By Huw Jones
LONDON (Reuters) - BlackRock is not exempt from paying value added tax (VAT) on part of a service from an outside supplier to help manage its funds, a European Union court ruled on Thursday, dashing the fund sector's hopes for cost savings.
The world's biggest asset manager had argued that between Jan. 1, 2010, and Jan. 30, 2013, it should not have to pay VAT on all the service given that it included services for special investment funds, which are exempt from the tax.
Britain's tax authority disagreed issued a recovery notice to cover the period.
The First Chamber of the Court of Justice ruled on Thursday that a "single supply of management services, provided by a software platform belonging to a third-party supplier for the benefit of a fund management company, which manages both special investment funds and other funds, does not fall within the exemption provided for in that provision."
BlackRock said it respected the EU court's decision. A source at the company said it had paid and continued to pay VAT in full.
The court said that BlackRock in Britain receives services from a unit in the United States via a software platform called Aladdin that provides portfolio managers with market analysis to help make investment decisions.
These services constitute a single supply, whichever funds are being managed, it said.
Gert-Jan van Norden, a financial services partner at KPMG Netherlands, said the ruling would be a disappointment for the wider funds industry, which was hoping to copy BlackRock had the ruling gone the other way.
"It does not seem a very reasonable outcome. If you bought these services from two different entities, it would not be a problem," van Norden said.
(Reporting by Huw Jones; editing by Jason Neely and Mark Potter)