Leasing transactions not abusive - AG opinion

Although the A-G’s opinion in the case of Weald Leasing suggests strongly that the structure at the heart of the case was “abusive”, due to the inclusion in it of an unconnected company intended to prevent HMRC from directing the use of market values in the relevant leases, A-G Mazák has provided welcome confirmation that straightforward leasing, rather than buying assets, is not “abusive”.

As the A-G put it, “[t]he adoption of an asset leasing structure involving an unrelated third party or a wholly owned subsidiary which is independently registered for value added tax by a largely exempt trader instead of purchasing assets outright in order to defer the payment of irrecoverable tax does not in itself give rise to a tax advantage which is contrary to [EU law].”

If the ECJ follows this opinion, it will confirm that leasing structures and other arrangements that are intended to deliver no more than a cash flow advantage are permissible as a matter of EU law. Any business that has had such a structure challenged by HMRC should now be considering its position.