Dear FS professional,
We hope that the New Year got off to a good start for everyone. In the FS field, right at the end of last year the Court of Justice of the European Union decided that the VAT exemption for the management of special investment funds applies to regulated funds only; this may have a major impact on the VAT position of investment funds. You can read more about this case in this edition of our Financial Services Tax Newsletter.
We would like to invite you for our annual “Onderweg naar huis-bijeenkomst Pensioenen”, which will take place on Thursday 17 March. This seminar is intended for pension fund administrators and service providers for pension funds. You can register for this event via this link.
Partner, Financial Services Tax Group
Table of Contents
- 1. CJEU case Fiscale Eenheid X may have a major impact on the VAT position of investment funds
- 2. Outsourced claim handling services are VAT taxed, concludes Advocate General Kokott of the Court of Justice of the EU
- 3. Regime for classification of limited partnerships (CVs) and mutual funds (FGRs) more flexible as of December 15, 2015
- 4. FinTax workshop in cooperation with Holland FinTech
- 5. “De pensioenwereld in 2016”
- 6. FATCA/CRS Guidance
- 7. Publication Decree fiscal investment institution policies
1. CJEU case Fiscale Eenheid X may have a major impact on the VAT position of investment funds
On December 9, 2015, the Court of Justice of the European Union (“CJEU”) ruled in the Dutch Fiscale Eenheid X case (C-595/13) that the VAT exemption for the management of special investment funds applies to regulated funds only. According to the CJEU, this may also include real estate funds. In addition, the CJEU ruled that the actual property management in such funds does not qualify as management and is therefore not exempt.
In its explanation of the term ‘special investment funds’, the CJEU does however attach great importance to supervision. While the term ‘special investment funds’ could be defined by the Member States in the past, the CJEU now limits this freedom by making a connection to specific State supervision. In previous case law, the exemption not only applied to undertakings for collective investment in transferable securities (”UCITS”), but also appeared to apply to funds that have the same characteristics as UCITS, or at least display features that are sufficiently comparable for them to be in competition with UCITS. The CJEU now, however, appears to follow the line that the hurdle of specific State supervision must first be taken before a fund can be regarded as comparable. In addition, other conditions need to be met in order to qualify as a special investment fund.
It is essential for investment funds to determine the potential impact of the judgment of the CJEU. The judgment is not only important for real estate funds, but also for funds that invest in other underlying assets (such as securities funds and cash-enhanced funds). Depending upon the supervision to which these funds may be subject, it is possible that the VAT exemption for the management of these funds will be canceled. In that case, VAT represents a cost for funds that (partly) perform VAT-exempt activities.
2. Outsourced claim handling services are VAT taxed, concludes Advocate General Kokott of the Court of Justice of the EU
Claim handling services provided by a party that is i) not providing the insurance; ii) nor is acting as an intermediary, are VAT taxed according to Advocate General Kokott of the Court of Justice of the EU (‘CJEU’).
Aspiro SA (formerly BRE Ubezpieczenia) concludes claim handling agreements with insurers. On this basis, it provides claim handling services in the name of and on behalf of insurers. Aspiro SA is however not i) providing the relevant insurance policies (assumption of risk in return for payment); or ii) acting as intermediary in respect of those insurance policies. According to the Advocate General, VAT exempt intermediary services contain at least the core activity of an insurance broker/agent, which consists in the finding of prospects and their introduction to the insurer with a view to the conclusion of insurance contracts. As Aspiro SA is engaged solely in the settlement of claims and does not perform any activities directed at the conclusion of insurance contracts, the outsourced claim handling services performed by Aspiro SA are VAT taxed, according to Advocate General Kokott of the CJEU.
This conclusion is in line with Dutch case law from 2013. However, under specific circumstances claim handling is viewed as VAT exempt by the Dutch Tax Authorities. In contrast, some EU Member States, including Ireland, England, and Belgium, take the view that outsourced claims management can be a VAT-exempt insurance service. Depending on the final ruling of the CJEU, the harmonized application of the insurance exemption on claim handling services will probably improve in the EU.
This case could provide further insight into the VAT exemption for insurance transactions and insurance negotiation. We expect the final ruling of the CJEU later this year, and will send a tax alert about the ruling as soon as it is rendered. If you would like to receive any further information in the meantime, please contact Gert-Jan van Norden (Partner Indirect Tax Financial Services Group) or Irene Reiniers (Senior Manager Indirect Tax Financial Services Group).
