Taxman to issue VAT guidance after European Court ruling

GUIDANCE WILL BE ISSUED by the taxman after the European Court of Justice ruled that discretionary fund managers should be subject to VAT.

The judgment comes after the court recommended in May that all elements of discretionary services should be taxable, Citywire reports.

The court said discretionary fund manager (DFM) transactions, including the trading of securities, analysis and monitoring of assets, were inseparable and key to the service. Therefore, most customers would ask for a combination of the services and should pay VAT.

The case itself centred on a dispute between German banks Finanzamt Frankfurt am Main and Deutsche Bank, which was referred to the European Court of Justice by a German court. Frankfurt had challenged Deutsche Bank over treating transactions pertaining to the company's discretionary services as exempt from VAT.

Draft guidance, published in February by HMRC on VAT exemptions for independent financial advisors, outlined that outsourcing rules to DFMs would be revised in a separate guidance paper – but emphasised the possibility of a VAT charge.

A spokesman from the taxman, cited by Citywire, said: "HMRC welcomes the judgment of the ECJ. We are currently reviewing the details of the judgment to determine whether it has any implications for the current UK VAT treatment of investment management services, and will issue further guidance shortly."