© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
H9. Fund management
GENERAL​
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Domestic exemption
"The management of—
(a) an authorised open-ended investment company; or
(aa) an authorised contractual scheme; or
(b) an authorised unit trust scheme; or
(c) a Gibraltar collective investment scheme that is not an umbrella scheme; or
(d) a sub-fund of any other Gibraltar collective investment scheme; or
(e) an individually recognised overseas scheme that is not an umbrella scheme; or
(f) a sub-fund of any other individually recognised overseas scheme; or
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(k) a qualifying pension fund." (VATA 1994, Sch 9, Group 5, Item 9)
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Purpose of exemption: facilitate investment through such undertakings
"[43] In that regard, it should be observed that the objective of exempting transactions connected with the management of special investment funds is, in particular, to facilitate investment in securities through investment undertakings by excluding the cost of VAT and, in that way, ensuring that the common system of VAT is neutral as regards the choice between direct investment in securities and investment through UCITS (see, to that effect, Abbey National, paragraph 62; JP Morgan Fleming, paragraph 45; Wheels, paragraph 19; and Case C‑275/11 GfBk [2013] ECR, paragraph 30)." (ATP PensionService A/S C-464/12)
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UCITS: Undertakings for Collective Investment in Transferable Securities
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EU exemption
"(g) the management of special investment funds as defined by Member States;" (Article 135)
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- Particularly for small investors
"[62] As the Advocate General observed in point 68 of her Opinion, the purpose of the exemption, under Article 13B(d)(6) of the Sixth Directive, of transactions connected with the management of special investment funds is, particularly, to facilitate investment in securities for small investors by means of investment undertakings. Point 6 of that provision is intended to ensure that the common system of VAT is fiscally neutral as regards the choice between direct investment in securities and investment through undertakings for collective investment." (Abbey National Plc C-169/04)
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"[30] The objective of the exemption of the management of special investment funds from VAT is in particular to avoid making access to that form of investment more difficult for small investors. If the exemption did not exist, the owners of units in investment funds would have a greater tax burden than investors who invest their money directly in shares or other securities and do not have recourse to the services of a fund management. It is precisely small investors for whom investment in investment funds is particularly important. Because of the small volume of investment available to them, they have only a restricted opportunity of investing their money directly in a wide spread of securities. In addition, they often do not have the necessary knowledge for comparing and selecting securities." (JP Morgan C-363/05, AGO)
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- Fiscal neutrality with direct investment
"[45] In that regard it must be observed, first, that the purpose of the exemption, under Article 13B(d)(6) of the Sixth Directive, of transactions connected with the management of special investment funds is, particularly, to facilitate investment in securities by means of investment undertakings by excluding the cost of VAT. That provision is intended to ensure that the common system of VAT is fiscally neutral as regards the choice between direct investment in securities and investment through undertakings for collective investment (Abbey National, paragraph 62)." (JP Morgan C-363/05)
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SPECIAL INVESTMENT FUNDS​
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Essential characteristics of special investment fund​
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- Pooling of assets of several beneficiaries to spread risk over a range of securities
"[51] The essential characteristic of a special investment fund is the pooling of assets of several beneficiaries, enabling the risk borne by those beneficiaries to be spread over a range of securities. From the statements provided by the referring court, this appears to be the situation in the case before it, as groups (ii) and (iii) of the Danish pension system schemes are funded by the persons to whom the retirement benefit is to be paid. Moreover, the referring court states – in Question 1(c) – that the sums in question are invested using a risk‑spreading principle and – in Question 1(a) – that the pension customers bear the investment risk.." (ATP PensionService A/S C-464/12)
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- Irrelevant who provides funds (e.g. employer)
"[53] For the purposes of determining whether an undertaking constitutes a special investment fund, the fact that the contributions are paid by the employer is irrelevant: the employer may be under an obligation to transfer to the pension fund sums corresponding to employees’ contributions. Physical involvement of that kind does not alter the fact that the contributions are paid on behalf of the pension customers using funds which must be regarded as reverting to them as a result of their work and that those customers bear the risks of any investments made using those contributions. In that regard, the referring court states – in Question 1(b) – that employers are not required to make supplementary payments in order to secure a particular return for pension customers." (ATP PensionService A/S C-464/12)
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- Does not include defined benefit pension scheme: members do not bear risk
