Recovery on leasing machinery to associate

JDI a Cayman Islands company acquired oilfield drilling tools and intellectual property rights relating to them. It leased the tools in the UK at no charge to an associated Netherlands company which subleased them to companies in its corporate group. These made the tools available to third parties.

JDI wished to recover the input VAT on the purchase of the equipment. It was accepted that to do so JDI had to establish that the VAT it had incurred on the supply of the UK tools would have been recoverable as input tax if JDI had been a taxable person in the UK.

HMRC refused the claim and the First-tier Tribunal dismissed the taxpayer’s appeal. It found that JDI had failed to establish a direct and immediate link between the acquisition of the tools and its economic activity of supplying spare parts.

The Upper Tribunal said...