The Portuguese Tax Authorities have recently released the following binding rulings regarding the VAT exemption applicable to the administration or management of investment funds (Article 9(27)(g) of the VAT Code):

1. Subcontracting of legal services – Case no. 25597, with order dated 2024-02-29, of the Director of VAT Services;

2. Provision of accounting services – Case No. 25664, with order dated 2024-03-25, of the Director of VAT Services;

3. Transmission of Data Processing and IT Consulting Services - Case No. 25765, with order dated 2024-03-26, of the Director of VAT Services;

4. Purchase of goods and services from third parties – Case No. 25796, with order dated 2024-03-25, of the Director of VAT Services;

5. Provision of software for the management of common investment funds – Case No. 25781, with order dated 2024-03-25, of the Director of VAT Services.

Given that this exemption derives from the transposition into national law of Article 13B(d)(6) of the so-called Sixth VAT Directive (the wording of which was taken over by Article 135(1)(g) of the current VAT Directive), in the aforementioned binding rulings, the Tax and Customs Authority analyses the scope of the exemption at the light of European Community law and of the case-law of Court of Justice of the European Union ("CJEU").

Since the key issue in the identified binding rulings is the interpretation to be given to the concept of administration or management of investment funds, the decisions of the CJEU delivered in Case C-169/04 of 4 May 2006 (Abbey National) and more recently in Joined Cases C-58/20 and C-59/20 of 17 June 2021 (K and DBKAG) are relevant, inter alia.

On the other hand, the topic was framed in the light of the current asset management regime. In fact, the functions of the managing entities as provided for in the current Article 63(2) of the Assets Management Regime (“RGA”) and the possibility of subcontracting functions within the scope of asset management, as provided for in Article 70 of the RGA, are listed.

Those binding rulings can be summarized as follows:

1. VAT exemptions must be interpreted strictly as autonomous concepts of European law and considering the nature of the supply of services and not the characteristics or quality of the supplier.

2. Activities carried out by third parties, to whom the management company delegates functions that were initially within its competence, deriving from the legal link between it and the investment fund, that is to say, its management, are covered by the VAT exemption in so far as the administration or management of the fund is covered and provided that they meet the characteristics referred to in the judgments in question,  that is to say, they are distinct or autonomous in nature, as well as intrinsically linked to the management of special investment funds and are provided exclusively for the purpose of managing those funds.

3. In line with the CJEU's reasoning in the aforementioned cases, certain day-to-day asset management activities of investment funds, such as accounting services, legal services or advisory services, should be considered to fall within the scope of the VAT exemption provided for in Article 9(27)(g) of the VAT Code, where they constitute essential and specific operations of their activity, regardless of whether they are developed by an entity other than the one in charge of managing them. Conversely, the provision of services which are not directly related to the management of the investment fund, nor are they specific to the management activity of that fund (but are instead general in relation to any entity carrying out any type of economic activity), will not be included in that exemption.

In view of the above, it is recommended that management companies of collective investment undertakings analyze and review contracts for the provision of services entered with third parties relating to investment fund management and administration