Judges M Safjan, L Bay Larsen, C Toader, N Jääskinen
Advocate General P Pikamäe
The taxpayer was a member of a VAT group established in the United Kingdom, of which it was the representative and which included a number of companies that carried on business as fund managers. The taxpayer received supplies of services from a company incorporated in the United States, in the same commercial group. Those services were provided through a software platform and comprised a combination of hardware, software and human resources. The taxpayer used those supplies to manage both special investment funds and other investment funds. It was common ground that the supply was a single supply of services received by the taxpayer. The taxpayer considered that the services used for the management of special investment funds should be exempt from VAT pursuant to article 135(1)(g) of Council Directive 2006/112/EC (“the VAT Directive”) which exempted the management of special investment funds from VAT, with the result that it accounted for the tax only on services used for the other funds, the value of those services being calculated pro rata to the amount of those funds within the total funds managed. The Revenue and Customs Commissioners disagreed with that approach and issued recovery notices covering that period. The First-tier Tribunal (Tax Chamber) ([2017] UKFTT 633 (TC)) dismissed the taxpayer’s action against those notices. The taxpayer appealed to the Upper Tribunal (Tax and Chancery Chamber) which stayed the proceedings and referred to the Court of Justice of the European Union for a preliminary ruling the question, in essence, whether a single supply of management services, in the circumstances of the present case, came within the exemption from VAT laid down in article 135(1)(g) of the VAT Directive.
On the reference—
Held, to apply a single rate according to the principal destination of the services provided by means of a platform could lead to the benefit of the exemption for the management of special investment funds being accorded to other funds. Under that hypothesis, a manager who principally managed special investment funds could benefit from the exemption of those supplies for the whole of his fund management business, including for funds other than special investment funds. Such an outcome would be contrary to the strict nature of the interpretation given to the exemption in article 135(1)(g) of the VAT Directive. Therefore, in the circumstances in issue, the tax treatment of the supply of services could not be determined according to the nature of the majority of the funds managed by the company. In order to be classified as exempt transactions, the services provided by a third-party manager had to form a distinct whole fulfilling in effect the specific, essential functions of the management of special investment funds. A supply of services designed for the purpose of managing investments of various kinds which could be used in the same way for the management of special investment funds as for the management of other funds did not meet the conditions to benefit from the exemption in article 135(1)(g) of the VAT Directive. Since the principle of fiscal neutrality was a principle of interpretation of the VAT Directive and not a rule that was hierarchically superior to the provisions of that Directive, it did not permit the scope of an exemption to be extended and therefore could not render article 135(1)(g) of the VAT Directive applicable to a supply, such as that at issue, which did not meet those conditions (judgment, paras 44–46, 47, 49, 51, 52, operative part).
Andrew Hitchmough QC and Laura Poots (instructed by Simmons & Simmons) for the taxpayer.
Raymond Hill (instructed by The Treasury Solicitor) for the United Kingdom Government.
L Lozano Palacios and R Lyal, agents, for the European Commission.