The AG's opinion in another European VAT case (Ryanair v Revenue Commissioners (Case C-249/17)) has also been released.
This case relates to the failed bid by Irish airline company Ryanair to acquire Aer Lingus. The acquisition did not proceed for competition law reasons. During the course of the transaction discussions, Ryanair had incurred a significant amount of VAT input tax cost on professional advisers' fees among other things.
The AG's opinion was that a right to deduct input VAT incurred on a failed acquisition of shares did exist in principle. The AG stated that the (intended) acquirer must intend to engage in an economic activity and the acquisition must be for the purpose of making future taxable supplies as part of its existing business. This was clearly the case for Ryanair, seeking to add to its existing airline business. However, the AG also considered the position regarding acquiring companies which intend to carry on economic activity through supplying management services to the target. The AG's view was that this would also be sufficient for the intended acquirer to recover associated input tax. However, a passive holding company whose only intention was to acquire and hold shares would not be regarded as carrying on a taxable business and so could not recover its VAT costs.
Finally, the AG confirmed that there is no concept of proportionality of recovery by reference to income generated from taxable supplies. All that is needed is the link between the intended acquirer's taxable business and the acquisition of shares. The amount of VAT input tax recovered need not bear any relationship to the amount of onward taxable supplies.
The Larentia + Minerva joined case in 2015 (C-108/14 and C-109/14) clarified the law concerning the recovery of input tax associated with acquisitions of shares by companies that carry on an active business of management (or intend to do so). The Ryanair case, if determined in line with the AG's opinion, would further extend the scope of recoverability into costs incurred on aborted M&A deals and clarify an uncertain area of VAT law. It is important in evidencing a right to recovery that proper planning is carried out as early as possible in an acquisition process and that management services are genuinely supplied under an agreement for more than a nominal consideration (or the intention to supply such services can be evidenced in aborted deals).