An opinion by the Advocate General of the Court of Justice of the European Union (CJEU) concludes that a single service can only be subject to a single value added tax (VAT) treatment and that the exemption for the management of special investment funds does not apply to the service purchased by the taxpayer.
At issue in the case is whether a single service purchased by the taxpayer can be split in such a way that part of the payment for that service is VAT-exempt under the exemption for the management of special investment funds, while the other part is treated as VAT‑taxed.
The taxpayer argued that such a split must be made, and then on the basis of whether the purchased service is used for the management of a special investment fund (VAT-exempt) or for other funds that are not special investment funds (VAT-taxed).
The AG concluded that, in principle, a single service can only be subject to one VAT treatment, and that the exemption for the management of special investment funds does not apply to the service purchased by the taxpayer; however, this could be different if sufficient information were available to precisely and objectively determine which part of the payment relates to the VAT-exempt services.
The case is: BlackRock Investment Management (UK) Ltd, case no. C-231/19. The Advocate General’s opinion* was issued on 11 March 2020.
*The Advocate General’s opinion is not binding on the CJEU; rather, it is the role of the Advocates General to propose to the CJEU a legal solution to the cases for which they are responsible. The judges now begin their deliberations in this case, with a judgment to be given at a later date.
Implications for Dutch market
The Advocate Generals’ opinion may be disappointing for various market parties. The question is whether the CJEU will follow the opinion. The Advocate General considers a split into a VAT-exempt and a VAT-taxed part conceivable when appropriate—that is, when there is sufficient information available to precisely and objectively determine which part of the payment relates to the VAT-exempt services. When that is the case, is still unclear.
The opinion does not address whether the IT services that the taxpayer purchased can be regarded as management within the meaning of the exemption for the management of special investment funds. This is understandable in the present case, because the referring court accepted this as a fact (after extensive examination). That is a welcome confirmation, because in the Dutch practice is it often unclear which IT service could fall within the scope of a financial exemption. The practice would benefit from the CJEU showing support for this in its judgment.
Finally, while this case dealt with the exemption for the management of special investment funds, the final judgment by the CJEU could also affect other types of composite services outside the financial sector. After all, the splitting issue also occurs in other sectors.
Based on the opinion, splitting a single service into a VAT-exempt and a VAT-taxed part does not appear to be straightforward because the service as a whole cannot be VAT-exempt (according to the Advocate General). If sufficient information is available to precisely and objectively determine which part of the payment relates to the VAT-exempt services, then a split may be possible. Taxpayers need to evaluate how fund management services are contracted, administered, and invoiced. On the basis of precise and objective information, it may be possible to achieve a split. Taxpayers may also want to consider whether there are separate services rather than a single service. After all, in the case of separate services, whether the VAT exemption applies can be determined per service—that can be advantageous for the purchasers of such services, as they will generally not have a VAT recovery right or only a limited one.
Read a March 2020 report prepared by the KPMG member firm in the Netherlands
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