Leasing

Leasing (International) of Means of Transport

1. Introduction

This leaflet sets out the VAT treatment of international leasing of means of transport having regard to the decisions of the European Court of Justice (ECJ).

The principle established by the rulings of the ECJ is that where a lessor in one Member State hires or leases vehicles to customers in another Member State the place of supply is the Member State where the lessor has established its business.

The information leaflet clarifies the meaning of ‘established’ in the context of the ARO case and sets out the VAT treatment of the leasing of cars and other means of transport supplied by a lessor established in one country to a customer in another.

2. The ARO judgement

The judgement dealt with car leasing from the Netherlands into Belgium. The lessor (ARO Lease BV) was established in the Netherlands. It had no administrative or physical presence in Belgium but it had 800 (out of 6,800) of its vehicles leased to customers in Belgium. Both the Dutch and the Belgian tax authorities sought to collect VAT on the leases to Belgian customers.

The ECJ held that

'a leasing company established in one Member State does not supply services from a fixed establishment in another Member State if it makes passenger cars available in the second State under leasing agreements to customers established there, if its customers have entered into contact with it through self-employed intermediaries established in the second State, if they have chosen their cars from dealers established in the second State, if the leasing company has acquired the cars in the second State, in which they are registered, and has made them available to its customers under leasing agreements drawn up and signed at its main place of business, and if the customers bear maintenance costs and pay road tax in the second State, but the leasing company does not have an office or any premises on which to store the cars there'.

In short, the judgement described the precise circumstances of the ARO case and said that in those circumstances, the place of supply and of taxation is the Member State of the lessor.

The question of whether the hire or lease of vehicles by an undertaking in one Member State to customers in another Member State constituted a 'fixed establishment' was further addressed in the ECJ case of Lease Plan Luxembourg SA and the Belgian State (Case C-390/96). On this point the Court ruled:

'that an undertaking established in one Member State which hires out or leases a number of vehicles to clients established in another Member State does not possess a fixed establishment in that other State merely by engaging in that hiring out or leasing'.

3. Meaning of Establishment

The EU VAT Directive 2006 does not define 'established' or 'establishment' but establishment has been defined for the purposes of Irish VAT law.

'Establishment' means

'any fixed place of business, but does not include a place of business of an agent of a person unless the agent has and habitually exercises general authority to negotiate the terms of and makes agreements on behalf of the person or has a stock of goods with which he regularly fulfils on behalf of the person agreements for the supply of goods'.

The question of determining the place of establishment depends on the facts of each case. Neither ARO nor Lease Plan was deemed to have an establishment in the Member State in which the vehicles were hired out.

The Court found that independent garages which facilitated the leasing company’s customers in arranging provision of the leased vehicles did not constitute an establishment of the lessor. However, the relationship between the supplier of the goods, any agent who acts on behalf of the lessor and the lessor will have to be examined in order to determine whether the lessor is established in the State.

Accordingly, where:

  • leasing arrangements are entered into by a lessor established in another EU Member State by means of agreements drawn up and signed, and management decisions taken in that Member State in which it has established its business,
  • the vehicles are made available under those leasing arrangements to customers in the State and
  • the lessor has no staff, or fixed establishment or a structure adequate, in terms of human and technical resources, to supply the services in the State,

the leasing services is regarded as supplied in the other EU Member State.

Where a lessor established in another EU Member State leases vehicles to customers here and has either an establishment here or a structure adequate, in terms of human and technical resources, to supply the services in question, the services are regarded as supplied in the State and the lessor is liable for Irish VAT.

4. Illustration of the VAT treatment of means of transport

The leasing of means of transport involving domestic and international suppliers is best demonstrated in a series of charts, as follows:-

  • Chart A - describes the treatment of leasing of cars.
  • Chart B - describes the treatment of leasing of deductible means of transport to VAT registered lessees.
  • Chart C - describes the leasing of rail-cars, buses, aircraft etc. to passenger transport undertakings.

5. What are Means of Transport?

Although 'new means of transport' is defined in section 1 of the VAT Act, 1972 and 'means of transport' is defined for the purposes of the special scheme for second-hand cars in section 12B, in general terms, including for the purposes of a leasing transaction a broader definition is applied. 'Means of transport' is taken to mean motor vehicles and other equipment and devices, which might be pulled or drawn by such vehicles, and are normally used for carrying out a transport contract, as well, of course, as vessels and aircraft.

