European ruling on VAT treatment of leasing and insurance leasing services

Sun 17th Mar 2013

The European Court of Justice has ruled that insurance cover attached to leases of machinery and equipment etc. should be treated as a separate supply for EU VAT purposes.

The case, BGZ Leasing, concerned the leasing of equipment with underwriting the insurance cover – which was a recharge by the leasor to the leasee.

Lease services are charged with VAT.  However, direct insurance is exempt from VAT as a financial services.  In the contract under review, the two services were treated as a single, composite service.

Insurance is a separate and VAT exempt service

The ECJ ruled that since the lease insurance was a distinct service – invoiced separately and not compulsory – it was a different service and therefore exempt from VAT.  It may however be liable to insurance premium tax.