UK and International Tax news
FTT Decision In Another Holding Company VAT Reclaim Case
Monday 21st July 2014
The FTT has recently published its decision in another case involving VAT reclaims by a holding company which provided management services and finance to overseas subsidiaries.
The issues in dispute between the parties were whether loan finance and management services provided by the holding company to its subsidiaries amounted to economic activities or the making of taxable supplies such that the holding company should be treated as a taxable person eligible to be registered in the UK and able to reclaim input tax attributable to the making of taxable supplies.
With regard to the financing, a fixed level of 4% interest was charged on the loans but there was no detailed evidence supporting the commerciality of that rate, either prior to lending, or that the loans were reviewed during the term of each loan, taking into account changing circumstances or likelihood of repayment. In fact, interest was automatically charged and rolled up each year.
The Tribunal’s view was that a third party commercial lender might have been prepared to lend on these terms but not on a fixed basis with no defined term. It felt that the holding company was not ‘exploiting’ any property and its actions were much more closely aligned to that of an equity investor than to a commercial lender and that this did not amount to an economic activity for VAT purposes.
In respect of the management fees, the Tribunal concluded that the provision of management services for what was essentially a fixed fee based on what the subsidiary could afford could not be treated as a taxable supply.
Overall, the Tribunal concluded that the making of loans by the holding company was not an economic activity and the provision of management services was not effected for consideration and so did not amount to the making of taxable supplies by the holding company.
As with the previous case, the tribunal judge did give the taxpayer the right to appeal.Contact Us