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
© 2018 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved.
The KPMG logo and name are trademarks of KPMG International. KPMG International is a Swiss cooperative that serves as a coordinating entity for a network of independent member firms. KPMG International provides no audit or other client services. Such services are provided solely by member firms in their respective geographic areas. KPMG International and its member firms are legally distinct and separate entities. They are not and nothing contained herein shall be construed to place these entities in the relationship of parents, subsidiaries, agents, partners, or joint venturers. No member firm has any authority (actual, apparent, implied or otherwise) to obligate or bind KPMG International or any member firm in any manner whatsoever. The information contained in herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.