United Kingdom - 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

Source : Accountancy Age - London, UK, dated 11/12/2007