A firm of solicitors (taxpayer) rented offices in London, and the lease agreement provided for three “rents”—
- For occupying the premises
- For insuring the building (as a share of the cost)
- For certain services (e.g., water, heating, structural repair, cleaning and security) that must be provided by the landlord
The landlord did not “opt to tax” and thus was not charging VAT on any part of the rents, including the services.
The taxpayer sought to reclaim VAT on the services on the basis that the services for which the “service charge” relates were taxable transactions. HM Revenue & Customs rejected this claim on the grounds that the letting of the property and the provision of the services constituted a single exempt supply.
The case was referred to the CJEU for resolution as to whether there was a single exempt supply or whether the services were separate supplies of taxable services.
The CJEU found the mere fact that services were included in a lease was not decisive, but that “…the inclusion of services in the lease in question supports the view that there is a single supply” and that “…the obtaining of the services in question does not…appear to constitute an end in itself for the tenant.”
The court considered “…the fact that a third party could in principle supply certain services…is not decisive in itself either.”
With regard to the potential for apportionment, the court concluded that an apportionment is to be made in a case when there is single payment that covers an exempt principal supply and other “independent supplies” that are taxable.
Although referring the question back to the national court, the court concluded that:
…the leasing of immovable property and the supplies of services linked to that leasing…may constitute a single supply from the point of view of VAT. The fact that the lease gives the landlord the right to terminate it if the tenant fails to pay the service charges supports the view that there is a single supply, but does not necessarily constitute the decisive element.
The court also considered that, in principle, the fact that certain services (e.g., cleaning) could be provided by a third party does not mean that they cannot be part of a single supply when, as in this case, they were supplied by the landlord.
Read a September 2012 report [PDF 43 KB] prepared by the KPMG member firm in the UK: Field Fisher Waterhouse v HMRC (Case C-392/11) ECJ Judgment Released