Netherlands: VAT deductions, management services provided for pension funds

Netherlands: VAT deductions, management services

The Dutch Supreme Court (Hoge Raad) held that a business subject to value added tax (VAT) can deduct the amount of VAT charged on the costs incurred for the management and the business activities of its own company pension fund.

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Separately, in another case, the Advocate General expressed an opinion that the management services provided pension funds with a defined benefit plan can be exempt from VAT. 

Supreme Court judgment on the deduction of VAT on costs incurred by pension funds

The Supreme Court held that costs incurred for the management and business activities of the taxpayer’s own company pension fund constitute general costs for the company because the only reason these costs were incurred is due to the taxable activities of the business. After all, a business is expected to bear such costs that are directly related to commitments arising from employment (pensions). 

As a rule, pension funds only have very limited possibilities for deducting the VAT charged on costs. If it is possible to purchase services at the level of the business, instead of at the level of the pension fund, this VAT burden may be avoided. 

Opinion of Advocate General on exemption for the management of pension funds

The Advocate General to the Supreme Court addressed the question whether a pension fund with a defined benefit plan can be regarded as a special investment fund that will exempt the management of it from VAT. 

The Advocate General concluded that the management of a pension fund with a defined benefit plan can be exempted from VAT. If the Supreme Court decides to follow the Advocate General’s opinion, this will mean that the management services provided to Dutch pension funds will generally be exempt from VAT—and not only purely asset management services qualify as “management” but certain pension administration activities and investment advisory services also may qualify.


Read a March 2016 report prepared by the KPMG member firm in the Netherlands: Two favorable VAT developments for services provided to pension funds

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