In his opinion, Advocate General Cruz Villalón (the AG) said that advisory and information services relating to fund management or the purchase and sale of assets could be considered a "specific and distinct" management activity, providing that the service was "autonomous and continuous". It would be up to the national court to decide whether this applied in individual cases.
Charges relating to the management of special investment funds are exempted from VAT under the EU's VAT Directive. However, it is up to individual member states to decide which services amount to "management" of a fund. As "special investment fund" is not a legal concept in the UK the exemption applies to entities that carry on similar activities including authorised unit trusts, open-ended investment companies and investment trust companies.
AGs are legal advisers to the Court of Justice of the European Union (CJEU), the EU's highest court. Their opinions are not binding on the CJEU, however judges use the opinions in making their decisions and they tend to be followed in the majority of cases.
"This is another chapter in the ongoing saga of how VAT exemptions around fund management should be interpreted," tax expert Eloise Walker of Pinsent Masons, the law firm behind Out-Law.com, said. "It is welcome news for the industry, although we will have to wait and see how the CJEU reacts to the AG's opinion."
The opinion concerned a German company which provided information and advice about the stock markets and marketing and advice in connection with financial assets. It was hired by an investment fund management company (IMC) in 1999 to advise the IMC "in the management of the fund" and to "monitor the fund and ... make recommendations concerning the purchase or sale of fund assets". The German tax authorities claimed that these services did not fall within the exemption.
The AG said that, as a broad test, the court had to consider whether the services provided by the company formed a "distinct whole" and were "specific to, and essential for", the management of the IMC. Referring to an earlier dispute heard by the CJEU between the UK's HM Revenue and Customs (HMRC), Abbey National and a small investment fund the AG said that the purpose of the exemption was to make it easier for small investors to invest in securities. With that in mind, investors that managed their portfolios directly and those that accessed collective investment through a management or investment company should be treated in the same way for the purposes of VAT.
In addition, the "management" of an investment fund was sufficiently broad as to include certain administrative services typical of such a fund, the AG said. These activities need not be performed exclusively by a specific person and in fact could be broken down into a number of separate services, some of which could be provided by a third party. Assuming that the services provided by the third party formed a "distinct whole", reflecting an "operational choice" on the part of the fund manager, then the services could fall within the exemption. It would be for the German court to decide whether those conditions were satisfied, the AG said.