On the 17th of October 2018, the Court of Justice of European Union delivered the judgement between Ryanair Ltd and the Revenue Commissioners (Ireland) concerning the latter’s refusal to grant Ryanair the deduction of input value added tax (VAT) relating to consultancy services provided to it in the context of a bid to takeover another company.
Summary of the facts
In the course of 2006, the Ryanair launched a takeover bid for all the shares of another airline (‘the target company’). It incurred, on that occasion, expenditure relating to consultancy services and other services in connection with the planned acquisition (‘the services at issue’). Nevertheless, it was not possible to carry out that transaction fully for reasons relating to compliance with competition law, so that Ryanair was able to acquire only a part of the share capital of the target company
Ryanair requested the deduction of input VAT paid on that expenditure, stating that its intention, after it gained control of the target company, had been to involve itself in its management by providing management services subject to VAT
After the Irish tax authorities refused that deduction, Ryanair brought an appeal before the Tax Appeals Commission (Ireland), which dismissed the appeal. Ryanair brought a second appeal before the Circuit Court (Ireland), which took the same position as the tax authority. The Circuit Court nevertheless referred the case to the High Court (Ireland) for an opinion. After that court upheld the decision of the Circuit Court, Ryanair appealed to the Supreme Court (Ireland).
Questions referred to the ECJ
Can a future intention to provide management services to a takeover target, in the event that the takeover is successful, be sufficient to establish that the potential acquirer is engaged in economic activity for the purposes of Article 4 of the [Sixth Directive] so that VAT charged to the potential acquirer on goods or services provided for the purposes of seeking to progress the relevant acquisition can potentially be considered as VAT on an input to the intended economic activity of providing such management services?
Conclusion by the ECJ
The Court Upheld that Articles 4 and 17 of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment must be interpreted as conferring on a company, such as that at issue in the main proceedings, which intends to acquire all the shares of another company in order to pursue an economic activity consisting in the provision of management services subject to value added tax (VAT) to that other company, the right to deduct, in full, input VAT paid on expenditure relating to consultancy services provided in the context of a takeover bid, even if ultimately that economic activity was not carried out, provided that the exclusive reason for that expenditure is to be found in the intended economic activity.
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Franco Falzon CPA LL.M
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