On 2nd July 2020 the CJEU released its decision in the case of BlackRock vs HMRC. The question referred to CJEU was whether different VAT rates could apply to a single supply of fund management services which is used towards the management of both special investment funds and non-special investment funds.
For the management of both SIFs (covered by the Art.135 VAT exemption) and non-SIFs, (taxable) BlackRock bought in supplies of services, through a software platform, from a third-party located in the US. These services were utilised by Blackrock’s portfolio managers to assist them in making the appropriate investment decisions connected to investment portfolios being managed.
Blackrock accounted for VAT on these services by reverse charge on a pro-rata basis self-charging VAT only on the portion of the services which were linked to the management of non-SIF’s. HMRC, disagreeing with this approach, issued assessments to Blackrock on grounds that the reverse charge should have been applied on the totality of the services in question arguing that the investment portfolios managed by Blackrock were predominantly non-SIFs.
The CJEU ruled that the exemption in Art. 135(1)(g) of the VAT Directive must be interpreted as meaning that a single supply of management services, provided by a software platform belonging to a third party supplier for the benefit of a fund management company, which manages both special investment funds and other funds, does not fall within the exemption provided for in that provision.
In practice the CJEU decision can create difficulties for management investment companies which manage both Special Investment Schemes and Other Schemes, as they are obliged to account for VAT on services bought in which are used for both types of investment portfolio.
Should you wish to discuss further our VAT Team would be happy to assist you.
Disclaimer – Please note that this article is intended for information purposes only and whilst utmost care has been taken to ensure a correct application and interpretation of VAT rules, Zampa Debattista shall bear no responsibility legal or otherwise, for misuse.