6. Deductibility

Section 13 (3) of the VAT Act 1972 provides that a lessor established outside the State is able to get a VAT refund on means of transport (apart from motor cars - see definition at Appendix II) purchased here for the purpose of leasing out to customers here. An accountable person in another Member State, which has leasing services supplied to it by a lessor established in the State on an ongoing basis and which is entitled to reclaim the VAT chargeable on those leasing services under the 8th Directive, may apply to the Revenue Commissioners to have the services treated as subject to the zero rate under the VAT 60A procedure.

Any relief so granted is subject to periodic review. The relief does not apply to supplies of goods. (Application pdfForm VAT 60A is available from VAT Repayments (Unregistered) Section, River House, Charlotte Quay, Limerick.

7. Leasing to a passenger transport undertaking in another EU Member State

As indicated in Chart C, Revenue allows a refund of VAT in relation to the leasing of means of transport to passenger transport undertakings in other Member States on the basis that the undertakings are engaged in passenger transport outside the State (i.e. transport effected entirely outside Ireland or transport between Ireland and another country) and provided they meet the 8th Directive requirements. The 60A procedure referred to at paragraph 6 above may apply.

8. Leasing to lessees outside the EU

Section 5 (6) (dddd) of the VAT Act 1972 provides that the place of supply of the leasing of means of transport by a lessor in the State is outside the EU where the means of transport are to be effectively used and enjoyed outside the EU. This means that the leasing of, for example, railway rolling stock for use in the United States by a lessor established in Ireland is not subject to Irish VAT. The lessor is of course entitled to deduction of his or her inputs relating to this activity in the normal way or to a refund under the 13th Directive.

9. Effective use and enjoyment

Effective use and enjoyment is not defined in the VAT Act. This provision is based on Article 58 of the VAT Directive 2006. The purpose of this provision is to allow Member States to treat services which are consumed outside the EU as outside the scope of EU VAT.

If there is any doubt about whether the use and enjoyment takes place outside the EU a lessor should charge VAT. In addition while the use and enjoyment of a means of transport at the start of the leasing agreement may be outside the EU, a lessor is responsible for ensuring that the correct VAT treatment is applied to the leasing service for the full period of the lease. Therefore, if during the period of the lease agreement the lessee transfers the means of transport to a Member State, VAT should be charged on the leasing service when the conditions of section 5(6)(dddd) no longer apply.

Further Information

Enquiries regarding any issue contained in this Information Leaflet should be addressed to the Revenue District responsible for the taxpayer's affairs. Contact details for all Revenue Districts are available on the revenue website at: Contact Details.

Claims for repayment of VAT under the 8th and 13th Directive should be addressed to:

VAT (Unregistered) Repayments Section,
River House,
Charlotte Quay,
Co. Limerick,
Tel. 061 212 700.

VAT Appeals & Communications Branch,
Indirect Taxes Division,
Stamping Building,
Dublin Castle.

October 2008

Appendix I

Chart A - Leasing of Means of Transport

Motor Vehicles (Cars, motor cycles and other vehicles as defined in section 12 (3)(b) of the Value-Added Tax Act, 1972).[1] - VAT Treatment
Place of establishment of Lessor Lessee established or resident in Place of taxation of Leasing Services Deductibility
On acquisition of the Vehicle by the Lessor On Lease rental charged to VAT - registered lessee
Sourced in Ireland Sourced in OMS
Ireland OMS Ireland Yes [2] OMS/8th Directive rules apply No
OMS Ireland OMS No. Section 13 (3) (c) of VAT Act OMS /8th Directive rules apply on purchase of car in OMS.
ICA on arrival in the State.
VAT payable not deductible. (Section 13 (3) (c))		 OMS rules apply
Outside the EU Ireland Ireland [3] Yes (lessor is obliged to register for VAT in the State) OMS rules apply on purchase of car in OMS.
ICA on arrival in the State.
Deductible		 No
Ireland Outside the EU Outside EU Section 5(6)(dddd) [4] Yes OMS/8th Directive rules apply.
ICA on arrival in the State.
Deductible.		 N/A

OMS = Other Member State
ICA = Intra-Community acquisition

[1] 'motor vehicles' means motor vehicles designed and constructed for the conveyance of persons by road and sports motor vehicles, estate cars, station wagons, motor cycles, motor scooters, mopeds and auto cycles, whether or not designed and constructed for the purpose aforesaid, excluding vehicles designed and constructed for the carriage of more than 16 persons (inclusive of the driver), invalid carriages and other vehicles of a type designed for use by invalids or infirm persons.

