The High Court has upheld a Tax Appeals Commissioner’s determination allowing Covidien Limited to deduct VAT in full on costs linked to group management services, a pharmaceutical business spin-off and its acquisition by Medtronic. The court answered all questions in the case stated in the Commissioner’s favour, but reserved the question of costs for a later hearing.
Revenue appealed the Commissioner’s July 2022 determination, which had allowed Covidien’s appeal against VAT assessments totalling €45,936,882. The assessments covered VAT periods from July 2011 to December 2014. Revenue argued that Covidien was entitled to recover only part of the VAT on ongoing costs, and none of the input VAT connected with Project Jameson or the Medtronic transaction.
The case came before the High Court as a case stated under section 949AQ of the Taxes Consolidation Act 1997. Justice Nolan explained that the court’s role was not to rehear the tax appeal. It could set aside factual findings only where there was no evidence to support them, or where a conclusion rested on a mistaken view of the law or was one no reasonable commissioner could reach.
The Commissioner had found that Covidien actively managed its group and supplied management services to four service recipients and 84 connected subsidiaries. He concluded that services Covidien received from Tyco Healthcare Group LP were used entirely for its economic activity and that their costs supported taxable supplies. Revenue said the service agreements did not cover the 84 subsidiaries and that the gap between costs paid to Tyco and amounts charged onward showed that not all services were used for taxable activity.
Justice Nolan found no legal error in the Commissioner’s approach. He said the evidence supported the finding that Covidien’s activities were wholly economic and that the service arrangements had been carried out in practice in ways that differed from their wording. The court accepted the Commissioner’s assessment of the evidence and did not substitute its own findings.
Project Jameson involved spinning off the group’s pharmaceutical and nuclear medicine businesses into Mallinckrodt plc. The Commissioner had treated the planning and implementation as part of Covidien’s active management of the group. Justice Nolan held that the associated costs could be deducted as general costs linked to the company’s economic activity as a whole.
The Medtronic transaction acquired Covidien through a court-approved scheme of arrangement. The court also upheld the Commissioner’s decision allowing deductions for related input VAT, finding no basis to set aside his conclusion that the disposal formed part of active group management.
A separate series of VAT costs involving Irish and other suppliers had not been addressed in the Commissioner’s determination. Justice Nolan declined to remit that issue to a new commissioner, having concluded that the Commissioner had not erred in law on the disputed matters. The court made no order on costs in this judgment; it said it would hear the parties on that issue.