Global

Details

  • Service: Tax, Global Indirect Tax, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 7/24/2012

Germany - VAT treatment of portfolio management services 

July 24:   The Court of Justice of the European Union (CJEU) issued a judgment holding that portfolio management services are to be treated as a single service, and are fully subject to value added tax (VAT).

The case is: Finanzamt Frankfurt am Main V-Höchst v. Deutsche Bank AG, C-44/11 (19 July 2012)

Summary

The bank was directed by clients to buy and sell investments without advance client approval (but pursuant to a pre-agreed investment strategy). The bank’s service was a combination of investment advice, trade execution, and administration.


The bank asserted that this service was exempt from VAT as “transactions…in shares and other securities.”


The German tax authorities countered that the bank’s service was subject to VAT because an essential feature was the experience of the manager in determining the structure of the portfolio and in deciding which securities to buy / sell (in other words, that the service was advisory in nature).


The CJEU found that:


  • Notwithstanding that the service was composed of a number of elements, these elements were so closely linked—from an economic perspective—that it would be artificial to view them separately and thus must be treated as a single supply.
  • The fact that the management fee was split among some elements did not alter the treatment as a single service.
  • No one element was dominant, and the question of a VAT exemption is to be viewed in this context.
  • Portfolio management service did not come within the scope of the VAT exemption.

Read a July 2012 report [PDF 185 KB} prepared by the KPMG member firm in Ireland: Deutsche Bank Case (C-44/11)—VAT treatment of portfolio management services


Read also a July 2012 report [PDF 55 KB] on the CJEU judgment, prepared by the KPMG member firm in the United Kingdom: Deutsche Bank (C-44/11) – VAT treatment of portfolio management services


Read also an August 2012 report [PDF 57 KB] prepared by the KPMG member firm in Luxembourg: Discretionary portfolio management services – single economic supply subject to VAT




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