The Advocate General has issued an opinion today encouraging the European Court of Justice (ECJ) to permit companies to recover VAT incurred on costs associated with listing on the stock market and issuing shares to new shareholders. The opinion follows the referral of the Kretztechnik case to the ECJ from an Austrian court.

The view of the Advocate General is in contrast to Customs & Excise’s current view that VAT on costs relating to the issues of shares to EU recipients cannot be recovered where the primary intention is to raise capital.  Historically, as a result of the stance adopted by Customs & Excise, VAT has significantly increased the cost of initial public offerings (IPOs) for many businesses. Customs’ practice on recovery of VAT associated with such stock market listings is inconsistent with the general position for companies which are otherwise entitled to full VAT recovery on other areas of business expenditure.

Richard Vitou, indirect tax director at Deloitte, says: “Companies that have listed on the stock market or raised capital through the issue of other forms of securities in the past three years should now consider submitting protective claims to Customs.

“There is also debate as to whether the opinion may have implications for corporate financiers on transactions of this type. Historically these advisors have treated their fees as being VAT exempt. If the Advocate General’s opinion is upheld this issue is likely to come under further scrutiny.”

Ends

Notes to editor

Kretztechnik AG (‘Kretztechnik’) is an Austrian public limited company whose objects are the development and sale of all types of electro-medical appliances, in particular ultrasound apparatus for medical and technical purposes, and other medical appliances.  Sales of its products are subject to VAT, and it is therefore entitled to deduct input tax on supplies of goods or services which it acquires for the purposes of making those sales.

In January 2000 Kretztechnik decided to increase its issued share capital by 25%, by issuing 2 500 000 bearer shares at an issue price of EUR 1.00 per share.  For that purpose, the company was listed on the Neues Markt stock exchange in Frankfurt, Germany, from 23 March 2000.  In order to obtain that listing, it had to pay for certain services, on which it was charged VAT.

In its VAT assessment for that year, the tax authority refused Kretztechnik’s deduction of the input tax on costs involved in the company’s admission to the German stock market, on the ground that the share transactions for the purposes of which those costs had been incurred were exempt from tax.  Following this refusal the case was heard at the Austrian Unabhangiger Finanzsenat, an independent tribunal with jurisdiction in tax and customs matters.  This tribunal subsequently made a reference to the ECJ.

Advocate Generals’ opinions are not binding on the full court at the ECJ, but they are followed in most cases. The final decision is expected later this year.

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