JP Morgan Fleming Claverhouse Investment Trust plc and The Association of Investment Trust Companies v The Commissioners of HM Revenue and Customs.
Date: 2007-06-28
19. According to settled case-law, the exemptions provided for in Article 13 of the Sixth Directive have their own independent meaning in Community law which must be given a Community definition whose purpose is to avoid divergences in the application of the VAT system from one Member State to another (see, to that effect, Case C‑428/02 Fonden Marselisborg Lystbådehavn   [2005] ECR I-1527, paragraph 27; Case C-498/03 Kingscrest Associates and Montecello  [2005] ECR I-4427, paragraph 22; Joined Cases C‑394/04 and C-395/04 Ygeia  [2005] ECR I‑10373, paragraph 15; Case C-169/04 Abbey National  [2006] ECR I-4027, paragraph 38; and Case C-401/05 VDP Dental Laboratory  [2006] ECR I-0000, paragraph 26).
20. However, the Community legislature may confer the task of defining certain terms of an exemption on the Member States (see, to that effect, Case C‑468/93 Gemeente Emmen  [1996] ECR I‑1721, paragraph 25, and Abbey National , paragraph 39).
21. In such cases it is for each Member State to define the concepts in question in its own domestic law (see to that effect, Joined Cases C‑443/04 and C‑444/04 Solleveld and van den Hout-van Eijsbergen  [2006] ECR I-3617, paragraph 29), subject to the terms of the exemption laid down by the Community legislature.
22. Moreover, it is clear from the case-law of the Court concerning VAT that, when the Member States come to define certain terms of an exemption, they may not prejudice the objectives pursued by the  Sixth Directive or the general principles underlying it, in particular the principle of fiscal neutrality (see, to that effect, Gemeente Emmen , paragraph 25; and Case C‑246/04 Turn- und Sportunion Waldburg  [2006] ECR I‑589, paragraph 31).
The first question
26. In paragraph 53 of its judgment in Abbey National the Court held that Article 13B(d)(6) of the Sixth Directive covers special investment funds whatever their legal form. Undertakings for collective investment constituted under the law of contract or trust law, and those constituted under statute both come within the scope of that provision.
29. An interpretation of Article 13B(d)(6) of the Sixth Directive exempting from VAT the management of open-ended funds, and not the management of closed-ended funds, would be contrary to the principle of fiscal neutrality on which, in particular, the common system of VAT established by the Sixth Directive is based, and which precludes economic operators carrying out the same transactions being treated differently in relation to the levying of VAT (see, to that effect, Case C-382/02 Cimber Air [2004] ECR I-8379, paragraphs 23 and 24; Case C-280/04 Jyske Finans  [2005] ECR I‑10683, paragraph 39; and Abbey National , paragraph 56).
32. Although it follows from the recitals in the preamble to and the terms of the UCITS Directive that its objective is to coordinate national legislation governing collective investment undertakings, the fact remains, as the Advocate General observed in point 22 of her opinion, that, when the Sixth Directive was adopted, Community terminology in the field of special investment funds was not yet harmonised, since the UCITS Directive, Article 1(3) of which  gives a Community definition of collective investment undertakings, was not adopted until 1985 (see Abbey National , paragraph 55).
33. Moreover, even if certain language versions, such as, in particular, the Spanish, French, Italian and Portuguese versions of Article 1(3) of the UCITS Directive, when they designate undertakings for collective investment constituted under the law of contract, as opposed to funds constituted under trust law or under statute, use the same expression as that which appears in Article 13B(d)(6) of the Sixth Directive, that is not the case in other language versions, such as the English, Danish and German versions (see, to that effect, Abbey National , paragraph 55).
34. Finally, it cannot be argued that the harmonisation introduced by the UCITS Directive does not extend to closed-ended funds. In that connection, it must be observed that, as the Commission points out, closed-ended funds are not excluded definitively from the coordinating measures laid down by that directive. It is apparent from the sixth recital of the preamble to the directive that those funds are merely temporarily excluded from the coordinating measures laid down in the directive. Thus it is not ruled out that closed-ended funds might be harmonised at a later stage.
41. At the outset it must be observed that the task of defining the meaning of the words ‘special investment funds’ does not in any way permit the Member States to select certain funds located on their territory and grant them exemption and exclude other funds from that exemption. It follows from paragraph 21 of this judgment that the terms ‘special investment funds’ must be the starting point for the discretion conferred on the Member States.
42. The interpretation according to which it is for the Member States to select the investment funds which are eligible for the exemption and exclude others would negate the significance of the terms ‘special investment funds’ in Article 13B(d)(6) whose objective is to prevent discrepancies in the application of VAT to such funds.
43. Article 13B(d)(6) of the Sixth Directive thus only grants the Member States the power to define, in their domestic law, the funds which meet the definition of ‘special investment funds’. That power should, according to paragraph 22 of this judgment, be exercised subject to the objective pursued by the Sixth Directive and the principle of fiscal neutrality of the common system of VAT.
