If your business has been denied VAT recovery on costs incurred on share transactions (including aborted transactions), today’s decision in the much anticipated Ryanair VAT case presents a potential opportunity to now recover such VAT.

Background

The Court of Justice of the European Union ("CJEU") today issued its judgement in the Ryanair VAT case (i.e. Ryanair Limited v. The Revenue Commissioners - a referral from the Irish Supreme Court). The case related to Ryanair’s unsuccessful attempt to acquire Aer Lingus in the mid-noughties and the complex topic of its VAT recovery position on costs it incurred as part of the takeover bid. It was Ryanair’s intention that it was to provide strategic management services to Aer Lingus had its bid been successful. However, as a result of competition law difficulties, it only acquired a minority interest and provided no management services to Aer Lingus.

Judgement

In a very concise decision, the CJEU held that Ryanair should be entitled to full VAT recovery on the professional costs it incurred in connection with its unsuccessful bid. This was based on the fact that Ryanair's “intention” was that it would provide VATable strategic management services to Aer Lingus had its bid been successful. The fact that it only acquired a minority interest and that no management services were ultimately provided was irrelevant.

Why is this important?

  • This is a very significant and welcomed decision in the long running debate around VAT recovery on costs incurred on share transactions. In particular the judgement:Reaffirms the principle that a taxpayer’s “intention” is key when considering VAT recovery entitlement.
  • Confirms that VAT incurred on preparatory activities (including the purchase of shares) can be recovered where supported by objective evidence of this “intention” to provide VATable supplies. This position does not change where a business was unable to make VATable supplies due to circumstances beyond its control (an unsuccessful takeover bid in the case of Ryanair).
  • Presents a potential opportunity for your business to now recover any VAT previously denied by the Irish Revenue within the last four years.