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VAT recovery by holding companies – another cost to business? – Tax

HMRC’s new Revenue and Customs Brief 32/14, which updates the internal guidance on VAT recovery by holding companies, sets out a number of potentially onerous conditions to be fulfilled.HMRC policy looks to apply normal VAT principles of a taxable business, which buys in goods and services for resale with that of a holding company business in which the costs of the holding company are general business overhead costs. It considers that holding companies that merely acquire, hold and sell shares are deemed to be performing non-economic activities for VAT purposes and, as such, associated VAT costs are not recoverable.The Brief also indicates that the costs must be recouped over a 5 or 10 year period. But, this is unlikely to be achievable in some cases, leading to considerable uncertainty for the businesses concerned.For each business it will be important to consider the VAT implications as well as considering whether a corporate tax deduction is possible, the transfer pricing methodology and documentation together with the legal and commercial aspects.

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