CJEU: Services associated with both taxable and exempt supplies may not be partially exempt from VAT

A US company provided services to BlackRock, a British company and a manager of investment funds, via an IT platform, Alladin. These involved a package of services comprising a market analysis, the monitoring of adherence to legal regulations, performance monitoring, risk assessment to make an ideal investment decision, etc. BlackRock used this platform for both the management of collective investment funds, which is exempt from VAT in Great Britain, and for the management of other funds, which is liable to VAT. Services provided via the Alladin platform represented a single supply irrespective of them being used in the management of various investment funds.

BlackRock paid VAT only on a proportionate part of services associated with the management of other investment funds, determined based on their share in the total amount of funds managed. The remaining part was treated as supplies exempt from VAT. However, the tax administrator was of the opinion that all of the services rendered should be taxed, since BlackRock mainly managed other investment funds. A question was referred to the CJEU: whether the services in question represent a single supply from a VAT perspective and, if so, whether it is possible to claim at least a partial exemption.

The CJEU first confirmed that the services at issue can be regarded as one indivisible supply comprising various elements. However, owing to the nature of the provided services, it is not possible to distinguish between principal supplies and ancillary supplies; consequently, this involves a single supply liable to a single VAT treatment. The indivisible supply cannot be split for the purpose of applying an exemption to one part and taxation to the other. The court also rejected the procedure outlined by the tax administrator proposing that the VAT treatment of the services in question should be determined according to the supplies to which the majority of services relates. The VAT treatment depends on the nature of provided services (management of investment funds) and not on their provider or recipient.

As for the option to exempt the entire supply from VAT, the CJEU held that a VAT exemption must be interpreted in a strict manner: to be able to claim the management services for investment funds as supplies exempt from VAT, they must form a separate group regarded as a distinct whole fulfilling the specific functions of the management of collective investment funds. Since the services in question were intended for the management of investment funds of a various nature and could be used for the management of both collective investment funds and other funds, according to the court, they cannot be exempt from VAT.

For the purposes of applying the Czech VAT Act, which does not distinguish between the individual types of investment funds, the judgment is mainly significant as it confirms that it is necessary to apply a single VAT regime on the entire package of services and it is not possible to determine, based on various criteria, a part that is liable to VAT and another one exempt from VAT.