Authors: David Krch, Martina Sumerauerová, Kristýna Šlehoferová
1 April saw the publication of the conclusion of the Coordination Committee, that is the meeting of the Czech Chamber of Tax Advisors and representatives of the General Financial Directorate regarding VAT on sale and leaseback in the matter of interpretive unification of conclusions in the application of the judgments of the Court of Justice of the EU of 2018, specifically Case C-201/18 Mydibel, which dealt with the application of VAT on sale and leaseback.
The conclusions of the discussed paper confirm that from the VAT perspective, sale and financial lease back does not constitute two separate transactions of supply of goods for VAT purposes - i.e.:
The General Financial Directorate (the “GFD”) supported the interpretation that it is one transaction only. The GFD relies on the conclusions of the CJEU, which primarily consider sale and leaseback transactions in terms of whether, from a VAT perspective, there is a transfer of the right to deal with the goods as the owner, or whether the leasing company is in a position where it does not have the right to deal with the goods as the owner for VAT purposes, and merely causes a change in the financial situation of the lessee and a change in the structure of its assets. Therefore, if these principles and the conclusions of the CJEU are fulfilled, from the VAT perspective it is not the supply of goods by the lessee to the leasing company and the subsequent supply of the goods back by the leasing company to the lessee, but the supply of a financing service.
In practice, this means that the leasing company does not purchase the goods in terms of VAT and does not have the right to deduct VAT on the invoice from the lessee. At the same time, the leasing company must carefully assess what service it provides to the lessee and whether this service is a taxable transaction with an obligation to apply output VAT or rather a financial activity exempt from VAT.
This entails the need to assess the impact of the provision of such tax-exempt financial service on the overall VAT deductibility for the leasing company (such as in the form of a decrease in the reducing coefficient and the right to deduct VAT only in a reduced or zero amount).
Therefore, the lessee will very often be in a position where it is not entitled to deduct input VAT on the leaseback if the leasing company incorrectly treated the leaseback as an acquisition and re-supply of goods in accordance with this interpretation, in which it would claim output VAT in relation to the lessee.
Although in some cases, even after the publication of the Mydibel case, different practices prevailed both among companies and in the case of the inspection procedure applied by tax administrators, as of 1 April 2022, the GFD's opinion on this issue is already clearly formulated and this interpretation applies to newly executed contracts. Leasing companies as well as lessees should thus include the financial impact of the impossibility of deducting VAT or the necessity to report any exempted transactions in their considerations when planning the acquisition mainly of larger capital equipment.
At the same time, it should be noted that the above conclusions cannot be applied across the board and that each sale and leaseback case must be assessed individually.
The full version of the Coordination Committee’s text is available in Czech at:
2022 | Zápisy z jednání | Příspěvky KV KDP | Daně | Finanční správa (financnisprava.cz)
