Supplies to overseas subsidiaries

The taxpayer recharged overseas subsidiaries for management logistical and technical services in relation to acquiring licences to explore for and produce oil and gas in sub-Sahara Africa. The supplies charged to the subsidiaries were outside the scope of VAT under the general business-to-business (B2B) rule for services but with a right of input tax recovery because the services would be subject to VAT if they had been supplied to a UK based entity - known as ‘outside the scope with recovery’. The VAT was significant with input tax disallowed by HMRC of £1.45m between June 2012 and December 2015.

The taxpayer was successful before the First-Tier Tribunal. It held that there were no ‘taxable supplies for consideration’ made by the company there was no ‘economic activity’ in place and the subsidiaries had never paid for any of the services – the invoice balance was added to...