Property Fund Management - exempt from VAT?
The Court of Justice of the European Union (CJEU) has released its decision in the case of Fiscale Einheid X NV which looks at the question of whether property fund management can be exempt from VAT.
Most fund management charges are subject to VAT, but the management of certain funds, such as OEICS or Authorised Unit Trusts can be exempt. Fiscale Einheid looked at whether property funds were capable of having their management exempted. The Court found that, in principle they were, but subject to several important conditions.
Firstly, the fund had to fall within the definition of a “special investment fund”. This essentially meant that it had to be a fund which constituted an undertaking for collective investment in transferable securities within the meaning of the UCITS Directive, or comparable to it, in that people have purchased participation rights in it and the return on investment depends on the performance of the investments made by the fund’s managers over the period for which those persons held those rights.
In the case of Fiscale Einheid, that appeared to be the case because the companies involved pooled capital from various pension funds with the objective of purchasing, owning, managing and selling property. The companies had issued certificates conferring the rights to a proportion of the returns in the form of dividends.
The next question was what services fell within the definition of management, and here the Court held that investment management involved the selection and disposal of the assets under management, and administration and accounting tasks such as computing the amount of income and the price of units or shares, the valuation of assets, accounting, the preparation of statements for the distribution of income, the provision of information and documentation for periodic accounts and for tax and VAT returns, and the preparation of income forecasts.
However, it went on to say that the making available of an IT system, and the actual day-to-day management of properties within the fund, such as maintenance, rent collection, day-to-day legal matters such as implementation of rent increases, and extensions to tenancy agreements would not be regarded as management for the purposes of the exemption.
Where does this leave us? It seems as though physical property management type activities as referred to above remain taxable and unaffected by the judgement. But, certain fund management activities in a property fund may now become exempt from VAT. The decision seems likely to be of most interest to REITS.
For further advice or assistance please contact our VAT team.
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