The Court of Justice of the European Union (the
"CJEU") delivered its decision in the
Fiscale Eenheid X (C-595/13) case on 9 December 2015. The
case relates to the VAT exemption applied to investment management
services supplied to special investment funds.
The decision in this case is of particular interest and relevance
to Irish special investment funds that invest in real estate and
considered two questions:
- whether funds which invest solely in real estate may qualify as special investment funds (in which case the supply of investment management services to such funds should be exempt from VAT). The CJEU confirmed this was the case;
- whether the investment management services provided (which included the actual day to day management of real estate) qualified as exempt investment management services. The CJEU concluded that the exemption did not extend to day to day property management services. This conclusion is in keeping with the treatment applied to such services in Ireland to date.
Background
The case was brought by a Dutch fund manager that provided its
services to several Dutch real estate funds. The manager provided
assistance to the funds in all aspects of their investments
including the purchase, rental and sale of real estate. The manager
also carried out the day to day maintenance and management of the
properties owned by the funds. The manager considered that its
services came within the scope of the investment management
exemption and therefore did not account for VAT on its services to
the Dutch funds.
The Dutch tax authorities unsuccessfully challenged the treatment
in the Dutch courts and ultimately the two questions set out above
were referred to the CJEU for determination.
Management Services to Real Estate Funds – VAT
Exempt?
The CJEU was asked whether those funds which invest solely in real
estate qualified as special investment funds, in which case the
supply of investment management services to such funds should be
exempt from VAT. The CJEU confirmed that the assets which a fund
invested in were not relevant to whether the fund was a special
investment fund, with various other criteria being more relevant to
determining the scope of an EU Member State's discretion to
specify different funds for the purposes of the exemption.
Based upon the above, the CJEU confirmed that a fund which invests
solely in real estate may qualify. This decision will be welcomed
by Irish funds of the types specified in Irish VAT legislation
which are invested solely in real estate as it confirms their
current entitlement to receive investment management services
exempt from VAT.
Property Management Services – VAT
Exempt?
The CJEU was also asked whether the investment management services,
including the actual day to day property management of the real
estate, qualified as exempt investment management services. The
CJEU concluded that actual management of real estate did not
qualify as investment management services which fall within the
exemption.
As a result, such property management services will remain subject
to VAT and the property manager will continue to be entitled to
recover VAT incurred in providing such services, including for
example, on building services purchased to develop the real estate.
The fund may recover such VAT charged to it on day to day
activities provided its letting activity is subject to VAT. This is
in keeping with the treatment applied in Ireland to such services
to date.
Conclusion
The decision of the CJEU in Fiscale Eenheid X is specific
to the arrangements agreed by the Dutch funds and fund manager. No
changes to Irish legislation are required as it confirms the Irish
VAT position that has historically applied to Irish real estate
funds.
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.