VAT exemption on individual investment management where funds are pooled

On November 8, 2018, the groundbreaking judgment that the Court of Appeal in Amsterdam had rendered on the VAT exemption for the management of special investment funds (SIFs), was published. This VAT exemption is available for the management of collective investment. The Court ruled that the VAT exemption can also apply to products offered under a license for individual investment management where individual assets are pooled.

In earlier judgments, both the District Courts in Noord-Holland and Noord-Nederland ruled that the VAT exemption for the management of an SIF does not apply to services provided under a license for individual investment management. The main argument for this as raised by these Courts was that the assets of individual investors were insufficiently pooled in order to qualify for VAT exemption. Based on EU case law, the VAT exemption for the management of an SIF in principle only applies to the management of UCITS and to funds that are sufficiently comparable to UCITS. The Courts ruled that the products on offer did not qualify as such.

According to the Court of Appeal, an investment manager providing services under an individual investment management license can be sufficiently comparable to a UCITS for the purposes of the VAT exemption. Relevant factors here are that:

• the assets of investors are bundled together in a central account owned by a Dutch legal person;
• an investor must choose a risk profile (there were 5 in total) and all assets are managed based on that risk profile. There is no room for individual arrangements within the chosen risk profile; an investor can only choose to enter or exit the risk profile; and
• all investors pay the same fee for investment management services.

Another requirement for the VAT exemption for the management of SIFs is that there must be a regulatory body that monitors the investments. The Court of Appeal ruled that this does not necessarily need to be monitored as a collective investment, but that monitoring the individual manager is also sufficient to qualify for the exemption as the regulatory requirements that must be complied with are comparable for both.

The Court of Appeal judgment appears to have broadened the scope of the VAT exemption for the management of SIFs. The Dutch government is currently working on a policy document that should define the type of funds that can utilize the VAT exemption. It remains to be seen whether this policy document will be amended to reflect the fact that individual asset managers can also qualify for VAT exemption under the above circumstances. Furthermore, it is the question whether this judgment will be upheld by the Supreme Court. In the meantime, investment managers who could benefit from the exemption should be able to use this judgment to their advantage in discussions with the Dutch tax authorities.