As noted above, the VAT exemption concerns the management charge
or fee which is normally deducted from the assets in the CIU
periodically. For UK open-ended funds, the manager is required by
regulation to be a separate entity – the authorised corporate
director (ACD) of an OEIC or the operator (“authorised fund
manager”) of an AUTS. Offshore funds structured as SICAVs
are, strictly, managed by their boards of directors. Contractual
funds have a manager (operator) by constitution, because, like an
AUTS, the fund is not a legal entity itself. In all cases, though,
it is common for functions to be delegated by the manager/operator
of the open-ended fund to specialist providers. Some closed-ended
CIU manage themselves, but it is common for the company to appoint
a third party investment manager.
Following the judgment in Abbey National (C-169/04), it is
clear that the term management refers to the activities of
administering the CIU as well as investment management activities.
This is particularly relevant when considering the liability of
services delegated by e.g. the ACD to a third party. In this case,
investment management services provided by a third party (usually
under a mandate) are also exempt as part and parcel of the
management of the fund.
Similarly, if a third party is delegated to carry out a
package of administrative services which overall has the distinct
characteristic of a single supply of fund management services, this
too will be exempt. However, some services will not have such a
characteristic – for example, the services of a solicitor may
be required to draft, or assist in drafting, legal documents which
are essential to the operation of certain CIU (e.g. a trust deed or
prospectus). Such services have the characteristic of legal
services and so cannot fall to be treated as fund management.
There is more potential for delegated administrative
services to be seen as characteristic of fund management with
open-ended CIU than with closed-ended CIU. This is because the
activities which make up the administration of open-ended CIU are
more extensive and are prescribed in their regulation. Also, a key
feature of open-ended CIU is the requirement for regular valuations
of the units, which requires inter alia knowledge of the number of
units in issue. Services which consist of this are peculiar to and
so characteristic of the management of the fund.
