taxud/2414/08 - European Commission - Europa

In a second step let's look at the relation between the bank and its customers: Here
nothing has changed. The bank still supplies securities exempted from VAT as a
financial services under the new draft 135 (4) (e) and 135a (8) of Council Directive
112/2006/EC and with it portfolio management as a constitutive but ancillary element of
the supply of securities.
(gg) On the other hand it was not necessary to apply the concept of constituent elements
to the management of investment funds. The term "management" being defined as
"activities aimed at realising the investment objectives of the investment fund" allowed
to list in the Regulation concrete management services which qualify for the exemption
and others which do not. It sufficiently allows for the incorporating of activities which
express a management activity. The interpretation is, however, limited by the purpose of
the exemption which is the equal treatment of larger and smaller investors investing into
vehicles supplied as exempt financial and insurance services.
(hh) Intermediation in insurance services and intermediation in financial services were to
be treated equally because the market of insurance services increasingly overlapped with
the market for financial services, requiring the same or similar forms of intermediation.
Additional criteria complementing the jurisprudence of the ECJ and defining scenarios of
intermediation had to be provided in the Regulation.
(ii) However, even where an outsourced service is covered by the modernised definition
of exempt services, the fundamental problem of non-deductible input VAT is simply
transferred to the supplier of the outsourced services. This supplier will see his right to
deduct input tax being reduced, because he supplies a service which is exempt from
VAT.
b) Reducing the impact of non-deductible VAT on the costs of economic operators
In the process of analysing feasible instruments for reducing the impact of nondeductible
VAT on the costs economic operators, the element of budgetary security for
Member States was also considered and at least currently non-suitable instruments were
excluded:
(aa) Zero rating
In the discussions with Member States and economic operators zero rating was excluded
as a realistic option although it carried the benefit of simplicity at first sight, reducing the
impact of sticking tax (non deductible VAT) through enhanced recovery as well as
reducing the administrative compliance costs. However, such a solution would have been
inconsistent with the fundamental principles of VAT and in particular with the principle
of neutrality. It would in fact have created substantial, if not uncontrollable, competitive
distortions between financial and insurance operators on one side and "normal"
businesses on the other side which could not be justified. In addition the reduced tax bill
for the industry would have generated a negative budgetary result for Member States the
amount of which would have been virtually impossible to determine.
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