The European Court of Justice may have thrown open a channel to allow companies to reclaim VAT on fees incurred during the capital raising process. The ECJ upheld a January 24 decision by Advocate General Jacobs in relation to the case of Kretztechnik AG.
Tax advisers at Chiltern are urging companies that listed or issued new shares within the last three years to seek refunds of VAT not previously recovered on the associated costs. These instances are most likely to comprise due diligence, accounting and legal fees. Although the Kretztechnik case deals exclusively with the issue of new shares, Chiltern believes the reasoning could also apply to debt.
- As expected, the first Finance Bill of the new UK parliament reintroduces rules that may severely restrict the amount of tax relief available on loan financing in leveraged buyouts. The new rules extend the existing transfer pricing rules to apply where parties act together to control and finance a business.
For example, in respect of loan interest paid to controlling collective investors, the new rules will deny a tax deduction for any element of the interest that is greater than an ‘arm’s length’ rate. The new rules apply to new financing arrangements entered into on or after March 4 2005. They will also apply to pre-existing financing arrangements where loan terms are changed.
- The European Parliament voted to abolish the opt-out from the 1993 rule that limits workers from putting in more than 48 hours a week. The decision will now go to the Council of Ministers, who must endorse it by a “qualified majority” to make the change effective. The clause has allowed businesses in a number of European countries to enable staff to work longer hours.
The UK Government intends to lobby support for retention of the opt-out. Businesses argue that dropping the opt-out will make them less competitive because they will not be able to cope with the peaks and troughs of demand. Even if the opt-out is withdrawn, employees will be able to work in excess of 48 hours provided overtime is voluntary.
- The Takeover Panel proposes widening its disclosure rules to cover dealings in derivatives and options. Although the new proposals are only at the consultation stage, it is likely that they will be formalised by the end of the year, with a view to coming into force in the early part of 2006 according to Lovells. They will have a significant impact on hedge funds and others trading in financial instruments, which currently are not required to disclose their holdings, no matter how large.
Several recent deals, notably the potential bid for Marks and Spencer, have demonstrated that derivatives holders can exercise a significant degree of influence over the underlying shares. The Panel therefore considers that disclosure of these interests would give better transparency for shareholders and the market. Hedge funds will need to put compliance measures in place if they wish to continue buying London listed shares, and will no longer be able to remain behind the scenes on a takeover.