BAA Ltd v HM Revenue and Customs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 June 2011 |
| Neutral Citation | [2011] UKUT 258 (TCC) |
| Date | 22 June 2011 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2011] UKUT 258 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Proudman J, Judge Julian Ghosh QC.
Owain Thomas and Edward Brown (instructed by the Solicitor to HM Revenue and Customs) for the appellants.
Roderick Cordara QC, David Southern and Rebecca Murray (instructed by Herbert Smith LLP) for the respondent.
The following cases were referred to in the judgment:
Abbey National plc v C & E Commrs ECASVAT(Case C-408/98) [2001] BVC 581; [2001] ECR I-1361
Banque Bruxelles Lambert SA (BBL) v Belgium VAT(Case C-8/03) [2007] BVC 101; [2004] ECR I-10157
Belgium v Ghent Coal Terminal NV ECASVAT(Case C-37/95) [1998] BVC 139; [1998] ECR I-1
BLP Group plc v C & E Commrs ECASVAT(Case C-4/94) [1995] BVC 159; [1995] ECR I-983
Cibo Participations SA v Directeur régional des impôts du Nord-Pas-de-Calais VAT(Case C-16/00) [2002] BVC 605; [2001] ECR I-6663
Edwards v Bairstow ELRTAX[1956] AC 14; (1956) 36 TC 207
Finanzamt Offenbach am Main-Land v Faxworld Vorgründungsgesellschaft Peter Hünninghausen und Wolfgang Klein GbR ECAS(Case C-137/02) [2004] ECR I-5547
Floridienne SA & Berginvest SA v Belgium ECASVAT(Case C-142/99) [2001] BVC 76; [2000] ECR I-9567
Investrand BV v Staatsecretaris van Financiën ECASVAT(Case C-435/05) [2009] BVC 733; [2007] ECR I-1315
Lennartz v Finanzamt München III ECASVAT(Case C-97/90) [1993] BVC 202; [1991] ECR I-3795
Rompelman v Minister van Financiën ECAS(Case 268/83) (1985) 2 BVC 200,157; [1985] ECR 655
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
Société Générale des Grandes Sources d'Eaux Minérales Françaises v Bundesamt für Finanzen ECASVAT(Case C-361/96) [1999] BVC 3; [1998] ECR I-3495
Staatsecretaris van Financiën v Hong Kong Trade Development Council ECAS(Case 89/81) [1982] ECR 1277
Svenska International plc v C & E Commrs VAT[1999] BVC 221
Waterschap Zeeuws Vlaanderen v Staatssecretaris van Financiën ECASVAT(Case C-378/02) [2008] BVC 176; [2005] ECR I-4685
Wellcome Trust Ltd v C & E Commrs ECASVAT(Case C-155/94) [1996] BVC 377; [1996] ECR I-3013
Value added tax - Input tax - Deduction - Takeover bid - Professional fees - Whether VAT on fees incurred by bidding company in course of takeover recoverable - Whether services attributable to economic activities of VAT group - Whether direct and immediate link between services and taxable supplies - HMRC's appeal allowed - Taxpayer's cross-appeal dismissed - Value Added Tax Regulations 1995 (SI 1995/2518), reg. 111 - Council Directive 77/388, eu-directive 77/388 article 2 article 4 article 17art. 2, 4, 17 - Value Added Tax Act 1994, Value Added Tax Act 1994 section 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 vehicle for the takeover of UK airport operator, BAA. ADIL incurred significant legal and professional fees in connection with the takeover and those fees carried VAT. After the takeover ADIL joined the BAA VAT group. The taxpayer, as the representative member of the VAT group, then reclaimed the VAT on the fees as input tax, attributable to the overheads of the group. HMRC refused the claim and issued an assessment in the sum of some £6.7m.
