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In the recent case of Prudential Corporation plc, the tribunal considered whether subcontracted investment management services provided to the operator of an authorised unit trust were exempt as the management of a special investment fund. It found that the supplies were not exempt under United Kingdom VAT (Item 9 of Group 5 of Schedule 9 to the VAT Act 1994). However, it took the view that European Community VAT law (Article 13B(d)(6)) was unambiguous in exempting subcontracted management of special investment funds.
In the recent case of Prudential Corporation plc, the tribunal considered whether subcontracted investment management services provided to the operator of an authorised unit trust were exempt as the management of a special investment fund. It found that the supplies were not exempt under United Kingdom VAT (Item 9 of Group 5 of Schedule 9 to the VAT Act 1994). However, it took the view that European Community VAT law (Article 13B(d)(6)) was unambiguous in exempting subcontracted management of special investment funds. Since the service supplied was distinct in character, specific to, and essential for, the management of a special investment fund, it was entitled to exemption since United Kingdom VAT law failed to accurately enact European Community VAT law.
Customs have appealed to the Court of Session on the ground that 'management' within Article 13B(d)(6) cannot be unambiguously construed to allow subcontracted management, and that they believe exemptions should be interpreted narrowly. Since Member States are entitled to lay down their own rules when implementing Article 13B(d)(6), the tribunal should have followed domestic legislation and found in favour of the United Kingdom.
Thus Customs do not accept that businesses are entitled to exempt subcontracted management services following this decision. Voluntary disclosures submitted for investment services supplied to the operator of an authorised unit trust or to the authorised corporate director of an open-ended investment company, will not be repaid but will remain on file pending the outcome of litigation. Protective assessments will be raised by Customs where fund managers fail to account for tax on investment management services supplied to Operators or authorised corporate directors. All claims are subject to the normal rules of the three-year limit on VAT refunds.
(Source: Customs Business Brief 6/01 dated 18 April 2001.)
