2 July 2020 (*1)

(Reference for a preliminary ruling — Taxation — Value added tax (VAT) — Directive 2006/112/EC — Exemptions — Article 135(1)(g) — Exemption of transactions for the management of special investment funds — Single supply used for the management of special investment funds and for other funds)

In Case C‑231/19,

REQUEST for a preliminary ruling under Article 267 TFEU from the Upper Tribunal (Tax and Chancery Chamber) (United Kingdom), made by decision of 15 March 2019, received at the Court on 15 March 2019, in the proceedings

BlackRock Investment Management (UK) Ltd

Commissioners for Her Majesty’s Revenue & Customs,

THE COURT (First Chamber),

composed of J.‑C. Bonichot (Rapporteur), President of the Chamber, M. Safjan, L. Bay Larsen, C. Toader and N. Jääskinen, Judges,

Advocate General: P. Pikamäe,

Registrar: C. Strömholm, Administrator,

having regard to the written procedure and further to the hearing on 18 December 2019,

after considering the observations submitted on behalf of:

–BlackRock Investment Management (UK) Ltd, by N. Skerrett, Solicitor, L. Poots, Barrister, and A. Hitchmough QC,

–the United Kingdom Government, by Z. Lavery and F. Shibli, acting as Agents, and by R. Hill, Barrister,

–the European Commission, by L. Lozano Palacios and R. Lyal, acting as Agents,

after hearing the Opinion of the Advocate General at the sitting on 11 March 2020,

gives the following

1This request for a preliminary ruling concerns the interpretation of Article 135(1)(g) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (OJ 2006 L 347, p. 1; ‘the VAT Directive’).

2The request has been made in proceedings between BlackRock Investment Management (UK) Ltd (‘BlackRock’) and the Commissioners for Her Majesty’s Revenue and Customs (United Kingdom) (‘the tax authority’) concerning that tax authority’s refusal to grant BlackRock the benefit of the exemption from value added tax (VAT) provided for in Article 135(1)(g) of the VAT Directive.

Legal context

European Union law

3The second subparagraph of Article 1(2) of the VAT Directive provides:

‘On each transaction, VAT, calculated on the price of the goods or services at the rate applicable to such goods or services, shall be chargeable after deduction of the amount of VAT borne directly by the various cost components.’

4Article 2(1) of that directive provides:

‘The following transactions shall be subject to VAT:…’

(c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such;

5Title IX of that directive, headed ‘Exemptions’, contains Articles 131 to 166 thereof.

6Article 131 of the VAT Directive, which is within Chapter 1 of that title, headed ‘General provisions’, provides:

‘The exemptions provided for in Chapters 2 to 9 shall apply without prejudice to other Community provisions and in accordance with conditions which the Member States shall lay down for the purposes of ensuring the correct and straightforward application of those exemptions and of preventing any possible evasion, avoidance or abuse.’

7Article 135(1) of that directive, within Chapter 3 of that title, headed ‘Exemptions for other activities’, provides:

‘Member States shall exempt the following transactions:…’

(g) the management of special investment funds as defined by Member States;

8Article 196 of that directive, as amended by Council Directive 2008/8/EC of 12 February 2008 (OJ 2008 L 44, p. 11), provides:

‘VAT shall be payable by any taxable person, or non-taxable legal person identified for VAT purposes, to whom the services referred to in Article 44 are supplied, if the services are supplied by a taxable person not established within the territory of the Member State.’

United Kingdom law

9Section 31(1) of the Value Added Tax Act 1994 provides that ‘a supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9’.

10Group 5 of that schedule, which concerns finance, provides for the exemption, in particular, of services for the management of a list of specified investment entities and types of funds. According to the explanation given by the referring court, those are the entities and types of funds which, in the United Kingdom, must be considered to be special investment funds.

The facts in the main proceedings and the question referred for a preliminary ruling

11BlackRock is a member of a VAT group established in the United Kingdom, of which it is the representative and which includes a number of companies that carry on business as fund managers.

