European Court VAT Case – T-537/26 (M Car Sofia) – Questions – VAT margin scheme for leased second-hand vehicles: purchase price and successive transactions

The Varhoven administrativen sad (Supreme Administrative Court, Bulgaria) has submitted a request for a preliminary ruling in proceedings between ‘M Car Sofia’ EOOD and the Director of the Tax and Social Security Appeals and Practice Directorate of Sofia at the Bulgarian National Revenue Agency. The dispute concerns additional VAT imposed after the revenue authorities challenged the company’s application of the margin scheme to sales of second-hand motor vehicles. The company acquired the right to purchase each leased vehicle from a private individual who had paid all leasing instalments, including VAT, and then obtained legal ownership under a separate contract with the leasing company for which no further price was payable. The referring court asks whether those successive transactions may be treated as a single supply of goods and whether the vehicles can be regarded as having been supplied to the taxable dealer by a non-taxable person for the purposes of the margin scheme. If the scheme applies, the court also seeks clarification of whether the amount paid to the former lessee for the purchase right constitutes the vehicle’s purchase price when calculating the dealer’s profit margin. The request was lodged on 27 July 2026 and is pending as Case T-537/26. [infocuria…..europa.eu]

Articles of the EU VAT Directive 2006/112/EC discussed

• Article 312(1)
  Defines the “selling price” as everything constituting the consideration obtained or to be obtained by the taxable dealer from the customer or a third party. It is relevant to determining the amount against which the purchase price must be compared when calculating the company’s profit margin.
• Article 312(2)
  Defines the “purchase price” as everything constituting the consideration obtained or to be obtained from the taxable dealer by its supplier. It is expressly referenced in Question 3, which asks whether the amount paid by the company to the private lessee for the right to acquire the vehicle can constitute the purchase price of that vehicle.
• Article 314
  Provides that the margin scheme applies to supplies of second-hand goods by a taxable dealer where those goods were supplied to the dealer within the European Union by one of the listed persons, including a non-taxable person. It is central to Questions 1 and 2 because the relevant vehicles were legally transferred by leasing companies, while the economic consideration was paid to private, non-taxable lessees.
• Article 315
  Provides that the taxable amount under the margin scheme is the taxable dealer’s profit margin, less the VAT relating to that margin. The profit margin is the difference between the dealer’s selling price and purchase price. It is relevant to Question 3 because the referring court must determine whether the payment made to the lessee forms part of the purchase price even though legal ownership was transferred by the leasing company.
• Articles 312 et seq.
  Establish the special VAT margin scheme for taxable dealers supplying second-hand goods. They are referenced in Question 2 concerning whether the succession of transactions involving the lessee and leasing company falls within the scheme.
• Recital 51
  States that a common taxation system for second-hand goods should prevent double taxation and distortions of competition between taxable persons. It is relevant to the company’s argument that taxing the full resale price would result in VAT being imposed again on value already bearing non-deductible VAT at the level of the private lessee.

Preliminary Ruling Questions

1. Are Article 314 of Directive 2006/112 and the principle of fiscal neutrality to be interpreted as meaning that the margin scheme is applicable in respect of supplies of second-hand motor vehicles effected by a taxable dealer where those motor vehicles have been supplied to that dealer on the basis of the following successive legal transactions:

   (i) a contract for the acquisition of the right to purchase a leased item, which the dealer concluded with a natural person who was the lessee under a financial leasing agreement containing a clause providing for the acquisition of ownership of the motor vehicle, at a price, inclusive of VAT, which was paid to the natural person, who did not deduct input tax, and

   (ii) a subsequent sales contract relating to the same second-hand motor vehicle, which the taxable dealer concluded with the leasing firm which was a party to the leasing agreement, under which the dealer was not liable for payment of the price, as all leasing instalments for the leased vehicle, including VAT, had been paid by the natural person as the lessee?

2. Under the provisions of Directive 2006/112, are the described legal transactions to be regarded as a single supply of goods, and, if so, is the special arrangement of the VAT margin scheme under Article 312 et seq. of the directive applicable?
3. If the margin scheme is applicable, is Article 315 of Directive 2006/112, read in conjunction with the term ‘purchase price’ as defined in Article 312(2) of Directive 2006/112, to be interpreted as meaning that, in cases such as that at issue in the present proceedings, the price which the taxable dealer pays the natural person under the contract transferring the right to acquire the second-hand leased motor vehicle constitutes the purchase price for the acquisition of that motor vehicle under the contract with the leasing firm, which can be used to establish the profit margin and the taxable amount for the supply of goods under Article 314 of the Directive?

Key Takeaways

• The case may clarify whether economically connected transactions with a private lessee and a leasing company can be treated together when determining eligibility for the second-hand goods margin scheme.
• The ruling will determine whether a payment for the contractual right to acquire a leased vehicle can constitute the vehicle’s “purchase price”, even where legal ownership is subsequently transferred by the leasing company without an additional payment.
• The outcome will be particularly relevant to second-hand vehicle dealers acquiring vehicles through former lessees, as rejection of the payment as the purchase price could result in VAT being calculated on the vehicle’s full resale price.

Source

CURIA – Case T-537/26, M Car Sofia [infocuria…..europa.eu]