Country Updates: Italy – Lexology
Italian Supreme Court, Judgment No. 40930 of December 21, 2021
For VAT purposes, sale and rent back is (i) a supply of goods followed by (ii) a supply of services (for the payment of rents). Unlike a sale-leaseback (where the lessee – i.e. the first seller, at the end of the lease term has the right to purchase the goods), this is not a single financing transaction exempt from VAT. Therefore, the transferee is entitled to deduct the VAT charged to him by the supplier in connection with the overall transaction.
Comment from DLA Piper:
The sale and rental transaction is treated as a delivery of goods followed by the rental service under Article 2 of the Italian VAT Decree (Article 14 of the European VAT Directive) provided that the parties have provided that the lessor acts as the owner of the property and to dispose of it freely without the risk of returning the property to the tenant.
According to the Supreme Court, this can be demonstrated by the absence of a buy-out clause and by consideration of the contractual intention of the parties. The intention of the parties can generally be determined from the duration of the contract, the value of the rents and the value of the property at the time of the sale and at the end of the rental period.
Sale and rent back can therefore be distinguished from sale and lease back by reference to the will of the parties. This can be useful because – in light of the principles confirmed by the ECJ (see, ECJ 27 March 2019, Mydibel SA v Belgian State (C-201/18)) – sale-leasebacks are treated as single financing transactions and are therefore exempt from VAT.
It is therefore crucial to pay attention to the contractual elements in order to identify whether a transaction falls under the sale and rent back scheme rather than the sale and lease back: a case-by-case analysis is strongly recommended.