Save content
Have you found this content useful? Use the button above to save it to your profile.
AIA

BAA loses £6.7m VAT case appeal

by
28th Feb 2013
Save content
Have you found this content useful? Use the button above to save it to your profile.

Airport operator BAA lost an appeal against HMRC, after the Court of Appeal ruled that £6.7m of VAT incurred on professional fees could not be reclaimed.

In  BAA V HMRC, the Court of Appeal reiterated the upper tier tribunal’s 2011 decision preventing BAA from reclaiming VAT on advisory fees connected to BAA's acquisition by a Spanish holding company.

In 2006, Ferrovial SA bought BAA, in addition to Airport Development and Investments Ltd (ADIL) acquiring BAA shares.

BAA, as the representative member of the VAT group, claimed recovery of the VAT input tax incurred by ADIL on legal costs and other professional fees incurred prior to the acquisition of BAA.

The company argued that the input tax incurred by ADIL should be offset against the output tax on the taxable supplies made by the BAA group.

But the Court of Appeal disagreed and ruled ultimately that the VAT cannot be reclaimed.

Vaughan Chown, head of VAT at tax advisor Gabelle said the Court of Appeal’s reasoning is clear: “The taxpayer’s purpose at the time it purchased professional fees was the acquisition of shares as a takeover bid. There was no direct and immediate link to taxable supplies.”

While the result is a blow to BAA and other businesses awaiting the outcome, he continued, the case emphasises the need to make sure there’s a “direct and immediate” link between purchased and sales activities. The court confirmed that VAT on purchases (inputs) can only be claimed if the purchases are connected to onward supplies (outputs) that constitute an economic activity.

“The purchase and holding of shares, however, is not an economic activity. There was no evidence that the taxpayer would make management supplies or any other taxable supplies,” Chown said.

“Therefore the taxpayer could not recover the VAT it had paid on professional fees, as it had no “direct and immediate link” to an economic activity.  Had an economic activity been pursued, the Court’s decision may well have been different.”

A “direct and immediate link” in respect of input tax recovery may also be applicable when determining whether input VAT can be recovered by partially exempt businesses or by businesses which VAT register after incurring VAT on costs, Chown added. 

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.