The European Court of Justice rendered judgment in the UniCredit Leasing EAD case (‘UniCredit’; no. C-242/18). The most pertinent question in this case is whether the lessor can recover the VAT it paid to the Bulgarian tax authorities on all lease installments on the basis that it did not receive payment for all lease installments from the lessee and did also not receive the contractual compensation which replaces the lease installments that were still due.
The ECJ ruled that this was a case of so-called ‘non-payment’ and that, in the event of a non-payment that was ‘reasonably likely’, Member States would have to refund VAT already paid, even if a Member State had made use of the option offered by the VAT Directive not to grant a refund in the event of a non-payment.
It is important for businesses that the ECJ confirms that the compensation which, in the present case, replaces all lease installments that are still due in the event of premature termination of the lease agreement must be regarded as VAT-taxable payment for the lease supply and not as non-taxable compensation for damages.
Source: KPMG
For the summary of the case, click HERE
