Netherlands: VAT exemption for collective asset management, possible refund opportunities

Netherlands: VAT exemption, collective asset management

The Dutch Supreme Court (Hoge Raad) on 4 December 2020 issued its decisions in two asset management cases, specifically providing an interpretation of the value added tax (VAT) exemption for collective asset management.


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The main question in both cases was whether the VAT exemption for collective asset management can also apply to individual asset management whereby investments are pooled on the basis of investment profiles. The lower appellate courts decided that the exemption applied, and the Supreme Court affirmed application of the VAT exemption.

The Supreme Court qualified the assets invested in investment profiles as a special investment fund because the manner in which the assets are pooled and invested is comparable to an “undertaking for collective investment in transferable securities” (UCITS). It was further noted that the funds were also subject to specific government supervision because the manager was obliged to have a license and was under the supervision of the Netherlands Authority for Financial Markets.

KPMG observation

The Supreme Court’s decisions are expected to have major implications for asset managers and their clients because the judgments advocate a broader interpretation of the VAT exemption (when compared to the position of the Deputy Minister of Finance). Asset managers (and parties that purchase foreign asset management services) need to consider whether there is greater scope to apply the VAT exemption and then determine what refund action steps to take if there has been “wrongly paid” VAT in the past. 


In both cases, the taxpayer was an asset manager that offered an investment product under an individual asset management license. The investment product enabled investors to invest their assets in four to five investment profiles, each with a different risk profile. The choice of investment profile depended on the risk an investor was prepared to take. Each investment profile was linked to a model portfolio, which determined the composition of the investment profile. The assets of all the investors within a particular investment profile were invested in the same proportion and in the same financial instruments. Individual deviations from the investment profile were not possible. Aside from the investment and risk profile, investors had no further influence on the choice of investments.

In order to comply with an obligation for separation of assets arising pursuant to measures of the Financial Supervision Act, investors contributed their assets to a central account of a custodial institution foundation (stichting bewaarinstelling). The central account was kept at an external (custodian) bank. The custodial institution foundation was the legal beneficiary to the purchased securities and other financial instruments in the central account at the (custodian) bank. The investors then had a claim on the custodial institution foundation expressed in (fractions of) securities and other financial instruments. The value of the claim was kept via an “investor giro” account administered by the custodial institution foundation. The value of all investments in securities and financial instruments was equal to the balances of the investor giro accounts.

The taxpayers charged fees for their management services directly to the investors. These were set off against the balance of the individual investment account. At issue was whether the management services could share in the VAT exemption for the management of special investment funds.

Actions in lower courts

Both the Amsterdam and the Arnhem-Leeuwarden courts of appeal held that the VAT exemption applied. Following an appeal to the Supreme Court, the Advocate General expressed doubts as to whether there were special investment funds. In both cases, the Advocate General proposed that this issue be referred back to the lower appellate courts. With regard to the required specific state supervision, the Advocate General concluded that this condition must be met.

Thus, before the Supreme Court, the following two issues were central in both cases:

  • Can the assets of various investors pooled in the bank account of an investor giro or other securities depositary, or another pool, suffice to assume that there is a fund?
  • Can the requirement that the managed assets are under specific state supervision also be met if the manager provides its services under an individual asset management license?

Supreme Court’s decision

The Supreme Court in both cases held in the taxpayers’ favor.

With regard to the first issue, the Supreme Court confirmed that assets held in investor giro accounts qualified as a fund that is comparable with a UCITS if:

  • The assets of various investors are pooled and invested across various financial instruments.
  • By the pooling, the investor risk is spread.
  • Each investor has a proportionate stake in the investments but does not own the investments itself.

In both cases, the assets were not pooled in exchange for the issue of shares or units of participation. The investors had a claim on the custodial institution foundation in proportion to the assets invested.

Another aspect of these cases was that the asset managers that raised the money from the investors did not invest the assets themselves but left this to the custodial institution foundation. According to the Supreme Court, this did not alter the comparability with a UCITS. On this point, the Supreme Court agreed that after the investors contributed their assets, they no longer had any control over the purchase or sale of financial instruments.

According to the Advocate General, in order to be comparable to a UCITS, a fund must have a certain de facto corporate independence and, moreover, must qualify as a VAT-able person. The Supreme Court did not agree with this position.

The second issue related to the requirement of specific state supervision. The high court, in following a judgment of the Court of Justice of the European Union (the Fiscale Eenheid X case), found a fund is comparable with a UCITS if it is under specific state supervision that is comparable with the supervision applying to (the managers of) a UCITS.

The position of the Deputy Minister of Finance was that the taxpayer’s individual asset management license was not sufficiently comparable. However, the Supreme Court held that the requirement for specific state supervision had been met, and agreed with the lower court that a license for collective asset management broadly imposes requirements on an asset manager that are comparable to those imposed under a license for individual asset management, and that the differences are only in the details. The Supreme Court added that the licensing obligation system contained in the Financial Supervision Act and the supervision by the Netherlands Authority for the Financial Markets could be regarded as specific state supervision. According to the Supreme Court, the assets of a fund (not being a UCITS) are under specific state supervision if the manager has a Financial Supervision Act‑regulated license and thus is subject to supervision by the Netherlands Authority for the Financial Markets. The high court noted that for the requirement of specific state supervision, it is not necessary that the supervision focus on the assets, but it is sufficient if the manager or the fund is under the supervision of the Netherlands Authority for the Financial Markets.

KPMG observation

Tax professionals have observed that these Supreme Court decisions could have major implications for asset managers and their clients. In particular, it has been observed that the Supreme Court’s elaboration of the “fund” concept and the required specific state supervision could affect (expand) the scope of the VAT exemption for collective asset management.

These decisions by the Supreme Court are further viewed as being significant for the entire asset management market. In particular, asset managers need to consider whether there is a special investment fund and whether there may be a greater scope to apply the VAT exemption for collective asset management (which could be to a client’s advantage). The decisions are also important for parties that purchase asset management services from abroad and for which they currently report and pay reverse-charged VAT that is not (or only slightly) recoverable.

A determination whether there is expanded scope to apply the VAT exemption for collective asset management needs to be made quickly and, if appropriate, then to file a notice of objection against the payment of VAT. The deadline for submitting notices of objection may not have expired for VAT that was paid with the VAT return for the third quarter of 2020 or, if monthly VAT returns, for September and October 2020.

Read a December 2020 report prepared by the KPMG member firm in the Netherlands

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