BAA Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 January 2010 |
| Date | 28 January 2010 |
| Court | First Tier Tribunal (Tax Chamber) |
[2010] TC 00357.
Tribunal Judge Peter Kempster (Chairman), Mrs Joanna Neill.
David Southern of counsel instructed by Herbert Smith LLP for the Appellant
Rupert Anderson QC instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents
The following cases were referred to in the judgment:
Abbey National plc v C & E CommrsECASVAT (Case C-408/98) [2001] BVC 581
Banque Bruxelles Lambert SA (BBL) v BelgiumVAT (Case C-8/03) [2007] BVC 101
Belgium v Ghent Coal Terminal NVECASVAT (Case C-37/95) [1998] BVC 139
BLP Group plc v C & E CommrsECASVAT (Case C-4/94) [1995] BVC 159
Cibo Participations SA v Directeur régional des impôts du Nord-Pas-de-Calais VAT (Case C-16/00) [2002] BVC 605
C & E Commrs v Kingfisher plcVAT [1994] BVC 3
C & E Commrs v Midland Bank plcECASVAT (Case C-98/98) [2000] BVC 229
C & E Commrs v Redrow Group plcVAT [1999] BVC 96
C & E Commrs v UBAF Bank LtdVAT [1996] BVC 174
EC Commission v FranceECAS (Case 50/87) (1990) 5 BVC 205
Floridienne SA & Berginvest SA v Belgium ECASVAT (Case C-142/99) [2001] BVC 76
Institute of Chartered Accountants in England and Wales v C & E Commrs VAT [1999] BVC 215
KapHag Renditefonds v Finanzamt Charlottenburg ECASVAT (Case C-442/01) [2005] BVC 566
Kretztechnik AG v Finanzamt Linz ECASVAT (Case C-465/03) [2006] BVC 66
Lennartz v Finanzamt München III ECASVAT (Case C-97/90) [1993] BVC 202
Mayflower Theatre Trust Ltd v R & C Commrs VAT [2007] BVC 190
Ministero dell'Economia e delle Finanze v Cassa di Risparmio di Firenze SpA ECAS (Case C-222/04) [2006] ECR I-289
Polysar Investments Netherlands BV v Inspecteur der Invoerrechten en Accijnzen, Arnhem ECASVAT (Case C-60/90) [1993] BVC 88
R & C Commrs v Gracechurch Management Services LtdVAT [2007] BVC 379
Rompelman & Anor v Minister van Financiën ECAS (Case No. 268/83) (1985) 2 BVC 200,157
Royal and Sun Alliance Insurance Group plc v C & E Commrs VAT [2003] BVC 341
Schemepanel Trading Ltd v C & E Commrs VAT [1996] BVC 304
Securenta Göttinger Immobilienanlagen und Vermögensmanagement AG v Finanzamt Göttingen ECASVAT (Case C-437/06) [2010] BVC 766; [2008] ECR I-1597
Skatteverket v AB SKF (Case C-29/08) [2009] ECR I-10413
Svenska International plc v C & E Commrs VAT [1999] BVC 221
VNLTO v Staatssecretaris van Financiën ECAS (Case C-515/07) [2009] ECR I-839
Waterschap Zeeuws Vlaanderen v Staatssecretaris van Financiën ECASVAT (Case C-378/02) [2008] BVC 176
Wellcome Trust Ltd v C & E Commrs ECASVAT (Case C-155/94) [1996] BVC 377
Welthgrove BV v Staatssecretaris van Financien ECAS (Case C-102/00) [2001] ECR I-5679
Zita Modes Sàrl v Administration de l'enregistrement et des domaines ECASVAT (Case C-497/01) [2005] BVC 772
Input tax - Costs incurred in takeover - Subsequent grouping of bidder and target - Whether input tax deductible - Sixth VAT directive (Directive 77/388), eu-directive 77/388 article 17art. 17; Directive 67/227, eu-directive 67/227 article 2art. 2; Value Added Tax Act 1994, Value Added Tax Act 1994 section 24ss. 24 and 26.
The appeal concerned the recovery of VAT incurred by a bidder on fees paid in connection with a successful takeover bid. After the takeover, the bidder joined the same VAT group as the target company. The representative member of that VAT group claimed recovery of the VAT as input tax incurred as part of the group's general overheads. The issue was whether the commissioners' decision to refuse the input tax claim was correct.
In 2006, an investment consortium led by the Spanish infrastructure group Ferrovial launched a takeover bid for the UK airport operator BAA plc (BAA). The bid vehicle was a new company called Airport Development and Investments Ltd (ADIL). Although the bid was initially contested, a revised offer was subsequently recommended by the Board of BAA plc and in July 2006 BAA became a wholly-owned subsidiary of ADIL. ADIL incurred significant legal and professional fees in connection with the takeover and those fees carried VAT. In September 2006, ADIL joined the BAA VAT group. The representative member of the VAT group then reclaimed that VAT as input tax, attributable to the overheads of the group. The commissioners refused the claim and issued an assessment in the sum of some £6.7m.
It was the commissioners' contention that there was no entitlement to input tax credit. The disputed input tax was attributable to investment costs incurred by ADIL in raising finance to acquire the BAA group and there was no direct and immediate link between the supplies on which the VAT was incurred and any taxable supplies made, or to be made, by the BAA VAT group. The purchase of shares in a listed company was not an economic activity for VAT purposes and did not generate a right to recover VAT. None of ADIL's activities created outputs against which input tax could be deducted. It did not intend to make taxable supplies, was ineligible to register for VAT in its own right and was never a taxable person. The commissioners submitted that whilst they had no objection to a holding company becoming a member of a VAT group, that did not entitle it to bring with it VAT already paid and to convert that VAT into deductible input tax of the group.
