The Irish Revenue has announced a number of measures to ensure a continuity of Revenue services during the COVID-19 pandemic and to assist primarily small and medium sized enterprise (SMEs) businesses experiencing cashflow difficulties. These include the following:
An SME is defined by Revenue as having turnover of less than €3million. Revenue has explicitly stated if any other businesses are experiencing temporary cash flow or trading difficulties, they should contact Revenue. We will be happy to assist with any questions you may have in this regard.
This is a constantly evolving situation and we expect further measures may be required in the coming weeks. If you are currently experiencing cashflow difficulties, particularly in meeting your VAT return payments, please reach out to your usual EY contact for guidance.
The Dutch Tax Authorities recently wrote to stakeholders to advise that collateral management and administration services provided to Dutch CLO SPVs no longer qualify for the fund management VAT exemption and this revised position applies retrospectively from April 2019.
The new approach appears to have been driven by the 2015 Court of Justice of the European Union (“CJEU”) judgment in the Fiscale Einheid case which outlined the need for a fund to be subject to specific state supervision in order for the fund management VAT exemption to apply. It is possible CLO issuers and/or investors will challenge both the retrospective nature of the Dutch Tax Authorities’ decision and their revocation of the VAT exempt position.
It is likely investors will want CLOs to consider migrating to another jurisdiction where the exemption still applies, such as Ireland. From a practical perspective Irish suppliers of collateral management or administration services to Dutch CLO SPVs should ensure they include their supplies on their EC Sales Lists (VIES returns).
On 11 March 2020 the Advocate General’s (AG) Opinion in the above case was delivered. The case concerns a single supply of an investment management service received by a UK fund manager from a US affiliated company, which the UK fund manager uses for to manage both Special Investment Funds (SIFs) (VAT exempt activity) and other funds that are not SIFs (taxable activity). The questions asked of the CJEU are (i) is the single supply to be subject to a single rate of tax? And if so, how is that single rate to be determined? And (ii) may the consideration for that supply be apportioned between the SIF and non-SIF funds?
The AG opined that the supply received by the UK fund manager is a single supply of services consisting of various elements supplied in a complementary way. The AG confirmed that it is not permissible to apply different VAT treatments to different elements of that single supply (i.e. the management of SIFs and the management of other non-SIF investment funds). The AG clarified that the single supply of services supplied to the UK fund manager could not be exempt as applying exemption to management of non-SIF investment funds would not be in line with the principle of VAT neutrality. The AG expressed the view that if the UK fund manager was allowed to apportion the exemption according to the value of SIF and non-SIF assets managed by it, that approach risked exemption being partially applied to the management of non-SIF’s given the fluctuating value of assets, and this outcome would be contrary to the principle that exemptions should be applied narrowly.
While we await to see if the Court follows the AG’s opinion, this is not an unexpected outcome. It does not close the door on VAT exemption applying where there is a robust framework from the supplier clearing ascribing consideration to each element of the supply. All business, not just those in the investment management industry, that receive or supply a single service comprised of different elements which potentially attract different VAT rates, should carefully consider their arrangements to see if they are impacted by this Opinion.
Download the March 2020 VAT and Financial Services Update which also covers:
Look out for future updates and alerts from us and please reach out if you have any questions!