Fund managers will have to continue to pay VAT on outsourced fund management contracts despite a V...
Fund managers will have to continue to pay VAT on outsourced fund management contracts despite a VAT tribunal ruling, which declared the charge unfair, writes Kira Nickerson.
Customs & Excise is appealing the tribunal ruling from January in its case against the Prudential, which would have seen outsourced management put on an even tax playing field with managing a fund in-house.
The appeal, which will first go to the Court of Session in Edinburgh then the House of Lords and then the European Court of Justice, is expected to take up to three years, according to Autif.
Lucy Shirley, tax adviser at Autif, said: "We expect this to go all the way, which will take several years.
"It will be up to a year alone before the Court of Session. In the meantime the tribunal decision stands."
As first reported in Investment Week, the VAT ruling in favour of Prudential would lead to the costs of outsourcing fund management to come down by some 12%, according to Deloitte & Touche.
In March, Andrew Ball, tax partner with Deloitte & Touche estimated the amount of VAT groups could reclaim would total as much as £50m.
However, while it may be legal for groups to reclaim VAT expenditures going back three years from today, there is a question of whether or not it will be paid until all the court proceedings are finished.
Yet, if groups do not make the claims now then, due to the statute of limitations of three years on VAT claims, by the time the court case is settled it may be too late.
In the meantime, Autif suggests groups should talk to their VAT advisers as if they do not continue to pay the VAT while the courts debate the matter and the final ruling is in favour of Customs & Excise, then firms could be held liable for years of back payments plus interest, Shirley said.
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