In a decision dated 30 March 2015 (click here to view the text in French or in Dutch) , the Belgian tax administration has confirmed that all types of investment entities to which management services could be rendered with an exemption from VAT prior to the entry into force of the AIFM Law remain eligible for such VAT exemption after the entry into force of this Law. This decision removes the uncertainty that had existed in this respect in the investment fund industry for the past few months, and it allows for the avoidance of a (possibly significant) increase in the servicing cost of some important Belgian investment company types.
Article 44, §3, 11° of the Belgian VAT Code stipulates a rule pursuant to which the servicing of, amongst other, certain types of Belgian pension funds and investment companies or of their assets is exempt from Belgian VAT. This specific VAT exemption only covers management services that are specific for collective investment undertakings and that relate to the management of such undertakings or of their assets. It does not apply to the mere material or technical supplying of services.
The scope of application of Article 44, §3, 11° of the Belgian VAT Code insofar that it relates to "investment companies" is defined by way of a reference to "collective investment companies as referred to in the Law of 3 August 2012 on certain forms of collective management of investment portfolios" (the "UCITS Law").
Until recently, the following types of collective investment undertakings were expressly regulated by the UCITS Law and thus benefitted from this exemption:
- SICAFs/BEVAKs (including SICAFIs/real estate BEVAKs);
- Public and private PRIVAKs/PRICAFs;
- Public and institutional securitization vehicles (SICs/VBSen).
The Law of 19 April 2014 on the alternative institutions for collective investment and their managers ("AIFM Law") brought structural changes to the UCITS Law. The results of these changes are summarized below.
- Currently, all types of investment undertakings, other than public SICAVs/BEVEKs that qualify as undertakings for collective investment in transferable securities under the UCITS Directive 2009/65/EC, are no longer governed by the UCITS Law but rather by the AIFM Law itself;
- With respect to the regulatory rules governing securitization vehicles (i.e., the institutional SICs), the AIFM Law has not taken these out of the scope of the UCITS Law. Instead, it took the applicable rules out of the chapter in the UCITS Law dedicated to "collective investment companies" and it inserted substantially similar rules into a new and separate chapter of the UCITS Law that is dedicated exclusively to "institutions for investment in receivables".
In each instance, these changes have an effect on both existing and new investment companies.
Even though the AIFM Law did not contain any tax provisions, it caused some concerns amongst asset managers and in the investment fund industry regarding whether or not the regulatory changes introduced by it would not also indirectly affect the VAT treatment of services rendered to investment companies other than public SICAVs/BEVEKs that qualify as undertakings for collective investment in transferable securities under the UCITS Directive 2009/65/EC.
In a strict interpretation of the wording used in Article 44, §3, 11° of the Belgian VAT Code, one might indeed have concluded that the VAT exemption under this provision no longer applies to the relevant types of investment entities. This would have implied that, as from the date of entry into force of the AIFM Law, all types of servicing fees charged to, for example, institutional SICs, public and private PRIVAKs, and SICAFIs would - as a matter of principle - be subject to 21% Belgian VAT.
In an administrative decision dated 30 March 2015 (click here to view the text in French or in Dutch), the tax authorities have, however, confirmed that until the current wording of the references in Article 44, §3, 11° of the Belgian VAT Code will be corrected by a legislative change, all types of entities that qualified for the aforementioned VAT exemption before the entry into force of the AIFM Law continue to do so after the date of entry into force of this Law. This decision implies that public and private PRIVAKs, institutional SICAVs and SICs and public and institutional SICAFIs, for example, will continue to benefit from this exemption. The fact that most of these investment undertakings are now governed by the AIFM Law does not, however, mean that other alternative investment funds or companies governed by the AIFM Law could also benefit from this or a similar exemption.
This decision is good news for the Belgian investment fund industry. Most Belgian investment companies are indeed not entitled to recover input VAT. If VAT were to have become due on servicing fees charged to these types of entities, this would have led to a (possibly significant) increase in their servicing cost.
The AIFM Law has raised similar concerns on the continuous application of the beneficial income tax treatment of the above-mentioned types of investment companies. The tax administration has not (yet) taken a formal position in this respect, but it is expected that the AIFM Law should not adversely affect the income tax treatment of the relevant investment company types either. This position is supported by a recent (but currently still unpublished) advance tax ruling in which the Belgian ruling commission held that, notwithstanding the entry into force of the AIFM Law and the resulting mismatch in cross-references between the relevant income tax and regulatory provisions, an institutional SIC continues to benefit from the deviating income tax regime for regulated investment companies.