Sale and Lease Back of real property: nothing changes, but does a VAT payer really have to pay back the VAT?

Upon referral from the Court of Appeal of Mons, the Court of Justice of the European Union will hear a case regarding the Belgian VAT treatment of real property acquired through sale and leaseback transactions (C-201/18 – Mydibel S.A. v État belge).

The VAT payer, a producer of potato products, had given a right of emphyteusis (a temporary right in rem between 27 and 99 years) on its property to two financial institutions which are leasing them back to the VAT payer.

The VAT payer had acquired the property as an investment good and he had had deducted the VAT correctly.  The ‘sale and lease back’ is a purely financial transaction to increase the liquidity of the VAT payer. The property remained in his possession and was used for this VAT activity.

The sale and lease back transaction is not subject to VAT. The question now is whether the VAT-payer has to revise/adjust the VAT on the property in the light of the principle of neutrality of VAT and/or the principle of equal treatment.

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