Date: 2 July 2021 

On 17 June 2021 the European Court of Justice (ECJ) published its decision in joint Cases C-58/20 and C-59/20 (K and DBKAG) concerned with whether both the right to use certain software and specific administration services could qualify as a VAT-exempt special investment fund (‘SIF’) management service.

In light of the increasing automation of the asset management market, the decision provides a welcome clarity on whether the right to use certain software can fall within the VAT exemption. Furthermore, this decision is relevant for parties providing specific administration services to fund managers.

Facts of the Case

Various investment management companies outsourced to K certain administration services for the calculation of the taxable income of unit-holders from the investment funds, such as tax statements.

DBKAG, managing special investment funds, was granted a right to use software which was essential to risk management and performance measurement of the funds. This software was specifically tailored to the activity of investment funds as well as to complex requirements set by legislation in these areas and can only be used in conjunction with DBKAG’s other software.

It should also be noted that in these cases the question considered is solely whether the above services qualify as ‘management’ (and not whether the said management relate to a ‘special investment fund’, which is also essential for the exemption to apply).


The Court has concluded that the provision of services by third parties to management companies of special investment funds, such as tax-related responsibilities consisting in ensuring that the income received from the fund by unit-holders is taxed in accordance with national law and the grant of a right to use software which is used exclusively to carry out calculations are essential for risk management and performance measurement of the funds, fall within the scope of VAT exemption if they are intrinsically connected to the management of such funds and if they are provided exclusively for the purpose of managing such funds, even those services are not outsourced in their entirety.

The fact that the application of the exemption for the management of SIF does not require the particular task to be outsourced in its entirety follows from the previously decided case law. Nevertheless, it is a welcome clarification that the said rule also applies to administrative tax services as this means that a fund manager can (partially) outsource several tasks to different parties without losing the VAT exemption, as long as each of these services withstand the relevant tests (i.e. is specific and essential for the activity of management of SIF).

Probably an even more important aspect of the judgement is that the Tax Authorities are willing to consider actual functions of the software so as to examine whether the VAT exemption applies. That is, whereby the performance of financial services is fully automated, even though IT services in general are usually considered as taxable, the use of the same “software as a service” may benefit from the exemption. However, it must be noted that in case in question CJEU was able to determine with certainty that the functions performed by the software were specific and essential to risk management and performance management of the special investment funds, and formed a distinct whole it this regard – which was crucial for it to qualify for the management of special investment funds exemption.

How can KPMG assist?

Should you like to further discuss the content and potential impact of the Circular to your business, please contact one of our trusted advisors from the Indirect Tax Department at KPMG Cyprus.

KPMG’s Indirect Tax team provides advice and assistance at the Cyprus and international level. We structure our effort to dovetail with your business issues and strategy. Our focus is on supplying value adding and pragmatic advice rather than just a list of recommendations.

Our tax professionals are able to review your company’s current tax position and provide relevant advice and planning on a range of indirect taxes, including VAT, customs duties and excise taxes (such as tax audits, reorganizations and acquisitions, etc.). Furthermore, we can help your company with its administrative obligations and contacts with administrative bodies.

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