Court of Justice of the European Union

Judgment of 7 March 2013 (Case C-275/11)

«Taxation – Value Added Tax – Directive 77/388/EEC – Exemption of special investment funds – Scope»

In this judgment, the Court of Justice of the European Union, following a reference for a preliminary ruling, was requested to rule on the interpretation of the concept of “management of special investment funds” for the purposes of the exemption provided for in article 13B(d)(6) of the Sixth Council Directive 77/388/EEC, that is, the exemption from Value Added Tax ( “VAT”).

The question was whether advisory services concerning investment in securities, provided by a third party to an Investment Management Company, fall within the concept referred to above.

The Court of Justice argued that the fact that the services were provided by a third manager was without prejudice to the application of the above-mentioned legal provision, since the management of special investment funds is defined according to the nature of the services provided and not according to the person supplying the service.

On the other hand, the court considered that those advisory services are intrinsically connected to the activity characteristic of an investment management company, so that they have the effect of performing the specific and essential functions of management of a special investment fund.

Moreover, the court sustains that the inclusion of advisory and information services in the category of specific services falling within the concept of “management of special investment funds” for the purposes of article 13B(d)(6) of the Sixth Directive 77/388/EEC does not breach the principle of fiscal neutrality on the ground that advisory services provided to natural or legal persons who invest their money in securities directly are subject to VAT, while advisory services provided to persons who invest in securities by means of collective investment undertakings are exempt from that tax.

Finally, in accordance with the Court of Justice, the absence of a mandate is not an impediment to include advisory and information services provided by an external advisor in the category of specific services covered by activities for management of a special investment fund within the meaning of article 13 referred to above.

Accordingly, the Court concluded that the concept of “management of special investment funds” covers advisory services concerning investment in securities provided by a third party to an investment management company, even if the third party has not acted on the basis of a mandate within the meaning of article 5-G of Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in securities, as amended by Directive 2001/107/EC of the European Parliament and of the Council of 21 January 2002.

Court of Justice of the European Union

Judgment of 7 March 2013 (Case C-424/11)

«Value Added Tax – Directive 77/388/EEC – Exemption of the management of special investment funds – Scope – Occupational retirement pension schemes »

In this case, the Court of Justice of the European Union ruled on the interpretation of the concept “special investment fund” set out in article 13B(d)(6) of the Sixth Council Directive 77/388/EEC of 17 May 1977 and of article 135(1)(g) of Council Directive 2006/112/EC of 28 November 2006.

Therefore the preliminary question in this case relates to whether and under what conditions assets of a retirement pension scheme, and the investment fund in which they are pooled are a “special investment fund” within the meaning of article 13(B)(d)(6) of the Sixth Directive and of article 135(1)(g) of Directive 2006/112.

Having regard to the concept set out in those provisions, together with the principle of fiscal neutrality, the management of a special investment fund may be exempt from VAT, inasmuch as the income of private investors that place their assets in a collective investment scheme depends on the performance of the investments by the scheme’s manager over the period for which those persons held the units, those investors bearing the risk arising from the management.

By contrast, the persons member of an investment fund pooling the assets of a retirement pension scheme, do not bear the risks arising from the management of that fund, and the contributions paid by the employer are a means by which he complies with his legal obligations towards his employees.

Accordingly, the court concluded that an investment fund pooling assets of a retirement pension scheme does not fall within the concept of «special investment fund » set out in article 13(B)(d)(6) of the Sixth Council Directive 77/388/EEC of 17 May 1977 and article 135(1)(g) of Council Directive 2006/112/EC of 28 November 2006.