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Upper Tribunal delivers HMRC v BAA decision

24th Jun 2011
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The Upper Tribunal has delivered the decision in Commissioners for HMRC v BAA Limited, reversing the First Tier Tribunal's decision which found in favour of BAA.

As a result the VAT incurred by the bidco, BAA Limited, on advisers' fees in connection with the takeover of the BAA plc group in 2006 has been declared irrecoverable.

While the Upper Tribunal has denied BAA recovery, it does confirm that the bidco did carry on an "economic activity" for VAT purposes - a key point that was contested by HMRC.

According to Herbert Smith, legal adviser to BAA, other taxpayers may now find it easier to recover input VAT incurred on fees paid in the context of takeovers and similar transactions.

BAA's inability to recover arose from certain factual findings which may not be present in other cases.

Herbert Smith concludes that “it is possible that, on the basis of the principles established by the Upper Tribunal, other notable appeals relating to VAT on takeover fees, which have been stood over pending the decision in the case of BAA, may have a different outcome.”

The tribunal's suggestion that the fees incurred by the BAA related mainly to the acquisition and not to the post-acquisition business and operation appears to have been important in causing BAA to fail.

This judgment reinforces the need to review carefully the entirety of the commercial arrangements in relation to a takeover bid, including future business plans should the bid succeed, when considering the nature and purpose of the services received.

It highlights just how fact-sensitive the question of input tax recovery can be in this area. 

For further background and a full analysis of the decision, visit the Herbert Smith website.

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