Prepared by Alessia Zanatto, Francesco Pizzo and Stefania Lolli
With Resolution no. 3 of February 3, 2023, the Italian tax authorities have provided guidelines on the VAT treatment to apply on the sale and lease back agreement, that is a sale agreement with a lease back.
The Italian tax authorities referred both to the guidance of the Italian Supreme Court (originally expressed in the decision no. 11023 of April 27, 2021, and confirmed in subsequent decisions[1]), which is based on the position provided by the EU Court of Justice in the case C-201/18 on March 27, 2019 (Mydibel) and its own guidelines previously provided, inter alia, with the circular no. 218/2000 with regard to the relationship arising from a lease-back agreement, distinguishing in particular three different operations from a VAT point of view.
More in detail, in the circular published in the year 2000 the following transactions have been linked to the agreement at stake: two supplies of good (i.e. both for the case of transfer to the leasing company and, subsequently, for the option to purchase the same good by the user) and a supply of services (i.e. the leasing of the goods during the agreement), regardless the unitary operation.
However, the Italian Supreme Court with the above-mentioned decision number 11023, referring to the EU legislation according to which the supply of good consists in any transfer, from one part to another, of the right to dispose of tangible property as owner (article 14 of Directive 2006/112/EC), stated that it has to be reviewed the previous decision of the Court itself related to the VAT taxability of a sale in the framework of a sale and lease back, “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”, not taking place, actually, a transfer of the asset as envisaged by the EU regulation, given the continued availability of the same to the user without interruption but only a financial transaction.
With the resolution under comment, the Italian tax authorities have clarified instead that the principles expressed by the aforementioned decisions on the sale and lease back “cannot be applied in a generalized manner, sic et simpliciter, to all sale and lease back agreements” for which it is necessary to carefully evaluate the individual contractual clauses in order to identify the concrete regulation of the relationship that the parties aimed to establish and, therefore, the subsequent tax treatment[2].
The qualification of the sale and lease back must, therefore, be left to the interpreter according to a case-by-case approach. In this regard, the Italian tax authorities have pointed out that some elements of the contractual arrangements may constitute significant indices in order to evaluate the transaction for VAT purposes as a supply of goods or rather as a purely financial operation.
In particular, for example, the following are indicative of an exclusively financial nature of the transaction:
- the presence, within the regulation of the contractual relationship, of clauses that exclude or significantly limit the leasing company’s power to legally dispose of the asset as owner (for example, clauses that expressly limit the owner’s prerogatives, precluding the possibility of selling the asset or granting it as a guarantee to third parties);
- the provision of faculties, contractually granted to the user of the asset, which are particularly incisive and stringent, such that it is the latter who retains the right to dispose of the asset “as if he were the owner” (e.g., conventional clauses limiting the liability of the formal owner which, in effect, highlight that the user continues to bear most of the risks and benefits related to the legal ownership of the asset).
The resolution under comment, although it is a valid support for the interpreter in qualifying the sale and lease back agreement for VAT purposes, it does not resolve some points that still remain disputable.
In fact, for example, it still seems difficult to qualify the agreement at stake as an operation different than a supply of goods relevant for VAT purposes (with the lease back of the same goods) with the article no. 2 of the Italian VAT law no. 633/1972, which refers to a formal legal concept of the “ownership’s transfer” (while the EU law seems to refer to a more factual situation when it refers to the transfer of the power to dispose of the good) or the indication of the resolution under comment to the clauses of the limitation of the responsibility with the special rule of the article no. 1, paragraph 136 of Law 124/2017 that, with regard to the financial lease, assumes all the risks, including perimeter, of the good on the user[3].
It is quite evident, therefore, that the issue remains quite complex so it would be advisable to review the contract clauses included in the agreements and to pay close attention when drafting new contracts, given the different (and sometimes difficult) requirements that must be reconciled.
[1] cfr. Italian Supreme Court, rulings no. 20327 e 20328 dated June 23, 2022, ruling no. 40930 dated November 21, 2021, ruling no. 37727 dated December 1, 2021, ruling no. 37349 dated November 29, 2021, ruling no. 35915 dated November 22, 2021, ruling no. 36076 dated November 23, 2021, ruling no. 18333 dated June 25, 2021, ruling no. 17710 dated June 22, 2021.
[2] The clarifications provided with the resolution under comment have been reiterated by the Italian tax authorities with the response to the ruling no. 206 published on February 7, 2023.
[3] “Finance lease means the contract by which the bank or financial intermediary registered in the register referred to in Article 106 of the Consolidated Text referred to in Legislative Decree No. 385 of September 1, 1993, undertakes to purchase or have constructed an asset at the choice and according to the instructions of the user, who assumes all the risks, including the risk of perishing, and has it made available for a given time for a specified consideration that takes into account the purchase or construction price and the duration of the contract. At the expiration of the contract, the user shall have the right to purchase ownership of the property at a predetermined price or, if the right is not exercised, the obligation to return it.”
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