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Considering a Major Transaction? Think of the Tax Implications!


In a case which vividly highlights the need to carefully consider the tax implications of any major transaction before proceeding, a major hotel group has failed in a long-running battle to recover more than £700,000 in VAT it paid to professionals who advised it on the sale of a number of its subsidiaries.


As part of complex sale and leaseback arrangements, the group sold the shares in 18 of its subsidiaries, which together controlled 119 hotels, to an unconnected third party. The subsidiaries concerned were substantially indebted to other companies within the group and, on completion of the sale, the buyer arranged for the discharge of those liabilities.


On a number of alternative grounds, the group claimed a £723,627 credit in respect of VAT it had paid to professionals who advised it on the sale. However, the claim was contested by HM Revenue and Customs (HMRC), principally on the basis that the supplies in question were directly linked to an exempt transaction, that being the sale of the shares in the subsidiary companies.


Dismissing the group’s appeal, the First-tier Tribunal found that the sale of the shares constituted an economic activity that was an exempt supply for VAT purposes. Even if that were not the case, the relevant supplies were directly and immediately linked to the sale of the shares, which was a transaction that fell outside the scope of VAT.


Whilst accepting that the consideration for the sale of the shares did not include the amounts received by the group in discharge of the indebtedness of the subsidiary companies, the Tribunal ruled that it was not a transaction which, for VAT purposes, amounted to the transfer of a business, or part of a business, as a going concern.