The Supreme Court has referred a question to the Court of Justice of the European Union (CJEU) on whether Ryanair is entitled to reclaim VAT incurred on legal and stockbroking fees relating to its failed attempt to acquire shares in Aer Lingus in October 2006. Revenue determined that Ryanair was not engaged in an economic activity in purchasing those professional services and refused Ryanair’s VAT refund claim. Ryanair unsuccessfully appealed Revenue’s decision to the Appeals Commissioner and the High Court. Ryanair then appealed to the Supreme Court on a point of law.
In order for VAT to be deductible there must be a direct link between the costs incurred and the activity being carried out. The High Court found Ryanair’s intention to acquire shares in Aer Lingus and provide management services did not constitute an economic activity. As the takeover bid was ultimately unsuccessful the court stated that Ryanair did not ‘take any steps or do any act towards provision of management services’, thus no direct link could be ascertained between the bid and Ryanair’s core activity of air transport. The only activity which Ryanair had carried out was the bid itself and the court held that this did not qualify as an economic activity within the meaning of EU VAT Directives (the ‘Directives’).
Ryanair argued that it did not intend to hold the shares as a passive investor, which would not entitle it to a VAT deduction, but instead intended to provide management services to Aer Lingus to improve productivity. The Supreme Court agreed with this finding and so, in order to determine the appeal, the Supreme Court has asked the CJEU to determine whether Ryanair’s intention to provide management services, although the bid was unsuccessful, means that its preparatory work in trying to acquire the shares could be considered an economic activity for the purposes of the Directives. The CJEU ruling on this question should help the Supreme Court determine whether a VAT deduction in respect of costs incurred by Ryanair on the failed share acquisition may be permitted.