Money changes hands on the creation or disposal of a leasehold interest. In what circumstances can the parties claim that, for VAT purposes, the payment was made in consideration for an exempt supply, such supply being “the leasing or letting of immovable property” within the meaning of Article 13B of the Sixth Directive (EEC) 77/388?
While the bare words of the Article do little justice to the sophistication of the leasehold market, a number of gaps have been filled by the October 2001 decisions of the European Court in Customs & Excise Commissioners v Mirror Group plc (C409/98) and Customs & Excise Commissioners v Cantor Fitzgerald International (C108/99) [2001] PLSCS 234. Both called for an explanation and some refinement of the 1993 ECJ decision in Lubbock Fine & Co v Commissioners of Customs and Excise (C63/92) [1993] EGCS 219.
We can now say:
1. A supply is prima facie exempt where the money is paid by the person on the receiving end of a grant, surrender or assignment of a lease.
2. The opposite applies where an assignee of an onerous lease has been induced to take the property by the offer of a (reverse) premium payable by the outgoing lessee: see Cantor Fitzgerald where the court: (a) acknowledged that the relevant supply was the headache relief furnished by the assignee; and (b) declared that such a supply fell outside the terms of the Article, since it was merely ancillary to the transfer of a right to occupy the property.
3. The judgment in Cantor strongly suggests that the previous proposition would also apply to the surrender (with money) of an onerous lease
4. It is a question of fact and/or construction, for the national court to determine, whether the reasoning in Cantor applies to a payment made by a landlord to a prospective lessee by way of an inducement to become an anchor tenant in a new development. According to Mirror, no supply of any kind is made by a lessee who merely commits himself to the lease. It is otherwise, and there can be no exemption, if you can say that the money was paid for his undertaking to transfer his business to the building concerned. The implications are considered by Neil Warriner, of Herbert Smith, in
For a review of the position in June 2003, see
Money changes hands on the creation or disposal of a leasehold interest. In what circumstances can the parties claim that, for VAT purposes, the payment was made in consideration for an exempt supply, such supply being “the leasing or letting of immovable property” within the meaning of Article 13B of the Sixth Directive (EEC) 77/388?
While the bare words of the Article do little justice to the sophistication of the leasehold market, a number of gaps have been filled by the October 2001 decisions of the European Court in Customs & Excise Commissioners v Mirror Group plc (C409/98) and Customs & Excise Commissioners v Cantor Fitzgerald International (C108/99) [2001] PLSCS 234. Both called for an explanation and some refinement of the 1993 ECJ decision in Lubbock Fine & Co v Commissioners of Customs and Excise (C63/92) [1993] EGCS 219.
We can now say:
1. A supply is prima facie exempt where the money is paid by the person on the receiving end of a grant, surrender or assignment of a lease.
2. The opposite applies where an assignee of an onerous lease has been induced to take the property by the offer of a (reverse) premium payable by the outgoing lessee: see Cantor Fitzgerald where the court: (a) acknowledged that the relevant supply was the headache relief furnished by the assignee; and (b) declared that such a supply fell outside the terms of the Article, since it was merely ancillary to the transfer of a right to occupy the property.
3. The judgment in Cantor strongly suggests that the previous proposition would also apply to the surrender (with money) of an onerous lease
4. It is a question of fact and/or construction, for the national court to determine, whether the reasoning in Cantor applies to a payment made by a landlord to a prospective lessee by way of an inducement to become an anchor tenant in a new development. According to Mirror, no supply of any kind is made by a lessee who merely commits himself to the lease. It is otherwise, and there can be no exemption, if you can say that the money was paid for his undertaking to transfer his business to the building concerned. The implications are considered by Neil Warriner, of Herbert Smith, in When is a premium a supply? Estates Gazette 3 November 2001, p139 and by Mark Simpson, of Hammond Suddards Edge, in Taxable inducements, Estates Gazette 17 November 2001, p174.
For a review of the position in June 2003, see PP 2003/42
