Banking and Professionals of the Financial Sector (PFS): Case Study

VAT cost reduction - Implementation of major VAT savers for an important bank and fund administrator

The issue

The Bank requested PricewaterhouseCoopers to investigate the possibilities to save VAT on intra-group charges and optimize the VAT cost linked to the supply of asset management services to private and business customers outside Luxembourg.

Our approach

• Intra-group services have been re-designed to allow a VAT neutral pooling of functions. VAT previously charged between Luxembourg entities has been eliminated through the implementation of a so-called independent group of persons, a separate vehicle set up through a simple agreement between parties whose services are VAT-exempt;
• As regards the asset management services rendered by the Bank, an important VAT leakage was linked to the current marketing and distribution structure and cooperation agreements in place. Roles and responsibilities have been reallocated between the Bank and its partners. As a consequence, the services are deemed to be rendered from Luxembourg, triggering the application of the advantageous Luxembourg VAT rates.

The outcome

• The flexible solution set up for intra-group services allowed achieving the objective of VAT saving while avoiding to fundamentally change the current structure and move people;
• The new business model used for asset management services allowed applying the lower Luxembourg VAT rates and significantly improving the operational margin.

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