Supreme Court Confirms No VAT Recovery on Professional Fees for Exempt Share Sales – Hotel La Tour Case

⚖️ Key Points of the Judgment

• Direct and Immediate Link Test

• The Court reaffirmed that the foundational VAT rule for recovering input tax is whether there is a direct and immediate link between the input and a taxable supply. [vatcalc.com], [deeksvat.co.uk]
• Since the legal and advisory fees were incurred to effect an exempt share sale, they lacked the necessary link to any taxable activity, even though the proceeds funded a taxable project. [deeksvat.co.uk], [vatcalc.com]

• Purpose-Driven Argument Rejected

• The Court dismissed Hotel La Tour’s argument that using the sale proceeds to fund taxable activity should allow VAT recovery.
• While CJEU cases mention “purpose” in certain contexts, those are limited to start‑up or pre‑trading scenarios—not continuous VAT-liable businesses. [vatcalc.com], [gravita.com]

• SKF and Frank Smart Precedents Clarified

• Clarified that Skatteverket v AB SKF does not override the direct link rule.
• Likewise, Frank A Smart applies only to pre-trading input costs and is not to be generalized to cases involving ongoing taxable businesses. [vatcalc.com], [deeksvat.co.uk]

• VAT Group Treatment Confirmed

• The existence of a VAT group between Hotel La Tour and its subsidiary did not transform the transaction’s character.
• VAT grouping is merely an administrative construct and does not convert an exempt activity into a taxable or out-of-scope one. [vatcalc.com], [gravita.com]

Implications

• This decision closes the door on VAT recovery for professional fees incurred in the sale of shares, even when the proceeds are invested in taxable operations.
• It crystallizes that fundraising purpose and VAT-group status cannot override the strict requirement for a direct link to taxable activity. [deeksvat.co.uk], [estatesgazette.co.uk], [vatcalc.com]

The decision upholds HMRC’s position and provides definitive guidance on VAT recovery rules, affirming that input VAT is not deductible when directly and immediately linked to an exempt transaction—even if the funds are used for taxable business activity.