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Bailey McCann, Opalesque New York: Two recent decisions of the European Court of Justice (ECJ) on the value added tax (VAT) treatment of investment management services illustrate that this is still an area of some uncertainty that is continuing to evolve. The first decision, in the GfBk case, looked at the nature of the services that benefit from VAT exemption and held that fund investment advisory services could benefit. The second decision, in the Wheels case, looked at whether a pension scheme was a special investment scheme for VAT exemption purposes and held that it was not.

Investment funds do not typically have the right to deduct VAT, meaning that any VAT incurred is a cost which reflected in the net return on investment. According to a briefing from law firm Dechert, the VAT Directive provides a specific VAT exemption for the management of "special investment funds", with EU member states allowed to define which funds qualify. Most EU member states limit the application of the exemption to regulated funds.

Attorneys note that in the Abbey National case, the ECJ had clarified that the VAT exemption applied to all services which are "specific" to the management of an investment fund. "If management services are delegated to a third party, the delegated services should benefit from the VAT exemption as well, provided they are distinct, specific to and essential for the management of the investment fund. In other words, the exemption did not just a......................

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