Blackrock’s UK arm is not exempt from paying value added tax (VAT) on part of a service from an outside supplier to help manage its funds, an EU court ruled today.
The world’s biggest asset manager had argued that between 2010 and 2013 it should not have to pay VAT on all the services given, as they included services for special investment funds — which are exempt from the tax — but British tax authorities disagreed.
Today, in a ruling dashes the fund sector’s hopes for cost savings, the First Chamber of the EU’s Court of Justice ruled that Blackrock could not benefit from the exemption.
The Court ruled that a “single supply of management services, provided by a software platform belonging to a third-party supplier for the benefit of a fund management company, which manages both special investment funds and other funds, does not fall within the exemption provided for in that provision.”
It said that Blackrock’s British division receives services from a unit in the US via a software platform called Aladdin, which provides portfolio managers with market analysis to help make investment decisions.
These services constitute a single supply, whichever funds are being managed, the Court said.
A spokesperson for Blackrock said: “We respect the decision of the Court of Justice of the EU”.
Gert-Jan van Norden, a financial services partner at KPMG Netherlands, said the ruling would be a disappointment for the wider funds industry, which was hoping to copy Blackrock if the ruling had gone the other way.
“It does not seem a very reasonable outcome. If you bought these services from two different entities, it would not be a problem,” van Norden said.