Ryanair Ltd v Revenue Commissioners
| Jurisdiction | Ireland |
| Judge | Ms. Justice Laffoy,Mr. Justice Cooke |
| Judgment Date | 04 July 2013 |
| Neutral Citation | [2013] IEHC 327,[2013] IEHC 195 |
| Court | High Court |
| Docket Number | [2012 No. 138 R],[2012 No. 6736 P.] |
| Date | 04 July 2013 |
BETWEEN
AND
[2013] IEHC 195
THE HIGH COURT
Taxation – Company - Value added tax – reclaiming VAT on business costs – Bid for shares
Facts: The appellant airline company had made an unsuccessful bid to acquire the entire issued share capital of Aer Lingus. The issue before the court was whether the appellant was entitled to deduct VAT on the cost it had incurred in its attempted acquisition. In carrying out its business the appellant was not subject to VAT, the question was therefore dependant on whether the appellant could be deemed to have carried out an economic activity in connection with the bid.
Laffoy J held for the transaction the appellant was not a taxable person carrying out an economic activity, it was exempt from VAT under Art 13(B)(d)(5) of the Sixth Directive and First Schedule of the 1972 Act ( Cibo Participations SA v. Directeur Régional des inpôts du Nord-Pas-de-Calais Case C-16/00; [2001] ECR 6663 considered).
The intention to provide management services did not constitute an economic activity, unlike in the case of Cibo the appellant did not attempt to provide any management services as the bid was unsuccessful. The intention itself could not be regarded as an economic activity upon which the appellant could deduct VAT ( Rompelman v. Minister Van Financiën (Case C – 268/83) [1985] ECR 655 considered).
The contention that professional fees incurred from legal and stockbroking costs constituted a direct and immediate link with the appellant"s business resulting in an entitlement to deduct VAT was rejected, Cibo showed there was no such link.
The lower court was correct in concluding that the Appellant was not entitled to deduct VAT on the costs incurred during its acquisition of shares in Aer Lingus.
TAXES CONSOLIDATION ACT 1997 S941
TAXES CONSOLIDATION ACT 1997 S943
VALUE-ADDED TAX CONSOLIDATION ACT 2010 S119
VALUE-ADDED TAX ACT 1972 S12(1)(B)(i)
EEC DIR 77/388 ART 2
EEC DIR 77/388 ART 4(1)
EEC DIR 77/388 ART 4(2)
EEC DIR 77/388 ART 13B
EEC DIR 77/388 ART 17
EEC DIR 77/388 ART 17(1)
EEC DIR 77/388 ART 17(2)
EEC DIR 77/388 ART 17(5)
VALUE-ADDED TAX ACT 1972 S12
VALUE-ADDED TAX ACT 1972 S12(1)(A)
VALUE-ADDED TAX ACT 1972 S12(1)(B)
VALUE-ADDED TAX ACT 19721972 SCHED 1
CIBO PARTICIPATIONS SA v DIRECTEUR REGIONAL DES IMPOTS DU NORD PAS DE CALAIS 2001 ECR I-6663 2002 1 CMLR 23
KRETZTECHNIK AG v FINANZAMT LINZ 2005 1 WLR 3755 2005 STC 1118 2005 ECR I-4357 2005 2 CMLR 46 2005 AER (D) 414 (MAY)
BAA LTD v REVENUE & CUSTOMS CMRS 2013 STC 752 2013 AER (D) 250 (FEB) 2013 EWCA CIV 112
ROMPELMAN & ANOR v MINISTER VAN FINANCIEN 1985 ECR 655 1985 3 CMLR 202
CRAWFORD (INSPECTOR OF TAXES) v CENTIME LTD 2006 2 IR 106 2006 1 ILRM 543 2005/12/2508 2005 IEHC 328
EEC DIR 77/388 ART 13B(D)
EEC DIR 77/388 ART 17(2)(A)
EEC DIR 77/388 ART 13B(D)(5)
EEC DIR 77/388 ART 2(1)
FREDERICK INNS LTD (IN LIQUIDATION) & ORS, IN RE 1994 1 ILRM 387 1993/11/3568
EEC DIR 77/388 ART 4
INTERCOMMUNALE VOOR ZEEWATERONTZILTING (INZO) (IN LIQUIDATION) v BELGIUM 1996 STC 569 1996 ECR I-857
BELGIUM v GHENT COAL TERMINAL NV 1998 AER (EC) 223 1998 STC 260 1998 ECR I-1 1998 1 CMLR 950
TREATY ON THE FUNCTIONING OF THE EUROPEAN UNION ART 267
Judgment of Ms. Justice Laffoy delivered on 2nd day of May, 2013.
1. This judgment concerns an appeal by way of case stated by Her Honour Judge Linnane, Judge of the Circuit Court, pursuant to s. 941, by virtue of s. 943, of the Taxes Consolidation Act 1997, as applied to value added tax (VAT) by s. 119 of the Value Added Tax Consolidation Act 2010 (the Act of 2010).
