In landmark c. £200 million VAT case before the CJEU
Advocate General Szpunar has this morning issued his opinion in respect of one of the first cases to be referred to the Court of Justice of the European Union ("CJEU") following the UK Brexit referendum.
The Advocate General, in a somewhat densely argued opinion, has found that transactions such as:
- Conditional Sale (where ownership always passes at the end of the contractual instalment term); and
- Hire-Purchase (where the instalments paid during the term are approximately the total purchase price (including finance), leaving only a symbolic or nominal payment due to secure acquisition of ownership
are each supplies of goods for the purposes of VAT. Therefore, VAT is payable up front on whole of the contract value.
Article 14(1) of the Directive 2006/112 ("the Directive") provides a definition for a supply of goods as "the transfer of the right to dispose of tangible property as owner." However, the Advocate General noted that no specific definition is provided for the supply of services and in accordance with Article 24(1) of the Directive, a supply of services means "any transaction which does not constitute a supply of goods".
Therefore, it followed that only a transaction which actually corresponds to the definition set out in Article 14(1) of the Directive may be regarded as a supply of goods and all other transactions constitute a supply of services.
The contracts such as the ones in dispute, offered by Mercedes-Benz Financial Services ("Mercedes") to its customers ('Agility' contracts), which are in legal form Hire-Purchase contracts but which require a substantial payment at term to secure ownership (i.e. so that instalments paid during term do not cover purchase price), are not supplies of goods and are supplies of services. VAT is therefore due on a cash received basis. This treatment, if upheld, provides a substantial cash flow benefit to the supplier.
The CJEU's judgment is not due until later this year, but it is expected to come to the same conclusions as the Advocate General.
Leslie Allen, Head of Tax Litigation at Mishcon de Reya who is representing Mercedes, said:
"This is a fantastic opinion for our client in a very important VAT case. It is now an important time for others in the automotive industry to consider any similar claims they have made or should now make."
Leslie Allen led the team advising Mercedes, alongside Dario Garcia and Waqar Shah. They instructed Pump Court Tax Chambers' Head of Chambers, Kevin Prosser QC.