[2] OMS rules apply on intra-Community acquisition of the vehicle in the OMS.

[3] or if effectively used outside the State, the place where the vehicles are effectively used

[4] Section 5 (6) (dddd) introduced in Finance Act, 1999 (see paragraph 9) if effectively used and enjoyed outside the EU.

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Chart B - Leasing of Means of Transport

Leasing of deductible Means of Transport (Vans/lorries etc. to VAT-Registered persons). - VAT Treatment
Place of establishment of Lessor Lessee established or resident in Place of taxation of Leasing Service Deductibility
On acquisition of the Vehicle by the Lessor On Lease rental charged to VAT - registered lessee
Sourced in Ireland Sourced in OMS
Ireland OMS Ireland Yes [1] OMS/8th Directive rules apply Yes (8th Directive)
OMS Ireland OMS Yes under 8th Directive rules OMS /8th Directive rules apply.
ICA on arrival in the State.
VAT payable is deductible. (Section 13 (3) (c))		 OMS rules apply
Outside the EU Ireland Ireland [2] Yes (lessor is obliged to register for VAT in the State) OMS rules apply on purchase of car in OMS.
ICA on arrival in the State.
Deductible		 Yes
Ireland Outside the EU Outside EU Section 5(6)(dddd) [3] Yes OMS/8th Directive rules apply.
ICA on arrival in the State.
Deductible.		 N/A

OMS = Other Member State
ICA = Intra-Community acquisition

[1] OMS rules apply on intra-Community acquisition of the vehicle in the OMS

[2] or if effectively used outside the State, the place where the vehicles are effectively used.

[3] Section 5 (6) (dddd) introduced in Finance Act, 1999 (see paragraph 9) if effectively used and enjoyed outside the EU.

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Chart C - Leasing of Means of Transport

Leasing of Means of Transport to Passenger Transport Undertakings (rail - cars, buses, aircraft etc.). - VAT Treatment
Place of establishment of Lessor Lessee established or resident in Place of taxation of Leasing Service Deductibility
On acquisition of the Vehicle by the Lessor On Lease rental charged to VAT - registered lessee
Sourced in Ireland Sourced in OMS
Ireland OMS Ireland Yes [1] OMS/8th Directive rules apply Yes [2]
OMS Ireland OMS Yes under 8th Directive rules OMS /8th Directive rules apply on purchase.
ICA on arrival in the State.
Deductible		 OMS rules apply
Outside the EU Ireland Ireland [3] Yes (lessor is obliged to register for VAT in the State) OMS/8th Directive rules on purchase.
ICA on arrival in the State.
Deductible		 No [2]
Ireland Outside the EU Outside EU Section 5(6)(dddd) [4] Yes OMS/8th Directive rules apply.
 N/A

OMS = Other Member State
ICA = Intra-Community acquisition

[1] OMS rules apply on intra-Community acquisition of the vehicle in the OMS.

[2] Deductible to the extent that the lessee is an undertaking engaged in passenger transport services outside the State (see paragraph 8).

[3] or if effectively used outside the State, the place where the vehicles are effectively used

[4] Section 5 (6) (dddd) introduced in Finance Act, 1999 (see paragraph 9) if effectively used and enjoyed outside the EU.

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Appendix II

Value Added Tax Act, 1972 - Section 12 (3)(b)

'Motor vehicles' means motor vehicles designed and constructed for the conveyance of persons by road and sports motor vehicles, estate cars, station wagons, motor cycles, motor scooters, mopeds and auto cycles, whether or not designed and constructed for the purpose aforesaid, excluding vehicles designed and constructed for the carriage of more than 16 persons (inclusive of the driver), invalid carriages and other vehicles of a type designed for use by invalids or infirm persons.

This information leaflet which sets out the current practice at the date of its issue is intended for guidance only and does not purport to be a definitive legal interpretation of the provisions of the Value-Added Tax Act 1972 (as amended).

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