On 20 May 2015, Advocate-General Kokott ("A-G") of the Court of Justice of the EU delivered her conclusion in the Fiscale Eenheid X case. This case revolves around the questions whether the VAT exemption for management of special investment funds should also apply to property management of real estate that is held by companies that solely invest in real estate.
Facts and background
Fiscale Eenheid X ("X") is a pension administrator and an investment manager. X manages three companies that invest their capital in real estate located in the Netherlands and Germany. This includes acting as the statutory director of the companies, looking for investors and carrying out the day-to-day exploitation with regard to the real estate such as searching for suitable tenants and carrying out maintenance work. X did not charge VAT to the real estate companies as it took the position that such services are covered by the VAT exemption for the management of special investment funds. The Dutch Tax Authorities, however, took the position that the day-to-day exploitation of the immovable property is not covered by the VAT exemption.
The Dutch Supreme Court referred the matter to the CJEU and asked firstly whether the real estate companies such as in the proceedings can qualify as a “special investment fund” and, secondly, whether the day-to-day exploitation of the immovable property can qualify as “management” in the meaning of the VAT exemption.
Can a company that solely invests in real estate qualify as a “special investment fund”?
With regard to the first question, the A-G takes the view that in order to qualify as a "special investment fund", that fund needs to be subject to regulatory supervision in its country. This is a new requirement that was not mentioned earlier by the CJEU. The A-G further continues that for the application of the VAT exemption, it should not be decisive what the nature of the assets is in which the fund invest. The aim of an investment fund is making the invested capital profitable. This can also be accomplished by investing in real estate. Therefore, a company that solely invests in real estate can –in the view of the A-G – in principle qualify as a “special investment fund” in the meaning of the VAT exemption.
Can day-to-day exploitation of real estate qualify as “management”?
With regard to the second question, the A-G considers that the goal of managing a special investment fund is to maintain and increase the value of the assets. She further considers that the way to make an asset profitable depends on the nature of the asset. In that regard, the mere possession of real estate will not make the investment profitable. If real estate is to be made profitable, it is necessary to exploit the immovable property by searching for lessees and carrying out maintenance. Therefore, in the view of the A-G, the actual day-to-day exploitation of real estate can qualify as “management” in the meaning of the VAT exemption.
The CJEU’s judgment
Although the CJEU is not bound by the A-G’s opinion, the A-G’s opinion is an important advice for the CJEU to consider. If the CJEU follows the A-G’s opinion, it will be clear that the VAT exemption for the management of special investment funds will also cover property management. We expect the CJEU's judgment to be delivered in the end of 2015.