By Aisling Byrne
The Court of Appeal has overturned a ruling in favour of Covidien Limited in a €45.9 million VAT dispute and ordered the company's claim for full input-tax deductions to be reconsidered by a Tax Appeals Commissioner.
The case concerns VAT assessments totalling €45,936,982 for periods between July 2011 and December 2014. Covidien, then the Irish holding company of a global healthcare-products group, successfully appealed those assessments before the Tax Appeals Commissioner in April 2022. The High Court upheld that decision in 2024.
Revenue appealed, arguing that Covidien was entitled only to partial rather than full deduction of VAT on services it purchased, principally from a related US entity known as Tyco.
Ms Justice Hyland, with Butler and O'Moore JJ agreeing, held that the Commissioner had applied the wrong legal approach.
The court said being engaged in an economic activity was necessary for VAT deductibility but was not enough by itself. Under EU VAT law, Covidien also had to show precisely how purchased services were "used for" taxable transactions — either because they were directly linked to those transactions or because they formed deductible overhead costs reflected in the price of taxable services.
Hyland J found that Covidien provided paid management services to four indirect subsidiaries but also carried out management activities for other group companies without charging them. Those unpaid activities were non-economic for VAT purposes and could not support input-tax deductions.
The court also identified errors in the Commissioner's treatment of costs relating to Project Jameson, a restructuring and pharmaceutical-business spin-off, and Covidien's subsequent acquisition by Medtronic.
The judgment does not decide how much VAT Covidien may ultimately deduct. Instead, the entire dispute returns to a Tax Appeals Commissioner, using the existing evidence, so Covidien may argue that relevant Tyco, restructuring and acquisition costs qualify as overheads connected with taxable services.
Revenue was awarded the costs of the appeal, subject to any contrary submissions by Covidien within 14 days.