VAT qualification of a finance lease with an option to purchase

In this decision, the Court clarifies that a “finance lease” (or “hire purchase”) agreement does not systematically entail the qualification as delivery of goods under article 14, paragraph b of the VAT Directive.

This qualification indeed requires, on one hand, that the agreement pursuant to which the goods are handed over contains a clause expressly relating to the transfer of ownership of the goods from the lessor to the lessee and, on the other hand, that it is clear from the terms of the contract that the ownership of the goods is intended to be acquired automatically by the lessee if performance of the contract proceeds normally, over the full term of the contract.

As regards the latter condition, the Court holds that it is fulfilled if it can be inferred from the financial terms of the contract that exercising the option appears to be the only economically rational choice that the lessee will be able to make at the appropriate time if the contract is performed for its full term, which it is for the national court to ascertain.

Michel Guichard

Michel Guichard, Partner, leads the Indirect Tax activity. With more than 30 years’ experience in International and French Tax law, he advises his clients on indirect tax matters. Michel is […]