The High Court has upheld the Circuit Court’s decision that Ryanair cannot deduct VAT on professional fees incurred in its unsuccessful 2006 bid to acquire Aer Lingus. It also refused Ryanair’s application for a reference to the Court of Justice of the European Union.
In a judgment delivered on 2 May 2013, Ms Justice Laffoy answered that the Circuit Court judge was correct in law. The appeal came to the High Court by way of a case stated under tax legislation, following the Circuit Court’s dismissal of Ryanair’s appeal against an Appeal Commissioner’s determination.
Ryanair sought a refund of €770,700 in VAT on professional fees connected with the bid. The judgment describes those costs in different submissions as legal and tax advice, or legal and stockbroking fees. Ryanair argued that the costs related to its VAT-reclaimable air transport business and to an intended plan to provide management services to Aer Lingus if the takeover succeeded. The Revenue Commissioners argued that the costs were not linked to Ryanair’s taxable supplies or general business overheads.
The Circuit Court’s stated facts recorded that Ryanair launched a formal bid in October 2006 and acquired about 29% of Aer Lingus, but did not acquire the entire share capital. The judgment records that Ryanair therefore did not provide management services to Aer Lingus. The High Court treated the bid itself as exempt from VAT and not an economic activity for the purposes of the deduction claim.
Justice Laffoy also rejected Ryanair’s argument that its intention to provide management services was enough to establish an economic activity. She said the case stated recorded no steps or acts in support of that intention apart from making the bid, and did not establish a link between the fees and the proposed services. She distinguished earlier European cases involving preparatory expenditure where activity toward a taxable business had been undertaken.
The court concluded that the fees were incurred wholly in connection with acquiring shares, a transaction for which VAT was not deductible. It said apportionment did not arise. The judgment did not decide whether the fees formed part of Ryanair’s general overheads, saying that question did not need to be resolved once the claim failed on the economic activity issue.
Ryanair’s request for a reference to the EU court was refused. Justice Laffoy said a reference was not necessary to give judgment.