The application of the VAT exemption was denied for two reasons:

  • The strategy of the fund in question – a venture capital fund – was in part to support starting businesses in their growth ambitions and thus not aimed solely towards achieving maximum return on investment.
  • The manager of the fund was not registered with the competent regulator (although there was an obligation to do so as the fund qualified as an AIF). 

In respect of reason (ii), it is established case law that in order to apply the VAT exemption for fund management, the fund in question (or its manager) has to be subject to governmental supervision. In this decision the court specified that the existence of a regulatory framework in and by itself is not sufficient to conclude that a fund is indeed subject to governmental supervision. The Court considered that if the fund (or its manager) has not obtained the required registration or license and therefore is outside the view of the competent regulator, the fund (or manager) cannot be considered subject to governmental supervision. This part of the Court decision is in our view not controversial or very surprising. However, this decision does demonstrate that it is also important to keep track of regulatory obligations from a viewpoint of securing application of the VAT exemption.

In respect of reason (i), it is in our view questionable whether the Court should have considered the fund’s strategy as a factor in determining whether the VAT exemption for fund management could be applied. The criteria for applying the VAT exemption for fund management have been established in case law of the European Court of Justice and further specified in Dutch case law and administrative guidelines. None of these sources of law include having a strategy that is solely aimed towards maximum return on investment as a criterion for applying the VAT exemption. In our view, the decision of the Court on this point is not in line with established case law and guidelines and we expect that this case will be brought before the Dutch Supreme Court for a final decision. We will of course provide updates in case of further developments.