EU High Court Denies Tax Break for Investment Giant

LUXEMBOURG (CN) — The European Union’s top court on Thursday ruled against BlackRock in an attempt by the world’s largest investment management company to avoid paying taxes. 

The European Court of Justice found that BlackRock U.K.’s purchase of software from its U.S.-based parent company doesn’t fall under an exclusion to the 20% value-added tax charged by the United Kingdom. 

A woman walks by the entrance to the European Court of Justice in Luxembourg in October 2015. (Geert Vanden Wijngaert, File)

“A software platform belonging to a third-party supplier for the benefit of a fund management company does not fall within the exemption,” the five-judge panel wrote in Thursday’s decision. 

The U.K. subsidiary of the American company, called BlackRock Investment Management (UK) Ltd., uses a number of services from its parent company, including a software package called Aladdin.

It applied for an exception to the value-added tax normally charged by the U.K., arguing that the software supports some activities on which the tax isn’t applied. The standard rate in the United Kingdom is 20%, though some goods, like car seats and food, are charged at a lower rate. 

The investment giant’s arguments were rejected by the Luxembourg-based court on Thursday.

“To apply a single rate … could lead to the benefit of the exemption for the management of special investment funds being accorded to other funds,” the ruling states. Some investments managed by BlackRock have a special tax status under British law. 

Similar to a sales tax, a value-added tax, also known as VAT, is levied on goods at each stage of the distribution process, including the sale to the end consumer. Most European countries charge a VAT in lieu of a sales tax. 

Because BlackRock U.K. purchases Aladdin from a U.S.-based company, it must pay a VAT under what is known as the “reverse charge mechanism,” where buyers, rather than sellers, are responsible for the VAT in an effort to simplify tax payments. 

If this were not the case, the seller would have to register in every country where it has buyers and pay VAT to each government. 

The Aladdin platform provides investment management services, such as analyzing markets, monitoring investment performance, providing risk assessment, monitoring regulatory compliance and implementing financial transactions. 

Based in New York, BlackRock is the world’s largest investment management company. It has $7.4 trillion in assets under management and operates in 100 countries. It did not respond to a request for comment Thursday.

The case now returns to the U.K. court for a final decision. 

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