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Luxembourg: Luxembourg VAT: CJEU delivers important decision regarding real estate investment funds


Raphaël Glohr

Michel Lambion

On December 9 2015, the Court of Justice of the European Union (CJEU) announced its verdict in the Fiscale Eenheid X case (C-595/13). It ruled that investment funds investing in real estate may benefit from VAT-exempt management services, as is the case for funds investing in transferrable securities. However, it ruled that the services often described in practice as "property management" cannot be considered as VAT-exempt fund management services and are therefore subject to taxation.

The European VAT Directive states that investment fund management services as defined by member states are exempt from VAT, although it specifies neither the funds nor the services that stand to benefit (Article 135.1.g of the VAT directive EC/2006/112, transposed to Article 44.1.d of the Luxembourg VAT law). Much has been written about this succinct clause, and it has given rise to a wealth of jurisprudence from the CJEU for the purposes of providing a clearer definition of the funds and the services that will benefit from this exemption. The 'X' case is the latest example of this jurisprudence.

At the outset, it is essential to review the facts of the case: several Dutch pension funds had founded three investment funds that held real estate assets. These investment funds did not have their own staff. As is common practice, they therefore outsourced the management of the funds, as well as that of the properties held, to an external provider. Third-party investors joined the pension funds by acquiring units of these investment funds.

The contract the funds signed with the external provider covered a range of services relating to the administration of the funds, the purchase and sale of properties and the services generally referred to as "property management".

These "property management" services are described more precisely in an annex to the contract, as: monitoring the properties and their use, hiring property agents on behalf of the fund, assessing tenants; inspecting vacant properties and compiling an inventory; collecting rent and handling debtors; undertaking large-scale and routine maintenance, setting maintenance budgets, monitoring the completion of maintenance contracts; managing rent increases and extensions to leases, and so on.

The service provider had viewed all of the services as VAT-exempt on the basis that they were fund management services and this position was challenged by the Dutch tax authorities.

The subject was submitted to the Dutch courts, which decided to refer the two following matters to the CJEU: firstly, whether or not a company created by multiple investors for the sole purpose of investing their capital in real estate assets can be considered an investment fund from a VAT perspective; and secondly, if so, whether or not property management services can be considered as VAT-exempt management services.

What conclusions should be drawn from this ruling?

This ruling is a useful and welcome confirmation of the Luxembourg position, whereby real estate funds are viewed as investment funds for VAT purposes. As a consequence, they can benefit from VAT-exempt management services including administrative services (complying with legal and stratutory requirements, producing financial reports) and services of a financial nature (for example, purchase and sale of properties, seeking investors).

By refusing the benefit of the VAT exemption to "property management" services, the second part of the decision sheds significant light on the issue in that the question of the exemption of "property management" services rendered to real estate investment funds had never been addressed clearly and doubts persisted over their VAT status. It is important to note, however, that in most cases Luxembourg real estate funds hold real estate assets in other countries and therefore the issue of the exemption of "property management" services pertains to the laws of the country in which the assets are located, and not those in force in Luxembourg.

In conclusion, it may therefore be stated that this ruling essentially acts as a confirmation, which is always welcome, of the legislation and practice in force in Luxembourg. However, the consequences for "property management" services should nonetheless be monitored closely in the countries in which real estate assets are located.

Raphaël Glohr ( and Michel Lambion (

Deloitte Luxembourg


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