Ryanair has won the legal backing of the EU's Court of Justice (CJEU) to have the VAT it incurred for professional services related to its unsuccessful takeover of Aer Lingus in 2006 refunded.
The airline is appealing a High Court ruling here that it cannot claim back the €770,700 VAT incurred on legal and stockbroking fees connected with the transaction.
In determining the appeal, the Irish Supreme Court referred certain questions on European tax law to the CJEU.
In an opinion issued on Thursday, the advocate general of the CJEU said that VAT was recoverable on costs incurred by Ryanair in its failed takeover of Aer Lingus by way of the purchase of its shares in 2006.
“Costs incurred by the acquiring company in connection with achieving such a strategic takeover have a direct and immediate link with its taxable activity with the result that the VAT paid on that expenditure is to be deducted in accordance with that activity,” the advocate general said.
Shortly after Aer Lingus floated on the stock market in 2006, Ryanair surprised the market with an offer to buy its Irish rival for almost €1.5 billion. The approach, and several subsequent efforts, were blocked by the European Commission on competition grounds.
Ryanair eventually sold its near-30 per cent stake in Aer Lingus to airline group IAG in 2015 as part of IAG’s acquisition of Aer Lingus.
Ryanair had appealed the Revenue’s decision on the VAT deduction to the Circuit Court, which ruled against the airline. It then appealed to the High Court.
In 2013, Ms Justice Laffoy of the High Court said Ryanair was clearly not a "taxable person" for the purposes of EU and domestic legislation.
Ryanair then appealed the High Court ruling to the Supreme Court. In its appeal, Ryanair had argued it had provided evidence that it did not intend to hold shares in Aer Lingus as a passive investor, which would have constituted a "non-economic activity" for the purposes of a VAT deduction.
Deloitte's taxation director, John Stewart, welcomed the advocate general's opinion, suggesting it provided clarity for businesses.
“While VAT is a complex tax, which requires expertise in both EU and domestic law, the technical VAT arguments have, in our view, always supported Ryanair’s contention that it was entitled to recover VAT on its costs,” he said.
“This demonstrates the significant financial impact that the opinion can have on businesses that engage in takeover activity,” he said.
Mr Stewart, however, noted that Ryanair would probably have to wait an additional six months for the CJEU to issue its ruling.
Following this, the Supreme Court will need to issue its final ruling, which may take another 18 months, he said.