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ECJ Rules On VAT For Leased Goods Insurance
According to the agreements concluded by BGZ Leasing with its customers, the leased goods remain under the property of the lessor (BGZ). The lessee pays a rent and subsequently bears other expenses related to the leased goods.
BGZ Leasing grants the possibility to provide its customers with insurance for the leased goods. If the lessee opts for such insurance, BGZ Leasing concludes the policy with an external insurance company and passes the cost to the lessee.
BGZ Leasing considered that the recharge of insurance costs was VAT exempt. However, the tax authorities from Varsovia considered that the insurance was deemed as ancillary to the leasing operation and therefore should be subject to VAT.
The Court decided that, in principle, the two transactions (ie leasing services and insurance of the leased goods) should be regarded as distinct and independent services for VAT purposes. However the referring court should determine whether, based on the specific circumstances of the main cause, the transactions are so closely linked that they might be regarded as a sole transaction from a VAT perspective.
The ECJ decision has a significant impact on Romanian leasing companies from both a financial and an operational point of view. Generally, the common practice adopted by the leasing companies until now was to recharge the insurance cost at 24% VAT or to set up an insurance broker in order to charge the insurance cost to the client within the VAT exemption regime. Leasing companies will have to reassess the current approach with respect to the insurance of goods subject to leasing agreements, taking into consideration the aforementioned ECJ decision as well.