FTSE 100 could suffer VAT share issue hit

The largest holding companies in the UK could be facing a £1m bill for new
share issues if the European Court of Justice upholds a decision by the advocate
general today.

The advocate general gave an opinion on German Securenta case today. The case
revolves around whether a company carrying on both business and non-business
activities can recover all of the VAT incurred on the issue of shares.

Holding companies incur significant costs for legal, compliance, marketing
and accountancy services when they issue new shares but, since the Kretztechnik
case in the ECJ in 2005, many are likely to have assumed they could fully
recover the VAT on these costs.

In the Securenta case, however, the advocate general’s opinion said that
holding companies, which in the main carry out investment rather than business
activities, would only be able to recover a small percentage of any of the VAT
incurred when they issue shares.

Companies that have reclaimed the tax in the past three years may have to
repay substantial sums plus penalties and interest to HM Revenue & Customs
if the opinion is upheld when it comes before the ECJ in the New Year.

For large share issues in the biggest holding companies, that could be a VAT
bill of more than £1m,’ said PKF VAT partner Gerry Myton.

Further reading:

more about the case here

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