ECJ issue opinion on discretionary management services

10 May 2012

The European Court of Justice has issued its opinion in relation to a German court referral involving a German bank. The ruling will have wide impact across the EU in relation to the VAT treatment of discretionary management services (DFM).

Currently, in the UK for example, it had recently been outlined by HMRC, that while the financial transaction & dealing fees involved in the trading of investment products are treated as exempt supplies for VAT purposes, the associated services provided by specialist advisors and portfolio managers may or may not be VAT exempt, dependent on the circumstances involved.  The HMRC stated position is that all the advisor’s services, such as the initial research and reporting, health-checks, and the recommendation of financial products in light of the customer requirements, could be treated also as being VAT exempt if the result is that an investment product is actually obtained, or if not obtained, can be shown to be part of the discretionary services provided.  On the other hand, if only DFM is provided, without relation to a particular investment product transaction, then these services would be vatable.

The Advocate General of the ECJ has now provided an opinion on this issue to the German court, and unexpectedly taken the position that the service supply being made is a single supply, and not composed of the two identifiable elements of the transaction fees and the DFM.  Instead, the ECJ has opined that all parts, including the dealing fees and commission should be subject to VAT.

HMRC in UK had stated that it would assess its position in light of the opinion to be issued.  That will clearly be the case now, in UK, as indeed it will be throughout the EU, in this particular area.

If you wish information on EU VAT implications, please click here

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