Indirect tax in financial services: continued refinement of fund management exemption and service structuring

Recent Danish VAT developments further clarify how investment fund services should be characterised for VAT purposes, in particular where similar services are supplied within structures involving a common asset manager.

The authorities confirm that the key question is whether the services constitute a single underlying supply to the asset manager, potentially subject to artificial split through contractual or invoicing arrangements, or whether there are genuinely separate supplies to distinct investment funds. In line with the principle of economic reality, the decisive factors are the actual contractual relationships, the allocation of costs, and the identity of the entity that receives and benefits from the services.

Where services are individually agreed with each investment fund, separately invoiced, and economically borne by each fund, they may be regarded as independent supplies, even if the same asset manager is involved in their administration and use. This assessment is not displaced merely by operational overlap or shared infrastructure at manager level.

At the same time, recent guidance on the fund management exemption confirms a restrictive approach to outsourced services, requiring that only services which are sufficiently specific and essential to fund management qualify for exemption under EU VAT law.

Key takeaway / recommendation

Recent Danish VAT developments show that the fund management exemption is highly fact-specific and continues to evolve in interpretation. This means that existing structures need to be regularly reassessed. The same applies to related VAT rules, including financial services exemptions and place of supply rules that affect cross-border investment activity. Readers may wish to refer to the JP Morgan case C-363/05 on the question of whether the services to the  asset manager are a single composite supply or separate supplies and the important role of the documentation.