By exploiting different VAT laws, fleets can technically enjoy VAT-free leasing by leasing cars from countries that allow 100% VAT recovery on their leases, such as Germany and Luxembourg, even if the cars are to be used in another European Union country, such as the UK which only allows businesses to reclaim 50% of the VAT on the finance element of contract hire rentals.
In a new case, the ECJ's advocate general has upheld the right of an Austrian company, called Cookies World Vertriebsges, to enjoy the VAT advantages of leasing its cars for use in Austria from a supplier based in Germany.
Under German tax law, fleets can recover VAT incurred on car leasing if the vehicles are used for business purposes, while Austrian VAT law prohibited any VAT recovery.
Austria attempted to protect its leasing businesses by imposing a self-supply charge on Austrian businesses that leased cars from other European Union states. However, the self-supply only applied if the foreign member state permitted VAT recovery on the lease.
A briefing statement from PricewaterhouseCoopers said: 'It is not compatible with the EC 6th VAT Directive to impose a national regulation that denies businesses established in the member state the right to recover input VAT with a regard to a supply these businesses receive in another member state and that is subject to VAT in the member state where it is provided.'