C-164/16 Mercedes-Benz v HMRC
Mercedes offered vehicles to customers in so-called ‘Agility Agreements’, under which the lessee paid monthly instalments in exchange to use the vehicle for a specified period. At the end of the period, the lessee had an option to purchase the vehicle in consideration for a ‘balloon’ payment (varying between 42% and 48% of the initial purchase price). The question for the CJEU is whether such an agreement constitutes a supply of goods or services under the VAT Directive.
The AG considers that they constitute agreements for the supply of services. Article 14(2) of the Directive provides that an agreement is a supply of goods where it “provides that in the normal course of events ownership is to pass at the latest upon payment of the final instalment”. The AG states that this only covers agreements where the right to purchase, although formally optional, is the only economically rational course of action. Where, as here, the lessee has a genuine choice whether to purchase, the agreement will be a supply of services for VAT purposes. The case is found here.
This article appears in the JHA May 2017 Tax Newsletter, which also features:
