ROMANIA - CJEU Judgment in C-17/18 Mailat - VAT treatment of a restaurant leased to a third party
On 19 December 2018 the Court of Justice of the European Union (CJEU) handed down its judgment in Case C-17/18 (Mailat). The case considered whether the leasing out of a restaurant constituted the transfer of a business.
Apcom Select, a company run by Mr. and Mrs. Mailat, operated a restaurant. They modernized the restaurant building and deducted the VAT related to the modernization costs. After the modernization was complete, under a VAT exemption regime, the Mailats leased the restaurant (the building, fixed assets, and the restaurant name) to a third party (the lessee). The lessee continued to operate the restaurant under the same name.
Upon entering into the lease agreement, Apcom Select did not adjust the VAT it deducted related to the modernization work, though it was obliged to under Romanian law.
The Mailats took the position that the letting of the building in which they operated the restaurant, including the capital equipment and the equipment connected to the operation of the restaurant, constituted a transfer of a business within the meaning of Articles 19 and 29 of the VAT Directive. As a result, they were of the view that Apcom Select had the right to deduct the VAT related to the modernisation work carried out without being obliged to adjust the VAT at the time they entered the lease agreement.
The Romanian Court referred various questions to the CJEU, which ruled as follows:
- The leasing out of an immovable property for capital purposes (including all capital equipment and inventory items necessary for that use) does not constitute a ‘transfer of a totality of assets or part thereof’ within the meaning of Article 19 of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax). According to the CJEU, this is so even if the lessee pursues the activity of the lessor under the same name.
- A lease of an immovable property that was used for commercial purposes along with all capital equipment and inventory items necessary for that use in that commercial venture constitutes a single supply in which the letting of the immovable property is the principal supply.