Following two preliminary references from Austrian courts, the European Court of Justice (“ECJ”) ruled in a judgment handed down on 17 June 2021 that certain tax services and the granting of a license for risk-management software may fall within the VAT exemption for the management of special investment funds, if these services form a distinct whole, and are specific to, and essential for, the management of special investment funds.
In the first case K (C-58/20), an investment management company, which managed a mutual fund (fonds commun de placement) had outsourced to a third party the task of calculating and preparing certain tax information for unitholders. The investment management company remained the tax representative of the mutual fund and filed the relevant tax information with the tax authority, based on the work of the third party.
In the second case DBKAG (C-59/20), a third party was contracted by an investment management company to provide risk management software to a mutual fund. This software was specifically adapted to investment funds and to the complex regulatory environment but required significant input from the investment management company.
First of all, the ECJ held that the requirement that a service be “distinct” did not require the service in question to be outsourced in its entirety. The fact that the management company still performed some tasks or retained some responsibility related to the outsourced service did not preclude the application of the VAT exemption.
On whether the services in question were specific to and essential for the management of investment funds, the ECJ restated that administrative or legal services, including tax compliance services, may fall within the scope of exempt services. However, the ECJ added that services, which are not specific to the activity of a mutual fund, but are simply inherent to any type of investment activity, should be excluded from the scope of the exemption.
While the ECJ did not reach a final determination on the facts of the cases, it noted that the national court should verify whether the tax services fulfilled the specific and distinct tax obligations applicable to mutual funds according to Austrian law. Regarding the grant of a software license, the national court should verify whether the software was essential for the investment management company to perform its risk management functions as prescribed by Austrian law.
While these cases offer some welcome clarifications, a case-by-case analysis will nevertheless remain necessary to determine whether services fall within the VAT exemption for investment management services.
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