Legal experts said a decision by the Italian Tax Agency may set a precedent across the EU. The agency confirmed that financial advisory fees are subject to VAT, leading to Italian law firm Loconte & Partners, to warn of repercussions for other EU nations. Loconte & Partners has offices throughout Italy (including Milan, Rome, Padua and Bari). It opened a London office in July 2016.
The law firm said this ruling was “particularly relevant” considering the implementation of MiFID II. Loconte & Partners has offices throughout Italy (including Milan, Rome, Padua and Bari). It opened a London office in July 2016.
Chartered Financial Planner Tamsin Caine of Smart Financial in Altrincham told FP Today: “If VAT is required to be added to all fees, it will have a direct impact on clients, without them receiving any additional value in exchange. Let’s hope the rest of the EU takes a different view.”
She said: “If VAT is added, clients will have to pay more, unless planners are prepared to reduce their fees.
“The increase would be up to 20%, as the current rate of VAT. It’s difficult to say what impact it would have on clients. I think a 20% increase in price would be enough to put some clients off.”
Chartered Financial Planner Martin Bamford, MD of Informed Choice in Surrey, said the, “last thing we need from Europe is a missive resulting in a 20% price hike across the board on advisory fees”.
He said: “I think VAT is a lingering issue for the Financial Planning community, with the constant fear that the status quo will change and HMRC will adopt a more aggressive stance in the future.
“This news from Italy adds to that fear, although until we get updated guidance from HMRC or from our professional bodies on the matter, it’s just another potential regulatory threat that hopefully won’t keep us up at night.
“It will be interesting to see how this ruling in Italy is interpreted by HMRC in the UK.”
Stefano Loconte, managing partner of the firm, said: “The Italian tax agency’s position on VAT has EU-wide repercussions, as this tax and its interpretation follow specific guidelines issued by the EU and the European Court of Justice.
“The Italian tax agency’s interpretation is therefore relevant to all those member states that have transposed said VAT directives and apply the same legal principles supporting the Italian position.
“As a result, all EU member states now have a legal precedent to justify their positions and to apply the same ruling on the VAT regime in the independent financial advisory sector.”
Mr Bamford said it was fair to say the rules around VAT on advice were ‘complex’ and added that planners needed professional advice on the subject. Mr Bamford’s firm takes advice each year from its accountant, who reviews the fee breakdown and confirms that the company remains under the VAT threshold in respect of taxable services.
Ms Caine said: “My understanding is that if fees that are charged are not “intermediation”, that is they don’t lead to the arrangement of a product, that they should be subject to VAT. The Italian ruling appears to impact areas that I understand are not currently subject to VAT.”
Mr Bamford added: “Thankfully we don’t have very much longer to wait until Brexit is finalised and important issues like VAT become the sole decision of the UK government, without interference from Italy or other remaining members of the EU.”
• Editor's Note: Story updated 19.02.18 to add more detail of Loconte offices.