Wheels CJEU Ruling Of March 7, 2013

Pursuant to article 135 (1) (g) of Directive 2006/112/EC (the "VAT Directive") Member States must exempt from VAT "the management of special investment funds as defined by Member States". A group pension fund that provides defined benefits to the group employees lacks the salient features of "special investment funds" as understood by the Court of Justice of the European Union ("CJEU"). As a consequence, management services provided to such pension funds are subject to VAT at ordinary rates.

The facts and question at issue

Wheels Common Investment Fund (the "Fund") is a fund pooling the assets of a number of Ford group pension schemes. The Fund receives its financing by way of contributions by the employer and the employees, a trustee managing the Fund in the context of a retiring pension scheme. Under that scheme, the employees are entitled to pension payments based on the length of the service with the employer and of the amount of salary, as is typical in defined benefits pension schemes. The question the CJEU had to address was whether the Fund is a "special investment fund" as per the VAT Directive, in which case the trustee's services to the Fund would be exempt.

Member States' discretion is constrained as regards the definition of "special investment funds"

Under constant case-law, exemptions provided for under the VAT Directive typically have to receive a common interpretation binding on all Member States. That general principle however does not apply in those cases where the VAT Directive itself refers to the individual Members States for the purpose of defining the relevant concept. That is precisely the case for "special investment funds", since the VAT Directive grants the power to define that concept to the individual Member States ("as defined by Member States").

However, even under those circumstances the Member States are not totally free to decide as it pleases them. According to the CJEU, when exercising their powers, the Member States need to comply with both the purpose of the provision as well as the tax neutrality principle:

the purpose of the provision regarding the management of specialized investment funds is to facilitate the investment in securities by the public; the tax neutrality principle requires goods and services that are in competition with each other to be taxed identically. Defined benefit pension funds are not special investment funds

According the CJEU, there exist structural differences between the...