Recent VAT rulings signal heightened scrutiny for taxpayers

TAC Case 60TACD2025 - Apportionment of input VAT

The lengthy decision of the TAC on 29 Jan 2025 regarding an appeal by a taxpayer against the refusal by the Revenue Commissioners to repay almost €2.5 million of VAT repayments covering the four-year period from 2016 to 2020 is worthy of attention.
 
The determination has been reported in the press as a victory for the taxpayer as the Appeal Commissioner held that Revenue was incorrect to refuse the repayments claimed, but the judgement also indicated that not all of the input VAT was deductible by the taxpayer and directed the taxpayer and Revenue to agree a basis for apportionment in respect of the VAT reclaimed.
 
Apportionment of input VAT usually arises where a taxpayer’s business in involved in both taxable and exempt activity and transactions. VAT is usually attributed to “3 pots” as it were – directly attributable taxable (100% deduction), directly attributable exempt (0% deduction) and lastly, VAT incurred on goods/services which are used for both taxable and exempt activity referred to as “dual-use” inputs.
 
From the judgment, it appears that the taxpayer had no VAT-exempt income but was in receipt of a significant amount of non-taxable grants (which are outside the scope or non-economic income), and this point is the key point arising from the judgment. Revenue are seeking to incorporate non-economic income (grants) into the denominator when determining the percentage of taxable to total income.
 
It is worth noting here that approximately 10 years earlier, Revenue had raised the same issue and refused to make repayments to the taxpayer. On appeal to the TAC, Revenue had withdrawn from the appeal and repaid all of the repayments. They indicated that they were satisfied that the taxpayer had full deductibility.  The big question for many taxpayers reading this determination particularly one’s with significant non-taxable grant income is “What has changed?”
 
We understand that the decision of the TAC has been appealed to the High Court and many will be watching this space closely.  
 

Covidien VAT case ruling

What are the considerations for international companies coming from the latest Covidien VAT case ruling?

The Court of Appeal recently overturned a High Court ruling and an earlier determination by the Tax Appeals Commission in the Covidien VAT case, with the matter now being referred back to the Tax Appeals Commission.

The principle of VAT neutrality in the course of trade cannot be taken for granted by international companies, as demonstrated in this long-running VAT case.
Despite comprehensive steps being adopted by the taxpayer with the support of their advisors to support the case for full input VAT deductibility, this position was challenged by the Revenue Commissioners.

In looking to substantiate a valid claim to input VAT deduction, it is necessary to demonstrate that the business units involved are participating in economic trade activities for consideration and critically that there is a direct and immediate link to these trade supplies.

In addition, it is necessary to determine the input VAT costs and how these are consumed and utilised, which is linked to economic trade activities.    
Even where such steps have been adopted, they are not necessarily accepted by the tax authorities and are regularly challenged, as demonstrated by this case and precedent from the ECJ and UK case law.

The case further demonstrates the substantial costs, in both fiscal and resource terms, incurred in tax law litigation and the need to be prepared for long-term VAT planning.
  

If you have any questions in relation to the above, or if you would like to discuss this topic further, please contact a member of the Forvis Mazars VAT team below: