In a preliminary ruling request published in February 2011 (case reference: V R 9/10), the Federal Tax Court (BFH) has asked the European Court of Justice (ECJ) to rule on whether discretionary portfolio management services (i.e. the selling and buying of securities for and on behalf of an individual investor by a bank and other asset managers) are subject to VAT. The German tax authorities represented by the Ministry of Finance (BMF) take the position that these services are subject to VAT at the standard rate of 19% if the place of supply of that service is in Germany. The BFH, however, had ruled in 2007 (case reference: V R 22/04) that the portfolio management services should be exempt from VAT. The question was brought before the BFH again because the Ministry of Finance had responded to the 2007 decision with official guidance that the decision should not be applied on a general basis.
The ultimate view of the ECJ largely depends on the importance the Court gives to the principle of fiscal neutrality for services provided in relation to investments. It will be necessary to clarify whether a different treatment can be justified: a VAT exemption applies for collective securities investment by investors participating in securities funds, while discretionary portfolio management, in which a bank sells and buys securities for and on behalf of an individual investor, would be subject to VAT.
The dispute referred to the ECJ affects the entire industry engaged in discretionary portfolio management for individual investors, so the ECJ decision will have a significant effect on the taxation of the asset manager as well as on its contractual relationship under civil law with the individual investor.
For further information please contact Sonja Wiesner or your regular Deloitte indirect tax contact.
