In a recent High Court case involving a KPMG advised share-for-share acquisition of hardware manufacturer Welpac by industrial business RAP Group, Customs & Excise argued that the VAT on the professional fees was not recoverable because it related simply to the issue of new shares.

However, KPMG countered that the fees also related to the acquisition of Welpac’s shares, and that the VAT could be recovered as it involved other activities of the business. The court ruled in RAP’s favor.

KPMG VAT partner Frank Sangster said, "While the VAT involved in this particular case was fairly small, it establishes a crucial principle. Larger businesses may be able to take advantage of this judgment to reduce the VAT costs of an acquisition and other corporate activity significantly."

"Think of the merchant banks’ fees on the large corporate deals -- the VAT on these will run into millions. It will also cover lawyers', accountants' and other professional advisers’ fees."

The VAT tribunal had previously ruled the other way on the case. This earlier ruling meant that all the professional fees incurred in share-for-share acquisitions would be attributed to the share issue -- meaning that none of the VAT could be recovered as share issues are VAT-exempt.

Customs said that it was disappointed by the ruling and would be considering an appeal.

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