AG opinion in Mercedes-Benz: VAT on leasing contracts with option to purchase

July 5, 2017

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Originally published in Tax Journal on 5 July 2017.

 

Peter Stewart, associate and Paul Farmer, barrister and partner at Joseph Hage Aaronson examine the decision that so-called agility hire purchase contracts are a supply of services and consider its practical implications.

On 31 May 2017, Advocate General Szpunar handed down his opinion in HMRC v Mercedes-Benz Financial Services UK Ltd (Case C-164/16). The issue is whether the so-called agility hire purchase contracts entered into by Mercedes-Benz Financial Services UK Ltd (‘Mercedes’) and its customers in relation to the supply of vehicles is to be treated for VAT purposes as a supply of services or as a supply of goods under article 14(2)(b) of the Principal VAT Directive. The AG’s opinion favours Mercedes’ argument, namely that it is a supply of services. If the CJEU agrees, its decision will have considerable practical implications for motor vehicle traders and asset leasing businesses.

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