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.

Unfortunately the key decision was referred back to the domestic court to decide. The UK Courts will have to decide once forensic evidence has been gather as to whether the contractual terms are not commercial and therefore not on an arm’s-length basis. The Courts also need to decide whether the inclusion of an intermediary third party constituted an abusive practice.