Financial Advisory Services and VAT

The Court of Justice of the European Union (CJEU) has issued a ruling regarding a German business which may have a significant impact in the finance sector in the UK. The German taxpayer provided advice and recommendations for the buying and selling of shares to an investment management company (IMC) who managed a special investment fund. The IMC implemented the recommendations (on the basis that they did not break any statutory restrictions), although the final decision and responsibility lay with the IMC. The German taxpayer sought agreement from the German tax authorities that they were making exempt supplies of the “management of special investment schemes”. The German tax authorities thought the supplies were not the management of the fund so were taxable.

The CJEU ruled that the relevant European Directive should be interpreted so that the advisory services provided to a special fund manager fall within the concept of “management of special investment funds”. This interpretation appears to be at odds with the UK legislation which sees advisory services only as excluded from the relevant exemption.