Companies who incurred what they thought (or have been advised by HMRC) was irrecoverable input VAT in the context of takeovers or similar transactions may benefit from the First Tier Tax Tribunal decision in BAA and to the extent that VAT recovery has been barred in this or similar circumstances, they should seek advice as to how to proceed and what to do to protect any possible claim. Herbert Smith has successfully acted for BAA Limited (BAA) in a landmark case where the First Tier Tax Tribunal has held that VAT incurred on professional fees by a bidder in the context of a takeover offer is recoverable. The VAT was recovered on the basis that it was attributable to the general overheads of the target group.
The BAA case is the first of its kind to be heard and decided, but a number of recent notable public takeovers give rise to the same questions, and appeals to the Tax Tribunal have been stood over pending the decision in the BAA case. HMRC’s reaction to the decision is awaited.
There are a number of planning considerations which should be borne in mind when a takeover (or similar transaction) is first contemplated including establishing an intention to make taxable supplies early. The discussion contained in the decision suggests that this may be achieved by the bidding company showing an intention to supply taxable services to the target post-takeover – such as providing management services.
Herbert Smith’s client briefing on this issue can be found on our website at http://www.herbertsmith.com/NR/rdonlyres/1BE60F34-5B6E-412C-B7BEB1ADEB5552C0/14402/BAACaseEbulletin12Feb2010.html . To read the case in full please see http://www.bailii.org/cgi-bin/markup.cgi?doc=/uk/cases/UKFTT/TC/2010/ TC00357.html&query=BAA&method=boolean.