The Court of Justice of the European Union (CJEU) rendered judgment in a case concerning an Irish airline (taxpayer) that had incurred costs—and related value added tax (VAT)—in respect of its attempt to acquire its competitor airline.
The CJEU concluded that for the purposes of acquiring the shares in the target airline, the taxpayer could fully and directly recover all VAT paid for professional advisor services. According to the CJEU, the acquisition costs incurred relate to the taxpayer’s intention to provide VAT-taxed management services to the target. Ryanair case no. C-249/17 (17 October 2018).
The outcome of this judgment is important for all businesses involved with acquisitions and, thus, is not limited only to the holding company practice.
The CJEU first of all noted that the taxpayer acted as a VAT-able person as soon as it engaged professional advisor services for the purposes of the intended acquisition of the shares in the target. The taxpayer intended to perform an economic activity for the newly acquired participation by way of providing management services to that participation. Following a fairly brief review of the case, the CJEU held that because of that intention, the taxpayer was entitled to directly recover VAT on professional advisor fees. The fact that the acquisition was ultimately unsuccessful and also that the management services never eventuated did not hinder the acceptance of a full and direct VAT recovery right.
Tax professionals in the Netherlands have observed that the CJEU judgment is in line with current Dutch practice. In the Netherlands, VAT on professional advisor services can generally be deducted if an acquisition is unsuccessful, provided there is an objective intention to provide VAT-able services for that company. This conclusion not only reflects instances when there is a draft management agreement, but also, for example, if the acquirer involves itself in the management of the other participations it owns in exchange for a fee and its policy (aimed at new participations). In the case of Dutch participations, there is also the possibility to include them in an existing VAT group.
This treatment may not only have to relate to management services. A recent CJEU judgment in the Marle Participations case (C-320/17) shows that an acquiring company may also perform other VAT-able services for its participation in order to obtain a VAT recovery right—including, for example, VAT-able property leasing or administrative support services.
Taxpayers considering acquisitions will want to conduct timely reviews of their VAT positions. The recent CJEU judgment once again shows how important it is in the early stages of an acquisition to objectively substantiate that the taxpayer intends to perform VAT able activities for the intended participation. This may allow for VAT recovery, even if the acquisition is unsuccessful.
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