Background
BlackRock Investment Management (UK) Ltd ("BlackRock")
was a company responsible for the management of funds: mainly
non-special investment funds ("non-SIFs"), but also
special investment funds ("SIFs"). In this context,
BlackRock used the services of BlackRock Financial Management Inc.
in the US ("BFMI") through an IT platform. These services
spanned the entire investment cycle (performance and risk analysis
as well as monitoring to enable the portfolio managers to make
investment and trading decisions, alongside the monitoring of
regulatory compliance). UK VAT was self-assessed on the full
remuneration paid to BFMI.
As a portion of the services received from BFMI went to manage
SIFs, BlackRock claimed the application of the VAT exemption for
that portion of the services, requesting a corresponding VAT
refund. After being rejected by the UK tax authorities, the case
was brought before the CJEU, raising the issue that a single
service having a dual use would imply two different VAT
treatments.
CJEU judgment
To put the ruling in context, note that the CJEU follows the
approach of the Advocate General ("AG") held in its
Opinion dated 11 March 2020 regarding the notion of a single
supply, and confirms that the relevant supply of services via the
software platform (constituted by the combined use of various
functions of the platform) must be seen "as forming a single
indivisible economic supply".
As regards the VAT treatment applicable to such single supply, the
CJEU held that a single supply must necessarily be subject to one
and the same VAT treatment.
In this respect, the CJEU stated that the decision of whether to
apply the specific VAT exemption provision for fund management must
be based solely on the nature of the services supplied (and not on
their uses, or on the nature of the majority of the managed funds).
Furthermore, based on settled case law, the CJEU recalled that in
order to be VAT-exempt, "the 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 SIFs". It stated that this condition is not met
in the case at hand because the software services may be used in
the same way for the management of SIFs and non-SIFs.
The CJEU has thus concluded that the services provided by BFMI via
the software platform for SIFs and non-SIFs constitute a single
service for VAT purposes, and one which does not benefit from the
VAT exemption for investment fund management services.
As this outcome may have a direct impact on Luxembourg fund
managers and their relations with third-party suppliers, it is
advisable to review existing structuring in light of the above
judgment.
The Arendt VAT team remains at your disposal should you require any
further information in this respect.
Originally published 06/07/2020.
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.