THE SUPREME COURT
[Appeal No: 290/2013]
The Revenue Commissioners
Judgment of Mr. Justice Clarke delivered the 27th March, 2017.
1.1 The basic model of Value Added Tax is relatively straightforward. Persons or entities which carry out taxable activity charge VAT to those to whom they sell goods or provide services and pay VAT to those from whom they acquire inputs to their business again either in the form of goods or services. The taxpayer remits the difference to the Collector General. But as with many cases there can be grey areas around the precise application of VAT legislation to the circumstances of a particular case. Furthermore, VAT was introduced as a common form of tax across the now European Union. VAT legislation in member states of the European Union is, therefore, heavily influenced by European legislation and is, in turn, therefore, significantly influenced by the jurisprudence of the Court of Justice of the European Union (“CJEU”).
1.2 All of those factors come into play on this appeal. It is a matter of wide public knowledge that the appellant (“Ryanair”) sought to take over Aer Lingus on a number of occasions but, of particular relevance to this case, one such attempt occurred in late 2006 when a formal bid to acquire the shares of Aer Lingus was made. Hardly surprisingly Ryanair engaged professionals to assist it in that bid and incurred liability to pay the professionals concerned. Those professionals were, in turn, required to charge VAT on their fees for they were, undoubtedly, engaged in providing a vatable service. The net question which arises on this appeal is as to whether Ryanair is entitled to claim the VAT thus paid as an input deduction.
1.3 In the ordinary way the matter first came before the appeal commissioners who found in favour of the respondents (“Revenue”) and determined that Ryanair was not entitled to the deduction claimed. Ryanair appealed to the Circuit Court. In the end, Her Honour Judge Linnane stated a case for the opinion of the High Court on the 17th February, 2012. Her Honour Judge Linnane had concluded, in agreement with the appeals commissioners, that Ryanair was not entitled to the claimed deduction. However, she posed, for the High Court, the straightforward question of whether she was correct in law in reaching that conclusion on the basis of the facts found by her as set out in the case stated.
1.4 The case stated was heard by the High Court (Laffoy J.) with judgment being delivered on the 2nd May, 2013 (Ryanair Ltd v. Revenue Commissioners  IEHC 195). Laffoy J., agreeing with both the appeal commissioners and Her Honour Judge Linnane, concluded that Ryanair was not entitled to the claimed deduction. Ryanair has appealed to this Court against that finding. I have concluded that it is necessary, for the purposes of determining this appeal, that certain questions of European law be referred to the Court of Justice of the European Union (“the CJEU”) under Art. 267 of the Treaty on the Functioning of the European Union. There is annexed to this judgment a draft order of reference to the CJEU. In that context I propose briefly to address the issues.
2. The Issues
2.1 There is a sense in which there was much agreement between counsel on both sides concerning some of the basic principles to be applied. First, it is clear that, in order to be entitled ordinarily to claim VAT input deductions, a relevant person or body must be a taxable person which is defined by Art. 4(1) of the Sixth VAT Directive (77/388/EEC) (“the sixth directive”) as a person carrying out economic activity of the type specified. The term “economic activity” is defined as including persons supplying services. It is also of some relevance to note that the exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis is also defined as being an economic activity.
2.2 Thus the agreed starting point was that, in order for Ryanair to be entitled to claim input credit, it must be said to have been carrying on an economic activity within the meaning of the sixth directive.
2.3 That led, in turn, to a consideration of two lines of jurisprudence of the CJEU. The first might usefully be termed the Cibo jurisprudence deriving from the judgment of the CJEU in Cibo Participations SA v. Directeur Regional des Impots du Nord – Pas – de – Calais, Case C-16/00  ECR 6663.
2.4 Under the Cibo jurisprudence it is clear that, in certain circumstances, the purchase of shares can amount to qualifying preparatory work directed towards an economic activity for the purposes of the sixth directive. At the level of basic principle, however, there is a distinction between the purchase of shares for the purpose of holding same as a passive investment, on the one hand, and the purchase of shares by a holding company for the purposes of engaging in the economic activity of providing management and other like services to its subsidiaries, on the other. It is clear that the latter constitutes economic activity and amounts to the provision of a vatable service. It is equally clear that the former does not.
2.5 The second line of authority might again, usefully and for shorthand, be referred to as the Rompelman jurisprudence deriving from the decision of the ECJ in Rompelman v. Minister van Financien (Case C-268/83)  ECR 665. That jurisprudence makes clear that, at least in respect of activities which may be considered to be economic activities for the purposes of the sixth directive, certain initial investment activity which predates the carrying out of the economic activity itself but which is geared towards it may be regarded as forming part of the economic activity so that VAT incurred in connection with that initial investment activity may qualify for an appropriate deduction.
2.6 Thus again, at the level of general principle, I did not understand counsel to disagree that there were circumstances in which VAT incurred on professional services connected with an initial investment which might lead to economic activity could be deductable.
