Germany: ECJ Decision Dated 7 March 2013 Regarding VAT Exemption Of Advisory Services For Investment Funds

In its decision dated 7 March 2013, the European Court of Justice ("ECJ") held that advisory services concerning investment activities of an investment fund, provided by a third party advisor to the management company of the fund, fall within the VAT exemption for the management of investment funds. This applies irrespective of whether the advisor is subject to regulation or oversight by a supervisory authority.

The decision specifies and gradually extends the principles regarding the scope of the VAT exemption for outsourced management of investment funds, as set forth in the ECJ decision "Abbey National" (see I. below).

The ECJ decision will have a significant practical impact on private equity funds and other alternative funds. It might give rise to new structural alternatives, in particular for time periods following the transposition of the AIFMD into national law (see II. below).

I. Details of the Decision

1. Question Referred for Preliminary Ruling

The ECJ made the judgment dated 7 March 2013 in answer to a question for a preliminary ruling referred to it by the German Federal Fiscal Court ("BFH"; resolution dated 5 May 2011). The BFH asked whether and under what conditions advisory services provided by a third party to an investment management company (IMC) concerning investment in transferable securities fall within the concept of "management of special investment funds" for purposes of the VAT exemption pursuant to art. 13B(d)(6) of the Directive 77/388/EWG or art. 135(1)(g) of the amended Directive 2006/112/EG (collectively: "VAT Directive").

In the case at hand, the BFH had doubts as to whether services rendered by a third party service provider fulfilled the criteria developed by the ECJ in the Abbey National decision (C-169/04). According to this decision, the VAT exemption covers services performed by a third-party manager in respect of the administrative management of the funds, if, viewed broadly, they form a distinct whole, and are specific to, and essential for, the management of those funds.

2. Facts

A German IMC entered into a service agreement with a consultancy firm. The consultancy firm undertook to provide advice relating to the management of a German investment fund (Sondervermögen) by the IMC and to make recommendations for the purchase and sale of assets, taking into considerations the investment policies and investment restrictions of the investment fund. After checking that the recommendations received from the consultancy firm did not infringe any relevant investment restrictions, the IMC implemented them. The final decision and final responsibility continued to lie with the IMC.

3. Line of Argumentation

The ECJ disagreed with the arguments brought forward by the BFH and clarified, inter alia, the following:

Management services provided by a third party manager" fall, in principle, under the concept of the management of investment funds pursuant to the VAT Directive.

Services consisting in giving recommendations to an IMC to purchase and sell assets are intrinsically connected to the activity characteristic of the IMC. The fact that the final decision and final responsibility for implementing the investment recommendations continues to lie with the IMC (i.e. that advisory and information services provided by a third party do not alter the fund's legal and financial position) does not preclude the application of the VAT exemption to such services.

Finally, the VAT exemption for outsourced advisory services is to be applied irrespective of whether the advisor is registered or authorized for the purpose of asset management.

II. Impact of the Decision

1. German Investment Funds

Under German national law, only the management of investment funds (Investmentvermögen) within the meaning of the German Investment Act (Investmentgesetz), i.e. contractual-type investment funds and investment stock corporations, is exempt from VAT; § 4 no. 8 lit. h German VAT Act (UStG). As a consequence, the management of German private equity funds is subject to VAT.

But even with respect to investment funds within the meaning of the German Investment Act, the German tax authorities take a restrictive approach and grant the VAT exemption with respect to outsourced investment services only where the entire fund administration is outsourced to the same service provider. In our judgment this position is inconsistent with the recent ECJ decision.

2. Non-German Private Equity Funds

Unlike Germany, most EU member states apply the VAT exemption for the management of investment funds also with respect to alternative investment funds ("AIF"), such as private equity funds. Thus, services relating to the management of, for instance, private equity funds organized under Luxembourg law (SICARs or SICAF-SIF) are exempt from (Luxembourg) VAT.

The recent ECJ decision confirms that advisory services rendered by fund advisors located in Germany to, for instance, a Luxembourg private equity fund (or its management) are VAT exempt, subject to certain requirements.

3. New Regulatory Framework (AIFMD)

The Directive 2011/61/EU on Alternative Investment Fund Managers ("AIFMD") and the German Capital Investment Act (Kapitalanlagegesetzbuch; "KAGB"; entry into effect as of 22 July 2013) provide that alternative investment fund managers ("AIFM") must perform at least portfolio management and risk management functions. While it is generally possible to delegate one of these two functions to a third-party service provider, such service provider must itself be authorized or registered for the purpose of asset management and subject to supervision or such delegation is subject to prior approval by the competent regulatory authority of the home Member State of the AIFM.

Based on the ECJ decision dated 7 March 2013 and subject to a thorough case-by-case analysis, it should be possible for an AIFM to obtain from an advisor advisory services, which do not trigger the application of the AIFMD with respect to the advisor, but are nevertheless VAT exempt.

III. Prospects

The recent ECJ decision adds to the stability of the law and might provide for new structural alternatives. Therefore, it is to be welcomed.

However, the German national legal framework with respect to the management of German private equity funds remains problematic. The fact that the concept of the VAT exempt management of investment funds is limited to funds as defined under the German Investment Act (as opposed to AIFs) violates, in our judgment, EU law. This inappropriate discrimination of AIFs against certain eligible investment funds will presumable not be corrected in the context of the German Act on the Adaption of Investment Fund Taxation in Connection with the AIFM Directive (cf. our client information dated 12 December 2012 and 31 January 2013).

The situation could be remedied by change to EU law: Changes to the VAT treatment of insurance and financial services have been discussed on EU level for quite some time already. Further developments of these discussions are, however, difficult to predict at the moment.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Mondaq Advice Centre (MACs)
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.