Judgment of the Court – sale and lease back transaction does not allow to deduct VAT


On 27 March 2019. The Court of Justice of the European Union issued a judgment stating that sale and lease back transaction should be treated as a single financial service exempt from VAT, which does not give the right to deduct input tax (ref. no. C-201/18, Mydibel). 

Detailed information

The judgment was issued as a result of a request for a preliminary ruling raised by a Belgian court.

The case concerns the Belgian company Mydibel, which concluded sale and lease back transactions with two financial institutions. The subject of the transactions were real estate owned by the company. However, Mydibel's settlements were challenged by the Belgian tax authorities, which refused the right to deduct input VAT and ordered a refund of more than €1 million.

The essence of the case was to determine whether the grant of the emphyteutic right and of the leasing of real property must be considered separately or together.

Judgment of the Court

As it results from the judgment, sale and lease back should be treated as one financial service, subject to VAT exemption.

As the Court points out, in this case transactions are purely financial transactions designed to increase Mydibel’s liquidity. Court also stated that buildings remained in the possession of Mydibel, which used them in an uninterrupted and permanent manner for the purposes of its taxable transactions.

Those facts appear to indicate that each of those transactions forms a single transaction, since the creation of the emphyteutic right over the buildings at issue in the main proceedings is inseparable from the lease of real property covering those buildings.

In those circumstances, transactions cannot be classified as ‘supplies of goods’ in so far as the rights transferred do not empower the financial institutions to dispose of the buildings at as if they were their owners.

What does it mean?

The consequence of such a judgment is, first of all, the lack of the right to deduct VAT charged by both parties of a lease back transaction.

This would be a revolution for Polish taxpayers, since currently leaseback is treated as two independent transactions which are subject to VAT - supply of goods and carrying out services and - in accordance with the established approach of the tax authorities - taxpayers may deduct input VAT from the above transactions.

The Ministry of Finance is currently analyzing the effects of the judgment, but is not precluding the issuance of a general tax ruling on this issue.

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