HMRC contended 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. HMRC 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 First-tier Tribunal, allowing the taxpayer's appeal, held that ADIL carried on an economic activity within the meaning of art. 4 of Directive 77/388 (the sixth 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. There was a direct and immediate link between the disputed input tax and the outputs of the BAA VAT group. 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. They contended that, in upholding ADIL's entitlement to recover as input tax the VAT in question, as having a direct and immediate link to onward taxable supplies made by (or alternatively attributed to) ADIL, the First-tier Tribunal erred in law: (i) by failing to analyse the capacity of ADIL as an acquisition vehicle, which did not intend to make and which did not at any stage actually make taxable supplies of its own when it incurred the VAT, in order to determine whether or not it was carrying out an economic activity; (ii) by failing to heed its own findings of fact that ADIL neither made nor intended to make taxable supplies in light of the principle that in order for VAT to be deductible as input tax it had to be used for onward taxable supplies in the sense of having a direct and immediate link with such supplies; and (iii) by relying on an analogy with Finanzamt Offenbach am Main-Land v Faxworld Vorgründungsgesellschaft Peter Hünninghausen und Wolfgang Klein GbR (Case C-137/02) [2004] ECR I-5547, which was misconceived because the facts of the present case were materially different from those in Faxworld.
The taxpayer sought to uphold the decision of the First-tier Tribunal for the reasons given in its decision. It identified four "routes" to arrive at the conclusion that the VAT was deductible as input tax: (1) The First-tier Tribunal's findings as to the intentions of ADIL in acquiring BAA, which had a wholly taxable business, and thereafter to manage the BAA group as a whole, meant that ADIL had demonstrated a direct and immediate link between the VAT incurred by ADIL and onward taxable supplies which ADIL intended to make (in ADIL's submission, both prior to and after completion) and those findings are sufficient for recovery. (2) Even if the tribunal's express findings did not hold that ADIL had an intention to make taxable supplies both pre- and post-completion of the takeover, the objective facts found by the tribunal were sufficient to reveal ADIL's relevant intentions, without enquiring into the subjective intentions of ADIL incurring the input tax. ADIL was entitled to recover the relevant VAT because objectively the VAT incurred by ADIL had a direct and immediate link to intended onward taxable supplies to be made by ADIL in relation to its management of the BAA group. Alternatively the VAT incurred by ADIL had a direct and immediate link to BAA's taxable supplies which were, said ADIL, attributed to ADILby the VAT grouping provisions in a manner which allowed recovery. (3)Regulation111 of the VAT Regulations (SI 1995/2518) provided a complete code for recovery of pre-registration input tax. It was a sufficient basis for the VAT group to make an input tax claim in respect of input tax incurred by ADIL. (4) By way of cross-appeal, the taxpayer contended that the First-tier Tribunal was wrong to hold that ADIL had no intention to join the BAA VAT group prior to the completion of its takeover of BAA (albeit that the tribunal also found that ADIL had the intention of joining the BAA-VAT group as from the date of the completion of the BAA takeover and any delay was essentially administrative).
Held, allowing HMRC's appeal and dismissing the taxpayer's cross-appeal:
1.There was no evidence which supported the notion that ADIL had an intention, prior to the completion of the BAA takeover, to join the BAA VAT group. In the circumstances, it was impossible for ADIL to require a finding that it had the relevant intention to join the BAA VAT group at the time when it incurred the relevant VAT, or indeed, at any time prior to the completion of the takeover of BAA. Therefore the cross-appeal was dismissed.
2.The application of the sixth directive, art. 2, 4, and 17 and VATA 1994, s. 24, 25 and 26 meant that VAT was only recoverable by ADIL to the extent that ADIL could attribute the VAT it incurred to onward taxable supplies made in the course of an economic activity made either by ADIL or, alternatively, somehow attributed to ADIL, with which onward taxable supplies the relevant VAT had a direct and immediate link. The purpose of ADIL's acquisition of BAA was not an end in itself but was expressly recorded by the tribunal as being the first step of an onwards investment, which involved management. That management included the provision of services by ADIL to the BAA group. Those were findings of fact made by the First-tier Tribunal and there was no basis on which to disturb those findings of fact. The tribunal had also found that that was an economic activity and there was no basis on which to disturb that finding.
3.However, the professional services supplied to ADIL had no direct and immediate link to any onward taxable supplies made by ADIL. Although ADIL could be said to have acquired the BAA shares in the course of an...
To continue reading
Request your trial