Overview

The European Court of Justice has agreed with the Advocate General’s opinion in the Weald Leasing case - that the transaction was abusive - and has agreed with the taxpayer in RBS Deutschland – that the transaction was not abusive.

The Advocate General Mazak released his opinion in the Weald Leasing case in late October, and said that an exempt business can lease assets to avoid the large amount of irrecoverable input VAT that would be incurred in buying the assets outright, but leasing using artificially low rents with a third party interposed to avoid market value substitution is "abusive" on the principles set out in the Halifax case. The ECJ basically agreed with the Advocate General's opinion.

However, the decision in the RBS Deutschland case makes an interesting contrast with the Weald Leasing decision because both attempted to take advantage of 'loop holes' in the VAT legislation to structure their business in such a way as to limit their tax liability.

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