The Supreme Court has proposed referring questions of European Union law to the Court of Justice of the European Union (CJEU) in Ryanair’s appeal over a VAT deduction claimed for professional fees connected with its unsuccessful 2006 bid to acquire Aer Lingus.
In a judgment delivered on 27 March 2017, Mr Justice Clarke said the appeal raised two issues about whether the VAT Ryanair paid on those fees could qualify as an input deduction. The Court concluded that the issues were not “acte clair” — sufficiently clear under EU law to resolve without a reference.
The first issue is whether fees connected with a proposed share purchase can qualify where the buyer intended, if the acquisition succeeded, to provide management services to the target company. Ryanair’s bid did not proceed, and it never provided management services to Aer Lingus. Revenue argued that earlier EU case law on preparatory investment activity did not necessarily apply to a possible share purchase.
The second issue concerns the required “direct and immediate link” between purchased services and taxable output transactions. Revenue argued that fees for a possible acquisition lacked that link because providing management services to subsidiaries was not part of Ryanair’s established business at the time. It accepted that overheads could meet the test where management services were a core aspect of a holding company’s business.
The judgment recorded a factual finding in the case stated that Ryanair intended to use its expertise to improve Aer Lingus’s performance by providing management services, rather than passively holding its shares. Mr Justice Clarke said the courts were bound by that finding because Revenue had not contended that there was no evidence whatsoever to support it. Whether that intention entitled Ryanair to deduct the VAT remained a question of law for the proposed EU reference.
The VAT claim had previously been rejected by the appeal commissioners, the Circuit Court judge and the High Court. The Supreme Court did not decide the VAT entitlement in this judgment. It said a reference should be made on the two broad issues and gave the parties two weeks to submit written observations on details of the proposed reference. The Court said those observations should not challenge whether a reference should be made or the general issues it should cover.