ECJ C-639/22 & others – AG Opinion – An investment fund comparable to a UCITS is considered a ‘special investment fund’

On March 14, 2024, the ECJ issued the AG Opinion in the joined cases C-639/22 C-640/22 C-641/22 C-642/22 C-643/22 C-644/22.

Context:

Article in the EU VAT Directive

Article 135(1)(g) of Council Directive 112/2006/EC

Article 135
1. Member States shall exempt the following transactions:

(g) the management of special investment funds as defined by Member States;

Facts

The facts and legal context at issue in this case are substantially similar to those at issue in Case C-644/22. The differences are indicated below to the extent relevant.
In this case, the applicant is not an occupational pension fund, but a compulsory occupational pension fund for self-employed medical specialists. The Minister of Social Affairs and Employment may make participation in an occupational pension scheme compulsory.
The pension scheme is a defined benefit scheme. The retirement pension is set at an annual amount for each calendar quarter for which the member has been liable to pay contributions (the standard pension). That amount may be increased by the applicant’s management board, according to a certain formula, compared to the previous calendar year. If there are insufficient funds to do so, the applicant’s management board may refrain from increasing that amount.
Any profits of the fund accrue to the members and are used exclusively to increase all standard pensions. Profit sharing is thus part of the pension adjustment.
Participants also have some options. This allows them to choose to start the pension earlier or later or to continue participation voluntarily.

Questions

1) Must Article 135(1)(g) of the VAT Directive be interpreted as meaning that unit-holders in a pension fund such as the one at issue in the main proceedings can be regarded as bearing investment risk, and does this mean that the pension fund constitutes a ‘special investment fund’ within the meaning of that provision? Is it relevant in that regard:

whether unit-holders bear an individual investment risk or is it sufficient that unit-holders as a collective – and no one else – bear the consequences of the investment results?
what the magnitude of the collective or individual risk is?
to what extent the amount of the pension benefit depends also on other factors, such as the number of years of pension accrual, salary level and the actuarial interest rate?

AG Opinion

1. Article 135(1)(g) of Directive 2006/112/EC on the common system of value added tax must be interpreted as meaning that an investment fund comparable to a UCITS, which is thus a ‘special investment fund’, is a fund which mostly fulfils the criteria set out in the first sentence of Article 1(2) of Directive 2009/65/EC on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities. This requires, in particular, that the investment fund is open to the public, that there is a redemption obligation similar to that for a UCITS and that investors bear a comparable investment risk. The latter condition depends essentially on whether the pension commitment provides primarily for guaranteed benefits or benefits dependent on the performance of the invested capital.

2. For the application of Article 135(1)(g) of Directive 2006/112 in the case of funds which are not UCITS, it must be assessed not only whether they are comparable to UCITS but also whether they are comparable to other funds that are not UCITS but are regarded by the Member State as special investment funds. The Member State may exempt the management of such special investment funds with due regard to the principle of fiscal neutrality. However, this does not preclude a comprehensible differentiation being made between the differently structured pillars of the retirement pension system in question and in particular between guaranteed pension commitments on the one hand and pension commitments dependent on the performance of the invested capital on the other hand.

Decision

Summary

Source