In dispute was the place of supply of the leasing service and, as a result, in which country VAT should be paid. Under Dutch law the company paid VAT on the cars in the Netherlands because the place of supply was where ARO Lease was based. But Belgian regulations said the place of supply was where the vehicles were used, and therefore the company also paid VAT in Belgium.
ARO Lease challenged this double payment of VAT, taking the case to the European Court of Justice which ruled that ARO correctly paid taxes in Holland, but should not pay VAT in Belgium where it had no substantive presence. This has set the precedent that VAT on leased vehicles will be paid in the country of the leasing company's base, and not where the fleet customer uses them.
Consequently, leasing companies in EC countries with low VAT rates such as the UK, Luxembourg, Germany and the Netherlands could find themselves in an advantageous position to compete for business in other EC countries. The ruling and adds further weight to the argument in favour of VAT harmonisation across the EC.