Court of Justice of the European Union CJEU judgment in Mydibel SA (C-201/18) – In this referral from Belgium, Mydibel entered into a lease and leaseback transaction with two financial institutions. It leased its properties to two banks for 99 years for a EUR12.3 million premium. The banks leased the properties back for 15 years, over which period the taxpayer would repay the premium with interest. The tax authority sought to adjust Mydibel's input VAT recovery and the CJEU was asked to determine whether such an adjustment was required. The Court found that adjustment was not required, as the lease and leaseback was not a change to the factors used to determine the amount of the deductions made after the VAT return was made and did not have the effect of breaking the close and direct relationship between the right to deduct input tax and the use of the goods or services concerned for taxable output transactions.
DLA Piper Comment: Mydibel took a lease from two financial institutions in exchange for an immediate payment of ground rent. Under this sale and lease back agreement, the immovable property remained in possession and use by Mydibel. According to the CJEU, there was no actual supply of immovable property, but merely a financial transaction aimed at improving the liquidity of Mydibel.
This CJEU ruling is relevant for parties that have recently entered or will enter into sale and leaseback transactions involving immovable property. It is important to assess the impact of such transactions on:
- any pending VAT adjustment periods, as a VAT exempt sale and leaseback transaction may not result in VAT adjustment becoming due
- the partial exemption impact for a taxpayer, as a sale and leaseback transaction may have a positive or negative impact on the pro rata VAT recovery
- implications for any applicable real estate transfer taxes
- Implications for direct tax
Although this ruling is favourable for the taxpayer at hand, it remains to be seen whether taxpayers can rely on this judgement in other cases and treat sale and leaseback transactions as financial transactions throughout. This CJEU ruling does not imply that every sale and leaseback transaction of immovable property no longer qualifies as a transfer of immovable property. It still depends on the contractual arrangements of the sale and leaseback transaction. Needless to say, the considerations and conclusions of this CJEU ruling must be closely observed for future sale and leaseback transactions.
In the CJEU decision in Srf Konsulterna (C-647/17) the Court has ruled that a five-day CPD seminar for Swedish accountants is subject to VAT where the event is held. The tax authority in Sweden and the taxpayer had both taken the view that the seminar should be subject to Swedish VAT (trying to draw a distinction between granting a right of admission and delivering a seminar). If the events are subject to VAT in another EU member state, the taxpayer would suffer an increased administrative burden as a result of having to register in various EU jurisdictions outside Sweden. The Swedish court, however, referred the question to the CJEU, which ruled that the seminar was an educational event subject to the place of supply rules on "admission" and the place of supply was where the event takes place.
DLA Piper Comment: The general VAT place of supply rules for services (article 44 and 45 of the Principal VAT Directive) determine that the place of supply for services rendered to a VAT taxable person is the place where the recipient of the service is established. As an exception to this rule, article 53 of the VAT Directive states that the place of supply for seminars (for which the essential characteristic is the granting of admission by way of issue of a ticket for consideration) is where such seminar is held.
Srf Konsulterna only renders its services to VAT taxable persons established in Sweden. Based on the general place of supply rules, the seminars will be subject to VAT in Sweden (as the customers all qualify as VAT taxable persons and are all established in Sweden). However, due to the application of Article 53 of the VAT Directive, Srf Konsulterna needs to register for VAT purposes and charge VAT in every EU member state where it holds seminars. In other words, for a five-day seminar in Italy, Srf Konsulterna will need to register for VAT purposes and set up a VAT administration in Italy.
The CJEU rejects the arguments of Srf Konsulterna that the general place of supply rules must apply, and simply states that the conditions for Article 53 of the VAT Directive are fulfilled, regardless of the fact that this constitutes a disproportionate administrative burden for Srf Konsulterna. Conceivably, the principle that VAT must be taxed (as far as possible) at the place of consumption outweighs the principle that taxation at the place of consumption must (as far as possible) not result in a disproportionate administrative burden for businesses.
In A&G Fahrschul-Akademie GmbH (C-449/17) the taxpayer was a company operating a driving school and argued that its driving lessons should be covered by the education exemption in article 132(1)(i) and (j) of the Principal VAT Directive. The questions referred to the CJEU required it to determine whether driving tuition fell within the concept of school or university education. According to the court, this concept generally refers to "an integrated system for the transfer of knowledge and skills covering a wide and diversified set of subjects." The Court rejected the argument that the driving lessons amounted to school or university education even if holding a driving licence could meet a professional need, since driving tuition does not cover a diverse set of subjects.
DLA Piper Comment: At a first glance, this ruling from the CJEU confirming that driving lessons do not fall under the scope of school or university education is primarily relevant for driving schools and the education sector. The considerations of the CJEU provide a clear overview of which services may fall within the scope of school and university education.