Flashback on ECJ cases C-595/13 (Fiscale Eenheid X) – VAT exemption for the management of special investment funds may also apply to funds investing in real estate

On Dcember 9, 2015, the ECJ issued its decision in the case C-595/13 (Fiscale Eenheid X). This case relates to the VAT exemption for the management of special investment funds.

Context: Reference for a preliminary ruling — Sixth VAT Directive — Exemptions — Article 13B(d)(6) — Special investment funds — Meaning — Investments in immovable property — Management of special investment funds — Meaning — Actual management of a property

Article in the EU VAT Directive

Article 13B(d)(6) of the Sixth Directive (Article 135(1)(g) of Council Directive 2006/112/EC)

Article 2(1) of the Sixth Directive, inter alia ‘the supply of … services effected for consideration within the territory of the country by a taxable person acting as such’ is to be subject to VAT.

4 The second subparagraph of Article 4(4) of the Sixth Directive states that ‘… each Member State may treat as a single taxable person persons established in the territory of the country who, while legally independent, are closely bound to one another by financial, economic and organisational links’.

Article 13B(d)(6) of the Sixth Directive is worded as follows:

‘Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of the exemptions and of preventing any possible evasion, avoidance or abuse:

(d) the following transactions:

6. management of special investment funds as defined by Member States’.

Facts

X is a fiscal entity within the meaning of Article 7(4) of the Law on VAT, that is to say, a taxable person as referred to in the second subparagraph of Article 4(4) of the Sixth Directive.
A Beheer NV (‘A’) belongs to that fiscal entity.
In 1996, A entered into contracts for the provision of various services with three companies established in the Netherlands. Those companies do not belong to X. They were founded by a number of pension funds. After they were established, they issued holdings and certificates of holdings which were transferred to third parties. Their activities consist in the acquisition of shareholders or certificate holders and the purchase and sale of immovable property and its management. They have no employees. The shareholders require those companies to produce results in the form of payments of dividends.
It is apparent from those contracts that A carried out the following activities for those companies, for consideration:
- (a) all tasks falling to A as a result of its duties as the client’s director in accordance with the company’s statutes;
- (b) all executive tasks falling to the client as a result of statutory requirements, company statutes, regulations and administrative decisions;
- (c) management of the client’s assets, as described in Annex I to the contracts;
- (d) financial reporting, automated data processing and internal audit;
- (e) dealing with the client’s assets, including the acquisition and sale of immovable property; and
- (f) the acquisition of shareholders or certificate holders.
Annex I, referred to at point (c) above, provides as follows: ‘The provision of services with respect to management … covers:
- A. Property management:
  - 1. supervision of the immovable property and its use and, to that end, maintenance of contact with tenants;
  - 2. on behalf of the client, engagement of estate agents where properties are empty; assessment of tenants;
  - 3. inspection of any premises due to become available and the compilation of reports on their condition;
  - 4. rent collection … and debt management; processing of rent allowances;
  - 5. budgeting for and arranging major maintenance works as well as the technical assessment and supervision of the execution thereof …;
  - 6. arranging ordinary maintenance work and supervision thereof;
  - 7. arranging ancillary supplies and services; monitoring the quality thereof and billing tenants for sums due in that respect;
  - 8. administrative processing of all of the above; and
  - 9. day-to-day legal matters; implementation of rent increases and extensions of tenancy agreements.
All tasks falling to A under the contracts at issue in the main proceedings are carried out by A itself or by third parties on its behalf and under its responsibility. A was remunerated for those tasks by each of the companies concerned in the main proceedings, such remuneration being set at 8% of the theoretical annual rental income from the immovable property forming part of the assets of the company concerned.
X did not account for VAT on the remuneration received from those three property companies, taking the view that the services provided either by itself or by third parties under its responsibility were exempt as provided for in Article 11(1)(i)(3) of the Law on VAT.
The Inspector of the national tax authority found, however, that only the activities referred to in points (e) and (f) of the management contracts at issue, namely the acquisition and sale of immovable property and the acquisition of shareholders or certificate holders, were covered by that exemption. He therefore issued X with a notice of additional assessment to VAT in respect of the period from 1 January to 31 December 1996 inclusive.

Questions

Is Article 13B(d)(6) of the Sixth Directive ¹ to be interpreted as meaning that a company which has been set up by more than one investor for the sole purpose of investing the assets assembled in immovable property may be regarded as a special investment fund within the meaning of that provision?

If the answer to Question 1 is in the affirmative: is Article 13B(d)(6) of the Sixth Directive to be interpreted as meaning that the term ‘management’ also covers the actual management of the company’s immovable property, which the company has entrusted to a third party?

AG Opinion

Article 13B(d)(6) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment is to be interpreted as meaning that

– a company which has been set up by more than one investor for the sole purpose of investing the assembled assets in immovable property may be regarded as a ‘special investment fund’, provided that the Member State concerned has made it subject to specific State supervision;

– ‘management’ of such a special investment fund also covers the actual management of property.

Decision

1. Article 13B(d)(6) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment, as amended by Council Directive 91/680/EEC of 16 December 1991, must be interpreted as meaning that investment companies such as the companies at issue in the main proceedings, in which capital is pooled by several investors who bear the risk connected with the management of the assets assembled in those companies with a view to purchasing, owning, managing and selling immovable property in order to derive a profit therefrom which will be distributed to all unit-holders in the form of a dividend, those unit-holders benefiting also from an increase in the value of their holding, may be regarded as ‘special investment funds’ within the meaning of that provision, provided that the Member State concerned has made those companies subject to specific State supervision.

2. Article 13B(d)(6) of Sixth Directive 77/388 must be interpreted as meaning that the term ‘management’ which appears in that provision does not cover the actual management of the immovable property of a special investment fund.

Summary

Community investment funds – Investments in real estate – Special government supervision – Actual operation of a real estate

Investment companies in which capital is pooled by more than one investor who bears the risk associated with the management of the assets therein for the purpose of purchasing, owning, managing and selling immovable property for profit, which will be paid as a dividend to the joint shareholders, who also benefit from an increase in the value of their holding, can be considered as ‘special investment funds’, provided that the Member State concerned has subjected these investment companies to special government supervision.

The actual operation of the real estate of a collective investment fund is not covered by the concept of ‘management’.

Source