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Two suppliers - a single supply?

Has the recent ECJ court judgement Ministero dell’ Economia e delle Finanze v Part Service Srl  put another nail in the coffin of VAT planning? Until now, HMRC have reluctantly accepted that it is not possible to have a single supply for VAT purposes where there are two suppliers involved.

This case involved an Italian car leasing group which also provided finance to its customers. One company in the group leased the vehicles and another provided the finance elements. The group treated the finance element paid by the customer as exempt from VAT. The Italian tax authorities took the view that the amounts payable by the customer had been artificially split in order to reduce the VAT payable. The matter was then referred to the ECJ to determine whether (1) there can be an “abusive practice” under the principles established in the Halifax case when a tax advantage is the principal aim of a transaction or whether it has to be the sole aim to the exclusion of other economic objectives and (2) whether the transactions in this case could be considered to be abusive.

On the first question the Court ruled that there could be a finding of an abusive practice where a tax advantage constituted the principal aim of a transaction. On the second question, i.e. whether the structure in this case was abusive, the matter was referred back to the Italian National Court to apply the tests set out in the Halifax decision. However, the ECJ indicated that the legal and economic links between the suppliers and the apportionment of payments made by the customer indicated that this was an artificial structure put in place principally to reduce the VAT payable.



Date: 9th April, 2008
Author: Jane Stacey


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