Pensions Tax Services
In response to the increasingly complex tax environment for pension provision, operation and governance, our specialist pensions tax practitioners advise employers and trustees on a broad range of pensions tax issues which includes advice on direct and indirect taxes, global investments, investment pooling vehicles, the VAT treatment of scheme expenses, salary sacrifice arrangements and the risk management role of tax in governance frameworks.
Governance and tax policy
There is a common misconception that pension schemes do not pay tax. However, in practice, many pay sizeable amounts in the form of withholding taxes, VAT, stamp duties and even income tax.
As pension schemes increasingly invest in those assets with the potential for higher returns (such as real estate funds, hedge funds and derivative contracts), there is an even greater potential for tax liabilities to arise.
Pension schemes should have in place a feasible framework which sets out roles and responsibilities for managing tax risk, and ensures that tax is considered when making investment decisions.
Tax advice in relation to investments
In order to ensure that returns are maximised and tax risks mitigated, it is important that all material areas of tax exposure are monitored by trustees and acted upon where appropriate.
Areas of tax exposure include (but are not limited to):
- Local tax liabilities and filing obligations in relation to the underlying investments;
- Withholding taxes;
- Complex tax considerations arising in respect of alternative investments (e.g. fund of fund structures, private equity, hedge funds, real estate, etc.); and
- VAT and transfer taxes.
VAT remains a key issue for pension funds and their sponsoring employers. Pension funds often pay and recover the wrong amounts of VAT because the rules are increasingly complex and often misunderstood. Given recent UK case law developments, this will become even more of an issue going forwards.
Most accounting standards, require the cost and liability of defined benefit pension and other long term employee benefits to be recognised in the income statement and on the balance sheet. Due to external market factors many pension schemes are currently finding themselves in a net liability position.
Pension schemes need to consider ways of funding such liabilities and many are looking into alternative methods of funding. One such method is through Asset Backed Contribution (“ABC”) structures, an area in which Deloitte are market leading advisors.
Global pension considerations
The global tax landscape is changing and pension schemes must adapt with these changes or risk increasing the scheme’s tax exposure. Examples of such shifts include:
- Increased global information exchange – The Foreign Account Tax Compliance Act (“FATCA”) and the Common Reporting Standard (“CRS”);
- OECD’s Base Erosion and Profit Shifting (“BEPS”) project;
- A greater international focus of tax authorities; and
- Cross boarder pension schemes.
The UK pension system is currently in a period of transition. A broad range of changes have been both enacted and proposed by the UK government. Included within these changes are a number of areas that impact the tax position of scheme members. These includes areas such as reductions in the lifetime allowance and annual allowance for UK tax payers.