GfBk Gesellschaft fur Borsenkommunikation mbH v Finanzamt Bayreuth (Case C-275/11)
The Advocate General has given his opinion that investment advice provided to an investment fund management company could be defined as ‘management’ and therefore benefit from a VAT exemption contained within Article 13B of the Sixth VAT Directive (77/388/EEC).
Article 13B of Directive 77/388/EEC (‘the Sixth VAT Directive’) provides for a number of exemptions from VAT, including for ‘the management of special investment funds’ (Article 13B(d)(6)).
This was put into place in the UK in the Value Added Tax Act 1994 and applies to open-ended investment companies, investment trust companies and authorised unit trusts.
The Advocate General was asked in Case C-275/11 if advisory services provided to a fund manager by a third party constituted an activity of management and therefore if the services benefited from the VAT exemption provided in the Sixth VAT Directive.
GfBk is a German undertaking which provided information and advice relating to the stock market and advice and marketing in connection with financial assets.
In 1999, the services of GfBk were engaged by an investment fund management company (‘the IMC’) to advise ‘in the management of the fund’ and ‘constantly to monitor the fund and to make recommendations for the purchase or sale of fund assets’. GfBk’s remuneration was calculated as a percentage of the value of the special investment fund.
From 1999 to 2002, GfBk made recommendations concerning the purchase and sale of securities to the IMC. GfBk did not issue detailed reports but rather specific recommendations. These recommendations were analysed and verified to ensure that statutory limits were not breached. If all was in order, the IMC would implement the recommendations, often instantaneously.
The German tax authorities took the view that the services provided by GfBk did not constitute the ‘management of special investment funds’ within the meaning of Article 13B(d)(6) of the Sixth VAT Directive. GfBk appealed until it exhausted the legal process before the Federal Finance Court, the court of last resort for tax matters in Germany, which referred the question to the European Court of Justice for a preliminary ruling.
The Advocate General’s Opinion
The Advocate General (‘the AG’) drew on the test used in the case of Abbey National plc and Inscape Investment Fund v Commissioners of Customs & Excise (Case C-169/04) (‘the Abbey case’) which in turn had relied on earlier case-law relating to Article 13B(d) of the Sixth VAT Directive, that services provided by the third-party manager ‘must, viewed broadly, form a distinct whole, and be specific to and essential for the management of the fund’. The AG referred to a number of criteria to establish this:
- that the service provided by the third party is intrinsically connected to the service provided by the management or investment company
- that there is a significant degree of autonomy of the service – that it is not one already performed by the recipient of the service
- that the outsourced service is continuous or, at least, foreseeable over time – it did not have to be linear in time, but the outsourcing should be an operational choice with a degree of stability.
It was not relevant whether the outsourced service brings about a change in the legal or economic situation of the company which receives it. There must simply be an outsourcing in substantive terms of the activity of management.
The AG concluded that advisory and information services provided by a third party relating to the management of a fund, or to the purchase and sale of assets, were clearly an activity specific to a special investment fund and distinct in nature, so as to constitute an activity of ‘management’ within the exemption in Article 13B(d)(6), subject to the national court finding that the service is autonomous and continuous, provided exclusively by GfBk, or also by other third parties, on a permanent basis over time. He rejected counter arguments based on alleged incompatibility with a presumed principle of ‘horizontal’ fiscal neutrality and as to the effect of alleged delegation of the service to GfBk without authorisation.
This is, of course, the opinion of the AG and is yet to be ratified by the ECJ. However, it is consistent with the Abbey case and other case-law and demonstrates a wide approach to the VAT exemptions in the Sixth VAT Directive.