The case concerned Mydibel S.A., a Belgian VAT taxable person, that owned several buildings which it used exclusively for its economic activity and for which it deducted the input VAT paid for its construction in full. In 2009, Mydibel entered into sale and lease-back (cession-bail) agreements with two financial institutions. Under these agreements, the financial institutions became owners of the buildings while simultaneously granting Mydibel the use of the buildings for a non-revocable period of 15 years. Since these sale and lease-back transactions were not subject to VAT, the Belgian tax authorities considered that the initial deduction on the construction of the buildings should be adjusted. Mydibel brought an action before the Belgian courts, which in turn referred several questions to the ECJ for a preliminary ruling.
In its judgment, the ECJ first examined whether a sale and lease back transaction could be seen as a trigger for an adjustment of the initial deduction of input VAT. According to the VAT Directive, an adjustment must be made where, after the VAT return is made, some change occurs in the factors used to determine the amount to be deducted. The ECJ considers that this mechanism aims to establish a close and direct relationship between the right to deduct input VAT and the use of the goods or services concerned for taxable output transactions. In the present case, the ECJ considered that Mydibel continued to use the buildings for its activities subject to output VAT so that the relationship between the right to deduct input VAT and the use the goods for taxable output transactions had not been severed.
Secondly, the ECJ examined whether the sale and lease back transaction on the buildings could be covered by the specific rules for the adjustment of VAT deductions as regards capital goods. Under these rules, an adjustment of the initially deducted VAT must be made if the capital good is subject to a VAT exempt supply during the adjustment period (that can be up to 20 years for immovable capital goods). In this respect, the ECJ held that "the supply of goods" should not be understood as a transfer of ownership but rather as the transfer of the right to dispose of the property as an owner. In the present case, the ECJ found that, following the sale and lease back transaction, the financial institutions were not entitled to dispose of the buildings as if they were the owner. The ECJ concluded that Mydibel was not obliged to adjust VAT on buildings which was initially deducted.
In conclusion, the ECJ decision means that sale and lease back transactions can be carried out in VAT neutrality, in cases where these transactions are of a purely financial nature and designed to increase the taxpayer’s liquidity, while the buildings at issue remain in the possession of the taxpayer, which continues to use them in an uninterrupted and permanent manner for the purposes of its taxable transactions.