3. Regime for classification of limited partnerships (CVs) and mutual funds (FGRs) more flexible as of December 15, 2015
On December 15, 2015 the Deputy Minister of Finance published a decree providing flexibility and simplifying certain issues involved in multi-tier partnership investment structures. A comparable revised decree was published in relation to mutual investment funds (FGRs). The decrees replace or amend previous, more stringent policies.
Under Dutch law, Dutch law limited partnerships (CVs) can be regarded as either tax transparent or opaque. The classification depends on whether the appointment, retirement and substitution of a limited partner are made subject to prior approval from all partners, both limited and general. If so, the limited partnership is deemed to be ‘closed’ and therefore tax transparent. If not, the partnership is considered to be ‘open’ and therefore more comparable to a company limited by shares (e.g. a BV or an NV). Such ‘open CVs’ are considered opaque for Dutch tax purposes. The same rule is applied to foreign law limited partnerships that are sufficiently comparable to their Dutch counterparts. In practice, this approval requirement has caused problems, in particular where multiple tiers of transparent limited partnerships are used. The result of such ‘piles’, or ‘stacks’, of transparent partnerships is that any partner of any CV in the stack is considered to be a partner of any other CV in the stack; a position also explicitly advocated by the Dutch government. The result is an elaborate and cumbersome ‘mutual approval’ requirement across the chain. Obviously, this situation will easily result in negligence or a high administrative burden in respect of the approvals and unintentionally cause one or more CVs to become opaque.
The revised decree acknowledges that these issues are a threat to the Dutch investment climate and offers flexibility, as well as simplifying a number of points. For example, an important improvement is that a bona fide one-time omission or negligent compliance with the approval requirement can be corrected if disclosed to the Dutch tax administration upon detection. Furthermore, the decree introduces the option of providing ‘single approval’ by an immediate upper-tier partnership for the appointment, retirement or substitution of limited partners in the immediate lower-tier partnership. Upward approvals will no longer be required. Investors will welcome this decree as it allows for more predictable and manageable tax structuring and compliance.
4. FinTax workshop in cooperation with Holland FinTech
How to prevent VAT becoming an unexpected cost? During a workshop held in cooperation with Holland FinTech, Financial Services Tax experts from Meijburg & Co guided the participants through the Dutch, EU and non-EU VAT landscape for FinTech.
VAT, Financial Services and Technology are a challenging combination. As VAT is a real cost for most financial institutions, the VAT treatment of services in the financial services industry is a hot topic. VAT exemptions exist for certain financial services, but for IT-driven financial services this is often questionable. In practice, VAT too often becomes an unexpected cost, which decreases income by 21%!
How to prevent VAT becoming an unexpected cost? During a workshop held in cooperation with Holland FinTech, Financial Services Tax experts from Meijburg & Co guided the participants through the Dutch, EU and non-EU VAT landscape for FinTech. Here you will find the slides, which discuss national and cross-border transactions. In which country should VAT be paid? And by whom? Can exemptions be applied? And what needs to be done in advance to minimize VAT costs? In addition, regulations designed to decrease corporate income tax for innovative industries were discussed.
5. “De pensioenwereld in 2016”
The ‘De Pensioenwereld in 2016 ’has been recently published. This edition contains 20 interesting articles from an Audit, Advisory and Tax perspective. To read this year’s edition, click here.
6. FATCA/CRS Guidance
On January 14, 2016 FATCA/CRS Guidance with technical notes to the Dutch IGA and CRS rules was released. The policy statement provides further details about how the Dutch IGA and CRS rules should be applied and contains answers to frequently asked questions. The Guidance provides a brief summary of the origins of the respective frameworks, lists where the relevant provisions can be found, elaborates on a wide range of definitions and identifies specific similarities and differences between the two systems.
7. Publication Decree fiscal investment institution policies
On January 11, 2016 the Ministry of Finance has published an update on fiscal investment institution policies. In a Decree it is clarified that for testing the shareholder requirements, mere legal ownership will only be disregarded if this shareholder has no economic interest at all. Furthermore, the exemption of the equal profit distribution condition for share classes has been extended to a more general nature, provided using share classes is not directed at the avoidance of dividend withholding tax. Finally, the application of the dividend withholding tax remittance reduction at sub fund and share class level is approved.
If you have any questions about fiscal investment institutions, please feel free to contact Valentijn van Noorle Jansen.