The European Court of Justice has recommended all elements of discretionary management services, including dealing fees and commission, should be subject to VAT, which could see HM Revenue & Customs reassess its VAT treatment of DFM services.
The opinion statement from the ECJ, published today, has gone against the expected outcome which predicted all discretionary fund management services would be exempt from VAT.
Under the VAT Act 1994, discretionary services are subject to VAT but dealing fees and commission involved in discretionary services are exempt.
Last year, a German court questioned Deutsche Bank’s VAT treatment of its discretionary services, and referred the case to the ECJ for guidance.
The case was heard in the ECJ on March 1, and advocate general Eleanor Sharpston delivered her verdict today.
She said that DFM should not be split in terms whether there is a transactional element, such as dealing fees, but should be considered as offering one single investment management service, which should all therefore be subject to VAT.
In the opinion statement advocate general Sharpston says: “In the light of all the above considerations, I am of the opinion that the Court should answer the Bundesfinanzhof’s questions to the following effect: that portfolio management services of the kind at issue in the main proceedings form a single supply for VAT purposes.
“Such services do not fall within the exemption provided for on the common system of value added tax.”
Today’s opinion statement will now be referred back to the original German court for a decision and a final decision from the ECJ. In most cases, courts will follow the guidance set out by the advocate general.
HMRC has previously said the Deutsche Bank decision could inform its VAT policy on DFM services.
If made final, the opinion statement could force HMRC to go further than its current position of exempting transactional fees on DFM services, and making the entire discretionary process subject to VAT.