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VAT treatment of portfolio management: EUCJ Case C-44/11 - 23/04/2012


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VAT treatment of portfolio management – Advocate-General to present his opinion to the EUCJ soon

Case C-44/11

In Case C-44/11, “Finanzamt Frankfurt am Main V-Höchst v. Deutsche Bank AG”, the Advocate-General is to present his opinion to the Court in May 2012.

This case is of key significance for financial and insurance sector professionals in Luxembourg since the Court is expected to rule on whether asset management services provided to private investors by means of securities (or “portfolio management”) is taxable or exempt.

In Luxembourg, such services are currently, in principle, taxed at a rate of 15% for private clients established in the Grand Duchy or in one of the 26 other Member States of the European Union.

The case is also very significant for financial and insurance sector professionals in that the associated preliminary issue:

  • asks the Court to rule on the place of taxation of such portfolio management services for private investors – which could call into question how VAT is applied to these services when they are provided to private clients established outside the European Union;
  • refers explicitly to “portfolio management” services provided to investment funds, which are currently exempt from VAT.

Case C-275/11

With regard to the latter aspect (services for investment funds) and in relation thereto, we should highlight another case, C-275/11, “GfBk Gesellschaft für Börsenkommunikation mbH v. Finanzant Bayreuth”, that has also been referred to the Court, this time for a ruling as to whether investment advice services provided to investment funds are taxable or exempt.

Both rulings, which are of great importance for the Luxembourg financial centre, will thus be awaited impatiently in the coming months by financial and insurance sector professionals.

Update on recent legislative and regulatory developments

The Luxembourg VAT Authorities recently informed taxpayers, in its Circular N° 757 of 23 February 2012, of these changes following the adoption of the Act of 18 February 2012 and the two corresponding Grand-Ducal Decrees, also of 18 February 2012:

Withdrawal of identification number

The Department is now explicitly entitled to withdraw the VAT identification number in cases where there it is established, on the basis of specific and corroborated evidence, that no business activity is carried out as a sole trader. This is because the status of taxable person is directly related to the exercise of such business activities.

Place of provision of transport services located outside the Community

The place of taxation of transport services and services related thereto is considered as being outside the Community where the effective use or operation of said services occurs outside the Community, which has the effect of avoiding double taxation being generated in respect of operators calling upon such services.

Threshold for the submission of EC Sales Lists for goods

Pursuant to Community legislation, it has been confirmed that the threshold governing the option to submit the recapitulative statement for inter-Community deliveries of goods on a quarterly basis has been reduced from 100.000 to 50.000 EUR.

These laws apply from 1 January 2012.

New compliance obligations for companies rendering B2C electronic services to consumers in Iceland | Effective from 1 November 2011

As already implemented by the VAT Authorities of Norway and Switzerland, from 11 November 2011, new rules apply in Iceland for companies rendering electronic services to final consumers (B2C). In fact, from that date suppliers are obliged to register for VAT purposes in Iceland in the event that they go over the registration threshold of ISK 1.000.000 (approximately EUR 6.000) per any 12 month period.

What are the compliance obligations derived from this VAT registration?

The foreign company must appoint a domestic representative in Iceland and register for VAT purposes through this representative. The registration process generally takes a relatively short time (around 8 days);

  • The company must comply with domestic VAT rules regarding invoicing, although it may apply to the Icelandic VAT authorities for different invoicing system/procedure;
  • The domestic representative will have to file bi-monthly VAT returns and pay the VAT due on behalf of the foreign company.

What are the penalties for late registration?

In principle, the foreign company will have to pay the VAT due from the actual date where its registration obligation arises plus 10% of this amount to the Icelandic VAT Authorities.

However, in practice and given the short time frame with which this legislation was adopted and implemented in Iceland, it is unlikely that the authorities oblige companies coming forward in the coming weeks to either VAT register with retroactive effects or to pay the late registration penalties stated above.

Nonetheless, we encourage all companies non established in Iceland  and to whom these new VAT compliance obligations apply, to regularize their situation as soon as possible to avoid, if possible, any potential penalties and interest charges.  

If you wish our assistance or need any further information in this regard, please contact Joanna Denton of the Indirect tax department in Luxembourg.

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