CJEU: Recovery of input VAT on aborted deal costs
17/10/18
The European Court of Justice (CJEU) ruled that Ryanair is entitled to a recovery of input VAT on the acquisition costs related to the failed takeover of Aer Lingus because Ryanair had the intention to provide VAT taxable management services to Aer Lingus after the acquisition.
What does this mean for you?
In the Dutch practice, the VAT recovery of acquisition costs is a recurring point of discussion. With this judgment, the ECJ confirms the present existing case law that a holding company which is going to supply VAT taxable services for consideration to the acquired company has a general VAT recovery right for the input VAT incurred on the acquisition costs.
Moreover, this right to recover input VAT will continue to exist if the planned acquisition is ultimately not or only partially realised and the intended services will therefore not be provided. It is important in this respect that the intention to supply VAT taxable services after the proposed acquisition can be supported by objective documents.
Background of the case
Ryanair attempted in 2006 to acquire all the shares in its competitor Aer Lingus, which failed. Ryanair was assisted by experts in that takeover and was liable for VAT on the costs charged by those experts. Ryanair attempted to recover the VAT paid on that occasion. However, the Irish tax authorities refused the recovery.
In the following proceedings, the case was brought before the Irish Supreme Court. That authority noted that the intention to provide VAT taxed services after the acquisition has been sufficiently demonstrated in the previous procedures.
Questions to the ECJ
However, the Irish Supreme Court wondered whether one of the conditions set out in European case law, that there must be a 'direct and immediate link' between the goods or services acquired and the transactions at a later stage for which a right of VAT recovery exists, was fulfilled here. The transactions at a later stage concerned the intended provision of management services to the participation to be acquired, which services were never provided due to the failure of the takeover.
Judgment of the ECJ
The ECJ ruled that a right to recover input VAT exists if costs were incurred with a view to VAT taxable transactions at a later stage that give rise to VAT recovery, even if it turns out that these VAT taxable activities (the management activities for the target company) do not take place at a later stage. In that case, the acquisition costs need to be regarded as general costs of the company.
Contact us
Follow us