12BlackRock manages special investment funds and other funds, the first of which do not represent, either by number or by value of the assets managed, the majority of the funds managed.

13For the management of all its funds, BlackRock receives supplies of services from BlackRock Financial Management Inc. (‘BFMI’), a company incorporated in the United States, in the same commercial group. Those services are provided through a software platform named Aladdin and comprise a combination of hardware, software and human resources. Aladdin provides portfolio managers with market analysis and monitoring to assist in the making of investment decisions; it monitors regulatory compliance and enables portfolio managers to implement trading decisions. According to the order for reference, those services constitute a single supply, whichever funds are being managed.

14As BFMI is not established in the United Kingdom, BlackRock accounts for VAT under the reverse charge mechanism, in accordance with Article 196 of the VAT Directive.

15In respect of the period between 1 January 2010 and 31 January 2013, BlackRock considered that the services used for the management of special investment funds should be exempt from VAT pursuant to Article 135(1)(g) of that directive, with the result that it accounted for the tax only on services used for the other funds, the value of those services being calculated pro rata in accordance with the amount of those funds within the total funds managed.

16Disagreeing with that approach, the tax authority issued recovery notices covering that period. BlackRock contested those notices before the First-tier Tribunal (Tax Chamber) (United Kingdom), which dismissed its action.

17BlackRock appealed against that judgment to the referring court.

18Before that court, BlackRock submitted that the use it made of Aladdin should in any event be exempt for management services used for special investment funds, and that it was possible to determine the value of those services according to their share of the total amount of funds managed. Conversely, the tax authority contends that all of the services that BlackRock benefits from by means of the Aladdin platform must be taxed, since the majority of funds that that company manages are not special investment funds.

It is in those circumstances that the Upper Tribunal (Tax and Chancery Chamber) (United Kingdom) decided to stay the proceedings and to refer the following questions to the Court for a preliminary ruling:

‘On the proper interpretation of Article 135(1)(g) of [Directive 2006/112], where a single supply of management services within the meaning of that article is made by a third-party provider to a fund manager and is used by that fund manager both in the management of special investment funds and in the management of other funds that are not special investment funds:

(a) Is that single supply to be subject to a single rate of tax? If so, how is that single rate to be determined? or

(b) Is the consideration for that single supply to be apportioned in accordance with the use of the management services (for example, by reference to the amounts of the funds under management in the special investment funds and other funds respectively) so as to treat part of the single supply as exempt and part as taxable?’

Consideration of the question referred

20By its question, the referring court asks, in essence, whether Article 135(1)(g) of the VAT Directive must be interpreted as meaning that a single supply of management services, provided by a software platform belonging to a third-party supplier for the benefit of a fund management company, which manages both special investment funds and other funds, comes within the exemption from VAT laid down in that provision and, if so, what are the detailed rules for the application of that exemption.

21It should be recalled that, in accordance with the Court’s settled case-law, the exemptions laid down in Article 135(1) of the VAT Directive constitute independent concepts of EU law whose purpose is to avoid divergences in the application of the VAT system as between one Member State and another (judgment of 25 July 2018, DPAS, C‑5/17, EU:C:2018:592, paragraph 28 and the case-law cited).

22Furthermore, the terms used to designate the exemptions covered by Article 135(1) of the VAT Directive are to be interpreted strictly since these exemptions constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person (see, to that effect, the judgment of 19 December 2018, Mailat, C‑17/18, EU:C:2018:1038, paragraph 37). It follows that, where a supply of services does not fall within the exemptions provided for by the VAT Directive, the supply is subject to VAT by virtue of Article 2(1)(c) of that directive (judgment of 10 April 2019, PSM K, C‑214/18, EU:C:2019:301, paragraph 43).

23Article 135(1)(g) of the VAT Directive must be interpreted as meaning that a single supply of management services, provided by a software platform belonging to a third-party supplier for the benefit of a fund management company, which manages both special investment funds and other funds, comes within the exemption from VAT laid down in that provision and, if so, what are the detailed rules for the application of that exemption.