2. At the commencement of the case stated it is recorded that the matter came before the Circuit Court by way of an appeal against a determination of the Appeal Commissioner that the Appellant is not entitled to deduct input VAT on professional fees invoiced to the Appellant by third party service providers in connection with the Appellant's bid to acquire the share capital of Aer Lingus (the Bid), which determination was delivered in two parts in 2009 and 2010. The case stated is concise. I propose outlining what I consider to be the contents thereof which are relevant to this Court's determination.
3. The issue for determination, as set out in the case stated, is whether the Appellant is entitled to deduct input VAT on professional fees incurred by the Appellant in relation to the Bid.
4. The facts as proved, on the basis of the evidence adduced, or admitted before the Circuit Court, are recorded as follows in the case stated:
(a) The Appellant carries on a business of air passenger transport. Although the income from this activity is not subject to Irish VAT, the Appellant is entitled to reclaim input VAT on costs related to this activity (e.g. aircraft costs, fuel, general overhead expenses, etc.). That right of deduction is based on s, 12(1)(b)(i) of the Value Added Tax Act 1972 (the Act of 1972), being the Act in force at the relevant time, which is now consolidated into the Act of 2010.
(b) The Court's finding on the factual basis of the Bid is recorded at paragraphs 4.3 and 4.4 of the case stated as follows:
2 "4.3 In October 2006, the Appellant launched a formal bid to acquire the shares of Aer Lingus. The Appellant's intention was that, if the Bid was successful, it would operate an airline business through a single Irish corporate group while maintaining the separate brands of Ryanair and Aer Lingus and operating each through separate companies. The Appellant considered that it would use its significant expertise to improve the performance of Aer Lingus and would deliver these improvements by providing management services to Aer Lingus.
3 4.4 While the Appellant succeeded in acquiring approximately 29% of Aer Lingus, it was unable to acquire 100% of the Aer Lingus share capital due to a number of factors. These included various onerous conditions imposed by the EU Competition Authority and resistance by other Aer Lingus shareholders, most notably trade unions and the Irish Government. As a result, the Appellant was not successful in its bid to acquire the entire share capital of Aer Lingus, and was thus not in a position to, nor did it, provide any management services to Aer Lingus."
In the written submissions of the Respondent it is stated that at the time of the Bid, which I understand to mean prior to the Bid, the Appellant had a stake of 16% in Aer Lingus, so that what happened was that the Appellant's stake increased to approximately 29%. Even if that is the case, I attach no significance to it. The kernel of the finding of the Circuit Court Judge is that the Bid, which was not successful, was for the entire share capital in Aer Lingus.
(c) It is recorded that the Appellant incurred VAT on "professional fees" in connection with the Bid and that it sought to claim this as deductible VAT on the basis that it considered the VAT to have been incurred in connection with its VAT taxable supplies. The claim was refused by the Respondent on the basis that the VAT on professional costs in connection with the Bid "do not form an integral part of the Appellant's overall economic activity as a transport operator, and have no connection to its general business and do not form part of the overheads of the Appellant". In the written submissions filed on behalf of the Appellant in this Court, the professional services supplied to the Appellant in connection with the Bid are described as "legal and tax advice", whereas in the written submissions filed on behalf of the Respondent the VAT in issue is ascribed to "legal and stockbroking fees", which replicates what is stated at para. 8.3 of the case stated. Although of no particular relevance, it is common case that the quantum of the refund claimed is €770,700.
(d) Having recorded the submissions made on behalf of the Appellant and on behalf of the Respondent and the authorities cited in the Circuit Court, the determination of the Circuit Court Judge delivered on the 3 rdMay, 2011 was set out at para. 8.
(e) It was stated in para. 8.3 that the Appellant had argued that the costs incurred in relation to the Bid -
"... were incurred for the purpose of the [Appellant's] taxable supplies, being its general VAT taxable business and/or the specific taxable activity of the provision of management services to Aer Lingus. Its intention was not to be a passive investor in Aer Lingus shares but to enhance its operation and to make it more profitable by bringing its expertise and experience to reduce costs and increase actual efficiencies. It intended to achieve this by providing vatable management services to Aer Lingus but leaving it as a separate legal entity."
The factual position, that the Bid was unsuccessful and no management services were provided, was then reiterated in para. 8.4. It was stated that the Appellant operates an international airline business providing flights and can reclaim VAT on that activity. It was stated that it was not in the business of providing management services.
(f) In paragraph 8.5 it was stated that it "is clear from the decisions of the European Court of Justice that the acquisition and holding of shares in a subsidiary is not an economic activity within the meaning of Article 4(2) of the Sixth VAT Directive and gives no right to deduct tax under Article 17 of the Sixth Directive".
(g) The decision in the Cibocase referred to later was then cited and it was considered in the succeeding paragraphs.
(h) In paragraph 8.11 the Court's conclusion was set out as follows:
"The situation in [the Appellant's] case is that it did not acquire the entire share capital of Aer...
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