LUXEMBOURG (CN) — The pension fund for employees of British multinational food manufacturer United Biscuits cannot dodge paying value-added tax on its investments, the European Court of Justice held Thursday.
“Investment fund management services supplied for an occupational pension scheme, which do not provide any indemnity from risk, cannot be classified as ‘insurance transactions’, within the meaning of that provision, and thus do not fall within the value-added tax exemption,” the five-judge panel wrote.
In 2014, the maker of McVitie’s biscuits, Jacob’s Cream Crackers and Twiglets requested a refund of value-added tax that it paid on fees for investment fund managers from 1978 to 2013. The company argued that the fees fell under an exemption for insurance providers as the fund managers worked for companies licensed to sell insurance products.
Similar to a sales tax, a value-added tax, also known as VAT, is levied on goods at each stage of the distribution process, including the sale to the end consumer. Most European countries charge a VAT in lieu of a sales tax. The refund sought by United Biscuits would have amounted to millions of dollars.
British tax authorities didn’t bite and denied the claim, pointing out that the managers were contracted to manage investments, not provide insurance.
United Biscuits appealed and the British Court of Appeals referred the matter to the Court of Justice, which sided with the U.K. government on Thursday.
“The services contractually provided to the applicants in the main proceedings consisted of fund management solely for their account, to the exclusion of any indemnity from risk,” the court wrote, finding that investment management is not the same as selling insurance. The judges ruled that merely doing business with a company that sells insurance does not qualify as an “insurance transaction,” which is granted a VAT exemption.
VAT rates vary based on the category of product being sold. Generally, essential goods such as food, medicine and books are taxed at a lower rate than luxury products, like alcohol and cigarettes.
British companies have lost a number of tax law challenges before the European Union’s high court in recent years. In 2018, the court held that auction credits sold by the penny-auction website MadBid.com were also subject to VAT. Last year, it found that the world’s largest investment management company, BlackRock U.K., was not eligible for a VAT exclusion for the purchase of software from its U.S.-based parent company.
Cases involving the United Kingdom have continued to be heard by the court, despite the U.K.’s withdrawal from the EU in January. The country and companies within its borders are still under the jurisdiction of the court for events that took place before Brexit.
The United Biscuits case now returns to the British Court of Appeal for a final ruling.