The main issues which the ECJ addressed were:
- (i) Determination of the nature of the services supplied, namely whether the two elements mentioned form a single complex supply, which it would be artificial to split, or whether one element constitutes a principal service (exempt from VAT) whilst the other is to be regarded as an ancillary service, sharing the VAT treatment of the principal service.
- (ii) Determination of whether VAT exemption is applicable in this case.
As regards the nature of the services supplied, the ECJ concluded that the two elements form a single complex service, taxable from a VAT perspective, as those elements are considered to be so closely linked that they form, objectively, a single economic supply, which it would be artificial to split.
The ECJ also concluded that no VAT exemption is applicable in this situation for the services supplied,because:
- The service must be taken into account for VAT purposes only as a whole, as a single complex service, and therefore cannot be covered by the VAT exemption applicable in the case of transactions involving shares […] and other securities[…].
- The services supplied by Deutsche Bank are generally in relation to the assets of a single client investor,Deutsche Bank being involved in buying and selling activity in the name of and on behalf of the client investor, which retains ownership of the individual secutiries throughout and on the termination of the contract and therefore the services cannot be covered by the VAT exemption applicable to the management of special investment funds.
This decision brings important clarifications in relation to the VAT treatment applicable to portfolio management services performed by financial institutions other than collective investment companies. This decision also establishes the fact that if we are talking about complex services which comprise more than one element, one that seems to be principal, exempt from VAT, (i.e. sale of shares) and others of an ancillary nature (e.g. financial analysis), a detailed analysis must be performed to determine whether the principal-ancillary principle can be applied (which would exempt the whole transaction) or whether all the elements of the services form a taxable single complex service, which it would be artificial to split. If you deal with such situations and need more information about the implications of these decisions on your business, please let us know and we will be happy to discuss with you.
Ramona Jurubita, Tax partner, and Diana Dorca, Assistant manager, Taxation services