The Advocate General of the Court of Justice of the European Union (CJEU) issued an opinion in a case on referral from the Supreme Court of the UK, and concluded that the value added tax (VAT) exemption for the provision of credit cannot be applied to hire-purchase transactions; that a hire-purchase transaction is a single supply of a service or a good; and that the whole supply is to be treated as taxable.
The Advocate General explained that when national VAT rules allow a hire-purchase agreement to comprise two separate supplies—one being the sale of, for example, a car and the other being the provision of a loan, the provision of the loan would be VAT-exempt. However, in that instance, there is a risk that no VAT recovery would be allowed on general costs.
The case is: HM Revenue & Customs v. Volkswagen Financial Services (UK) Ltd. (C-153/17)
Currently, based on a Dutch decree, the provision of loans as part of certain financial lease and hire-purchase arrangements can be treated as VAT-exempt in the Netherlands. The Advocate General’s opinion is not in line with existing commercial practice in the Netherlands and thus may have implications for companies that operate in the leasing industry. It remains to be seen whether the CJEU will follow the Advocate General’s interpretation in this case. Because hire-purchase agreements and financial lease agreements are often entered into for a long-term period, and given the effect that VAT may have on such arrangements, businesses will want to consider the possible implications of what could be the ultimate judgment of the CJEU.
Read a May 2018 report prepared by the KPMG member firm in the Netherlands
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