£300M VAT victory for investment trusts
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The European Court of Justice has ruled that investment trusts should be exempt from paying VAT on their management expenses in a move that will bring their treatment in line with mutual funds.
Last week's ruling could force the Government to pay back more than £300m in VAT refunds dating back to 1990 when Oeics and unit trusts gained exemption.
The Association of Investment Companies, which brought the case in 2004 along with the JP Morgan Claverhouse trust, says the judgment will save the investment trust industry around £40m a year and the clawed-back tax could add an average of 0.5 per cent to investment trusts' NAV.
The AIC says the cash is likely to take some time to filter back to trusts and could be complicated to calculate where management groups have changed.
The Government could still appeal to the VAT tribunal but has not yet made a decision on this.
If the judgment is left unchallenged, investment trusts would have the option of either using the rebate to bolster their NAV or paying it out to shareholders as a special dividend.
AIC director general Daniel Godfrey says: "We have been trying to persuade the Government that it was unfair to give an exemption to unit trusts and Oeics but not investment trusts for nearly 10 years so we are very pleased but not surprised by this result.
"We now call on the Government to move quickly to start refunding the money and to change the law to reflect the ECJ judgement."
JP Morgan Claverhouse chairman Sir Michael Bunbury says: "We are delighted that the ECJ has found in our favour. JP Morgan Claverhouse suffered £460,000 in irrecoverable VAT last year. In future, this money, together with refunds relating to earlier years, should be available for shareholders."
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