Leasing, Insurance & VAT

The LEASING of an item and the INSURANCE  of the leased item are two separate supplies of services …  from a VAT perspective.

By a judgment of January 2013 the EUCJ has indicated that any insurance transaction has, by nature, a link with the item it covers and that this would not suffice to presume on the benefit of the case-law of the Court whereby several formally distinct services must be considered to be a single transaction when they are not independent.

Indeed if the VAT treatment of any insurance transaction were dependent upon the VAT treatment of the covered item itself, the very aim of article 135 (1) of the VAT Directive, that is the exemption of insurance transactions would be called into question.

The Court concluded that there was not here a unicity of services supply and that the supply of insurance services for a leased item and the supply of the leasing services themselves must, in principal, be regarded as distinct and independent supplies of services for VAT purposes.

The Court then observed that a supply of insurance cannot be subject to VAT simply because the insurance costs are re invoiced in accordance with the contract concluded between the parties to a leasing agreement. Indeed the fact that the lessor takes out an insurance policy at the request of its clients with a third party and then passes the exact cost billed by the third party to those clients cannot invalidate that finding.
The Court concluded that in such circumstances, there is not need to submit such a transaction to VAT, since it is exempt pursuant to Article 135(1)(a) of the VAT Directive.

The Court finally indicated that the provisions of article 28 of the VAT Directive (according to which « where a taxable person acting in his own name but on behalf of another person takes part in a supply of services, he shall be deemed to have received and supplied those services himself » ) and the related case-law of the Court on Article 28 of the VAT Directive (whereby article 28 of Title IV of the VAT Directive also concerns the application of VAT exemptions under the Sixth Directive) were such as to support the VAT exemption of the transaction at issue.