Italy VAT treatment of sale and lease back transactions

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.

Key takeaway

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.