VAT Deductibility in relation to share issues - Kretztechnik AG v Finanzamt Linz ( Case C-465/03)

The European Court of Justice delivered its preliminary ruling in the Kretztechnik case last Thursday (May 26, 2005). The case concerned the deductibility of VAT on costs incurred by Kretztechnik in obtaining a listing on the Frankfurt Stock Exchange.

The Court found that

• A new share issue is a transaction which is not within the scope of VAT
• Where the share issue was carried out in order to increase the company’s capital for the benefit of its economic activities (i.e. activities within the scope of VAT), the costs related to the share issue are part of a company’s overheads and as such a component part of the price of the company’s products
• Accordingly, where the company’s economic activities are all transactions liable to VAT, the VAT on such overheads would be fully deductible (it would follow that where a company’s activities are partly taxable and partly exempt, a proportion of the VAT would be deductible).

Revenue is considering the implications of this judgement and will, as soon as possible, issue a more detailed analysis of its effects in Ireland. Revenue accepts that the judgement will require a change in its approach to the question of VAT deductibility in relation to share issues.

In the meantime, taxpayers or tax practitioners wishing to claim repayment of VAT in accordance with the judgement are welcome to lodge a claim to that effect with the taxpayer’s Revenue office. These claims will be processed once Revenue has completed its more detailed analysis of the effects of the judgement.

Any questions in relation to this ebrief should be directed to Mary Morgan (tel. (01) 6748 648 email mmorgan@revenue.ie).