45. In that regard it must be observed, first, that the purpose of the exemption, under Article 13B(d)(6) of the Sixth Directive, of transactions connected with the management of special investment funds is, particularly, to facilitate investment in securities by means of investment undertakings by excluding the cost of VAT. That provision is intended to ensure that the common system of VAT is fiscally neutral as regards the choice between direct investment in securities and investment through undertakings for collective investment ( Abbey National , paragraph 62).
46. Second, the principle of fiscal neutrality, on which the common system of VAT established by the Sixth Directive is based, precludes economic operators carrying out the same transactions from being treated differently in relation to the levying of VAT. That principle does not require the transactions to be identical. According to settled case-law that principle precludes, in particular, treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes (see Case C-109/02 Commission v Germany [2003] ECR I-12691, paragraph 20; Joined Cases C‑453/02 and C‑462/02 Linneweber and Akritidis  [2005] ECR I‑1131, paragraph 24; Kingscrest, Associates and Montecello , paragraph 54; Case C‑106/05 L.u.p . [2006] ECR I‑5123, paragraph 32; Turn- und Sportunion Waldburg , paragraph 33; and Solleveld and van den Hout-van Eijnsbergen , paragraph 39).
47. The principle of fiscal neutrality includes the principle of elimination of distortion in competition as a result of differing treatment for VAT purposes (see, to that effect, Case C‑481/98 Commission v France  [2001] ECR I-3369, paragraph 22). Therefore, distortion is established once it is found that supplies of services are in competition and are treated unequally for the purposes of VAT (see, to that effect, Case C‑404/99 Commission v France  [2001] ECR I-2667, paragraphs 45 to 47). It is irrelevant, in that connection, whether the distortion is substantial.
48. It follows from the foregoing that any application of national legislation which excludes the management of special closed-ended investment funds from the exemption provided for by Article 13B(d)(6) of the Sixth Directive is contrary to the objective of that provision and to the principle of fiscal neutrality where those closed-ended funds are collective investment undertakings which allow investors to invest in securities and where those funds are in competition with funds exempt from VAT.
49. It is for the national court to verify whether the application of the national legislation at issue in the main proceedings is consistent with the objective of Article 13B(d)(6) of the Sixth Directive and with the principle of fiscal neutrality in the light of the guidelines given in this judgment.
50. In that regard, it is possible to provide the referring court with some further guidelines in the light of the information it sent to the Court. Thus, it must be held that, in any event, the management of AUTs and OEICs, which are collective investment undertakings as defined in the UCITS Directive, is exempt from VAT in the United Kingdom. Although, at present, ITCs are not collective investment undertakings within the meaning of the UCITS Directive, the fact remains that, as the referring court observes, AUTs, OEICs and ITCs are three forms of special investment which spread risk. In addition, the referring court considers that ITCs, like AUTs and OEICs, involve investment in securities through the intermediary of a collective investment undertaking which allows private investors to invest in wide-ranging investment portfolios and thus reduce the stock market risk.
51. Thus, according to the statements put before the court, the management of ITCs falls within the objective of the Sixth Directive and ITCs constitute investment funds comparable to AUTs and OEICs which fall within the definition of ‘special investment funds’. In those circumstances, the exclusion of ITCs from the exemption provided for by Article 13B(d)(6) does not appear justified in the light of the objective of that provision and the principle of fiscal neutrality.
58. On that point, it is clear from settled case-law that wherever the provisions of a directive appear, so far as their subject-matter is concerned, to be unconditional and sufficiently precise, they may, in the absence of implementing measures adopted within the prescribed period, be relied on against any national provision which is incompatible with the directive or in so far as they define rights which individuals are able to assert against the State (see, inter alia, Case 8/81 Becker  [1982] ECR 53, paragraph 25; Case C-141/00 Kügler  [2002] ECR I-6833, paragraph 51; Joined Cases C-465/00, C-138/01 and C-139/01 Österreichischer Rundfunk and Others  [2003] ECR I-4989, paragraph 98; and Linneweber and Akritidis , paragraph 33).
60. The fact that that provision confirms the existence of a discretion for Member States is not such as to call that interpretation into question if, according to objective evidence, the supply at issue meets the criteria for that exemption (see, by analogy, Case C-45/01 Dornier  [2003] ECR I-12911, paragraph 81).
61. Consequently, the fact that Article 13B(d)(6) of the Sixth Directive allows Member States a discretion, indicating that they are responsible for defining special investment funds, does not prevent the persons concerned from relying directly on that provision (see, by analogy, Dornier , paragraph 81), where a Member State exercising that discretion has adopted national measures which are incompatible with that directive (see, to that effect, Linneweber and Akritidis , paragraphs 36 and 37).