Ryanair – European Court of Justice finds that takeover expenses incurred in order to earn management fees from the target would generate VAT deductions
Ryanair sought to deduct VAT incurred on its expense incurred in a takeover bid on the basis that it intended to earn management fees from the target – even though this intention was not realized since, for competition law reasons, it ultimately was permitted to acquire only a portion of the target’s shares. Article 17(2)(a) of the Sixth Directive provided a deduction for VAT paid respecting goods and services used for the purposes of the taxable person’s taxable transactions.
The ECJ concluded that the claim should be allowed if the exclusive reason for the expenses was in the intended management activity (and that “In the event that the expenditure is attributed in part also to an exempt or non-economic activity, VAT paid on that expenditure may only be deducted in part.”) Before so concluding, the Court stated:
[T]he right to deduct, once it has arisen, is retained even if the intended economic activity was not carried out and, therefore, did not give rise to taxed transactions … . Any other interpretation would be contrary to the principle that VAT should be neutral as regards the tax burden on a business. It would be liable to create, as regards the tax treatment of the same investment activities, unjustified differences between businesses already carrying out taxable transactions and other businesses seeking by investment to commence activities which will in future be a source of taxable transactions.
Neal Armstrong. Summary of Ryanair Ltd. v. Revenue Commissioners,  EUECJ C-249/17 (First Chamber) under ETA s. 141.01(2).