VAT policy guideline on specific state supervision for special investment funds

08/05/19

In the Fiscale Eenheid X case (C-595/13) of 9 December 2015 the CJEU introduced a new condition for the application of the VAT exemption for the management of special investment funds (article 135(1)(g) EU VAT Directive.

Apart from the existing conditions, funds need to be subject to specific state supervision in order to qualify as a special investment fund. Since its introduction, the interpretation of this condition has raised several questions. In the VAT policy guideline published on the 22 March, the Deputy Minister of Finance provides clarity on this condition.

Conditions ‘special investment fund’

Investments funds must meet four conditions in order to qualify as ‘special investment funds’:

The fund must be financed by more than one participant;
The contributed funds must be invested according to the principle of risk-spreading;
The investment risk must be borne by the participants; and
The funds must be subject to specific state supervision.

The CJEU has ruled that investment funds in the sense of the UCITS Directive qualify as ‘special investment funds’, as the supervision to which such funds are subject under this directive, qualifies as ‘specific state supervision’. Funds that are comparable to UCITS and that are in other ways subject to specific state supervision, also qualify as ‘special investment funds’.

Content of the VAT policy guideline

The Deputy Minister of Finance summarises the institutions that he considers being subject to specific state supervision taking the supervision as defined in the Dutch Financial Supervision Act (Wet op financieel toezicht).

The following funds are subject to specific state supervision:

Investment funds that have a licence obligation under article 2:65 or 2:69b Wft, as the manager supervises the assets of the investment fund. This category covers both UCITS and AIF’s subject to state supervision.
Investment funds falling under the registration regime of article 2:66a Wft (light regime under the AIFMD). These investment funds have limited assets. Therefore, supervision can be less rigorous.
Internal funds of insurers that are subject to supervision by DNB and/or AFM. These funds do not raise additional capital. Therefore, no investor protection and supervision on the fund itself are needed for such internal funds but the overall supervision by DNB or AFM suffices.
Internal funds in a Master-Feeder investment arrangement that are subject to financial supervision of the feeder funds subject to state supervision. In such investment arrangements, the Feeder fund invests in a Master fund. The Master fund can be regarded as an internal fund, sufficiently covered by and subject to the supervision of the Feeder fund.
Pension funds, and PPI’s are subject to supervision by DNB and AFM.

VBI’s FGR’s, and asset pooling

For (corporate tax) exempt investment funds (“VBI’s”) and mutual funds (“FGR’s”) a case-by-case assessment has to be made. The same applies for investors that (partially) pool their assets.

Grandfathering regime

Investment funds that are subject to the AIFMD grandfathering regime are exempt from supervision. These are closed-end investment funds that have not made additional investments as of 22 July 2013. For these institutions, an exemption has been granted at the time of the implementation of the AIFMD Directive. Nevertheless, the Deputy Minister of Finance considers that such funds can be regarded as being subject to specific state supervision.

License individual asset management

Investment managers that provide individual asset management with a license pursuant to MiFID, are not considered subject to specific state supervision according to the Deputy Minister of Finance. The same applies for individual asset management under a banking license for example. Such supervision does not regard the assets of a fund. This is at odds with what the Amsterdam Court of Appeal and the Arnhem-Leeuwarden Court of Appeal recently ruled. It remains to be seen whether the Dutch Supreme Court follows these judgements.

Foreign manager

A foreign manager with a head office in a foreign country can manage the assets of a Dutch investment fund. The manager with a head office in the EU can make use of the license in its member state provided certain requirements are met. Non-EU-managers with no presence in the EU must apply for a license in the Netherlands.

What does this mean for you?

This Policy Guideline confirms that certain asset managers and funds have applied the exemption for the management of special investment funds correctly. Other fund entities particularly in the real estate sector now appear to have to apply the exemption as well.

It is important for each investment manager to examine the consequences of the Policy Guideline. In particular for managers of VBI’s and FGR’s, it is advisable to conduct further research into the application of the VAT exemption. The same applies for institutions that manage individual assets using a MiFID licence, since the Policy Guideline does not appear to consider the supervision under MiFID as specific state supervision. This matter is referred to the Dutch Supreme Court who may provide clarity on this in the future.