VAT recovery on costs related to share transactions

VAT recovery on costs related to share transactions - Crowe Ireland

Historically, Irish Revenue’s stance was to disallow any VAT recovery on any costs arising in connection with share or similar transactions including the purchase of shares.

However, on October 17, 2018, the Court of Justice of the European Union (CJEU) delivered its judgment in the case, which was referred from the Irish Supreme Court, of Ryanair regarding the deductibility of VAT related to professional fees paid by Ryanair on the aborted takeover of Aer Lingus.

This now presents a real opportunity for businesses to claim from Irish Revenue VAT refunds which may have been denied over the last four years.

Background

The case referred to the CJEU by the Irish Supreme Court related to Ryanair’s entitlement to recover the VAT charged on professional fees expended on their attempted takeover bid of Aer Lingus, a claim for which had previously been denied by Irish Revenue.

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 as a result provided no management services to Aer Lingus.

Judgement

The CJEU held that Ryanair should be entitled to full recoverability for the VAT costs on professional fees incurred by the entity on the aborted takeover attempt.

The rationale provided by the CJEU was that “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”.

The ruling also provides clarification that VAT incurred on preparatory activities (such as share transactions) should be recoverable where there is a direct and immediate link to VATable supplies (whether aborted or otherwise). As it was Ryanair’s intention to provide VATable strategic management services to Aer Lingus had its bid been successful, they were entitled to recover VAT.

What is the impact of this ruling?

  • Confirms long-held belief that the concept of “intention” is of significant importance when evaluating the entitlement to VAT deductibility
  • Presents a real opportunity for businesses to claim VAT refunds on professional fees incurred as part of such transactions which may have been denied over the last four years

If you have any questions on claiming VAT or need tax assistance contact a member of our tax team.