Will European fund managers be exempted from value-added tax on their outsourced management services? If UK financial services group Abbey's case is anything to go by, this could finally become clear. Abbey has brought a case to the European Courts of Justice in which it claims it should not have to pay VAT on the outsourced management services for its funds. The ECJ is expected to take several months to come to a final decision, but it is well known that the court usually follows advocate general Juliane Kokott's suggestions, and she has supported Abbey's claims.
At present, it is unclear whether management services such as trustee services, depositary services and administration and accounting services are exempt from VAT. Kokott, however, is suggesting that where such outsourced services play a distinctive role in the fund management process, they should be so exempt. This does not include pure accounting or safe-keeping, where such services are not deemed part of the fund management process. If supported by the ECJ, the suggestion will become the new template for fund managers.
What this essentially means is lower costs for fund managers, which ultimately work through into lower fees to investors.
