The Court of Justice of the European Union delivered its judgment in Case C-595/13 Staatssecretaris van Financiën v Fiscale Eenheid X NV cs on 9 December 2015.
This is yet another case on the meaning of the VAT exemption which applies to the management of special investment funds. The Court has confirmed that the actual day to day management of the property held in property funds is subject to VAT. The judgment also gives some useful further guidance on the meaning of a special investment fund and what “management” in this context means.
What is a special investment fund?
The Court has stated that, for the purposes of the VAT exemption, a special investment fund can be composed of either transferable securities or immovable property, which confirms the approach taken in the UK. The Court has reiterated that the key to the VAT exemption connected with special investment funds remains the pooling of assets by several investors who bear the investment risk in a fund which is State regulated.
What is management?
The Court then looked at the nature of “management” of a special investment fund. It repeated that management services must, viewed broadly, form a distinct whole and be specific to, and essential for the management of a special investment fund. The Court went on to say that “management” included not only investment management involving the selection and disposal of assets, but also administration and accounting tasks. However, the Court confirmed that the “actual management of properties” is not covered by the VAT exemption.
Where does this take us?
This case adds more clarity to the scope of the VAT exemption on the management of special investment funds, and it may lead some in the fund sectors to reappraise the application of VAT. In relation to the day to day management of property this case confirms that this service is subject to VAT. This is generally going to be welcome news for property funds which hold commercial property and so can recover the VAT, but for residential funds the day to day management will remain a VAT cost, as the letting of these properties is VAT exempt.