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HMRC to issue more VAT guidance after ECJ ruling

HM Revenue & Customs is to issue further guidance on the VAT treatment of discretionary management services following a final judgment from the European Court of Justice confirming the entire DFM service is VATable.

HMRC has held off from publishing definitive guidance on the VAT treatment of discretionary services pending the outcome of a case referred to the ECJ last year. The case was referred by a German court after it challenged Deutsche Bank for treating transactions relating to the company’s discretionary services as exempt from VAT .

The ECJ has published its judgment on the case today, following an opinion statement in May which recommended all elements of discretionary services should be taxable.

The judgment says transactions related to DFM services such as buying or selling securities are core to the DFM service so cannot be separated out for tax purposes.

It says: “In the context of the portfolio management service at issue in the main proceedings, those two elements are therefore not only inseparable, but must also be placed on the same footing.

“They are both indispensable in carrying out the service as a whole, with the result that it is not possible to take the view that one must be regarded as the principal service and the other as the ancillary service.”

The judgment concludes DFM services must be considered as one single VATable supply.

A spokesman for HMRC says: “HMRC welcomes the judgment of the ECJ in the Deutsche Bank case. We are currently reviewing the details of the judgment to determine whether it has any implications for the current UK VAT treatment of investment management services, and will issue further guidance shortly.”

Currently in the UK under the VAT Act 1994, discretionary services are subject to VAT but dealing fees and commission involved in discretionary services are exempt.

HMRC published its final RDR guidance on VAT liability for financial advice in March, after several drafts. It confirms advice will be exempt from VAT where clients are looking to take out a retail investment product.

Discretionary investment management was deemed taxable under draft guidance, but references to discretionary services were dropped in the final version of the guidance pending the outcome of the Deutsche Bank case.

Ahead of today’s ruling experts suggested the ECJ decision could force HMRC to revisit the overall VAT treatment of financial advice. HMRC says it is too early to say whether the ECJ judgment will impact on its wider RDR VAT guidance.

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