Legal Notice 231 of 2023 transposes the provisions of Council Directive (EU) 2022/542 of 5 April 2022 regarding VAT rates and amends the Eighth Schedule to the VAT Act (Chapter 406, Laws of Malta), introducing a VAT rate of 12% on the supply of services in relation to the management of securities.
These interpretative guidelines which were published on 12 March 2024 pursuant to Article 75(2) of the VAT Act, provide guidance on the application of the reduced 12% VAT rate when assessing the VAT treatment of such supplies from a Maltese VAT perspective.
This reduced 12% rate will apply to services referred to as securities portfolio management services. This group of services involve the ongoing commitment to monitor and manage a client's securities and investment portfolio including the ability to formulate and recommend investment decisions.
This service may be provided on either a discretionary or advisory basis.
When a manager is contracted on a discretionary basis, he will have the authority to invest on the client's behalf subject to pre-agreed parameters regarding the level of risk exposure and the nature of the securities of any investment. When contracted on an advisory basis the manager will provide personal recommendations for securities considered suitable for investments prior to any investment transactions being undertaken.
When, in terms of the Fourth Schedule to the VAT Act, the date that tax is chargeable on these services falls on or after 1 January 2024, the reduced 12% VAT rate may be applied and its application will not affect any other exemptions that may be applicable, and which are contained in item 3 of Part Two of the Fifth Schedule to the VAT Act.
The guidelines state that the management of securities does not include the provision of advice which relates to capital structure, corporate strategy and matters or advice relating to mergers and the purchase of undertakings.
When the service provided includes the receipt, execution and transmission of orders to either buy or sell securities and these services are specifically charged for on a transaction by transaction basis, regardless of whether management services are provided and this is reflected in the respective contractual and billing arrangements, then these services and any ancillary services are regarded as being exempt, pursuant to item 3 of Part Two of the Fifth Schedule to the VAT Act.
Following the Deutsche Bank Case C-44/11, the European Court of Justice (ECJ) decided that transactions which related to discretionary securities-based portfolio management services supplied by Deutsche Bank were not exempt from VAT.
The ECJ ruled that when services combined both asset analysis and monitoring with dealings in securities it is not possible to distinguish which service constitutes the principal service and which the ancillary service. Both are indispensable in carrying out the service as a whole and should therefore be placed on the same footing, objectively forming a single economic supply. Thus, such services are not exempt in terms of item 3 of Part Two of the Fifth Schedule to the VAT Act and the reduced 12% VAT rate would apply.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
