1 November 2017
On 4 October 2017 the Court of Justice ruled that a hire purchase-style contract containing an option to purchase should only be treated as a supply of goods for VAT purposes if circumstances permit that that option is the lessee’s “only economically rational choice”.
Under this judgment, the Court or Justice ruled that the Mercedes-Benz’s ‘Agility’ financial product, which states that the lessee must pay 40% of the vehicle price at the end of the lease period, is classed as a supply of services rather than a supply of goods, meaning the VAT is paid by reference to when each instalment is paid. However, under a supply of goods, VAT is paid on the whole amount when the goods are handed over.
With the Agility product, the purchaser will be required to make a payment of substantial value (around 40% of the total purchase price), meaning making the purchase isn’t the only rational choice for the customer, and therefore, the product should be treated as a supply of services rather than a supply of goods.
In light of this judgment, it is likely that the VAT may have been overpaid and Mercedes-Benz FS, and other dealerships with similar financial agreements, should be entitled to reclaim any VAT already accounted for up front and to pay the balance over the term of the lease.
Should you have any questions about this blog please do not hesitate to contact myself or a member of the team.