On 31 May 2017, Advocate General Maciej Szpunar delivered his opinion on the VAT classification of supplies under lease agreements in case C‑164/16 Mercedes-Benz Financial Services UK Ltd to the CJEU.

Although there are already numerous decisions of the CJEU relating to leasing agreements, the opinion provides more detailed comments on whether supplies under lease agreements should be classified as a supply of goods or a supply of services for VAT purposes.


Mercedes-Benz Financial Services UK Ltd (MBFS) provides various financial products to its customers assisting them with acquisitions of vehicles. One of its products is the so called Agility agreement, under which vehicles can be leased.

Under Agility, following the expiry of the lease term, the lessee has the option to purchase the vehicle, subject to payment of the final amount which corresponds to the mean anticipated value of the vehicle at the time of purchase, whilst the sum of the installments corresponds to the remaining part of the vehicle price including financing costs.

MBFS took the view that supplies under Agility agreements qualified as a provision of services for VAT purposes.

Opinion of Advocate General

In his opinion, AG Szpunar focused on the interpretation of Art. 14 (2)(b) of the VAT Directive and set out three conditions which, if met, lead to a transaction being a supply of goods within the meaning of that provision:

1. An agreement must contain a transfer of ownership clause, either in the form of automatic transfer of ownership by the end of the agreement term, or an option to purchase the leased asset.

2. Transfer of ownership must follow from the normal course of events; in other words, the normal performance of an agreement. This should also include activities such as exercising a right to purchase, which, although optional in formal terms, is in practice the only economically rational course of action.

3. Transfer of ownership must take place at the latest upon payment of the final installment. In the case of agreements including an option to purchase the asset, if the sum total of the installments corresponds to the full price of the leased asset, and if exercising that option does not require any further significant payments to be made, it should be presumed that allowing the exercise of this option is, in practical terms, equivalent to the transfer of ownership.

For the case at hand, AG Szpunar concluded that irrespective of the declaration of intent, since the sum of the installments payable by the lessee under the agreement was equivalent to the purchase price of the leased asset, including financing costs, the transaction constituted a supply of goods.


It is a common approach of companies to treat an agreement that includes only an option to purchase an asset after the termination of the lease agreement as the provision of services.

However, if the CJEU agrees with the opinion of the AG, many companies might be obliged to reclassify their supplies as supplies of goods, with VAT being payable on the total value of the assets at the time when the lessee receives the right to dispose of the asset, ie at the beginning of the contractual relationship.

In addition, reclassification of the transaction as a supply of goods might also shift the place of taxable supplies in the case of international transactions.