The question of whether holding companies can recover VAT incurred on the costs of acquiring companies is an important and complex one, particularly where a new company is incorporated to act as the bidding company. The Court of Appeal decision in BAA makes it clear that the bidding company must carry on an economic activity in order to be able to recover the VAT, and to demonstrate this it must do more than simply act as a passive holding company. In addition, there must be a direct and immediate link between the VAT incurred and the taxable supplies which the bidding company intends to make. Satisfying these tests in the context of a new company requires careful consideration.
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