Ryanair Ltd v The Revenue Commissioners.
Date: 2018-10-17
16


It must be noted, in the first place, that a company whose sole object is to acquire shares in other companies without direct or indirect involvement in the management of those companies neither has the status of taxable person within the meaning of Article 4 of the Sixth Directive nor the right to deduct tax under Article 17 of that directive. The mere acquisition and holding of shares in a company do not, in themselves, amount to an economic activity within the meaning of the Sixth Directive, conferring on the holder the status of a taxable person, since the mere acquisition of financial holdings in other undertakings does not amount to the exploitation of property for the purpose of obtaining income therefrom on a continuing basis. Any dividend yielded by that holding is merely the result of ownership of the property (judgments of 30 May 2013, X, C‑651/11, EU:C:2013:346, paragraph 36, and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt, C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 19 and the case-law cited).
17


It is otherwise where the holding is accompanied by direct or indirect involvement in the management of the companies in which the holding has been acquired, if that entails carrying out transactions which are subject to VAT, such as the supply of administrative, financial, commercial and technical services, without prejudice to the rights held by the holding company as shareholder (see, to that effect, judgments of 30 May 2013, X, C‑651/11, EU:C:2013:346, paragraph 37, and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt, C‑108/14 and C‑109/14, EU:C:2015:496, paragraphs 20 and 21 and the case-law cited).
18


Furthermore, since economic activities within the meaning of the Sixth Directive may consist of several consecutive transactions, the preparatory acts must themselves be treated as constituting economic activity (judgment of 29 February 1996, INZO, C‑110/94, EU:C:1996:67, paragraph 15 and the case-law cited). Thus, any person with the intention, as confirmed by objective elements, of independently starting an economic activity, and who incurs the initial investment expenditure for those purposes must be regarded as a taxable person (judgments of 8 June 2000, Breitsohl, C‑400/98, EU:C:2000:304, paragraph 34, and of 14 March 2013, Ablessio, C‑527/11, EU:C:2013:168, paragraph 25 and the case-law cited).
19


It follows 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, within the meaning of the Sixth Directive.
21


As regards, in the second place, the right to deduct, it follows from Article 17 of the Sixth Directive that, in so far as the taxable person, acting as such at the time when he acquires goods or receives services, uses those goods or services for the purposes of his taxed transactions, he is entitled to deduct the VAT paid or payable in respect of those goods or services. In accordance with the first subparagraph of Article 10(2) and Article 17 of the Sixth Directive, that right to deduct arises at the time when the tax becomes chargeable, namely when the goods are delivered or the services are performed (judgment of 22 March 2012, Klub, C‑153/11, EU:C:2012:163, paragraph 36 and the case-law cited).
22


The right to deduct provided for in Article 17 et seq. of the Sixth Directive is an integral part of the VAT scheme and, in principle, may not be limited. It is exercisable immediately in respect of all the taxes charged on input transactions (judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 25 and the case-law cited).
23


The deduction system is intended to relieve the trader entirely of the burden of the VAT payable or paid in the course of all his economic activities. The common system of VAT consequently ensures neutrality of taxation of all economic activities, whatever their purpose or results, provided that they are themselves subject in principle to VAT (judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 26 and the case-law cited).
24


The principle that VAT should be neutral as regards the tax burden on a business requires that the first investment expenditure incurred for the purposes of, and with the view to, commencing a business must be regarded as an economic activity; it would be contrary to that principle if such an activity commences only when taxable income arises. Any other interpretation would burden the trader with the cost of VAT in the course of his economic activity without allowing him to deduct it and would create an arbitrary distinction between investment expenditure incurred for the needs of a business before actual exploitation of the business or expenditure incurred during exploitation (judgment of 21 March 2000, Gabalfrisa and Others, C‑110/98 to C‑147/98, EU:C:2000:145, paragraph 45 and the case-law cited).
25


Moreover, the right to deduct, once it has arisen, is retained even if the intended economic activity was not carried out and, therefore, did not give rise to taxed transactions (judgment of 29 February 1996, INZO, C‑110/94, EU:C:1996:67, paragraph 20) or the taxable person was unable to use the goods or services which gave rise to a deduction in the context of taxable transactions by reason of circumstances beyond his control (judgments of 8 June 2000, Midland Bank, C‑98/98, EU:C:2000:300, paragraph 22, and of 15 January 1998, Ghent Coal Terminal, C‑37/95, EU:C:1998:1, paragraph 20). Any other interpretation would be contrary to the principle that VAT should be neutral as regards the tax burden on a business. It would be liable to create, as regards the tax treatment of the same investment activities, unjustified differences between businesses already carrying out taxable transactions and other businesses seeking by investment to commence activities which will in future be a source of taxable transactions. Likewise, arbitrary differences would be established between the latter businesses, in that final acceptance of the deductions would depend on whether or not the investment resulted in taxed transactions (judgment of 29 February 1996, INZO, C‑110/94, EU:C:1996:67, paragraph 22).
26


Furthermore, in accordance with settled case-law, the existence of a direct and immediate link between a particular input transaction and a particular output transaction or transactions giving rise to the right to deduct is, in principle, necessary before the taxable person is entitled to deduct input VAT and in order to determine the extent of such entitlement. The right to deduct VAT charged on the acquisition of input goods or services presupposes that the expenditure incurred in acquiring them is a component of the cost of the output transactions giving rise to the right to deduct (judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 28 and the case-law cited).
27


However, a taxable person also has a right to deduct even where there is no direct and immediate link between a particular input transaction and an output transaction or transactions giving rise to the right to deduct where the costs of the services in question are part of his general costs and are, as such, components of the price of the goods or services which he supplies. Such costs do have a direct and immediate link with the taxable person’s economic activity as a whole (judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 29 and the case-law cited).
28


When the tax authorities and national courts apply the direct-link test, they should consider all the circumstances surrounding the transactions concerned and take account only of the transactions which are objectively linked to the taxable person’s taxable activity. The existence of such a link must thus be assessed in the light of the objective content of the transaction in question (judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 31 and the case-law cited).
29


On the other hand, where goods or services acquired by a taxable person are used for purposes of transactions that are exempt or do not fall within the scope of VAT, no output tax can be collected or input tax deducted (judgment of 14 September 2017, Iberdrola Inmobiliaria Real Estate Investments, C‑132/16, EU:C:2017:683, paragraph 30 and the case-law cited).
30


It follows that in order for the VAT paid to be deducted in full, the exclusive reason for the expenditure incurred must be found, in principle, in the intended economic activity, namely the provision to the target company of management services subject to VAT (see, to that effect, judgments of 8 February 2007, Investrand, C‑435/05, EU:C:2007:87, paragraphs 33 and 36; of 13 March 2008, Securenta, C‑437/06, EU:C:2008:166, paragraphs 29 and 30; and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt, C‑108/14 and C‑109/14, EU:C:2015:496, paragraph 25). 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 (see, to that effect, judgments of 6 September 2012, Portugal Telecom, C‑496/11, EU:C:2012:557, paragraphs 46 and 47, and of 16 July 2015, Larentia + Minerva and Marenave Schiffahrt, C‑108/14 and C‑109/14, EU:C:2015:496, paragraphs 28 to 30).