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CJEU judgement: Case C-231/19, BlackRock Investment Management (UK) Limited v Commissioners for Her Majesty’s Revenue and Customs

  • United Kingdom
  • Tax planning and consultancy

03-07-2020

 

The EU Court of Justice (“CJEU”) today gave its judgment in Case C231/19, BlackRock Investment Management (UK) Limited v Commissioners for Her Majesty’s Revenue and Customs clarifying whether a single supply of fund management services provided by BlackRock based in the US using an IT platform (known as Aladdin) for the benefit BlackRock in the UK which manages a variety of investment funds.

Management of investment funds for VAT purposes have two broad treatments. The management of Special Investment Funds (being essentially regulated collective investment funds) (‘SIFs’) are exempt from VAT under EU law (Article 135(1)(g) of the Principal VAT Directive) and the management of all other investment funds that are not SIFs are subject to VAT. 

Although the management of SIFs and non-SIFs may be similar, with equal reliance on services such as market analysis, risk assessment, monitoring regulatory compliance, the VAT exemption is only available for the management of SIFs.

BlackRock paid a single fee for the Aladdin service. The key question for the CJEU was whether EU law permits the apportionment of the fees for a single supply of fund management services depending on whether the services are used for SIFs (in which case could that portion of the fee be VAT exempt) or non-SIFs (subject to VAT). BlackRock argued that it should be entitled to do this such that the benefit of the VAT exemption for the management of SIFs could be realised.

The decision

The CJEU decided that apportionment on a pro-rata basis was not available under Article 135(1)(g) of the Principal VAT Directive for a single supply of management services. What was critical to the CJEU’s analysis was that that the parties agreed that the service at issue was designed for the purpose of managing investments of various kinds and that, in particular, it may be used in the same way for the management of SIFs  as for the management of other funds. Therefore, the CJEU held that the service cannot be regarded as specifically for the management of special investment funds. Consequently, the Aladdin service does not benefit from the exemption because it is used by BlackRock for managing both SIFs and non-SIFs.

Our comment

This is disappointing news for a much anticipated case for the investment industry. It not only underlines how strictly the courts view the VAT exemptions, but that it is not possible to apportion consideration for a single supply of services which are used for different purposes, which if supplied independently would have different VAT liabilities. That said, the courts will look through any artificial splitting of what may otherwise be regarded as single supplies of services. Therefore careful thought needs to be given as to how the VAT exemption for the management of SIFs is applied, if those services are combined with any others.  

If you wish to discuss the implications of this case, please contact your usual Eversheds Sutherland contact or Giles Salmond.

 

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