructed by A. Brown, Solicitor,

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the United Kingdom Government, by C. Murrell, acting as Agent, and R. Hill, Barrister,

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the European Commission, by R. Lyal and C. Soulay, acting as Agents,

1

This request for a preliminary ruling concerns the interpretation of Article 13B(d)(6) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1; ‘the Sixth Directive’) and Article 135(1)(g) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1).

2

The request has been made in proceedings between Wheels Common Investment Fund Trustees Ltd and others and the Commissioners for Her Majesty’s Revenue and Customs (‘the Commissioners’) concerning the latter’s refusal to exempt fund management services supplied to Wheels Common Investment Fund Trustees Ltd and others from value added tax (‘VAT’).

3

The Sixth Directive was repealed by Directive 2006/112, which entered into force on 1 January 2007. Since the period at issue in the main proceedings is between 1 July 2004 and 30 June 2007, both directives are applicable to those proceedings.

4

Article 13B(d)(6) of the Sixth Directive and Article 135(1)(g) of Directive 2006/112 are couched in essentially identical terms. Under those provisions, the Member States are to exempt from VAT the ‘management of special investment funds as defined by Member States’.

5

At the time material to the main proceedings, Article 135(1)(g) of Directive 2006/112 was implemented by items 9 and 10 of Group 5 of Schedule 9 to the Value Added Tax Act 1994, which exempted:

6

In order to take account of the decision, made by judgment of 28 June 2007, in Case C-363/05 JP Morgan Fleming Claverhouse Investment Trust and The Association of Investment Trust Companies [2007] ECR I-5517 (‘Claverhouse’), the scope of items 9 and 10 was extended, with effect from 1 October 2008, by the Value Added Tax (Finance) (No 2) Order 2008. Those items now exempt the management of collective investment undertakings in the form of an OEIC or AUT and the management of closed-ended collective investment undertakings such as investment trust companies.

7

Note 6 to Group 5 of Schedule 9 to the Value Added Tax Act 1994 provides that ‘OEIC’ and ‘AUT’ are defined in the Financial Services and Markets Act 2000.

8

Part XVII of the Financial Services and Markets Act 2000 provides inter alia as follows in sections 235 to 237:

‘235.

Collective investment schemes

(1)   In this Part “collective investment scheme” means any arrangements with respect to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income.

(2)   The arrangements must be such that the persons who are to participate (“participants”) do not have day-to-day control over the management of the property, whether or not they have the right to be consulted or to give directions.

(3)   The arrangements must also have either or both of the following characteristics –

…

236.

Open-ended investment companies

(1)   In this Part “an open-ended investment company” means a collective investment scheme which satisfies both the property condition and the investment condition.

(2)   The property condition is that the property belongs beneficially to, and is managed by or on behalf of, a body corporate (“BC”) having as its purpose the investment of its funds with the aim of –

…

237.

Other definitions

…

(3)   In this Part –

“an authorised unit trust scheme” means a unit trust scheme which is authorised for the purposes of this Act by an authorisation order in force under section 243;

“an authorised open-ended investment company” means a body incorporated by virtue of regulations under section 262 in respect of which an authorisation order is in force under any provision made in such regulations by virtue of subsection (2)(l) of that section;

...’

9

Wheels Common Investment Fund Trustees Ltd (‘Wheels’) is the trustee of a fund pooling for investment purposes the assets of occupational pension schemes established by the Ford Motor Company in order to meet its obligations under national legislation and collective agreements.

10

Each of those schemes provides pensions to a category of former employees, calculated by reference to the final salary of the members of the scheme and their length of service with the company. During their employment, the members of the scheme, which is open to all employees but is not compulsory, pay contributions of a fixed amount deducted from their salary. The employer also makes contributions, in an amount sufficient to ensure funding for the remaining cost of providing pension benefits.

11

At the material time, Capital International Limited provided fund management services to Wheels. In accordance with the provisions of United Kingdom VAT legislation, it charged Wheels VAT on those services and accounted for that VAT to the Commissioners.

12

In September 2007, after delivery of the judgment in Claverhouse, Capital International Limited claimed repayment from the Commissioners of the VAT in respect of the fund management services which it had supplied, on the ground that those services came within the exemption laid down in Article 135(1)(g) of Directive 2006/112 or Article 13B(d)(6) of the Sixth Directive, depending on the period concerned.

