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Netherlands: VAT exemption available, individuals’ investment management for pooled funds

Netherlands: VAT exemption available

The Court of Appeal in Amsterdam rendered a judgment in a case concerning a value added tax (VAT) exemption for the management of special investment funds. The court held that the VAT exemption (available with respect to the management of a collective investment) can also apply to products offered under a license for individuals’ investment management when the individuals’ assets are pooled.

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Background

In earlier judgments, two district courts held that the VAT exemption for the management of a special investment fund does not apply to services provided under a license for individuals’ investment management. The courts found that the assets of individual investors were insufficiently pooled in order to qualify for the VAT exemption. Based on EU case law, the VAT exemption for the management of a special investment fund, in principle, only applies to the management of undertakings for collective investment in transferable securities (UCITS) and to funds that are sufficiently comparable to UCITS. The courts thus held that the subject products on offer did not qualify as such.

Court of Appeal decision

According to the Court of Appeal in Amsterdam, an investment manager providing services under an individual’s investment management license can be sufficiently comparable to a UCITS for the purposes of the VAT exemption. Among the relevant factors are:

  • The assets of investors are bundled together in a central account owned by a Dutch legal person
  • An investor must choose a risk profile (there were five in total) and all assets were managed based on that risk profile. There was no room for individual arrangements within the chosen risk profile; an investor could only choose to enter or exit the risk profile.
  • All investors pay the same fee for investment management services.

Another requirement for the VAT exemption for the management of special investment funds is that there must be a regulatory body that monitors the investments. The Court of Appeal stated that this requirement does not necessarily need to be monitored as a collective investment, but that monitoring the individuals’ manager would also be sufficient to qualify for the exemption, as the regulatory requirements that must be complied with are comparable for both.

KPMG observation

The Court of Appeal judgment appears to have broadened the scope of the VAT exemption for the management of special investment funds. The Dutch government is currently working on a policy document that would be expected to define the type of funds that can claim the VAT exemption.

It remains to be seen whether this policy document would be amended to reflect the fact that individual asset managers can also qualify for the VAT exemption under certain circumstances. It remains to be seen whether this court judgment would be upheld by the Dutch Supreme Court. In the meantime, investment managers who could benefit from the exemption need to consider using this judgment in their discussions with the Dutch tax authorities.

 

Read a December 2018 report prepared by the KPMG member firm in the Netherlands

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