The Court of Appeals Arnhem-Leeuwarden in July 2015 rendered a judgment in a case concerning a claim for deduction of value added tax (VAT) charged on costs that a company’s pension fund “recharged” to the group entities for which it operated the pension plan. The appellate court found that the recharging of costs must be regarded as payment for VAT-able services that a company pension fund provides to the employer and that VAT on costs directly allocable to the VAT-able service could be deducted—therefore, appearing to have broadened the entitlement to recover input tax for pension funds. The Dutch tax authorities have now appealed this decision to the Supreme Court.
The taxpayer operated a company pension fund that administered the pension plans of various companies that provided VAT-able services for the group. A decision was made to dissolve the company pension fund and transfer the pension entitlements to an industry-wide pension fund. The written agreements concerning the transition to an industry-wide pension fund included an agreement that the employer would contribute to the transition costs incurred by the company pension fund. In accordance with this agreement, the company pension fund issued an invoice (including VAT) to the employer for purposes of recharging the majority of the costs incurred. The VAT on the incoming costs was deducted.
The question before the court was whether the company pension fund could deduct the input VAT charged on the incurred costs with regard to the transition. The appeals court held that the recharging of costs must be regarded as the payment for a VAT-able service. Furthermore, the court found that the incoming costs were directly allocable to the VAT-able service (“direct costs”), insofar as they were recharged to the employer.
Read an October 2015 report prepared by the KPMG member firm in the Netherlands: Pension fund is entitled to deduct the VAT on costs recharged to the employer
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.