13

By decision of 2 January 2008, the Commissioners rejected that claim. Wheels thereupon appealed to the First-tier Tribunal (Tax Chamber) against that decision. Whilst, according to the referring tribunal, the services supplied to Wheels are services relating to ‘management’ within the meaning of the exemption laid down in Article 13B(d)(6) of the Sixth Directive and Article 135(1)(g) of Directive 2006/112, there is doubt as to whether the fund held by Wheels is to be classified as a ‘special investment fund’ within the meaning of that exemption.

14

In those circumstances, the First-tier Tribunal (Tax Chamber) decided to stay proceedings and to refer the following questions to the Court for a preliminary ruling:

15

By its questions, the national tribunal asks, in essence, whether and under what conditions assets of a retirement pension scheme, and the investment fund in which they are pooled, are a ‘special investment fund’ within the meaning of Article 13B(d)(6) of the Sixth Directive and Article 135(1)(g) of Directive 2006/112.

16

It is to be noted at the outset that, according to settled case-law, whilst the exemptions provided for, inter alia, in Article 13B(d)(6) of the Sixth Directive and Article 135(1)(g) of Directive 2006/112 are independent concepts of European Union law which must, in principle, be given a common definition whose purpose is to avoid divergences in the application of the VAT system from one Member State to another, so that the Member States cannot alter their content, that is not however the case where the legislature has conferred on the Member States the task of defining certain terms of an exemption (see, to this effect, Case C-169/04 Abbey National [2006] ECR I-4027, paragraphs 38 and 39, and Claverhouse, paragraphs 19 and 20). The aforesaid provisions confer upon the Member States the task of defining the meaning of ‘special investment funds’ (see, to this effect, Abbey National, paragraphs 40 and 41, and Claverhouse, paragraph 43).

17

The power to define thereby accorded to the Member States is, however, limited by the prohibition on undermining the very terms of the exemption that are employed by the European Union legislature (see Claverhouse, paragraph 21). A Member State cannot in particular, without negating the very terms ‘special investment funds’, select from among special investment funds those which are eligible for the exemption and those which are not. Those provisions thus grant it only the power to define, in its domestic law, the funds which meet the definition of ‘special investment funds’ (see Claverhouse, paragraphs 41 to 43).

18

The power accorded to the Member States to define the meaning of ‘special investment funds’ must also be exercised in compliance with the objectives pursued by the Sixth Directive and Directive 2006/112 and with the principle of fiscal neutrality inherent in the common system of VAT (see Claverhouse, paragraphs 22 and 43).

19

In that regard it must be observed, first, that the purpose of the exemption of transactions connected with the management of special investment funds is, particularly, to facilitate investment in securities by means of investment undertakings by excluding the cost of VAT and, in that way, ensuring that the common system of VAT is neutral as regards the choice between direct investment in securities and investment through collective investment undertakings (see Abbey National, paragraph 62, and Claverhouse, paragraph 45).

20

Second, the principle of fiscal neutrality precludes economic operators carrying out the same transactions from being treated differently in relation to the levying of VAT (see, to this effect, Case C-382/02 Cimber Air [2004] ECR I-8379, paragraphs 23 and 24; Case C-280/04 Jyske Finans [2005] ECR I-10683, paragraph 39; Abbey National, paragraph 56; and Claverhouse, paragraph 29).

21

It should also be noted that this principle does not require the transactions to be identical. According to settled case-law the principle also precludes treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes (see, inter alia, Case C-109/02 Commission v Germany [2003] ECR I-12691, paragraph 20; Joined Cases C-453/02 and C-462/02 Linneweber and Akritidis [2005] ECR I-1131, paragraph 24; Case C-498/03 Kingscrest, Associates and Montecello [2005] ECR I-4427, paragraph 54; Case C-106/05 L.u.p. [2006] ECR I-5123, paragraph 32; Case C-246/04 Turn- und Sportunion Waldburg [2006] ECR I-589, paragraph 33; Joined Cases C-443/04 and C-444/04 Solleveld and van den Hout-van Eijnsbergen [2006] ECR I-3617, paragraph 39; and Claverhouse, paragraph 46).

