On 25 June 2013, HMRC published Brief 11/13 modifying the VAT treatment of certain supplies made by portfolio investment managers. The Brief follows the judgment of the Court of Justice of the European Union (CJEU) in Finanzamt Frankfurt am Main V-Hochst v Deutsche Bank AG 2.
Before the CJEU judgment, the supplies made by portfolio investment managers would usually be divided, for UK VAT purposes, into exempt supplies, for example the physical sale and purchase of shares within the portfolio, and taxable supplies: the analysis, monitoring and management of the portfolio. The Brief states that following the CJEU judgment, the services provided by portfolio managers are to be treated as a single supply for VAT purposes where the managers charge flat fees on an annual, or other periodic basis, and there is no direct link to the transactions being executed. The supply will be subject to VAT. If separate fees are invoiced and charged for selling and purchasing shares on a transaction by transaction basis (for example, per transaction or per investment), the fees will continue to be treated as consideration for exempt supplies. Portfolio managers who wish to continue to make VAT exempt supplies of execution services will need to ensure that their contractual and invoicing arrangements comply with this guidance.
The Brief differentiates portfolio management services from other financial advisory services because portfolio management services carry an ongoing commitment to monitor an individual client’s portfolio. The Brief also differentiates investment fund management services (involving pooled investments within a fund structure), where VAT exemption depends on the nature of the fund.
The revised VAT treatment will apply from 1 December 2013.
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