2.7 The essential difference between the parties stemmed from whether one could, to a large extent, put together those two lines of jurisprudence and arrive at a situation where it was permissible to treat as an input deduction, VAT paid on professional services connected with a potential purchase of shares, where it is said that there was a future intention to provide management and other similar services to the target of the acquisition (should the acquisition be successfully completed). That issue came into particular focus in the context of this case where the acquisition never went ahead so that Ryanair never actually engaged in providing management services to Aer Lingus. Counsel for Revenue emphasised that the case law within the Rompelman jurisprudence all appears to involve situations where some property asset was acquired even though the form of economic exploitation of that asset which might have amounted to economic activity never actually took place for one reason or another. It was also emphasised that the sixth directive, as already noted, expressly regards the exploitation of real property for the purposes of obtaining continuing income as a qualifying economic activity. On the other hand it seems clear from the Cibo jurisprudence that the purchase of shares solely for the purpose of a passive investment (even though that also generates income), is not economic activity as defined. On that basis counsel for Revenue questions the precise applicability of much of the Rompelman jurisprudence to a case involving a possible purchase of shares.
2.8 There were a second set of issues which derived from the fact that it was common case that Ryanair had not, up to the relevant time, provided management services to a subsidiary. Such activity was not part of its then established business. On the contrary Ryanair was involved in the provision of air travel and allied services.
2.9 This gave rise to a question concerning one of the qualifying requirements specified in the Cibo jurisprudence which requires that, in order for a right to deduct to arise, “the goods or services purchased must have a direct and immediate link with the output transactions in respect of which VAT is deductible”. The output which might have given rise, should the earlier issue be answered in favour of Ryanair, to a potential entitlement to deduct would, of course, have been the provision of management services. Revenue argues that paying professional fees in relation to a possible acquisition of a company, to which it is intended that management services might be supplied, could not amount, as a matter of law, to such a direct and immediate link. It was conceded by counsel that there might be circumstances where the general overheads of a holding company might provide such a direct and immediate link where a core aspect of the business of the holding company involved the provision of management services to its subsidiaries. But it was argued that where, as here, there was no established activity in the shape of the provision of management services, there was an insufficient link to meet that limb of the Cibo test.
2.10 At the end of the day I have come to the view that the proper resolution of both of those general issues, in the circumstances of this case, involved issues of European law which were not acte clair. In those circumstances I propose that the Court should refer appropriate questions under both headings to the CJEU under Article 267 of the TFEU.
2.11 The above brief analysis of the legal issues which arose on this appeal is also by way of background to identifying one question of Irish procedural law which, at least on one view, arose on the appeal. It is common case that the Rompelman line of authority makes clear that tax authorities are entitled to require a taxpayer to produce objective evidence to establish any relevant future intention. However, the case stated by Her Honour Judge Linnane found as a fact that Ryanair “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”. The case stated also determined, as a fact, that Ryanair’s intention was not to be a passive investor in Aer Lingus shares but rather that Ryanair had the intention of making Aer Lingus more profitable by bringing its expertise and experience to bear in providing vatable management services to Aer Lingus while leaving Aer Lingus as a separate legal entity.
2.12 The proper approach of a court in considering the facts set out in a case stated has been clear at least since Mara (Inspector of Taxes) v. Hummingbird Limited  ILRM 421. Kenny J., in delivering judgment in that case, made clear that a finding as to the intention of a taxpayer was a finding of primary fact which should not be set aside unless there was no evidence whatever to support same. Obviously, in dealing with the facts of this case before either the Appeal Commissioners or the Circuit Court, it was open to Revenue to rely on the requirement for objective evidence of intention as set out in the jurisprudence of the CJEU. However, in the absence of any contention that there was no evidence whatsoever to support the finding of the trial judge concerning Ryanair's intention in this case, it seems to me that Laffoy J. in the High Court was correct to conclude that she was bound by that finding of fact. Likewise this Court is similarly bound. It follows, therefore, that this appeal will need to be considered on the basis of it having been established as a fact that Ryanair had the intention to be an active participant in Aer Lingus by means of providing management services as opposed to being a passive investor. The issue of law which requires to be determined with the assistance of the CJEU is as to whether that fact avails Ryanair.
3.1 Having identified two broad sets of issues which arise in the context of this appeal I have, as noted earlier in this judgment, come to the conclusion that the resolution of those issues involves questions of European law which are not acte clair and which require, therefore, to be the subject of a reference.
3.2 There is annexed to this judgment a draft of the reference which I would propose. It should be emphasised that, in my view, the Court should determine that a reference is required and should determine that issues along those lines require to be the subject of the reference. Furthermore, it should be emphasised that the decision to refer, and the content of any reference document, is, in accordance with the jurisprudence of the CJEU, entirely a matter for the referring court.
3.3 However, notwithstanding those observations, I would afford the parties two weeks within which they can make written observations on any aspect of the text of the proposed reference. It should be emphasised that any such observations should not be directed either to the question of whether there should be a reference at all or whether the issues identified, and only those issues, should, in general terms, be included. Rather any observations should simply be directed to any matters of detail concerning the text of the document.