Dutch Supreme Court clarifies scope VAT exemption for management special investment funds has been saved
Dutch Supreme Court clarifies scope VAT exemption for management special investment funds
On December 4, 2020 the Dutch Supreme Court ruled in two cases on the scope of the VAT exemption for management of Special Investment Funds.
11 December 2020
In our view, the outcome of these cases has broad implications across the spectrum of the asset management practice.
In both cases, it was disputed whether the VAT exemption for management of Special Investment Funds (“SIFs”) can also apply to asset management services when the money of investors is deposited into a central investor bank account (in Dutch: “beleggersgiro”) of a custodial foundation.
The Supreme Court ruled that this VAT exemption is indeed applicable in this case. Furthermore, the Supreme Court concluded that the ‘specific state supervision’ conditions were fulfilled.
The question at hand is whether this asset management product, rendered under a regulatory license for individual asset management, falls under the scope of the VAT exemption for management of SIFs. This applies in any event to an undertaking for collective investment in transferable securities (“UCITS”) and other funds that have the same characteristics. Additionally, the fund should be effectively subject to specific state supervision.
Supreme Court judgment
The Supreme Court ruled that assets held in the central investor bank accounts meet the essential characteristics of a collective investment fund. In its judgment, the Supreme Court did not follow the Opinion of Advocate General (“AG”) Ettema and approves of the rulings of the Amsterdam and Arnhem-Leeuwarden Courts of Appeal.
In answering the question of whether the assets of several beneficiaries are pooled, the Supreme Court has assessed this in the light of the conditions set by the CJEU in its judgments in Deutsche Bank, Wheels and ATP. According to the Supreme Court, this assessment means that the method in which assets are collected and the financial instruments held by the investor central bank account complies with the essential characteristics of a SIF. The fact that the asset manager does not invest the funds himself is irrelevant. The Supreme Court - rightly in our view - did not consider the condition formulated by the AG that the assets must be pooled in a fund that qualifies as a taxable person for VAT purposes.
With regard to the requirement of specific state supervision, the Supreme Court ruled that for the application of the VAT exemption it is not necessary that supervision directly applies to the assets managed. It is sufficient that the manager (or the fund) is subject to supervision by the Dutch regulator, the Authority for the Financial Markets (“AFM”). The requirement of being subject to specific state supervision has therefore also been met if the services are provided by the asset manager under a license for individual asset management.
Impact on Dutch practice
Although the application of the VAT exemption for management of SIFs remains a very factual matter, in our view this case could have far-reaching consequences across the spectrum of asset management practice.
The view of the Supreme Court on the application of specific state supervision deviates on certain points from the current interpretation of this concept in the Dutch Decree on specific state supervision. This document explicitly states that there is no specific state supervision when there is a license for individual asset management (for example on the basis of a banking license). In our view, the ruling of the Supreme Court also offers possibilities to argue that the management of securitization vehicles and other exempt investment institutions are exempt from VAT.
We recommend to analyze Dutch investment products and their VAT treatment based on this judgment of the Supreme Court. Considering the involvement of Deloitte Indirect Tax in these proceedings, we are happy to provide further background in this respect.
Should you have any questions as regards the above, please contact your VAT advisor.