HM Revenue and Customs Brief 32/14 - VAT policy on holding companies
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Issued 24 September 2014
This Revenue and Customs brief confirms that HM Revenue and
has reviewed its policy following the decision of the Court of Appeal
in the case of Briitish Airport Authority (BAA)
( England and Wales Court of Appeal Civ 112). The decision
confirms that VAT
is only recoverable where there is a direct and immediate link to
taxable supplies. BAA
was refused permission to appeal to the Supreme Court. For the purpose
of this brief, “taxable supplies” includes supplies not charged to UK VAT, but which carry a
right to input tax recovery.
Following this decision there is no change in HMRC’s policy.
However the facts in BAA
related to particular circumstances and the decision does not address
other commonly encountered issues relating to holding companies. HMRC has
therefore updated its guidance to set out when HMRC considers
recovery may be possible.
The revised guidance can be found at VAT Input Tax Manual
Taxpayers should be aware that the German cases of Larentia +
Minerva and others (C108/14 and c-109/14) have been referred to the
Court of Justice of the European Union (CJEU).
The decision in those cases is likely to be relevant to the issues
described in this brief and the guidance referred to in this brief. HMRC will review
the policy contained in the guidance in the light of the CJEU’s
determination of this reference, which is expected in approximately 12
to 18 months.
A UK company, Airport Development and Investments Ltd (ADIL),
which was owned by an investment consortium, made a bid to acquire the
entire issued share capital of BAA plc.
During this process ADIL
received supplies of services in connection with the takeover bid. The
takeover bid was successful and, subsequently, ADIL
joined the BAA
VAT group which
then sought to recover the VAT
had incurred on those services.
The Court of Appeal noted that there are 2 conditions for the
recovery of VAT.
Firstly the tax must be incurred by a taxable person in the course of
an economic activity. Secondly the goods and services on which the VAT is incurred must
have a direct and immediate link with taxable supplies made by that
The Court of Appeal held that the BAA VAT group was not
entitled to recover the VAT
incurred on the costs of acquisition because when ADIL
incurred the VAT:
- it was not carrying on an economic activity for VAT purposes, but was
merely intending to takeover BAA plc by
acquiring the shares in it, and
- there was no direct and immediate link between the services
received by ADIL
and the taxable supplies made by the BAA VAT group
The Court of Appeal found that ADIL
did not make, nor intend to make, taxable supplies of goods or services
at the time the VAT
was incurred. Acquiring the shares had economic consequences, but that
did not mean ADIL
was engaged in an economic activity for VAT purposes.
guidance covers the following issues
- when a shareholding is used as part of an economic activity
- when VAT
may be recoverable by a holding company
- the effect of a holding company joining a VAT Group
- how to treat mixed economic and non-economic activities
About the Author
© Crown Copyright 2014.
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for educational / informational purposes only. Article reproduced by
permission of HM Revenue & Customs.
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Article Published/Sorted/Amended on Scopulus 2014-09-26 12:45:10 in Tax Articles