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VAT recovery on acquisition fees post-BAA

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Since the judgment in Polysar, the activities of pure holding companies have fallen outside the scope of VAT as they do not constitute economic activities. However, the active management by a holding company of a group which can fall within the scope of VAT. This is particularly important where a takeover occurs as the holding company will bear substantial costs, such as bankers’ and lawyers’ fees, which are subject to VAT. In HMRC v BAA Ltd, the Upper Tribunal recently denied recoverability for VAT on such costs to the bid vehicle established by Ferrovial to acquire BAA. There are, however, steps that can be taken in order to maximise the opportunity for vehicle to recover VAT incurred on advisory fees incurred in relation to a corporate takeover.

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