IT services related to both VAT exempt and VAT taxed fund management fully subject to VAT

The “BlackRock” Decision

On July 2, 2020, the CJEU issued its decision in the “BlackRock case”, relating to the applicability of the VAT exemption for management of special investment funds. BlackRock Investment Management (UK) Ltd (‘BlackRock’) is engaged in both VAT exempt and VAT taxed fund management. In this respect, it makes use of an IT platform provided by a US group company. The platform offers a broad range of investment management services, such as market analysis, monitoring performance, risk assessment, monitoring regulatory compliance and implementing transactions.

The question raised by the referring court was whether the services provided by the US group company – access to the IT platform – could benefit from the VAT exemption for fund management, insofar it was attributable to the fund management activities of BlackRock which were VAT exempt.

In short, the CJEU first stated that the VAT exemption for fund management services cannot be applied on a ‘pro rata’ basis. It either fully exempts a service from VAT or not at all, depending on whether the service in question meets the criteria of the exemption. As to the question whether in this case the criteria were met, the CJEU relied on its previous decisions, in which it ruled that services fall within the scope of the fund management exemption if, viewed broadly, such services “form a distinct whole fulfilling in effect the specific and essential functions of the management of special investment funds”. In the case at hand, the services acquired by BlackRock were designed both for the management of special investment funds and other types of funds. As such, they could therefore not be considered to be specific and essential for the management of special investment funds only and thus could not benefit from the exemption.

Practical impact

This decision is likely to have an impact on management companies involved in VAT exempt management of special investment funds as well as VAT taxed management of other funds and/or investments. Our recommendation is that these management companies conduct an internal review of their position and of the potential impact of this new decision.