Originally published March 2005

It may now be possible to recover VAT on advisers’ fees relating to share issues made in the last 3 years (or in the future) according to a recent Advocate General's opinion in a European Court of Justice VAT case.

Whether this is ultimately possible will depend upon the Court's decision, which may not be published for some time. However companies that could be affected need to be making protective claims now to maximise the VAT that they will be able to recover should the Court uphold the Advocate General's opinion.

Background

UK law provides that an issue of shares to investors in the EU is an exempt supply. VAT incurred on advisers' fees in relation to share issues to EU based investors cannot therefore be recovered.

In the case of Kretztechnik AG v Finanzamt Linz, the Advocate General has given his opinion that on a proper construction of EU law, an issue of shares is not a supply at all. If the Court upholds the Advocate General's decision this would mean that UK law was inconsistent with EU law and would mean that input tax on costs related to share issues to EU investors would be recoverable as a general overhead of the business. The extent to which the VAT would be recoverable would depend upon whether the business was fully taxable or partially or fully exempt.

This change will be particularly relevant where companies have:

  • Floated - on AIM or the full list
  • Issued shares by way of rights issue or placing
  • Raised equity funds from venture capitalists
  • Issued shares as consideration for an acquisition

within the last three years or will do so in the future.

It is not yet clear whether this could extend to the issue of bonds and other debt securities - but it may be appropriate to put in a protective claim in these circumstances too.

Action required

Companies may need to put in a protective claim now because you can only make a claim for repayment of VAT going back 3 years - if you wait until the decision is finalised (which could be 6-12 months time) the 3 year cap may prevent recovery of the VAT.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.