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Advocate General Mazák released his opinion in the Weald Leasing case in late October, and said that an exempt business can lease assets to avoid the large amount of irrecoverable input VAT that would be incurred in buying the assets outright, but leasing using artificially low rents with a third party interposed to avoid market value substitution is "abusive" on the principles set out in the Halifax case.

The Court has basically agreed with the Advocate General's opinion. The fact that the taxpayer does not engage in leasing transactions in the context of its normal commercial operations is not a factor that should be taken into account in deciding whether a transaction is abusive.  The Court has referred the question of whether the transactions were actually abusive back to the UK courts.

The RBS Deutschland case involved a sale and leaseback of cars by the UK branch of a German company to an unconnected German company.   Under UK law, the supplies made under the leases were regarded as supplies of services and not subject to VAT in the UK (as the services were treated as supplied in Germany).  However, under German law, the supplies made under the leases were regarded as supplies of goods and not subject to German VAT (as the supplies were treated as made in the UK).

RBS Deutschland tried to reclaim input tax on the cost of the motor cars it had purchased in the UK.  HMRC denied the credit on the grounds that input tax could not be refunded where no output tax was declared.

The ECJ has decided that the terms of the transactions carried out between the parties were chosen on the basis of factors specific to the operators concerned cannot be regarded as constituting an abuse of rights.  The ECJ has held before that, where it is possible for a taxable person to choose from among a number of transactions, he may choose to structure his business in such a way as to limit his tax liability.

The RBS Deutschland decision makes an interesting contrast with the Weald Leasing decision because both attempted to take advantage of "loop holes" in the VAT legislation (one being entirely contained within domestic legislation, in the case of Weald Leasing; and one being an arbitrage between the rules of two different Member States on the same transaction, in the case of RBS Deutschland) to structure their business in such a way as to limit their tax liability".

The RBS Deutschland case also seems to conflict with the Court of Appeal decision in the IDT Card Services Ireland Ltd case in which the UK courts closed the gap between UK and Irish VAT rules by holding that VAT must be charged in the UK.  RBS Deutschland suggests that a taxpayer may legitimately take advantage of differences between domestic VAT rules to minimise the incidence of VAT.

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