Flashback on ECJ cases – Input VAT recovery of corporate restructurings

In 2018, the ECJ decided on 3 cases related to ”Input VAT recovery of corporate restructurings”

Conclusions of the ECJ Cases (Marle Participations (C-320/17), Ryanair (C-249/17) and C&D Foods Acquisition (C-502/17))

• Any service against consideration can create ‘involvement in the management of a company’
• Using proceeds of sales to settle debts may imply there is no economic activity and therefore no VAT recovery
• VAT recovery on M&A fees not by default
• Important to carefully plan ahead of a potential transaction to see if the right services structure is in place to allow VAT recovery on share acquisitions/disposals, where possible

Marle C-320/17

• Could Marle Participations deduct in full the VAT charged on various expenses connected with the restructuring operation?
• Holding companies are in business where they take an active role in managing
• Simply receiving dividends as a pure holding company is insufficient
• The CJEU has confirmed that leasing property to subsidiaries showed involvement in their business (making orthopaedic implants)
• Input tax on acquiring them was therefore recoverable
• An apportionment would be required in relation to any subsidiaries which did not pay rent, as the parent was then acting as a pure holding company

ECJ C-320/17 (Marle Participations) – Judgment – Involvement of a holding in management of subsidiaries; Letting of building by holding company to subsidiary

Ryanair C-249/17

• Ryanair incurred professional costs in an attempted takeover bid for AerLingus
• The takeover did not proceed (on competition law grounds)
• The CJEU confirmed that Ryanair was acting as a taxable person in trying to acquire Aer Lingus (as it could demonstrate an intention to make taxable management charges)
• Ryanair was entitled to full VAT recovery, as its intention was exclusively to make those management charges

ECJ C-249/17 (Ryanair Ltd) – Judgment – Input VAT recovery on costs relating to acquisition of shares

ECJ Case C‑249/17 (Ryanair Ltd) – Comments – Input VAT recovery on costs relating to acquisition of shares

C&D Foods Acquisition C-502/17

• The CJEU has ruled that the lawyers’ services were not connected with the supply of management services
• Even if C&D Foods was the recipient of the legal services (which the CJEU seems to have had some doubts about) there was no link between them and its taxable activity
• The ‘direct and exclusive’ reason for the share disposal was to settle debts
• The associated VAT could only be linked to a share sale which (viewed in isolation) would have been outside the scope of VAT
• Therefore VAT recovery was denied

ECJ Case C-502/17 (C&D Foods Acquisition) – Judgment- Deduction input VAT for Holdings; Sales of shares

ECJ Case C-502/17 (C&D Foods Acquisition) – Comments – Deduction input VAT for Holdings; Sales of shares