Key Facts
- •Hotel La Tour Ltd (HLT) sold shares in its subsidiary to fund a new hotel.
- •HLT incurred professional fees (£382,899.51 + VAT) for the sale.
- •HLT claimed input tax deduction for these fees.
- •HMRC disallowed the deduction, arguing the fees were linked to the exempt sale of shares.
- •HLT argued the fees were linked to its taxable activities (building the new hotel).
- •HLT and its subsidiary were in the same VAT group.
- •The amount of VAT at stake was £76,822.
Legal Principles
Direct and immediate link between input tax and taxable supplies.
Article 168 of the Principal VAT Directive (PVD) and section 24 of the Value Added Tax Act 1994 (VATA)
In fund-raising cases, the objective purpose is the fund-raising and the relevant use is the use of the funds. Use of services for fund-raising doesn't break the chain unless the cost is a cost component of the initial transaction.
CJEU in *Skatteverket v AB SKF* and Supreme Court in *Frank A Smart & Son Ltd v Revenue and Customs Commissioners*
Fiscal neutrality requires similar transactions to be treated similarly for tax purposes.
CJEU case law
The objective purpose of the fund-raising transaction is to be considered when determining the link to taxable activities.
CJEU in *Sveda UAB v Valstybine mokesčių inspekcija*
Outcomes
HMRC's appeal dismissed.
The FTT and Upper Tribunal found a direct and immediate link between the professional fees and HLT's taxable activities (building the new hotel). The fees were not a cost component of the share sale itself, but rather a cost of raising funds for the taxable activity. The objective purpose of the share sale was to fund the new hotel.