In May 2018, the  Advocate General Kokott (AG) published an opinion concerning the input VAT reduction for Ryanair Ltd after the Aer Lingus take over plans fell through.

Case Summary

In 2006, Ryanair Ltd made proposals to take over the Irish airline, Aer Lingus although no discussions regarding the tax management service for Aer Lingus took place between the two airlines.  

As Ryanair’s attempt to take over Aer Lingus failed and no taxable transactions took place between them, the Irish High Court declined Ryanair’s request for deduction of input VAT on the takeover negotiation fees paid.

While the AG has published her opinion on the matter, the Irish Supreme Court has referred the case questions to the ECJ.

The AG opined that the fee paid for acquiring a company is a taxable transaction. Even though the acquisition didn’t go through and the intended VAT taxable activities didn’t take place, it should not have any impact on the process of VAT recovery. Thus, VAT paid on professional fees when acquiring a company can be deducted.

The case is still pending but if accepted by the ECJ the opinion can help resolve a long list of ECJ cases concerning VAT deduction and shared transactions.  The AG also seems to have allowed the VAT to be recovered if the management of the acquiring company intends to manage the company after taking it over. The important aspect in this situation is the intention and objective evidence of performing an economic activity and paying VAT for it.

Click here to read the detailed Opinion of Advocate General Kokott  

How does this affect your business?

If the ECJ passes the judgment in favour of Ryanair, it will open doors for a number of cases that are related to business takeovers, even unsuccessful ones! Particularly in Belgium, where VAT law on the cost of acquisition is not defined since 2015 and onwards.