IFSC companies welcome VAT case adjudication

Companies operating in Dublin's Irish Financial Services Centre (IFSC) are welcoming a preliminary adjudication in a tax case before the European Court of Justice (ECG).

The ruling by the Advocate General in a dispute between Abbey National and the British tax authorities means Ireland is unlikely to be forced to levy VAT on the management of investment funds.

Advocate General Juliane Kokott ruled that while the Revenue can determine which special investment funds are VAT exempt, any management of VAT-exempt funds are themselves exempt. This is in line with Irish tax law.

The case centred on member states' power to define what activities comprised "management" of special investment funds and on whether the services of depositories/trustees and third-party administrative managers should be regarded as VAT-exempt.

Ireland has been on the wrong end of several recent VAT rulings from the ECJ and an adverse ruling in this case would have had significant implications for the IFSC, which is seen as more dependent on such back-office fund management services than rival financial centres within the European Union.

"The Advocate General's views will be welcomed by the Irish industry as the principles discussed are essentially consistent with Irish legislation and Revenue practice," said Keith Loughman, a director in KPMG's Dublin VAT group and also global chairman of its financial services VAT network.

Jarlath O'Keeffe, director of indirect tax at Ernst & Young, said: "Any restriction of the VAT exemption currently applicable to depositary or outsourced services would add a significant cost to the industry."

The opinion delivered by Advocate General Kokott has yet to be confirmed by the judges of the court. However, the court approves the majority of such opinions.