The European Court of Justice (ECJ) has ruled again on the scope of VAT exemption regarding the "management of special investment funds as defined by Member States"(1) . This awaited judgment, pronounced on 9 December 2015 in the case Fiscale Eenheid X (2) , provides for further clarifications about the concept of "special investment funds" under this VAT exemption and about its possible application to Alternative Investment Funds (AIFs).
Background
VAT exemption for the management of special investment funds is covered by Article 44, §3, 11° of the Belgian VAT Code. In its current wording, as amended by the Law of 12 May 2014(3) , the exemption notably aims at the management of collective investment funds as referred to under the Law of 3 August 2012(4) , as well as public or institutional real estate investment trusts as referred to in Article 2, 1°, 2° and 3° of the Law of 12 May 2014.
This wording ignored the legal changes that had been made, further to the implementation of the AIFM Directive(5) by the AIFM Law(6) , notably the new split between the UCITS regulations (still governed by the Law of 3 August 2012) and the other regulations on funds (now governed by the AIFM Law).
Except for (public) SICAVs/BEVAKs that qualify as UCITS under the UCITS Directive(7) , the regulation of most other investment funds, such as (institutional or private) SICAVs/BEVAKs, SICAFIs/vastgoedbevaks or PRICAF/PRIVAKS, are now regulated under the AIFM Law and are, technically, no longer referred to under the VAT exemption.
The Belgian VAT Decision of 30 March 2015(8)
Further to discussions with the financial sector(9) , the Belgian VAT authority accepted that, pending a formal change in the VAT legislation, all funds (including undertakings for collective investment in receivables) that were previously regulated under the Law of 3 August 2012 upon the 27 March 2014 (i.e. date of filing of the draft bill amending the VAT exemption) would remain covered by the VAT exemption. This was a favorable decision, although more clarity could have been useful.
A similar cross-reference inconsistency has been clarified in a same way, with respect to the scope of the privileged corporate income tax regime for investment funds(10) .
What about other AIFs?
Although the Decision of 30 March 2015 solves most cases, the question remains whether any AIF falling under the AIFM Law regulation will now benefit from the VAT exemption described above.
The AIFM Directive, as implemented by the AIFM Law, has indeed introduced a further supervision extending to funds that, previously, had not opted for any regulated status (e.g. the PRICAF)(11) and that were not subject to supervision so far.
The Fiscale Eenheid X case
In the Fiscale Eenheid X case, the ECJ has been asked whether Dutch real estate investment trusts, founded by a number of pension funds, and investing in immovable properties, could be regarded as “special investment funds” within the meaning of the VAT exemption.
In the case at hand, the ECJ confirmed that the investment in immovable property does not preclude a fund from benefiting from the VAT exemption (although the UCITS Directive does not cover such investments). The ECJ also stated that the actual management of the immovable property is not covered by the exemption (despite the dissenting opinion of AG Kokott).
The key element in this case is, however, the (new) condition laid down by the ECJ according to which qualifying funds have to be subject to a "specific State supervision".
In this regard, the ECJ noteworthy stated that the definition of "special investment funds" for VAT purposes is to be determined “both by EU law and by national law" (recital 46), that the AIFM Directive "represents at EU level a further step in the harmonisation of specific State supervision of investments" (recital 61) and that UCITS are “only one particular form of regulated investment"(recital 60). Also, in line with other recent cases, the ECJ refrained from referring to the concept of "small" investors while addressing the purpose of this VAT exemption (i.e. which is to facilitate the investment and to guarantee the neutrality of the VAT system) (recital 34)(12) .
However, the ECJ judgment does not elaborate further on the concept of "specific State supervision".
Outcome
It follows from the recitals mentioned above that the judgment strongly supports the application of VAT exemption to AIFs falling under the AIFM Directive.
Applying VAT to management costs of investment funds would obviously generate a significant surcharge, especially now that the Belgian tax administration also intended to remove (with effect normally from 1st April 2016) the option not to subject to VAT statutory functions exercised by legal persons (e.g. directors, managing directors or liquidators)(13) . This earlier latitude, which also applied to mere holding companies, used to offer an interesting path outside the VAT exemption for special investment funds.
It is thus greatly expected that the Belgian VAT authorities clarify the situation, and that the legal text be adequately updated so that it becomes in line with the new AIFM regulation and latest case-law.
Some Member States, such as Luxembourg, have already reviewed their VAT exemption so that it covers all AIFs under the AIFM Directive. This situation obviously generates distortions in the VAT treatment of investment funds within the EU.
(1)Article 135, § 1, g), Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ L 347, 11.12.2006, p. 1).
(2)ECJ case, 9 September 2015, Fiscale Eenheid X, C-595/13, see www.curia.europa.eu; see also: Opinion of AG Kokott of 20 May 2015, C-595/13.
(3)Law of 12 May 2014 on real estate investment trusts (B.S.G. 30.06.2014).
(4)Law of 3 August 2012 on collective investment undertakings qualifying as UCITS under Directive 2009/65/EC and to collective investment undertakings investing in receivables (B.S.G. 19.10.2012).
(5)Directive 2011/61/EU of 8 June 2011 on alternative investment fund managers (AIFM Directive) (OJ L 174, 1.7.2011, p. 1).
(6)Law of 19 April 2014 on Alternative Investment Funds and their managers (AIFM Law) (B.S.G. 17.06.2014).
(7)Directive 2009/65/EC of the European Parliament and of the Council on undertakings for collective investment in transferable securities (UCITS Directive) (OJ L 302, 17.11.2009, p. 32).
(8)VAT Decision E.T.127.885 of 30 March 2015.
(9)BEAMA, Annual Report, 2014-2015, p. 27.
(10)Adm. Guidelines, AGFisc No. 35/2015, of 8 September 2015.
(11)Art. 281 of AIFM Law.
(12)ECJ case, 13 March 2014, ATP PensionService, C-464/12, recital 43.
(13)Cf. Newsletter Strelia, November 2014; Announcement of Finance Department of 23 November 2015.
