The Court of Justice of the European Union has confirmed, in case C-275/11 GfBk Gesellschaft für Börsenkommunikation mbH dated 7 March 2013, that fund investment advisory services benefit from the exemption foreseen by article 135, 1., g) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value-added tax.
By confirming the VAT exemption for fund investment advisory services, the Court of Justice of the European Union ("ECJ") gives the current practice strong legal certainty, and allows funds having an appropriate VAT structuring to limit their VAT costs.
Investment funds usually do not have the right to deduct VAT. Any VAT they pay is a final charge and affects their net return on investment. Europe's lawmakers however seek to promote the use of investment funds, which are seen as an efficient way of collecting private savings for investments in securities, with a view to financing the economy. To avoid undesired VAT costs, they have provided for a specific VAT exemption for the management of 'special investment funds'. This VAT exemption aims at setting a level 'VAT' playing field between direct and indirect investments in securities, so as not to burden indirect investments with a VAT charge that would not exist for direct acquisitions of securities.
In Case C-169/04, Abbey National [2006] ECR I-04027, the ECJ already clarified that this VAT exemption should be understood as applying to all services which are 'specific' to the management of an investment fund. If management services are delegated to a third party, the delegated services should benefit from the VAT exemption as well, provided they are distinct, specific to and essential for the management of the investment fund.
In this case, a third party adviser provided fund investment advisory services to a German company managing a contractual investment fund. The German VAT authorities claimed that these services could not benefit from the VAT exemption for fund management services. The question was referred to the ECJ.
The ECJ held that fund investment advisory services which are intrinsically connected to the activity characteristic of an investment fund are specific to, and essential for, the fund, and could as such benefit from the VAT exemption for fund management services, whether delegated to a third party or not.
When approving the application of the VAT exemption to fund investment advisory services, the ECJ stated that the fact that a fund investment adviser takes no decisions for the investment fund is irrelevant for applying the VAT exemption for fund management. As per Abbey National, the VAT exemption in question is applicable to a wide range of services, most of which do not imply any decision-making process (e.g. computation of NAVs).
The ECJ also held that the fact that advisory and information services are not listed in Annex II to Directive 85/611, as amended by Directive 2001/107, which aims at describing the services included in the 'management' of an investment fund, does not preclude their inclusion in the 'management of a special investment fund' as referred to in article 135,1., g) of the 2006/112 Directive, since this Annex II itself states that the list is ‘not exhaustive'.