"[52] In that regard, it is important to distinguish the investment fund at issue in the main proceedings from the fund at issue in Wheels: in Wheels, the members of the scheme did not bear the risk arising from the management of the investment fund in which the scheme’s assets were pooled, because the pension was defined in advance on the basis of length of service with the employer and the amount of the salary; and the contributions paid into the scheme by the employer were a means by which the employer complied with his legal obligations towards his employees (see Wheels, paragraphs 27 to 29). By contrast, as mentioned in paragraph 51 above, the schemes at issue in the case before the referring court are funded by the persons to whom the retirement benefit is to be paid and those persons bear the investment risk." (ATP PensionService A/S C-464/12)
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- Form of withdrawal from fund not relevant
"[55] Nor does the fact that the funds accumulated may be paid out as a lump sum or in instalments after the pension customer concerned reaches pensionable age call in question the essential characteristics of the savings invested in pension funds. These merely reflect different ways of calculating the amount to be paid out and, as the Advocate General stated in point 59 of his Opinion, transfers between the various options can be made by means of a simple financial transaction." (ATP PensionService A/S C-464/12)
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MANAGEMENT ​
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- May be subcontracted by the fund
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"[64] Thirdly, it follows from the principle of fiscal neutrality that operators must be able to choose the form of organisation which, from a strictly commercial point of view, best suits them, without running the risk of having their transactions excluded from the exemption under Article 13B(d)(6) of the Sixth Directive (see Abbey National, paragraph 68, and GfBk, paragraph 31)." (ATP PensionService A/S C-464/12)
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- May be broken down into a number of management services
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"[63] Secondly, the wording of Article 13B(d)(6) of the Sixth Directive does not in principle preclude the management of special investment funds from being broken down into a number of separate services which may then come within the meaning of the term ‘management of special investment funds’ as used in that provision, and may benefit from the exemption under it, even where they are provided by a third-party manager (see Abbey National, paragraph 67, and GfBk, paragraph 28)." (ATP PensionService A/S C-464/12)
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- But must form a distinct whole and be specific to management of a special investment fund
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"[65] Fourthly, the Court has made it clear that the transactions covered by that exemption are those which are specific to the business of UCITS (see Abbey National, paragraph 63). In particular, it has found that management services provided by a third‑party manager must, viewed broadly, form a distinct whole and be specific to, and essential for, the management of special investment funds (see, to that effect, Abbey National, paragraphs 70 to 72, and GfBk, paragraph 21)." (ATP PensionService A/S C-464/12)
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- Need not alter the funds legal and financial position
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"[69] By the same token, the fact that services provided by a third party do not alter the fund’s legal and financial position does not preclude them from being covered by the concept of ‘management’ of a special investment fund, for the purposes of that provision (GfBk, paragraph 26)." (ATP PensionService A/S C-464/12)
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Types of function included​
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- Portfolio management as well as administrative functions
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"[66] Functions specific to UCITS include, besides portfolio management functions, functions for administering the UCITS themselves, such as those set out – under the heading ‘Administration’ – in Annex II to Directive 85/611 (see Abbey National, paragraph 64, and GfBk, paragraph 22).
[67] However, the fact that services are not listed in Annex II to Directive 85/611 does not preclude their inclusion in the category of specific services falling within activities for ‘management of special investment funds’ within the meaning of Article 13B(d)(6) of the Sixth Directive, since Article 5(2) of Directive 85/611 itself emphasises that the list in that annex is ‘not exhaustive’ (GfBk, paragraph 25).
[68] Thus, the Court has held that services such as computing the amount of income and the price of units or shares, the valuation of assets, accounting, the preparation of statements for the distribution of income, the provision of information and documentation for periodic accounts and for tax, statistical and VAT returns, and the preparation of income forecasts are covered by the concept of ‘management’ of a special investment fund for the purposes of Article 13B(d)(6) of the Sixth Directive (see GfBk, paragraph 27)." (ATP PensionService A/S C-464/12)
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- Opening accounts and crediting contributions included
"[70] The services in respect of which eligibility for VAT exemption is contested in the case before the referring court are listed in paragraph 35 above. It appears prima facie that some of those services are not of a purely technical nature; rather, through the opening of accounts in the pension funds system and the crediting to those accounts of the contributions paid, they establish the rights of pension customers vis-à-vis the pension funds. The transactions by which contributions are credited to pension customers’ accounts appear to have the effect of transforming the claim held by a worker vis-à-vis his employer into a claim that the worker holds vis-à-vis the pension fund.
[71] In those circumstances, transactions crediting contributions to such accounts are essential to the management of a special investment fund." (ATP PensionService A/S C-464/12)
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- Accounting and account information services
"[76] ... That term also covers accounting services and account information services such as those listed in Annex II to Directive 85/611." (ATP PensionService A/S C-464/12)
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