| Firms face VAT bill for raising cash |
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| Thursday, 13 March 2008 | |
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FTSE companies and those seeking to list on the market could potentially lose millions in VAT.
The move follows a decision issued on Thursday by the European Court, tax experts at accountants PKF have warned. Some companies coming to either the Main List or AIM will be exposed to irrecoverable VAT on services incurred on share issues. In the Securenta case, the European Court indicated that the German tax authorities were right to deny German investment company Securenta its VAT reclaim of around £2.5 million which it incurred in 1994 when raising capital by, amongst other things, issuing shares. PKF VAT partner Gerry Myton says that the Securenta decision may prove very expensive for some quoted companies. Myton adds that it is a complex area but that some quoted companies which have issued shares or do so in the future may have very substantial irrecoverable VAT on their costs running into millions of pounds. PKF expects that companies most likely to suffer significant VAT costs will be investment companies, like Securenta, and holding companies with trading subsidiaries outside the UK. "At a time when the level of new issues and fund raisings has dipped with the anticipated economic downturn, this is simply a further piece of bad news that the markets didn't need,” Myton says. The case revolved around whether an investment company could recover all of the VAT incurred on the raising of capital including the issue of shares. Holding companies incur significant costs for legal, compliance, marketing and accountancy services when they issue new shares. Since the European Court decision in Kretztechnik in 2005, many are likely to have assumed they could fully recover the VAT on these costs. The judgement against Securenta means that certain holding companies may only be able to recover a small percentage of any of the VAT incurred when they issue shares. HMRC may also seek to recover VAT, and interest and penalties, from such companies which have reclaimed the tax on share issues in the past three years. Related articles Related links |
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