VAT related to services costs incurred with the intention of purchasing shares - deductible, under certain conditions

In brief

The judgement of the Court of Justice of the European Union (the “Court”) in case C-249/17 Ryanair Ltd 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.

In detail

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 Court followed the Advocate General’s opinion and concluded that companies which carry out preparatory acts in the context of a purchase of an entity's shares with the intention of providing the latter with management services subject to VAT, qualify as taxable persons. Moreover, according to the judgment of the Court, the costs incurred by companies in such a context have a direct and immediate link with the taxable economic activity (management services), so that the VAT on such expenses must be deductible.

 

[Source: Judgement of the Court of Justice of the EU in Case C-249/17 Ryanair Ltd v. The Revenue Commissioners - Taxation — Common system of value added tax — Concept of taxable person — Expenditure for services procured in connection with the acquisition of an undertaking’s entire share capital — Right of deduction — Unsuccessful takeover of a competitor, published on Curia.europa.eu website, on the 19 October 2018]

The takeaway

The conclusion holds that taxable persons are entitled to deduct the VAT on the cost of services used to assist in an intended share purchase, based on the taxable persons’ intention to provide taxable services to the acquired company, regardless of whether the share acquisition is successful.

The decision could be extended to all cases involving intended share acquisitions in order to obtain taxable income (and not only dividends).

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