The appellant argued that the input tax was deductible. It submitted that the activities of ADIL did constitute an economic activity; the company was an active manager performing a strategic management and financing role. ADIL had been set up to acquire BAA and it followed through from that to raise funds and to takeover and re-finance the group. In the appellant's view, the effect of the commissioners' refusal to refund the VAT was to treat ADIL as purchasing supplies as a final consumer, with the chain of supply ending at that point. In reality, the costs were incurred in respect of an acquisition not a supply and ADIL was carrying on an economic activity from the start. To deny recovery of VAT on acquisition costs would leave the input tax trapped in the chain of supply otherwise than as a result of an exempt supply, which, maintained the appellant, was contrary to intention.
The tribunal examined the facts and concluded that ADIL did carry on an economic activity from its inception, with one very important caveat, namely that it never made any actual taxable supply in its own right. However, the activity of ADIL went beyond the mere acquisition and holding of shares. It involved direct or indirect involvement in the management of the companies in which the holding had been acquired. Although ADIL did not make taxable supplies in its own right, it was entitled to take advantage of the taxable transactions of the BAA VAT group and thus be regarded as a taxable person within the meaning of the sixth directive. There was a direct and immediate link between the supplies on which input tax was claimed and the outputs of the VAT group.
Held, allowing the taxpayer's appeal:
1. ADIL did carry on an economic activity within the meaning of art. 4 of the sixth VAT directive and was a taxable person. Although the company did not make taxable supplies in its own right it was entitled to take advantage of the taxable transactions of the VAT group.
2. There was a direct and immediate link between the disputed input tax and the outputs of the representative member of the BAA VAT group.
3. The costs incurred by ADIL were overhead costs of the VAT group and the input tax was deductible accordingly.
1. This appeal concerns the recovery of VAT incurred by a bidder on fees paid in connection with a successful takeover bid. After the takeover the bidder joined the same VAT group as the target company. The representative member of that VAT group claimed recovery of that VAT as input tax incurred as part of the group's general overheads. HMRC contend that no recovery is available for that VAT.
2. In Spring 2006 an investment consortium led by the Spanish infrastructure group Ferrovial launched a takeover bid for the UK airport operator BAA plc ("BAA"), then listed on the London Stock Exchange. The bid vehicle was a new company called Airport Development and Investments Limited ("ADIL"). Although initially contested, a revised bid was subsequently recommended by the Board of BAA plc and in July 2006 the target became a wholly owned subsidiary of ADIL.
3. In Spring and Summer 2006 ADIL incurred significant fees of investment banks, lawyers and others in connection with the takeover and those fees carried VAT. In September 2006 ADIL joined the BAA VAT group. The representative member of the VAT group then reclaimed that VAT as input tax of the group, attributable to the general overheads of the group.
4. HMRC disputed the input tax recovery and raised an assessment to VAT in the amount of approximately £6.7 million. The representative member of the BAA VAT group appealed against that assessment.
5. Since Spring 2006 several of the companies involved in the relevant transactions have changed or exchanged their names, sometimes more than once, and in order to avoid confusion the companies are in this decision notice named as they were in Summer 2006, when the takeover took place. The various name changes are summarised in the Appendix to this decision notice.
6. The Tribunal records with great regret that Mr Anderson who appeared on behalf of HMRC in these proceedings died a few weeks after the conclusion of the hearing. The Tribunal wishes to record its appreciation of the assistance he provided not only in the current case but also in his many other appearances before the former VAT & Duties Tribunal. His presence and contribution will be much missed.
7. In this decision notice we have recorded Mr Anderson's submissions in greater detail than normal, in order that they should be clearly available to any appellate authority which might be required to consider this case.
8. There were several bundles of...
To continue reading
Request your trial
-
BAA Ltd v HM Revenue and Customs
...24 section 25 section 26ss. 24, 25, 26. This was an appeal by HMRC against a decision of the First-tier Tribunal ([2010] UKFTT 43 (TC); [2010] TC 00357) that VAT incurred by a company on professional advisers' fees in connection with a takeover was recoverable. A company (ADIL) was the vehi......
-
Baa Ltd v The Commissioners for HM Revenue and Customs
...The costs incurred by ADIL were overhead costs of the VAT group and the input tax was deductible accordingly ([2010] UKFTT 43 (TC); [2010] TC 00357. HMRC appealed successfully to the Upper Tribunal which decided that there was no direct and immediate link between the services supplied to AD......
-
Cloud Electronics Holdings Ltd
...reflected in the subsequent progress of the transaction of acquisition. 32.Mr Chapman draws the attention of the Tribunal to BAA LtdTAX[2010] TC 00357 and the observations of the First-tier Tribunal in that case concerning the requirement to be carrying out economic activity as core to the ......
-
Recovering VAT On M&A Costs: Opportunities In The Light Of The BAA Case
...are structured to achieve maximum VAT efficiency. Case reference: BAA Ltd v HMRC [2010] UKFTT 43 (TC) (www.bailii.org/uk/cases/UKFTT/TC/2010/TC00357.html) This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to Law-N......