Businesses are able to recover VAT incurred when raising capital in the last three years, as a result of a European Court of Justice (ECJ) decision out today. The Kretztechnik case was referred to the ECJ from an Austrian court and will overrule UK law which currently prevents firms from reclaiming VAT relating to financing costs.

The judgement is in contrast to HM Revenue & Customs’ current view that VAT on costs relating to the issue 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, VAT has significantly increased the cost of initial public offerings (IPOs) and other share issues for many businesses. Customs’ practice on recovery of VAT associated with such transactions 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 shares in the past three years should submit VAT refund claims to Customs now.”

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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.

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP.

Deloitte & Touche LLP is the UK's fastest growing major professional services firm based in 21 UK locations, with over 10,000 staff nationwide and fee income of £1,246 million in 2003/2004. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority.

The information contained in this press release is correct at the time of going to press.