On March 7th 2013, the ECJ ruled that the advisory services concerning investment in transferable securities provided by a third party to an investment management company which is the manager of a special investment fund benefit from the VAT exemption as laid down in Article 135 (1) (g) of the VAT Directive.
In the case at hand, a German advisory company ("GfBk") entered into a service agreement with the management company of an investment fund. The services rendered by GfBk consisted of advice in the management of the investment fund and recommendations on the purchase and sale of transferrable securities based on a continuous analysis of the situation of the fund.
The ECJ referred to the Abbey National case law to say that outsourced management services fall, in principle, within the scope of the VAT exemption since the management of a special investment fund is defined according to the nature of the services provided and not according to the person supplying or receiving the service. However, in order to be regarded as exempt transactions for the purpose of VAT, management services provided by a third-party manager must, viewed broadly, form a distinct whole and be specific to, and essential for, the management of special investment funds.
In order to determine whether advisory services rendered to an investment management company fall within the scope of the VAT exemption, it is necessary to examine whether the advisory service provided by a third party is intrinsically connected to the activity of an investment management company, so that it has the effect of performing the specific and essential functions of management of a special investment fund.
Services consisting in recommendations to an investment management company to purchase and sell assets are intrinsically connected to the activity of the investment management company which consists in the collective investment in transferable securities of capital raised from the public. The fact that advisory and information services are not listed in Annex II to Directive 85/611 as amended by Directive 2011/107 does not preclude their inclusion in the category of specific services falling within activities for management of special investment fund within the meaning of the VAT Directive since this list not exhaustive.
This judgment is in line with the conclusions of the opinion of the advocate general (see our newsletter of September 2012) and confirms the Luxembourg practice.
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