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Fund managers dodge VAT bullet on transaction fees

THE VAT EXEMPTION on discretionary fund manager transaction fees has been upheld by Her Majesty’s Revenue & Customs (HMRC).

The exemption had been at risk since last year when the European Court of Justice (ECJ) determined that discretionary portfolio management should not be exempt from VAT based on a case involving Deutsche Bank, reported sister publication Investment Week

However, the taxman said the Deutsche Bank ruling only considered the VAT position of periodic fees charged on a flat fee basis, where there was no direct link to the transactions being executed.

The exemption will continue to apply where discretionary fund manager fees are charged per purchase or sale of investments, but not where fees are charged on an annual or other periodic basis.

In a statement, HMRC said: “Where fees are charged strictly on a transaction by transaction basis (that is, per purchase or sale of investments) exemption will continue to apply.

“This is conditional upon the portfolio management services being contracted for on that basis and the transaction charges being separately identified in any VAT invoice.

“This VAT treatment will apply irrespective of whether the portfolio is managed on a full discretionary or on an advisory basis.”

The revised VAT treatment will apply from 1 December 2013.

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