European Court of Justice (“the Court”) decision – BGZ Leasing (C-224/11)

The dispute in this case refers to the VAT treatment applicable to the recharges of insurance costs performed by leasing companies in the frame of leasing arrangements.



BGZ Leasing granted to lessees the right to use certain goods (that remain the ownership of the leasing company) under lease agreements.


BGZ Leasing imposed to the lessees to insure the leased goods.



The lessees were allowed to opt between insuring themselves the leased goods directly with an insurance company or to purchase the insurance from BGZ Leasing (the leasing company insured itself the goods with an insurance company, recharging the cost of the insurance to the lessees).


Findings of the Court


The Court analysed whether the leasing operation and the insurance service represent a single transaction subject to a single VAT treatment or, conversely, they represent distinct transactions for which the VAT treatment should be considered separately (exemption and/or taxation).


According to the Court, the leasing operation and the insurance service should in principle be regarded as separate operations from a VAT perspective and not as a single transaction. As such, the VAT treatment for the insurance service should be determined independently and should not be considered as ancillary to the leasing operation.


The Court stated that it is for the national court to decide (based on the specific circumstances of the case) if BGZ Leasing performed a single or two separate supplies.



Furthermore, the Court considered that a transaction whereby the lessor insures the leased good itself and re-invoices the exact cost of the insurance to the lesee represents an insurance service in the sense of VAT legislation. Therefore, the insurance service (performed by the leasing company in the frame of the leasing transaction) is VAT exempt without deduction right.




We expect that the Court’s decision has a significant impact in the leasing industry:


  • ­    For the leasing companies which collect VAT on the insurance cost recharged to the lessees, the decision of the Court opens, under certain conditions, the possibility to exempt the recharge of insurance cost gaining hence a more competitive price


  • ­    For the case whereby the cost of insurance was charged to the lessees by an insurance broker (usually related party with the leasing company) under the VAT exemption regime, the decisions opens a discussion on the need to use such model any longer.


In any case, all the arrangements would have to be looked on a case-by-case basis.