This case concerned whether BAA Limited could claim back input tax paid by a special purpose vehicle (ADIL) during the hostile takeover of the UK airport operator, BAA Plc. The Court of Appeal sought to answer the following questions:

  1. Was ADIL carrying on an “economic activity” at the time it incurred liability to pay the input tax to its professional advisers on the supplies connected with the take-over bid?
  2. If yes was there a “direct and immediate” link between:
    • the supplies of services to ADIL, on which ADIL incurred input tax at the time of the takeover, and
    • the onward taxable supplies of the BAA VAT Group, of which ADIL had subsequently become a member, and which outputs might be attributed to ADIL?

The Court of Appeal held in HMRC’s favour stating that ADIL was not carrying out an economic activity at the time it incurred the input tax and that, in any event, there was no “direct and immediate” link with any taxable supplies or the activities of the BAA group and so ADIL could not claim back input tax.