Luxembourg: Ryanair Case: Recognition Of A Deduction Right On VAT Incurred By A Holding Company On Broken-Deal Costs

Last Updated: 19 March 2019
Article by Thibaut Boulangé and Silvin Leibengut


  • The Court of Justice of the European Union provided some clarifications on the VAT deduction right of a holding company regarding input VAT borne for the acquisition of shares in a subsidiary in case the share deal is never completed.
  • The CJEU decided that the intention to provide management services to a takeover target is, under certain conditions, sufficient to establish that a potential acquirer is engaged in an economic activity.
  • The CJEU also ruled that input VAT must be considered as fully deductible to the extent the exclusive reason for the expenditure incurred is the intended VAT taxable economic activity.
  • This case law is of prime importance for Luxembourg holding entities.

On 17 October 20181, the Court of Justice of the European Union ("CJEU") ruled that VAT incurred by a holding company on costs borne for the acquisition of shares in a subsidiary to which it intends to provide VAT taxable management services is fully deductible, even if ultimately these services are not rendered due to an unsuccessful share deal.

Facts and questions referred to the CJEU

In 2006, Ryanair launched a takeover bid for all the shares of the Irish airline Aer Lingus. In that framework, the airline incurred various advisory costs subject to VAT linked to the planned acquisition. Although the takeover was not fully carried out, Ryanair sought the deduction of the input VAT incurred stating that it was its intention to provide VAT taxable management services to Aer Lingus following the expected share deal.

The tax authority denied the VAT deduction considering the fact that Ryanair did not provide management services in the case at hand. Ryanair brought an appeal to the Supreme Court that referred certain questions to the CJEU.

Decision of the CJEU

As a first step, the CJEU was requested to determine if the intention to provide management services to a takeover target, in the event that the takeover is successful, is sufficient to establish that a potential acquirer is engaged in an economic activity. The CJEU replied in the affirmative, confirming that a company which carries out preparatory acts which are part of a proposed acquisition of shares in another company with the intention of pursuing an economic activity consisting in involvement in the management of that other company by providing management services subject to VAT must be considered a taxable person. Nevertheless, that intention to provide VAT taxable management services has to be confirmed by objective elements.

The subsequent question aimed at determining whether the input VAT incurred by a potential acquirer on services received for the purposes of seeking to progress the relevant acquisition can be considered as linked with the future VAT taxable management services and therefore as being deductible.

The CJEU ruled that Ryanair is entitled to deduct input VAT even if there is no direct and immediate link between the services received and output transactions giving rise to deduction to the extent that the costs of the services in question are deemed to be part of its general costs and are, as such, components of the price of the goods or services which it supplies. Therefore, such acquisition costs do have a direct and immediate link with the taxable person's economic activity as a whole and input VAT must be considered as fully deductible to the extent the exclusive reason for the expenditure incurred must be found in the intended VAT taxable economic activity, namely the provision of management services subject to VAT to the target company.

The CJEU nevertheless highlighted that in the event that the expenditure is attributed in part also to an exempt or non-economic activity, VAT paid on that expenditure may only be deducted in part.

Impacts of that decision on the Luxembourg practice

The Ryanair case is of prime importance for Private Equity and M&A businesses. The deduction of input VAT incurred in the framework of share transactions is a complex topic where the views of taxpayers and VAT authorities can differ. In many cases, the VAT authorities tend to consider that input VAT is not (fully) recoverable as related to activities not granting a VAT deduction right (notably holding of shares and EU financing).

In light of the Ryanair case, utmost attention should be paid to the following elements in order to justify a VAT deduction right in case of broken-deal:

  • documentation should be properly and carefully drafted in order to reflect the objective intention to provide management services subject to VAT;
  • the VAT deduction right should be easier to justify if it is the practice of the holding company to provide VAT taxable management services to all its subsidiaries. Such a group practice eases to demonstrate the "objective intention" on which the VAT deduction is assessed;
  • alongside to management services, many Luxembourg holding companies perform also financing activities (EU financing does not grant an input VAT deduction right unlike management services). As already mentioned by the CJEU, performing transactions not subject to VAT could jeopardize a full VAT deduction right on the acquisition costs.

Action required

It is the right moment to reassess the VAT deduction methodology used by holding companies and to adopt a robust VAT strategy built notably on the basis of the CJEU cases. If you intend to make acquisitions, the VAT aspects should be thoroughly analyzed in the early stages.


1 CJEU, 17 October 2018, Ryanair Ltd v. The Revenue Commissioners, C-249/17, ECLI:EU:C:2018:834

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
ELVINGER HOSS PRUSSEN, société anonyme
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
ELVINGER HOSS PRUSSEN, société anonyme
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions