Source
On 27 March 2019, The European Court of Justice gave its judgment in case C-201/18 (Mydibel) regarding the VAT treatment of a sale-lease back construction.
Decision
1. Subject to verification of the relevant matters of fact and national law by the referring court, Articles 184, 185, 187 and 188 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, as amended by Council Directive 2009/162/EU of 22 December 2009, must be interpreted as not imposing an obligation to adjust value added tax (VAT) on a building which was initially deducted correctly, where that property was the subject of a sale and lease back transaction not subject to VAT in circumstances such as those at issue in the main proceedings.
2. An interpretation of Articles 184, 185, 187 and 188 of Directive 2006/112, as amended by Directive 2009/162, as imposing an obligation to adjust the value added tax (VAT) initially deducted in circumstances such as those at issue in the main proceedings complies with the principles of VAT neutrality and equal treatment.
Facts (simplified):
Mydibel’s economic activity is the production of potato-based products and is, on that basis, subject to VAT. It is the owner of several buildings in respect of which it has deducted in full the taxes charged on construction, alteration and renovation invoices.
In order to increase its liquidity, Mydibel and two financial institutions entered into sale and lease back transactions, not subject to VAT, relating to those buildings, which were divided into two lots. For each lot, Mydibel and those financial institutions entered into two notarially certified agreements. First, Mydibel entered into an agreement establishing an emphyteutic right over those buildings in favour of the two financial institutions, for a period of 99 years, subject to immediate payment of emphyteutic rent in the amount of EUR 9,630,000 for the first lot and EUR 2,700,000 for the second lot, and an annual emphyteutic rent of EUR 25. Second, it entered into a real property leasing agreement in respect of the buildings, under which the financial institutions granted Mydibel the use of the buildings at issue for a non-revocable period of 15 years, in return for payment of a quarterly rent, corresponding to an investment value of EUR 9,630,000 for the first lot and EUR 2,700,000 for the second lot, plus interest. Under that agreement, Mydibel enjoys, on expiry of the lease, a purchase option at a price corresponding to 10% of the investment value for the first lot and 3% of that value for the second lot.
The Belgian tax authorities disallowed the initial deduction of VAT on the buildings at issue made on the basis of the sale and lease back transactions.
Mydibel did not agree with this correction, arguing that a ‘sale-and-lease-back-transaction’, in itself may be a ‘financial transaction’, but the result is not changing the use and purpose of the building, or the taxable activities of Mydibel.
Questions asked to the ECJ:
Is a VAT correction allowed if it concerns a sale-and-lease-back transaction, whereby this transaction the only exempt transaction is and the use and purpose of the building has not changed?
Judgment:
The ECJ rules as follows:
- Subject to verification of the relevant matters of fact and national law by the referring court, Articles 184, 185, 187 and 188 of the VAT Directive, must be interpreted as not imposing an obligation to adjust value added tax (VAT) on a building which was initially deducted correctly, where that property was the subject of a sale and lease back transaction not subject to VAT in circumstances such as those at issue in the main proceedings.
- An interpretation of Articles 184, 185, 187 and 188 of this Directive, as imposing an obligation to adjust the value added tax (VAT) initially deducted in circumstances such as those at issue in the main proceedings complies with the principles of VAT neutrality and equal treatment.
Source: ECJ (Curia)
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