On 25 November 2016, the Dutch Supreme Court delivered its final judgment in the EU VAT case Fiscale Eenheid X. This judgment is of importance for the application of the EU VAT exemption for the management of special investment funds. Please find below our first observations.

Requirement of specific State supervision

In its Fiscale Eenheid X judgment from 9 December 2015, the European Court of Justice decided that the VAT exemption for the management of special investment funds can only apply to management services rendered to:

• funds which constitute undertakings for collective investment in transferable securities within the meaning of the undertakings for collective investment in transferable securities directive (the UCITS Directive)

• funds which, without being collective investment undertakings within the meaning of that directive, display features that are sufficiently comparable for them to be in competition with such undertakings - in particular that they are subject to specific State supervision under national law The requirement of specific State supervision was a new requirement and the ECJ did not elaborate on the meaning of this concept. In its judgment of 25 November 2016, the Dutch Supreme Court elaborates on the application of this concept in the proceedings in question.

Judgment of the Dutch Supreme Court

According to the Dutch Supreme Court, specific State supervision refers to supervision under national law that should be comparable to supervision on the basis of the UCITS Directive. The Dutch Supreme Court considers that the supervision under the regulatory framework applicable in the Netherlands in 1996 (the period at issue in the case of Fiscale Eenheid X), ie, the Wet toezicht beleggingsinstellingen (Investment Institutions Supervision Act), is comparable to supervision on the basis of the UCITS Directive. The Dutch Supreme Court decides that the requirement of specific State supervision is in principle met if either the fund manager or the fund itself was licensed under the Wet toezicht beleggingsinstellingen and if either was administered in the register of the Dutch regulator. On the other hand, the requirement of specific state supervision is not met if the fund manager or the managed fund fall inside the Wet toezicht beleggingsinstellingen, but are excluded from the requirement to obtain a license.

Observations

The Wet toezicht beleggingsinstellingen is no longer in force and has been replaced by the Wet financieel toezicht (Financial Supervision Act) in 2007. Although the Dutch Supreme Court did not elaborate on this, in our view the Dutch Wet financieel toezicht is comparable to the supervision under the UCITS Directive in the same way as the Wet toezicht beleggingsinstellingen. By analogy, in our view the requirement of specific state supervision should be met if either the fund manager or the managed fund are licensed to operate as such in the Netherlands under the Wet financieel toezicht and are registered by the Dutch regulator in the DNB or AFM register. This may, however, not be the case if the fund manager or the fund is exempted from obtaining such a license or is under a light supervisory regime. The ruling does not specifically address whether besides UCITS supervision, supervision under the Alternative Investment Fund Managers Directive (AIFMD) or other EU directives such as the Markets in Financial Instruments Directive (MiFID) can be seen as specific State supervision. However, the Advocate-General of the Dutch Supreme Court did consider this and concluded that supervision based on the AIFMD constitutes specific State supervision. Further, it is our view that the requirement of specific state supervision is met if the fund manager or the fund is licensed in another EU member state and registered as such in the Netherlands under the passporting regime, or if the fund manager is established and subject to comparable supervision outside the EU.

Conclusion and recommendations The judgment of the Dutch Supreme Court sheds a first light on the application of the VAT exemption for the management of special investment funds in the Netherlands after the Fiscale Eenheid X judgment. Investment funds and fund managers may have to re-assess whether investment management services are VAT taxable or VAT exempt after this judgment. In many cases, this may not be a straightforward assessment because such managers and funds operate in a cross-border context where countries have their own complex regulatory frameworks and it is not always clear whether a specific type of national supervision will qualify as specific state supervision in the meaning of the Fiscale Eenheid X judgment. Of course, our VAT and regulatory experts would be happy to assist in that regard. This VAT Alert has been prepared for general information purposes only. The information presented is not legal advice, is not to be acted on as such, and may be subject to change without notice.