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01 March 2017 / article

The scope of the VAT exemption for the management of special investment funds

Over the past few years, the scope of the Belgian VAT exemption for the management of special investment funds (Art. 44, §3, 11° Belgian VAT Code) has been modified several times, following multiple changes in the European and Belgian regulatory frameworks of funds. The Law of 3 August 2016 modified the wording of the VAT exemption so that the management of collective investment funds as defined in the Act of 19 April 2014 on alternative investment funds and their managers (AIFM Law) is VAT exempt.

VAT exempt even if the manager is only subject to de minimis registration with the fsma

However, legal uncertainty remains as to the application of the VAT exemption on two specific points.

Whether a registration with the FSMA is sufficient to apply the VAT exemption for the management of alternative investment funds

As a result of the Fiscale Eenheid X case (C-595/13), in which the ECJ established that the VAT exemption for the management of special investment funds applies to investment undertakings that are subject to specific state supervision, the question was raised whether the Belgian VAT authorities would accept the application of the VAT exemption when the management services are performed to ‘small’ alternative investment funds within the meaning of the AIFM Law[1] for which the manager is not subject to full authorisation but only to registration with the FSMA and for which the manager should, inter alia, provide the Belgian FSMA with relevant information regarding the main instruments in which is traded and on the principal exposures and most important concentrations of the alternative investment funds that are managed.

Although it is currently not expected that the Belgian VAT authorities will issue additional guidance on this particular point, we are aware of individual cases where the VAT authorities accepted the application of the VAT exemption for management services performed to these so-called ‘small’ alternative investment funds.

Management services performed by alternative investment fund managers that are only subject to the lighter supervision regime of the AIFM Law could therefore in principle benefit from the VAT exemption. This is in our view fully in line with the ECJ’s judgment in the Fiscale Eenheid X case (C-595/13) and the wording of the VAT exemption.

Note however that until further guidance is provided it remains important to look at the facts and circumstances of each case individually in order to determine whether it is eligible for the VAT exemption.

Whether the VAT exemption for the management of investment funds is applicable to all types of alternative investment funds as defined in the Belgian AIFM Law of 19 April 2014

Contrary to the wording of the VAT exemption, it could be argued that the VAT exemption does not apply to the management of all types of alternative investment funds as defined in the AIFM Law of 19 April 2014.

The VAT exemption’s scope of application prior to the Law of 3 August 2016

As you know, the VAT exemption for the management of special investment funds only applies to the funds listed in Article 44, §3, 11° of the Belgian VAT Code.

Prior to the entry into force of the AIFM Law on 27 June 2014, alternative investment funds, such as hedge funds and private equity funds did not fall within the scope of application of the VAT exemption since said investment funds were not regulated by one of the laws explicitly mentioned in the wording of the VAT exemption (Law of 20 July 2004 (replaced by Law of 3 August 2012) and Law of 27 October 2006 related to organisms for pension funding).

The AIFM Law of 19 April 2014, which implemented EU Directive 2011/61/EC into the Belgian legal system, limited the scope of application of the Law of 3 August 2012. In particular, the scope of application of the Law of 3 August 2012 was limited to collective investment funds that qualify as undertakings for the collective investment in transferable securities as defined in EU Directive 2009/65/EC. As a result of this legislative change, all types of investment funds that did not qualify as an undertaking for the collective investment in transferable securities would not fall under the Law of 3 August 2012 and thus their managers could in principle not benefit from the VAT exemption. The latter investment funds would in principle fall within the scope of the AIFM Law of 19 April 2014 but this law was at that time not explicitly included in the wording of the VAT exemption so that the VAT exemption could not be applied for the services performed by their managers.

However, the Belgian VAT Authorities decided on 30 March 2015 that managers of funds that were regulated under the Act of 3 August 2012 prior to the AIFM Law’s entry into force, would still be able to benefit from the VAT exemption until the wording of the VAT exemption was formally modified. Accordingly, the original scope of application of the VAT exemption was maintained.

The wording of the VAT exemption was finally modified by the Law of 3 August 2016 that entered into force on 26 August 2016. According to the new / current wording, the VAT exemption applies to the management of:

  • Collective investment undertakings as defined in the Law of 3 August 2012 (UCITS) and special vehicles investing in receivables;
  • Collective investment undertakings as defined in the AIFM Law of 19 April 2014;
  • Belgian real estate investment trusts as defined in Article 2, 1°, 2° and 3° of the Law of 12 May 2014;
  • Organisms for pension funding as defined in article 8 of the Law of 27 October 2006.

The VAT exemption’s scope after the Law of 3 August 2016

The Law of 3 August 2016 explicitly included the management of collective investment undertakings as defined in the AIFM Law of 19 April 2014 into the wording of the VAT exemption. However, the Explanatory Memorandum to the Law of 3 August 2016 suggests that the Belgian legislator intended to modify the wording of the VAT exemption to maintain the original scope of the exemption as it read prior to the AIFM Law’s entry into force. This would mean that the management of several investment funds that were not regulated by the Law of 3 August 2012 prior to the entry into force of the AIFM Law, would not be VAT exempt under the new VAT exemption. In other words, based on the Explanatory Memorandum to the Law of 3 August 2016, the Belgian legislator seems not to have intended for the VAT exemption to be applicable on all alternative investment funds within the meaning of the AIFM Law of 19 April 2014.

According to the new wording of the VAT exemption however, the management of alternative collective investment funds as defined in the AIFM Law can benefit from the VAT exemption. It follows that the VAT exemption should, from a legal point of view, apply to the management of all of alternative collective investment funds regulated by the AIFM Law of 19 April 2014, even on those that were previously not regulated by the Law of 3 August 2012 (e.g. hedge funds, private equity funds, etc.). Such interpretation is also in line with the Belgian Supreme Court’s case law which established that a clearly formulated law does not need interpretation (Court of Cassation 11 December 1962).

1 A lighter supervision regime was set in place for alternative investment fund managers where the cumulative alternative investment funds under management are maximum EUR 100 million and for alternative investment fund managers that manage only unleveraged alternative investment funds that do not grant investors redemption rights during a period of 5 years where the cumulative alternative investment funds under management are maximum EUR 500 million.



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