The opinion of the Advocate General (AG) has been released in the case of Blackrock Investment Management (UK) Limited (Blackrock). The case is concerned with to what extent the supply of an IT platform used by Blackrock to provide management services both to special investment funds (SIF’s) and other funds could come within the VAT exemption under Article 135 (1) (g) of the principal VAT directive.
Whilst the supply of management services to a SIF are VAT exempt supplies of management services to non-SIF funds are subject to VAT at the standard rate. The IT platform in question was supplied by an affiliate company of Blackrock which was based in the US and on acquisition by Blackrock created a liability to account for VAT under the reverse charge mechanism. Blackrock had sought to argue that the IT platform services constituted a supply of 'management services' which fell within the scope of the exemption set out in Article 135 (1) (g) and to the extent that the platform was used to provide services to SIF’s there was no requirement to account for VAT under the reverse charge on this element. Blackrock had sought to argue that the apportionment could be made based on the respective value of the funds under management within the SIF and non-SIF funds.
The key issue therefore was whether the exemption within Article 135 (1) (g) authorises an apportionment to be made of a single supply of management services on a pro rata basis. Blackrock had sought to rely on the recent decision of the ECJ in the case of Commission v Luxembourg in which the Court had in principle accepted that a single supply could be apportioned on a pro rata basis. The Luxembourg case was concerned with the cost sharing exemption under Article 132 (1) (f) of the principle directive. The AG has concluded that the principle established in the Luxembourg case cannot apply to Blackrock as the exemption in Article 132(1) (f) makes reference to a “share” of costs whilst Article 135 (1) (g) makes no reference to 'use' and does not therefore support an apportionment being made. The AG went onto reference other cases were an apportionment of consideration had been made on a single supply (Talacre Beach Caravan Sales & Commission v France) but concluded that these cases turned on very specific circumstances and did not create a general principles on which Blackrock could rely.
In line with the well established principle that VAT exemptions have to be interpreted strictly the AG has concluded that there is no scope under Article 135(1)(g) to exempt a proportion of a single supply of IT platform services where the costs are used in part to provide management services to non-SIF’s. The AG acknowledges that the position would be more straightforward if the IT platform services were being provided to a company which manages SIF’s only, in which case the services would fall within the above exemption. In addition the AG did acknowledge in his closing comments that if it is possible for the recipient or indeed the supplier to precisely identify the services which are supplied to SIF’s then there could well be scope for an apportionment to be made. Accordingly had Blackrock been able to identify precisely what services are provided to SIF’s and non-SIFs and not merely sought to rely on a value based apportionment then his opinion may well have differed.
Whilst the opinion of the AG has gone against Blackrock the Court may of course reach a different conclusion and we await the decision of the full court in due course.