The Court of Justice of the EU (the “Court”) recently issued the Advocate General’s opinion in case C-249/17 Ryanair Ltd. The opinion states that VAT related to costs incurred buying services to assist in an intended purchase of shares in another company, with a view to then providing that company with taxable services, is deductible, even if the share purchase is not completed.
Irish airline Ryanair intended to acquire the shares of another airline, to which it intended to supply management services as the sole shareholder. To assist it in conducting the shares acquisition, Ryanair paid for various services, for which it deducted VAT. As Ryanair did not ultimately acquire the whole targeted entity and, therefore, did not provide any management services to it, the Irish tax authorities denied Ryanair’s right to deduct VAT on the cost of the services used.
The Advocate General concluded that acquiring a company with a view to providing taxable services to it is an economic activity with VAT deduction right. Furthermore, according to the Advocate General, costs borne by the purchasers in such contexts have a direct and immediate link with that taxable economic activity, so the related VAT is deductible.
The conclusion holds that taxable persons are entitled to deduct the VAT on the cost of services used to assist in an intended purchase shares, based on taxable persons’ intention to provide taxable services to the acquired company, regardless of whether the share acquisition is successful.
It is important to note that, if the Court follows the Advocate General's conclusions, the decision could be extended to all cases involving intended share acquisitions in order to obtain taxable income (and not only dividends).