For the past decade, we have enjoyed a relatively stable truce when it comes to the right to deduct input VAT on costs related to M&A activity. Since a pair of rulings by the Supreme Administrative Court (”SAC”) in 2015, the position has been relatively clear: a pure holding company — one with no independent business activities — has no right to deduct input VAT on advisory services connected to acquisitions.
However, if the company does conduct business activities (such as providing management services to other companies in the group), then the VAT on M&A-related advisory services is considered to relate to that company’s business. In that case, the VAT is deductible like any other input VAT connected to the company’s operations.
But now, a recent ruling by the SAC (2025:61) has reopened the debate, adding a layer of uncertainty.
A New Twist
The SAC confirmed the basic principle: a company engaged in business activity has the right to deduct input VAT on services related to its M&A activity. But — and here is the twist — the SAC emphasized that this right does not apply to all such expenses by default. Instead, the VAT deduction is only allowed for costs incurred in the interest of the company itself. Accordingly, if the services primarily benefit the investors, the VAT incurred lacks sufficient business rationale from the company’s perspective and thus cannot be deducted.
Three Buckets of M&A Services
The SAC split the advisory services into three categories:
(i) Fully Deductible Services. These include preparation of transaction documents and advice related to financing arranged for the company. According to the SAC, VAT on such services is clearly tied to the company’s own operations and is therefore fully deductible.
(ii) Non-Deductible Services. Services that serve only the interests of investors cannot be deducted. These include advice on the structuring of the group above the company and financial arrangements of the investors. Even if the company receives the invoice, if the services are not related to the company’s business, no VAT deduction is allowed.
(iii) Mixed or Ambiguous Services. This is the most extensive and complicated category. These include, due diligence of the target company, market analysis, project management and valuation of the target. These services might serve the company’s interests — or the investors’. The company can only deduct VAT if it can show that the services were acquired in its own business interest.
The SAC Leaves Key Questions Unanswered
At this point, the SAC effectively punts the issue to the Tax Authorities. It is now up to them to assess which portion of these general M&A-related expenses actually serve the company, and which parts serve only or primarily the investors. The SAC’s vague guidance means this matter may well come back to the courts in a few years if companies are unhappy with how the Tax Authorities manage these assessments.
What Companies Should Prepare For
The SAC stressed that the company claiming the VAT deduction must be able to demonstrate, invoice by invoice, that the costs were incurred for the purpose of its own business activity. Accordingly, any company that has deducted — or plans to deduct — significant amounts of input VAT on M&A advisory services should be ready to explain the nature of each service received, show how those services were necessary for running the company’s business and justify how those services relate to the company’s role in managing group operations.
In practice, the SAC has effectively invited the Tax Authorities to take a closer look at VAT deductions related to M&A activity. If a company cannot clearly demonstrate the business rationale behind each individual invoice, it risks losing the right to deduct. To succeed, companies must be able to show that each expense genuinely serves their own business interests — not merely those of the investors.