VAT deduction on deal fees for an aborted transaction, and not for an intended sale of shares


Recently, the CJEU decided on two important cases with respect to the VAT deduction on deal fees (see C-249/17 Rynair Ltd. And C-502/17 C&D Foods Acquisition) in a seemingly opposing manner.

Ryanair case

In the Ryanair case, deal fees were incurred in relation to a failed takeover of a competitor. Ryanair claimed input VAT deduction on the professional costs based on its intention to perform taxable transactions. The CJEU ruled that even if a planned takeover was aborted this may not lead to a rejection of input VAT deduction on the acquisition costs if the intention to perform economic activities generating a right to deduct can be determined based on objective facts.

C&D Foods Acquisition case

In the C&D Foods Acquisition case, deal fees were incurred in relation to an envisaged sale of shares of a sub-subsidiary to which C&D provided taxable services while claiming input VAT deduction on the costs incurred. The CJEU ruled that the share disposal transaction does not constitute a transaction that has an exclusive reason in the taxable economic activity of the parent company, nor that it constitutes the direct, permanent and necessary extension of that activity. The reason of the share disposal was to redeem debts towards the new proprietor of the group. As the sale does not fall within the scope of VAT, VAT on the transaction costs can not be deducted.

Both cases only appear to be conflicting. Where Ryanair is a further positive evolution for the VAT deduction on costs for an aborted acquisition of shares, C&D concerns an aborted sale of shares for which the CJEU already opened doors, but is now providing clarity regarding the specific criteria.

Factual circumstances and the ability to show and document that costs have a link with taxable output transactions are crucial for the right to deduct VAT on deal fees.

Please do not hesitate to contact us to discuss the possibilities to recover input VAT on deal fees.