On 2 July 2020, the Court of Justice of the European Union ("CJEU") ruled in the case C-231/19 (Blackrock Investment Management (UK) limited v. Commissioners for her Majesty's Revenue and Customs) that a single supply of management services used to manage both special investment funds and other funds, could not be VAT exempt as funds management services.
- BlackRock Investment Management (UK) Ltd ("BlackRock") provides fund management services to both special investment funds (SIFs) and other investment funds, the first of which do not represent the majority of the funds managed, either by number or by value of the assets managed.
- For the management of all its funds, BlackRock receives services (including market analysis, monitoring performance, risk assessment, monitoring regulatory compliance, etc.) from another company of the group incorporated in the United States, BlackRock Financial Management Inc. ("BFMI"). BFMI supplied those services through a software platform named Aladdin.
- Blackrock accounted for VAT under the reverse charge mechanism and considered that the VAT exemption for management services under Article 135, 1, g) of the VAT Directive1 applies to services provided in relation to both SIFs and other funds.
- The UK tax authority disagreed with this approach and issued recovery notices covering that period. BlackRock contested those notices before the First-tier Tribunal (Tax Chamber) (United Kingdom), which dismissed its action.
- Hence, BlackRock appealed against that judgment to the referring court. Before that court, BlackRock argued that, in any case, the management services in relation to special investment funds must be VAT exempt. In this respect, the value of those services could be determined according to their share of the total amount of funds managed. However, the UK tax authority took the stand that all of the services purchased by BlackRock must be taxed, since the majority of funds that that company manages are not special investment funds.
- In this context the UK court of appeal decided to stay proceedings and to refer the case to the CJEU for a preliminary ruling.
Issue at stake
Must a single fund management service purchased by BlackRock and used for two purposes be split into two parts, the first one being VAT-exempt (related to the management of SIFs) and the second one being non-VAT exempt (related to the management of non-SIFs) or should it be subject to single VAT treatment?
Ruling of the CJEU
On 2 July 2020, the CJUE concluded that the entire supply of management services purchased by BlackRock must be subject to VAT based on the following reasoning:
- The entire supply of management services provided through the platform by BFMI to BlackRock for the management of SIFs and non-SIFs must be considered as inseparable and equally important elements of a single supply so that one cannot be regarded as the principal service and the other as the ancillary service.
- The entire supply of services must be subject to single tax treatment.
- The tax treatment of the supply of services cannot be determined according to the nature of the majority of the funds managed by the company concerned.
- To benefit from the VAT exemption laid down in Article 135(1) of the VAT Directive, services provided by a third-party manager must, viewed broadly, form a distinct whole fulfilling in effect the specific, essential functions of the management of special investment funds. However, it results from the case at hand that the service provided by BFMI may be used in the same way for the management of special investment funds as for the management of other funds.
The Blackrock case will affect Luxembourg investment fund managers where they receive an entire supply of management services related to funds eligible for the VAT exemption under Article 44, 1. d) of the Luxembourg VAT Law2 as well as funds not eligible from such exemption.
1. Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax.
2. Law of 12 February 1979 on VAT.
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