The District Court of Noord-Nederland issued a decision on 3 June 2021, ruling that activities carried out by an industry-wide pension fund to implement a pension plan do not constitute insurance activities for VAT purposes and, therefore, are not exempt from VAT.
Insurance transactions are exempt from VAT and, therefore, VAT normally may not be recovered on goods and services obtained to make an exempt supply, i.e., input VAT incurred on an exempt supply may not be deducted.
The Netherlands has industry-wide pension funds that are responsible for managing the pension plans of employees of the employers affiliated with the fund. Industry-wide funds are available to all persons who work in a particular industry (e.g., construction industry, retail trade, cleaning industry), and are mandatory in some cases.
An industry-wide pension fund is considered a VAT entrepreneur for purposes of implementing a pension plan because services (i.e., implementing pension agreements concluded between employers and employees) are provided in return for payment. Such funds also incur costs for activities carried out to execute the pension. A question that arises in this context is whether the industry-wide pension fund can fully deduct the VAT incurred on these costs. For example, if an industry-wide pension fund carries out VAT-exempt insurance activities, it cannot deduct input VAT, but if the VAT exemption for insurance activities does not apply to the implementation of pension agreements, VAT on the costs incurred may be deducted. This is an issue where there still is some ambiguity in the Netherlands.
In its decision, the District Court of Noord-Nederland held that activities undertaken to implement a pension do not constitute insurance activities and, therefore, are not exempt from VAT. As a result, VAT on the costs incurred may be deducted. According to the court, the VAT insurance exemption does not apply because the industry-wide pension fund is the executor of the pension agreements concluded between employers and employees. This is a triangular relationship that is not equivalent to the bilateral legal relationship between an insurer and the insured on which the VAT insurance exemption is based.
The District Court also stated that the pension implementation activities of an industry-wide pension fund are exempt from Dutch insurance premium tax, which supports the interpretation that pension fund implementation activities do not fall within the scope of the VAT exemption for insurance activities. Unlike in the case of an insurance company, costs incurred by an industry-wide pension fund would be significant, and for this reason, the court said that the VAT exemption for insurance activities should not be applicable to a pension fund’s activities.
The District Court of Noord-Nederland decision is striking because another court (the District Court of Noord-Holland) reached the opposite conclusion. The case before the latter court involved a company pension fund that implements the pension scheme for a group of companies, and that undertakes, as an insurer for the employees, to make pension payments against the payment of premiums when the insured risk arises (e.g., an employee reaching retirement age). The Noord-Holland court concluded that these activities fall within the scope of the VAT exemption for insurance activities, so the company pension fund is not entitled to an input VAT deduction.
Because of the different conclusions reached by the two district courts, there still is no definitive answer to the question of whether the VAT exemption for insurance activities applies to the execution of pension agreements. The Noord-Holland ruling has been appealed and is pending before the Amsterdam Court of Appeal. It currently is unclear whether the decision of the Noord-Nederland decision will be appealed.