Case GFBK – C-275/11 – Investment Fund Advisory Services May Be VAT Exempt

On 7 March 2013, in the case GfBk (C-275/11), the Court of Justice of the European Union (the "Court") ruled on an important issue concerning the scope of the VAT exemption applicable for the management of investment funds.

Factual background

The investment manager of an investment fund had delegated some advisory and information services to an external investment adviser. The investment adviser provided sale and purchase recommendations on transferable securities to the fund manager. However, the investment adviser had no power to buy and sell securities on behalf of the fund.

The German tax authorities had refused to allow the benefit from the VAT exemption on management of investment fund to these services because they were not actual management services but only advisory services.

Ruling of the Court

The Court clearly stated that "advisory services concerning investment in transferable securities, provided by a third party to [...] the manager of a special investment fund, fall within the concept of 'management of special investment funds' for the purposes of the [VAT] exemption laid down in that provision, even if the third party has not acted on the basis of a mandate".

The Court recalled the conditions for outsourced services to benefit from the VAT exemption, i.e. the advisory services must be specific to, and essential for, the management of the investment fund. In the case at hand, the Court considered that the direct advice given as to the purchase or sale of transferable securities has an intrinsic connection with the management of the investment fund.

This judgment clearly validates the existing Luxembourg practice and secures the current structuring of many Luxembourg investment funds.

On 7 March 2013, in the case GfBk (C-275/11), the Court of Justice of the European Union (the "Court") ruled on an important issue concerning the scope of the VAT exemption applicable for the management of investment funds.

Factual background

The investment manager of an investment fund had delegated some advisory and...