European ruling on VAT treatment of leasing and insurance leasing services
- 16 March 2013 | Richard Asquith
The European Court of Justice has ruled that insurance cover attached to leases of machinery and equipment etc. should be treated as a separate supply for EU VAT purposes.
The case, BGZ Leasing, concerned the leasing of equipment with underwriting the insurance cover - which was a recharge by the leasor to the leasee.
Lease services are charged with VAT. However, direct insurance is exempt from VAT as a financial services. In the contract under review, the two services were treated as a single, composite service.
Insurance is a separate and VAT exempt service
The ECJ ruled that since the lease insurance was a distinct service - invoiced separately and not compulsory - it was a different service and therefore exempt from VAT. It may however be liable to insurance premium tax.