Dear FS Tax professional,
As indicated in our last FS Tax newsletter, we hereby provide you with a separate FS Indirect Tax Newsletter. Also, in the FS Indirect Tax arena there is a number of interesting and challenging topics. This includes the high profile Skandia America Corporation case, in which the European Advocate General recently delivered his opinion. This case may substantially impact FS institutions operating on a cross-border basis.
Many of the opportunities and current developments in the FS Indirect Tax area were discussed during our annual Dutch FS VAT seminar, which recently took place. We were delighted with the high number of attendees who represented all areas of the Dutch financial services and insurance sector. Topics included the impact of the ATP judgment to the pension sector, ways and opportunities to calculate recoverable input VAT, and do’s and don’ts during a VAT audit.
We hope that you continue to find the contents of this newsletter useful and we encourage you to provide feedback to our FS Tax professionals or to your own contact person at KPMG Meijburg & Co.
Gert-Jan van Norden
Partner, Financial Services Indirect Tax
Table of Contents
- 1. EU Advocate General issues Opinion on charges between a head office and a fixed establishment that is part of a VAT group (Case C-7/13)
- 2. PPG Holdings before the Court of Appeals: taxpayer allowed to recover input VAT on investment management services purchased for its corporate pension fund
- 3. Leasing of a Multilateral Trading Facility subject to VAT
- 4. Decision Dutch District Court on VAT treatment consultancy fees recharged by banks for granting credit
- 5. Supreme Court addresses entitlement to recover input VAT on the sale of rental accommodation
- 6. Supreme Court rules on recovery of input VAT for vacant real estate
1. EU Advocate General issues Opinion on charges between a head office and a fixed establishment that is part of a VAT group (Case C-7/13)
On May 8, 2014 the Advocate General (‘AG’) has issued his opinion on transactions between a head office and a fixed establishment that is part of a VAT group. Although the AG concludes that such transactions are outside the scope of VAT, he suggests a number of alternatives under which the transactions would be subject to VAT.
Skandia America Corporation is established in the United States and has a fixed establishment in Sweden, which is part of a Swedish VAT group. The US head office recharged some externally acquired IT-services to the fixed establishment. At issue was whether VAT is payable on the head office’s recharging of IT costs to the fixed establishment, given that the fixed establishment is part of a VAT group.
The AG acknowledges that the head office and the fixed establishment are part of one legal entity and form a single taxpayer. Consequently, both the fixed establishment and the head office are part of the VAT group and no VAT is payable on the costs recharged to the Swedish fixed establishment.
The AG noted that no VAT is due on transactions between the head office and the fixed establishment, and also that transactions within the VAT group are not subject to VAT. The AG seems to consider this an undesirable situation and suggests four alternative approaches, which all have in common that VAT is payable on the IT services provided from the US.
Although this only concerns an Opinion issued by the AG, you can already take steps to determine the possible effect of any future judgment of the CJEU. Based on Dutch VAT rules, transactions between a fixed establishment and a head office that is part of a VAT group are outside the scope of VAT. However, the VAT treatment of such transactions differs throughout the Member States. We therefore suggest not only identifying all the issues at stake in the Netherlands, but to also do this for the other Member States. If possible, you may consider filing an objection against the VAT you currently pay on such transactions. Please contact Gert-Jan van Norden or Marije Harthoorn for more information.
2. PPG Holdings before the Court of Appeals: taxpayer allowed to recover input VAT on investment management services purchased for its corporate pension fund
The Court of Appeals ruled that a taxpayer who purchased investment management services for its own corporate pension fund is entitled to (pro rata) recover the input VAT on these services. Furthermore, the Dutch tax authorities confirmed their unpublished policy that investment management fees charged to a participant, but relating to the management of an investment manager’s self-originated investment fund, are VAT exempt.
PPG Holdings purchased investment management services for its own corporate pension fund. In July 2013 the European Court of Justice (case C-26/12) ruled that the Court of Appeals had to decide whether the purchased investment management services could be regarded as overhead costs for VAT purposes. If so, PPG Holdings was entitled to recover the input VAT on the basis of its pro rata VAT recovery rate.
On April 1, 2014 the Court of Appeals (case No. 11/00015-11/00017) ruled that all costs incurred by PPG Holdings for its employees should be regarded as forming part of the price of its VAT taxable activities. As such, PPG Holdings was entitled to recover the input VAT on purchased investment management services.
Investment management fees were also directly charged to PPG Holdings’ corporate pension fund. During the proceedings before the Court of Appeals, the Dutch tax authorities confirmed their unpublished policy that investment management fees charged to a participant, but relating to the management of an investment manager’s self-originated investment fund, are VAT exempt.
