AIC welcomes EU advocate general’s opinion on VAT case

The Association of Investment Companies (AIC) today expressed its pleasure at the release of the EU Advocate General’s opinion, which supports the view that investment trusts should be exempt from VAT on management fees.

The announcement follows a joint legal test case launched by the AIC and JPMorgan Fleming Claverhouse in January 2004 against HM Customs and Excise, to challenge whether investment trusts should pay VAT on management fees. Open-ended funds are exempt from VAT on management fees, a tax distortion that costs investment trust shareholders about £40m per year. The case was referred to the European Court of Justice (ECJ) and a final verdict, informed but not determined by the opinion of the Advocate General, is expected in the summer.

In her opinion, Advocate General Kokott states that the evidence: “indicates that ITCs are comparable to the types of fund (AUTs and OEICs) which are entitled to exemption from VAT and in competition with them. Consequently, their management should also be exempted from VAT.”

Daniel Godfrey, Director General, Association of Investment Companies (AIC) said: “After a near-decade of lobbying, and a legal case that is now in its third year, this has been a real marathon. We have always retained great conviction in the strength of our case and are pleased that the Advocate General has fully agreed with our views on all four questions asked of the Court and has rejected all the arguments presented by the Government. Although this opinion is not final, it is certainly a positive indicator. We are very much encouraged that the Advocate General agrees with our legal case, and with the finishing tape now in sight, we can look forward to hearing the final judgement.”