Advocaten / Avocats / Lawyers

Thursday, 18 October 2018

VAT and holding companies: European Court of Justice accepts the right to deduct input VAT on broken-deal costs

On 17 October 2018 the Court of Justice of the European Union (‘CJEU’) delivered its ruling in the Ryanair case (C-249/17). This decision resolves the issue of input VAT recovery for costs in connection with unsuccessful share deals (broken-deal costs). We highlight below the importance of this ruling in practice, in particular for Private Equity and M&A business.


Ryanair wanted to increase its shareholding in Air Lingus from 29% to 100% with the aim of increasing Air Lingus’ results by Ryanair’s provision of management services. Ryanair incurred costs for this intended acquisition and deducted all the VAT on these costs. However, the deal failed, for competition law reasons, and the Irish tax authorities next denied Ryanair the right to deduct the VAT on these incurred costs. This dispute was then referred by the Irish Supreme Court to the CJEU.


Advocate-General Kokott’s opinion had already accepted input VAT recovery. The Court has now followed this opinion by simply referring to the fact that Ryanair had the intention of actively managing Air Lingus. As there was sufficient proof of this intention, input VAT recovery for the broken-deal costs must be allowed.


This is once again an important Court ruling for active holdings and, in particular, for Private Equity and M&A business. As long as there is sufficient proof of the intention to actively manage a target company, input VAT recovery should be allowed on the deal costs, despite the fact that the deal itself was ultimately cancelled. This ruling actually combines settled EU case law on the intention to start undertaking VAT taxable activities (see the Rompelman, INZO, Ghent Coal Terminal cases) and the case law on input VAT recovery by active holdings (Cibo Participations, Larentia & Minerva). As such, this case law significantly improves active holdings’ VAT position.

It should be emphasized that the Ryanair case handles an unsuccessful deal for the acquisition of a company. Another interesting case is pending before the CJEU regarding input VAT recovery on due diligence costs in connection with an unsuccessful sale of shares in a company (C&D Foods, C-502/17). Advocate General Kokott has already delivered her opinion in this case, which is less favourable for businesses. Despite the fact that the portfolio company concerned was actively managed by the holding company, input VAT recovery could be denied because there was a direct link between these costs and the VAT-exempt sale of shares. Previous case law (AB SKF) had opened more options for such input VAT recovery, which the Advocate General now seems to have closed. It remains to be seen if and how the Court will follow this opinion.

The Tiberghien VAT team has deep expertise in these types of complex VAT matters. Please contact us if you would like more information or if you need assistance for input VAT recovery in connection with successful or unsuccessful share deals.


Stijn Vastmans - Head of VAT (
Gert Vranckx - Associate (


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