The Dutch tax authorities have filed an appeal at the Dutch Supreme Court.
3. Leasing of a Multilateral Trading Facility subject to VAT
The leasing of a Multilateral Trading Facility (“MTF”) from a third party is subject to VAT according to the District Court.
The Dutch taxpayer at issue operates an MTF – for the trade in securities by its members – as well as a system for the settlement of traded securities. These services are VAT exempt. However, the digital MTF used by the taxpayer was leased from a third party established abroad. At issue, was the VAT treatment of this service.
The service comprises i) a license for using the required hardware and software, ii) the configuration and implementation of the MTF, and iii) operational support and management of the MTF. The taxpayer is responsible for meeting the regulatory requirements in respect of the MTF.
On April 7, 2014 the District Court (case No. Awb13/1217) ruled that the leasing of an MTF from a third party is subject to VAT, due primarily to the fact that the service provider was not responsible for essential components of the financial transactions carried out under the MTF. The Court concluded that the service was of a technical nature and therefore could not be regarded as VAT exempt intermediation for financial transactions. Since the Dutch taxpayer leased this service from a third party established abroad, it was responsible for self-assessing Dutch VAT under the reverse charge mechanism. This input VAT formed a true cost for the taxpayer as its own activities were VAT exempt.
The taxpayer has appealed this judgment. If you would like to receive more information about this case, please contact Gert-Jan van Norden.
4. Decision Dutch District Court on VAT treatment consultancy fees recharged by banks for granting credit
The District Court recently rendered judgment in a case concerning the recharging of advisory fees by a bank. The bank had deployed an external advisor in connection with the furnishing of loans to one of the bank’s customers. In the District Court’s opinion, the recharging of these fees qualifies as the VAT exempt extension of credit and thus no VAT is payable.The taxpayer has appealed this judgment.
5. Supreme Court addresses entitlement to recover input VAT on the sale of rental accommodation
The Supreme Court recently ruled that a housing association’s entitlement to recover input VAT is not limited by the exempt sale of rented houses. The revenue accruing from this is not included in the calculation of the pro rata recovery percentage.
This case concerns a housing association that had sold a number of rental properties (rented houses). According to the Dutch tax authorities, the housing association had to take account of the tax-exempt revenue derived from the sale of these properties when calculating the partial entitlement to recover VAT. This would have a negative impact on the housing association’s right to recover input VAT.
On June 6, 2014 the Supreme Court (case No. 12/05835) maintained that the sale of the goods used in the entity (in this case the sale of rented houses) should only be included in the calculation of the partial entitlement if this sale is inextricably related to the usual business activities of the entity or constitute an essential extension of this.
The Supreme Court subsequently referred to the Court of Appeal, which concluded that the housing association did not by definition dispose of its rented houses after a predetermined useful life and that the sale of such properties did not constitute an unavoidable activity. The result of this is that the sale of rented houses is a stand-alone transaction, and does not constitute an essential extension of the housing association’s business activity. Therefore, when calculating the partial recovery percentage, the housing association does not have to take account of the exempted turnover generated by the sale of rented houses.
This ruling is not only relevant for housing associations, but also for businesses engaged in similar activities, such as certain financial institutions. For the sake of completeness, we note that the VAT applicable to costs directly related to the sale of properties (e.g. broker’s charges) cannot be recovered. Please contact Gert-Jan van Norden or Han Leijten for more information.
6. Supreme Court rules on recovery of input VAT for vacant real estate
The Supreme Court recently ruled that if an office building is first rented exempt from VAT and is subsequently vacant with the goal of renting the property subject to tax, the input VAT attributable to the period of vacancy can be recovered.
The taxpayer at hand had commissioned the construction of an office building. Subsequently, the taxpayer rented the office building exempt from VAT for several years. For VAT purposes, the recovery of input VAT in connection to immovable property should be monitored (and eventually adjusted) for a period of ten years. Because of the exempt rental, the taxpayer could not deduct the input VAT attributable to the period of VAT exempt rental. After the exempt rental was terminated, the building was vacant for almost three years. During this period, the taxpayer intended to rent the building subject to VAT. For this reason, the taxpayer adjusted the right to recover VAT (i.e. recovery of 10% of the input VAT per year). The Dutch tax authorities took the view that this adjustment is not justified.
On June 13, 2014 the Supreme Court (case No. 13/00282) concluded that the exempt rental was terminated, and that it can be assumed that the taxpayer intended to use the building for VAT taxable activities. This results in the entitlement to recover input VAT, attributable to the period of vacancy. Please contact Gert-Jan van Norden or Han Leijten for more information.