The holding company C&D Foods Acquisition, part of the Arovit group, incurred deal fees in relation to an envisaged but not realised sale of all shares of its sub-subsidiary. C&D Foods acquisition provided taxable services to its sub-subsidiary and claimed input VAT deduction on the costs incurred.
The CJEU referred to the Becker case (C-104/12, 21 February 2013) and held that it is necessary to determine whether there is a direct and immediate link between the incoming services on which deduction is claimed and a taxable output transaction, in the light of their objective content. In that context, the Court stated that the ‘exclusive reason’ is a criterion for determining this
For C&D Foods Acquisition the CJEU now rules that the share disposal transaction at issue does not constitute a transaction that has an exclusive reason in the taxable economic activity of the parent company, nor a transaction that constitutes the direct, permanent and necessary extension of that activity. Since the objective of the underlying share disposal transactions consisted of using the proceeds of that sale for redeeming debts towards Kaupthing Bank, the new proprietor of the Arovit group, the sale does not fall within the scope of VAT. Consequently, the VAT on the transaction costs could not be deducted. The mere fact that the intended sale did not take place does not change this.
CJEU has previously opened the door for VAT deduction on costs related to sales of shares within certain conditions. The Court now provides more clarity regarding the criteria under which VAT deduction can be applied.
Factual circumstances and the ability to show that costs have a link to taxable output transactions are crucial for the right to deduct VAT on deal fees.
Although this case might appear conflicting with the recent Ryanair case, this is not the case. The Ryanair case was dealing with an aborted acquisition of shares and not an aborted sale of shares.