EFAMA commented on the current VAT rules for financial services and their functioning, as well as on possible changes to these rules, in a public consultation of the European Commission.

Major changes or amendments to remove or narrow the fund management exemption in VAT rules will have a direct negative social and economic impact on long-term investors, especially retail investors, at a time when incentivising long-term financial planning by individuals is vital to the wider EU economy.

To support the availability and scale of efficient financial services' supply chains for the EU at a manageable cost for the final consumer, maintaining and clarifying this exemption is crucial. The scope of operations undertaken in-house by investment managers and outsourced by them to third-party providers has dramatically changed and the scope and application of the exemption must recognise the evolving ways in which services are delivered.

EFAMA strongly supports the application of the VAT exemption for services to EU-based special investment funds as defined by Member States, such as UCITS and non-UCITS, including pension funds. When the EU is faced with a huge savings gap, the VAT exemption for financial services is crucial and has substantial positive social impact by favouring savings of retail investors that need a clear and stable tax environment. Removing the exemption for management services of EU funds will be a disruption for end-investors and it will be in contradiction with other initiatives of the Commission in this field (e.g. ELTIF, PEPP). 

We understand the Commission is open to explore all options available and there seems to be an assumption that removing the exemption for fee-based financial services would presumably be revenue positive for Member States (i.e., that output tax on fees would exceed input tax recoverable by the service provider). It is not surprising that in the wider context of extreme economic uncertainty, Member States would prefer revenue positive or at least revenue neutral reforms only.

However, if the Commission and Member States want to explore the appetite to take more radical steps to improve the position of the EU's Financial Services industry in a rapidly changing world and ultimately enhance the attractiveness of EU financial products for end consumers (referenced in our response to question 61), a zero VAT rating would provide both greater clarity and a very welcome boost to necessary future innovation in this space to the benefit of industry, consumer and the wider economy alike.