HMRC v Weald Leasing Ltd

ECJ Case C-103/09

 

This European Court of Justice (ECJ) decision tests the whether a structure was an abusive practice. Weald Leasing Ltd was part of a group of companies and was part of an asset leasing arrangement. The other companies involved where part of a VAT group that did not include Weald Leasing Ltd and made supplies of exempt insurance.

Weald Leasing Ltd recovered input tax on the purchased assets and then rented the assets to the other companies via an intermediate third party. HM Revenue & Customs contended that the leasing transactions were not economic and an abuse of rights. The case has been passed from the Tribunal to the High Court, Court of Appeal and eventually referred to the ECJ in the form of two questions.

Firstly, the leasing contractual agreement entered into by Weald Leasing Ltd was contrary to the purpose of the Sixth Directive. Secondly, whether the intermediate third party involved in the transaction makes it impossible to have an open market value direction.

Ultimately, the case was decided on a two step test for an abusive arrangement:

  • The transactions concerned, notwithstanding the formal application of the conditions laid down by the relevant provisions of the Sixth Directive and the national legislation transposing it, result in the accrual of a tax advantage the grant of which would be contrary to the purpose of those provisions.
  • It must be apparent from a number of objective factors that the essential aim of the transactions concerned is to obtain a tax advantage.
The case was decided in HMRC's favour.