Danish VAT: When Do Investment Funds Carry Out Collective Investment?

The Danish Tax Assessment Council has recently issued a binding ruling on the question when investment funds carry out collective investment. The question is relevant in order to determine whether management services rendered by an investment management company to an investment fund are VAT exempt. 

For an investment management company to render management services to an investment fund on a VAT exempt basis, two conditions must be met: 

• the services must, by their nature, be regarded as portfolio management
• the services must be provided to a legal entity that meets the conditions for being an investment fund from a VAT perspective.

To meet the second condition, the investment fund must either be a fund etc. within the meaning of the UCITS Directive or a fund that has similar characteristics as funds covered by the UCITS Directive. 

An alternative investment fund, which was the legal entity in the case before the Danish Tax Assessment Council, is not covered by the UCITS Directive. The Danish Tax Agency has set up certain conditions that a fund must meet in order to show similar characteristics as such funds. The question that was assessed by the Council was whether the investment fund carried out collective investment.

According to the Danish tax authorities, an investment fund carry out collective investment if there are two or more investors. The fact that the only two investors in the recent case were group related companies gave rise to the question whether group related companies should be considered as one investor for the purpose of the 'collective investment-condition'.   

The Danish Tax Assessment Council concluded that group related companies should be regarded as one and not separate investors for VAT purposes when assessing whether an investment fund carry out collective investment. 

Read more about Taxation of investment funds in Denmark

Kromann Reumert’s tax team will follow the development closely.