On March 7, 2013, the Court of Justice of the European Union ("CJEU') rendered its judgment on the VAT treatment of investment advice provided to managers of common investment funds.

1. The case

GfBk Gesellschaft für Börsenkommunikation mbH (“GfBk”) provides advisory services to the manager of a German investment fund. The services provided by GfBK consist of making purchase and sale recommendations to the manager of the investment fund. The fund manager acts on these recommendations, insofar as this advice is in line with the fund's legal and investment restrictions (mandate). It is therefore the fund manager that takes the investment decisions and bears the responsibility for them with respect to the fund and its investors.

The management of common investment funds is VAT exempt. The question is whether the provision of advisory services in respect of investments qualifies as the management of a common investment fund, as the final decision to invest is not taken by the advisor.

2. The judgment of the CJEU

On March 7, 2013, the CJEU rendered its judgment in the GfBk Gesellschaft für Börsenkommunikation mbH case (C-275/11), and ruled that investment advice is intrinsically connected to the characteristics of (the manager of) an investment fund. For that reason such advisory services provided to the manager of an investment fund also qualify for the VAT exemption that applies to common investment funds.

3. Consequences

The CJEU judgment has clarified the VAT treatment of investment advisory services provided to the manager of an investment fund. The judgment also makes clear that more services could possibly qualify as 'management' and could therefore also be VAT exempt.

4. How to proceed?

If you have invoiced VAT on advisory services you have provided to common investment funds, then your VAT position will change. It is therefore advisable to identify the financial consequences of this change and to adjust the VAT provisions in your investment advisory agreements and the general terms and conditions if necessary. By correctly determining your VAT position, you can limit any negative consequences of changes in legislation, case law or policy. It is also advisable to review the other services you provide to managers of common investment funds, to prevent VAT being mistakenly invoiced. All the notices of objection which have been filed on the basis of the GfBk case, may now be processed taking the above into account.

The tax advisors of the Indirect Tax Financial Services Group of KPMG Meijburg & Co will gladly assist you in determining the VAT consequences, preparing notices of objection and tightening VAT provisions. Their expertise means they can also provide assistance on how to deal with and anticipate on amendments in VAT legislation, policy and case law. Feel free to contact one of these tax advisors or your regular contact at KPMG Meijburg & Co for more information.