Country-specific updates: Italy

Italian Supreme Court, Ruling No. 40930 of 21 December 2021

For VAT purposes, the sale and rent back is (i) a supply of goods followed by (ii) a supply of services (for rent payments). Unlike a sale and lease back (where the lessee - i.e. the first seller, at the end of the rental period has the right to purchase the goods), it is not a single VAT exempt financing transaction. Therefore, the transferee is entitled to deduct the VAT charged to him by the supplier as part of the overall transaction.

DLA Piper comment:

The sale and rent back transaction is treated as a supply of goods followed by the rental service under Article 2 of the Italian VAT Decree (Article 14 of the EU VAT Directive) provided that the parties intended for the lessor to act as owner of the goods and to dispose of them freely without the risk of returning the goods to the lessee.

According to the Supreme Court, this can be demonstrated by the absence of a redemption clause and by considering the contractual intention of the parties. The intention of the parties can generally be determined from the duration of the contract, the value of the rents and the value of the asset at the moment of the sale and at the end of the rental period.

Therefore sale and rent backs can be distinguished from sale and lease backs by reference to the will of the parties. This may be helpful as – in light of the principles confirmed by the ECJ (see, ECJ 27 March 2019, Mydibel SA v Belgian State (C-201/18)) – sale and lease backs are treated as single financing transactions and are therefore VAT exempt.

It is therefore crucial to pay attention to the contractual elements in order to identify whether a transaction falls within the sale and rent back scheme rather than the sale and lease back structure: a case-by-case analysis is strongly advisable.