On 1 April 2022, the website of the Financial Administration published the minutes from a meeting of the Coordinating Committee with the Chamber of Tax Advisors of the Czech Republic on 23 March 2022, at which contribution 592/23.03.22 was concluded concerning the application of value added tax to selected finance lease transactions.

The aim of the contribution was to clarify the application of value added tax to selected finance leaseback transactions with regard to the conclusions of the Court of Justice of the European Union (“CJEU”) in case C-201/18 Mydibel. Finance leaseback is specific in that the supplier of the leased asset is the same person as the lessee. The intention is usually to increase financial liquidity by financing an asset through a finance lease. Thus, a leasing company acquires the asset subject to a finance lease from a prospective lessee into its possession and, at the same time, leases it back to the lessee by way of a finance lease, with the asset being transferred back to the original owner upon the proper termination (repayment) of the finance lease.

Historically, finance leaseback has been treated as two separate transactions from the VAT perspective – acquisition of the leased item by the leasing company from the future lessee (supply of goods) and financial lease of that item to the same person.

However, in view of the conclusions of the CJEU mentioned in the contribution, in the case of finance leaseback transactions, there is no transfer of the right to dispose of the leased item as an owner in the sense of the VAT Act from the supplier (future lessee) to the leasing company. In these transactions, therefore, there can be no supply of goods in the sense of the ITA by the leasing company to the lessee, since the leasing company has not acquired the right to dispose of the goods as an owner, and therefore cannot transfer them further to another person (or back).

According to the conclusion of the contribution, the finance leaseback does not involve the supply of goods for VAT purposes from the (future) lessee to the leasing company and back in the form of a finance lease, but only one transaction, where the leasing company provides the lessee with a service consisting in securing financing, which thus meets the conditions of article 54 paragraph 1 letter c) of the VAT Act. The leasing company therefore provides an exempt supply (financial service) without a right to tax deduction.

The above-mentioned new procedure for taxing finance leaseback as a single exempt financial service applies from 1 April 2022, when the discussed conclusions of this contribution were published on the website of the Tax Administration. With regard to contracts concluded before this date, the tax administrator accepts the original procedure for VAT purposes, i.e. the application of VAT as for transfer of goods.

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Author: Richard Knobloch, Michal Kočan