Italy VAT treatment of sale and lease back transactionsCountry-specific update: Italy
Having regard to the contractual terms of a sale and lease back agreement, such transaction could qualify either as a “single financial transaction”, exempt from VAT, or, as a “two-step transaction” consisting of (a) a sale of asset followed by (b) a supply of services by the buyer by way of leasing, both being, in principle, taxable for VAT purpose.
The Italian Tax Authority, with Resolution No. 3 of 3 February 2023, do not provide clear guidance with respect to the VAT treatment applicable to a sale and lease back arrangement.
At first, the Italian Tax Authority points out that according to the CJEU case law (C-201/18) and to the Italian Supreme Court (Supreme Court judgment no. 18439/2021 and 35915/2021), a sale and leaseback transaction does not constitute a supply of goods for VAT purposes. It should instead be considered as a single financing transaction exempt from VAT that therefore does not give rise to recovery of input VAT.
In the past, the Italian Tax Authority, took a more formal approach (Italian Tax Authority Circular Letter no. 218/2000) and held that, from a careful analysis of the sale and leaseback contract, the transaction could also qualify for VAT purposes as a “two-step transaction” i.e. a supply of goods followed by a supply of services, where there is a physical transfer of the tangible assets to the leasing company, entitling the latter to dispose of the goods as their owner.
In the presence of sale and lease back agreement, a case-by-case analysis is recommended to ascertain whether this qualifies as a single financing transaction (generally not allowing the recoverability of input VAT) or as a supply of goods followed by a supply of services that give right to recover VAT on costs.