ECJ stops leasing firms' 'abusive' tax advantage
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LEASING COMPANIES providing hauliers with trucks and vans may not manipulate linked financial and insurance packages to avoid charging their customers VAT, the European Court of Justice (ECJ) has ruled.
In a complex Italian case involving a firm now in liquidation -Part Service, formerly ltalservice the court ruled leasers cannot artif iciallysplitsuch supplementary services from their core leasing business simply to avoid charging VAT on them, restricting sales taxes to leasing alone.
That would be "abusive practice" under the European Union's sixth VAT directive, 77/338/EEC, "when the accrual of a tax advantage constitutes the principal aim of the transaction," ruled the court.
But where there is a clear split, such as different third parties being contracted to offer financing, brokering and insurance services, a restriction of VAT to just leasing could be justified, said the ECJ. It was down to national courts to decide case by case whether the circumstances of such VAT manoeuvres were an "abusive practice" or not.
Rulings from the legal court set precedents in all EU countries, and will influence the outcome of similar cases. In this instance, ltaiservice had structured its financing and insurance services with sister company IFIM Leasing.