VAT Newsletter 32/2013
Advice to investment management companies is VAT exempt
By circular of 28 October 2013, the Federal Ministry of Finance gives up its former view on the VAT exemption of advisory services for investment management companies and follows the recent decisions of the European Court of Justice and the German Federal Fiscal Court. Furthermore, it gives the taxpayers helpful guidance on the application of the tax exemption pursuant to sec. 4 no. 8 lit. h German VAT Act.


1. Background

On 7 March 2013, the European Court of Justice (“ECJ”)ruled that investment advisory services provided to investment management companies are VAT exempt (C-275/11 – GfBK). The ECJ held that services consisting of giving recommendations to an investment management company to purchase and to sell assets are intrinsically connected to the activity characteristic of the investment management company. In its decision of 11 April 2013, the German Federal Fiscal Court followed the ECJ. Both decisions were contrary to the view of the German tax authorities. Pursuant to sec. 4.8 para. 18 no. 3 of the German VAT Circular, advisory services„with or without concrete recommendations to purchase or to sell” are not exempt from VAT.

2. Circular of the Federal Ministry of Finance of 28 October 2013

In its circular of 28 October 2013, the Federal Ministry abandons this view. Pursuant to the circular, advisory services “with concrete recommendations to purchase or to sell” are exempt from VAT. However, advisory services “without concrete recommendations to purchase or to sell” remain taxable.

Further to the ECJ, the Federal Ministry of Finance defines when advisory services are intrinsically connected to the activity characteristic of an investment management company.

This is the case if

  • the recommendation for the purchase or sale of assets is targeted at the legal and factual requirements of the respective investment in securities,
  • the recommendation is given as a result of permanent monitoring of the fund assets, and
  • the recommendation is based on a current knowledge of the composition of the funds.

If the VAT exemption is applicable pursuant to the outlined criteria, the input VAT deduction is generally excluded. In such a case, the advisory company might need to amend the calculation of its fees accordingly.

For further information on the consequences of the application of the VAT exemption, please see newsletter 20/2013.

Contact:

KÜFFNER MAUNZ LANGER ZUGMAIER
Rechtsanwaltsgesellschaft mbH
Unterer Anger 3
80331 München
Phone: + 49 (0) 89 / 2 17 50 12 - 20
E-Mail: office@kmlz.de

As per: 29.11.2013

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