tag: lease

A lease may look like a relatively straightforward transaction. In practice, however, some of the most costly landlord-tenant disputes arise not from the amount of rent, but from issues that received too little attention when the agreement was signed: who was actually entitled to lease the property, when a fixed-term lease can be terminated, who bears repair costs, what happens to the security deposit if the property is sold, or who pays to reinstate the premises at the end of the term.

Following the recent reinterpretation by the European Court of Justice (ECJ) of the definition of closed-end finance leasing, a new Advocate General (AG) opinion has exploded another “VAT bomb” in relation to current practice. For many years, leasing companies have divided the fees payable under finance lease contracts into a VATable and a non-VATable part, but the latest AG opinion states that the whole lease fee should be liable for VAT in its integrity. This could have serious implications for the Hungarian leasing market too, so it is worth keeping an eye on how the case progresses.

Lease services often lead to uncertainty from a VAT perspective. Some services which seem like lease at first glance do not meet the criteria for “lease” for VAT purposes. The improper classification can lead to surprises: on the one hand the lessor’s deduction right can be challenged, on the other hand a seemingly VAT-exempt transaction could trigger VAT liability. A recent ECJ decision will set standards for these situations.