7.8.1 Case 1

A company which is not yet quoted needs fresh capital and decides to make an IPO.

The costs attributable to the IPO qualify as ‘general costs’ which have, as such, a link with the business as a whole, meaning that the VAT on these costs is deductible according to the pro rata applicable to (this part of) the business.

In the UK, the Kretztechnik decision is applied.1 The issue of shares is not a supply for VAT purposes. The costs attributable to the IPO qualify as overheads which are directly and immediately linked to the whole economic activity. The input VAT on these costs is deductible on the basis of the pro rata applicable to the business.

Kretztechnik is recognized, but the deduction of VAT attributable to the IPO depends on the purpose for which the money is used.2

The costs incurred by a company for issuing shares are considered to be overheads.3 The deduction of input VAT on the costs will therefore depend on the activities of the company and the purpose of the issue of shares.