The Dutch Supreme Court (Hoge Raad der Nederlanden) decided on 25 November 2016 that the VAT exemption for the management of real estate investment funds is applicable only if the (manager of the) relevant investment institutions is actually subject to supervision / licensing requirements (as referred to in the then applicable Investment Institutions Supervision Act - in Dutch: Wet toezicht beleggingsinstellingen, "WTB"). The decision in in line with a recent judgment rendered by the Court of Justice of the European Union ("ECJ") on the matter.

According to the ECJ, funds are only considered special investment funds (the management of which is exempt from VAT) if the applicable national law provides for "specific State supervision". In line with the ECJ, the Dutch Supreme Court decided that the supervision as provided in the WTB (which was applicable at the time of the facts) can be considered as "specific State supervision". Investment institutions falling under the scope of WTB would in principle benefit from the VAT exemption. As of 1 January 2007 the WTB was replaced by the Dutch Financial Supervision Act (in Dutch: Wet op het financieel toezicht, "WFT"). Investment institutions that are subject to supervision under the WFT should in principle be able to benefit from the VAT exemption. This means that investment institutions that are licensed (or have a manager that is licensed) by the Netherlands Authority for the Financial Markets ("AFM") will be able to benefit from the VAT exemption. It follows from the Dutch Supreme Court decision that if a Dutch investment institution is not licensed nor managed by a licensed manager, but is only registered as an exempt institution or manager, it cannot benefit from the VAT exemption.

The decision seems to have narrowed the application in the Netherlands of the VAT exemption for the management of investment funds. Funds and managers currently operating in the Netherlands may have to review their VAT position. Management activities provided to funds that are expressively exempt from licensing and registering requirements may be subject to Dutch VAT. This could lead to an actual cost increase at the level of the funds, if such funds are not able to fully of partly deduct the input VAT charged by the manager.