Summary of ECJ C-516/21: The letting of permanently installed equipment and machinery if ancillary to the leasing a building (under the same leasing agreement) are exempt from VAT

Article in the EU VAT Directive

Article 135(1)(l) and 135(2)(c) of the VAT Directive 2006/112/EC

Article 135
1. Member States shall exempt the following transactions:

(l) the leasing or letting of immovable property.

2. The following shall be excluded from the exemption provided for in point (l) of paragraph 1:

Background

The case involves the leasing of a turkey-rearing shed with permanently installed equipment and machinery, including an industrial spiral conveyor belt and a heating, ventilation and lighting system.
The lessor received a single payment for the provision of the shed and equipment and believed the service was fully exempt from VAT.
However, the tax authority argued that the leasing of the equipment and machinery was not exempt and issued amended tax assessments.
The Finanzgericht upheld the lessor’s claim, but the tax authority appealed to the Bundesfinanzhof, which is uncertain about the interpretation of Article 135(2)(c) of the VAT Directive.
The referring court considers whether the principles established by the Court in Mailat and Frenetikexito permit an exemption from VAT for a supply that is ancillary to an exempt supply. Two interpretations of Article 135(2)(c) are possible in this context, and the referring court seeks guidance from the Court.

Questions

Does the tax liability for leasing permanently installed equipment under Article 135(2)(c) of the VAT Directive apply to both independent leasing and leasing as a supply ancillary to a building lease under Article 135(1)(l) of the VAT Directive?

Decision

Art. 135(2)(c) of Directive 2006/112/EC does not apply to the letting of permanently installed equipment and machinery if it is ancillary to a principal supply of leasing a building, under the same leasing agreement exempt under Art. 135(1)(l), and the supplies form a single economic supply.