The Upper VAT Tribunal has recently released its judgment in the case of Norseman Gold. This was a holding company that owned subsidiary companies engaged in mining in Australia. The question was whether the holding company could recover VAT on its costs.

There was no question that the holding company was involved in the management of the subsidiary companies; it was not just a passive investment company. This management was also of an overarching nature since day to day decisions were made by the subsidiary.  The holding company intended to charge the subsidiaries for these services but only when the subsidiary had money – which would be when it had succeeded in finding gold.  Consequently no invoices were issued for the services provided to the subsidiary and no agreement reached as to what basis they would be provided on. Would they be at cost or cost plus – unclear.

In the First Tier Tribunal (lower) it was found that the intention to make a charge was too vague to be seen as an intention to make supplies for consideration. There was consequently no entitlement for input tax recovery. This decision was appealed to the Upper Tribunal which agreed that VAT was not recoverable.

I have a few observations about this. The first is that it strikes me that the initial Tribunal didn’t really take sufficient account of the mining industry. Charge are made if gold is struck. This isn’t that far removed from an VAT advisors contingency fee. If you get a refund I will charge a fee, if not then I won’t.  But this surely doesn’t mean that there is no intended supply if no fee is charged. Clearly it would have been better had the holding company and subsidiary enter into a written agreement stating exactly what would be charged and when, but it seems rather harsh to refuse input tax recovery because the agreement was not sufficiently formalised.

In this case the subsidiary companies were in Australia and one assume this means Norseman would be in a repayment position – its supplies of management being outside the scope. Had the two entities been in the UK would HMRC have taken the same view I wonder. If the subsidiary was say a welsh gold mining company and paid large management charges to a UK holding company that far exceeded the costs that company incurred then I doubt HMRC would agree with an argument that no VAT was due because the nature of the charging agreement was rather vague.   If a tax advisor agrees to do some work on the basis that they will discuss a fee in the future if something happens does this mean they don’t need to charge VAT when they receive the money?

But the key problem was that there was insufficient evidence of intention. This is a very common problem for companies that are under common control – they don’t see they need to document things. People, don’t like writing to themselves. Both Courts in Norseman agreed that the VAT could have been recoverable if an intention to make a supply had been there. A contract, board minute or internal memo detailing how and when charges would have been made would presumably have allowed them to win. The moral of the tale is therefore to ensure that documentation is always in place –  it may be a pain but as Norseman shows its a necessary pain.

HMRC have recently been quite active in trying to restrict holding company VAT recovery and one hopes that they don’t see this as creating a wider precedent – its on its facts

The Norseman judgment can been found at : Norseman Upper Tribunal