Prepared by Alessia Zanatto, Francesco Pizzo and Stefania Lolli
With the recent decision no. 11023 dated April 27, 2021, the Italian Supreme Court, Section V, analysed the qualification, for the purposes of the correct VAT treatment, of the relations arising from a sale and lease back, that is a sale agreement with a lease back.
Briefly describing the facts, a company entered into a sale and lease back agreement related to a tugboat with a leasing company. The sale of the tugboat to the leasing company was treated as VAT exempt transaction pursuant to article 8-bis, paragraph 1, letter a), of the Presidential Decree no. 633/1972.
The Italian Tax Authorities, on the assumption that the above-mentioned VAT exemption regime was not applicable to the case at stake, issued a tax assessment act assessing the VAT not charged on the invoice issued by the seller of the tugboat towards the leasing company.
A tax litigation started between the seller of the tugboat and the Italian Tax Authorities which, after the first two tiers, was brought before the Italian Supreme Court.
According to the decision of the Italian Supreme Court, before checking the application of the above-mentioned VAT exemption provision, it is necessary to verify whether the sale and lease back agreement, with reference to the sale of the goods, qualifies as a supply of goods for VAT purposes.
In the decision under analysis, the Supreme Court concluded that a sale in the scope of a sale and lease back agreement does not determine a transfer of goods, for the reasons briefly summarized below.
First of all, the Supreme Court recalls the notion of supply of goods that, according to the EU law, does not refer to the transfer of the legal title provided for by the national law but to any transfer, from one part to another, of the right to dispose of tangible property as owner (article 14 of Directive 2006/112/EC).
In particular, on the basis of previous decisions of the Court of Justice of the European Union (CJEU) (i.e. case Mydibel, C-201/18), the Court deems that, according to the interpretation of the EU law, it must be reviewed the previous conclusion of the Court according to which it is subject to VAT the sale of goods within a sale and lease back agreement, as it is “essentially grounded on a splitting (for tax purposes) of the unitary and complex economic operation that is not justified by the actual cause of the contract at stake“.
According to the Supreme Court, due to the complex and unitary economic operation with a financial cause, the transfer of goods whereby one party allows the other to dispose of them as the latter was the owner does not take place. This is due to the fact that the goods remain at the disposal of the seller who uses them continuously.
The financial nature of the agreement, therefore, prevents from qualifying, for VAT purposes, the amount paid by the leasing company as the consideration due to the seller for the supply of the goods.
From the decision of the Italian Supreme Court the following principles of law arise:
“Under the VAT point of view, a supply of goods (…), on the basis of an interpretation of the domestic law consistent with the EU law (as interpreted by the Court of Justice), does not refer to the transfer of property right provided by the domestic law but to any transfer of a movable good through which one party gives the other the power to dispose of it as if the latter was the owner. It is up to the judge to determine, on a case-by-case basis whether a given transaction implies the transfer of that power (…)“.
“A sale performed through the sale and lease back agreement is not a supply of goods for VAT purposes. From this complex and unitary economic transaction with financial cause (…) does not follow (…) the transfer of the movable good from one party to the other (…) such that the latter can be considered as being authorised to dispose of it as owner, due to the permanence of the good in the availability of the seller who (…) uses it without interruptions“.
That said, for the sake of completeness, it should be recalled that, with the Circular no. 218 dated November 30, 2000, the Italian Tax Authorities had already provided its opinion on the tax treatment to apply, for the purposes of direct taxes and VAT, to the relationships arising from a lease-back agreement.
In particular, from a VAT point of view, three different VAT transactions have been identified as the result of the contract at stake: a supply of goods (both for the case of transfer to the leasing company and for the option to purchase the same goods, at a later date, by the user) and a supply of services (i.e. the leasing of the goods during the agreement).
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PwC TLS Avvocati e Commercialisti
PwC TLS Avvocati e Commercialisti