22

It must therefore be determined whether an investment fund in which the assets of a retirement pension scheme are pooled, and which has characteristics such as those displayed by the fund at issue in the main proceedings, is identical to funds that constitute ‘special investment funds’ within the meaning of Article 13B(d)(6) of the Sixth Directive and Article 135(1)(g) of Directive 2006/112 or is sufficiently comparable with the latter to be in competition with them.

23

Funds which constitute undertakings for collective investment in transferable securities within the meaning of the UCITS Directive are special investment funds (see, to this effect, inter alia Case C-44/11 Deutsche Bank [2012] ECR I-0000, paragraph 32). As is clear from Article 1(2) of that directive, undertakings for collective investment in transferable securities are undertakings which, such as AUTs and OEICs (see, to this effect, Claverhouse, paragraph 50), have as their sole object, in accordance with the objective pursued by the exemption provided for in Article 13B(d)(6) of the Sixth Directive and Article 135(1)(g) of Directive 2006/112, the collective investment in transferable securities of capital raised from the public.

24

Furthermore, funds which, without being collective investment undertakings within the meaning of the UCITS Directive, display characteristics identical to theirs and thus carry out the same transactions or, at least, display features that are sufficiently comparable for them to be in competition with such undertakings must also be regarded as special investment funds (see, to this effect, Abbey National, paragraphs 53 to 56, and Claverhouse, paragraphs 48 to 51).

25

However, an investment fund in which the assets of a retirement pension scheme are pooled, such as that at issue in the main proceedings, cannot be regarded as a collective investment undertaking within the meaning of the UCITS Directive. Such a fund is in fact not open to the public but constitutes, as is clear from the order for reference, an employment-related benefit which employers grant only to their employees. Such a fund is thus not identical to funds that constitute ‘special investment funds’ within the meaning of Article 13B(d)(6) of the Sixth Directive and Article 135(1)(g) of Directive 2006/112.

26

Nor is such an investment fund sufficiently comparable with collective investment undertakings as defined by the UCITS Directive to be in competition with them. A number of characteristics differentiate them, so that they cannot be regarded as meeting the same needs.

27

In particular, the members of a retirement pension scheme such as that at issue in the main proceedings do not bear the risk arising from the management of the investment fund in which the scheme’s assets are pooled, unlike private investors with assets in a collective investment undertaking (see, to this effect, Claverhouse, paragraph 50). Whilst the pension that may be received by an employee who is a member of a retirement pension scheme such as that at issue in the main proceedings does not depend at all on the value of the scheme’s assets and the performance of the investments made by the scheme’s managers, but is defined in advance on the basis of length of service with the employer and of the amount of the salary, the return that can be hoped for by persons who purchase units in a collective investment undertaking depends on the performance of the investments made by the fund’s managers over the period for which those persons hold the units.

28

Furthermore, a retirement pension scheme such as that at issue in the main proceedings also differs from a collective investment undertaking from the employer’s point of view. The employer is not in a situation comparable to that of an investor in a collective investment undertaking since, even though he too must bear the financial consequences of the investments made by the scheme’s managers, the contributions which he pays into the retirement pension scheme are a means by which he complies with his legal obligations towards his employees.

29

Having regard to the foregoing considerations, the answer to the questions referred is that Article 13B(d)(6) of the Sixth Directive and Article 135(1)(g) of Directive 2006/112 must be interpreted as meaning that an investment fund pooling the assets of a retirement pension scheme is not a ‘special investment fund’ within the meaning of those provisions, management of which may be exempted from VAT in the light of the objective of those directives and the principle of fiscal neutrality, where the members of the scheme do not bear the risk arising from the management of the fund and the contributions which the employer pays into the scheme are a means by which he complies with his legal obligations towards his employees.

30

Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national tribunal, the decision on costs is a matter for that tribunal. Costs incurred in submitting observations to the Court, other than the costs of those parties, are not recoverable.

On those grounds, the Court (First Chamber) hereby rules:

Article 13B(d)(6) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment and Article 135(1)(g) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that an investment fund pooling the assets of a retirement pension scheme is not a ‘special investment fund’ within the meaning of those provisions, management of which may be exempted from value added tax in the light of the objective of those directives and the principle of fiscal neutrality, where the members of the scheme do not bear the risk arising from the management of the fund and the contributions which the employer pays into the scheme are a means by which he complies with his legal obligations towards his employees.

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