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Deloitte
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Investment Trust companies could save up to £40 million a year if the European Court of Justice (ECJ) upholds the Advocate General’s (AG) opinion on whether it is correct to charge VAT on fund management charges.  If the ECJ follows the AG’s opinion, the management of close-end funds will be exempt from VAT.  Whilst the AG opinion is not binding on the Court, it follows the AG opinion in the majority of cases.  The Opinion was given today in the case of The Association of Investment Trust Companies and JP Morgan Fleming Claverhouse Investment Trust Fund Plc (AITC).

The AITC case asked whether it is correct to charge VAT on the services of managing investment trusts.  The case questions why the VAT exemption which is currently available under UK law for the management of Authorised Unit Trusts (AUTs) and Open Ended Investment Companies (OEICs), is not available to the management of investment trusts, even where the objectives of such entities are broadly similar.

The AG’s Opinion states that closed funds are capable of falling within the management exemption for special investment funds.  It also says that Member States have the power to determine the special investment funds whose management is exempt from VAT.  However, in doing so they must have regard to the principle of fiscal neutrality which requires all similar and competing investment funds to be treated equally for VAT purposes.

Richard Gilroy, indirect tax partner at Deloitte, said: “This case could have wide implications both for investment trust companies and UK fund managers.  It would appear both from this Opinion and the Abbey National case last year that the tax authorities in the UK are interpreting the scope of the exemption too narrowly in the UK.”

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Notes to editor:

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