Input VAT may be recoverable on abortive acquisition costs
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Input VAT may be recoverable on abortive acquisition costs
Input VAT may be recoverable on abortive acquisition costs
Wed 24 Oct 2018
The CJEU has held in the case of Ryan Air (case C-249/17), that there is a right to input VAT recovery in the context of a takeover bid, even if ultimately that economic activity [involvement in the management activity of the target for a fee subject to VAT] was not carried out, provided that the exclusive reason for that expenditure is to be found in the intended economic activity.
Background
During 2006, the Ryanair launched a takeover bid for all the shares of Aer Lingus. It incurred, on that occasion, expenditure relating to consultancy services and other services in connection with the planned acquisition. However, due to competition law, it was only possible for Ryanair to acquire a part of the share capital of the target company.
Ryanair sought to recover input VAT paid on that expenditure, stating that its intention, had it gained control of the target company, was to involve itself in its management by providing management services subject to VAT.
Comment
This is a helpful decision for acquisitive businesses which intend to involve themselves in the management of their targets. It originates from an Irish referral. HMRC’s guidance at VIT40600 and VIT2200 already indicates the possibility of input VAT recovery where there is an intention to make an economic supply, but the supply is not actually made. There is a need to retain evidence of the intention to support any input VAT reclaim.
For further discussion of the VAT implications of acquisitions and disposals, please get in contact with a member of the Mazars indirect tax team.
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