Intermediaries: Brokers: MiFID II research
MiFID II (Market in Financial Instruments Directive) originates from the European Commission and seeks to provide a European-wide legislative framework for regulating the operation of financial markets in the EU. The aim of MiFID II is to improve investor protection. Its remit in this respect extends to the introduction of robust controls to avoid conflicts of interest, to encourage greater transparency both pre and post-execution and to ban commissions payable in respect of investment advice and portfolio management.
MiFID II seeks to unbundle the purchase of research from execution services. Under the Directive, investment firms providing both execution and research services should price and supply them separately.
To ensure the bundling together of investment research and execution services does not occur, MiFID II proposes two methods to pay for investment research:
- The P&L method where investment firms fund the research themselves from their own resource.
- The Research Payment Account (“RPA”) method where the costs of research would be funded by the client
The charge to fund an RPA must be specific and separately identifiable and must be based on a research budget and not linked to the volume and/or value of transactions.
This guidance refers to the VAT implications of the changes concerning payment for research following the introduction of Directive 2014/65/EU (MiFID II) from 3rd January 2018.
As a result of MiFID II from 03.01.2018 VATFIN7560 and VATFIN7590 below are withdrawn and will be deleted from the guidance. All supplies of research are taxable but please see VATFIN5350 regarding MiFID II research in respect of fund management.