KHO treats leasing and device-cover service as one taxable supply

A Oy provides leasing arrangements for movable capital goods. It buys the equipment, sells the devices and the taxable leasing contracts to a financing bank, and the customer pays the taxable monthly leasing rent to the bank. A Oy remains obliged as a rule to buy the devices back at an agreed price when the lease term ends, and a significant part of its turnover comes from reselling returned equipment.

Most contracts require the customer to keep the leased devices insured during the lease term. The customer may arrange the insurance itself or take A Oy's device-protection service (laiteturvapalvelu), under which A Oy undertakes to cover sudden and unforeseeable direct device damage on agreed terms. A Oy itself insures the devices through an insurer: it is the policyholder and the insured, the insurer has no contract with the end customer, and A Oy does not act as an insurance agent, market the insurer's policy or disclose its pricing.

The cost of the cover is not passed on as such. Under the contract between A Oy and the insurer, A Oy may not charge the premium through to the customer as a separate item or state its amount on the invoice. Instead A Oy prices the cover with a margin into the leasing rental coefficient, so the customer pays for it as part of the monthly rent. A Oy may also collect a deductible share from the customer. When damage occurs, the customer notifies A Oy, which tells the customer whether the event falls within the device cover.

Korkein hallinto-oikeus held that using the device-protection service is legally characterised as the risk remaining to a significant degree with A Oy itself in the relationship between A Oy and its customerFinlex. In the relationship between A Oy and its customer, the risk (vaaranvastuu) remains to a significant degree with A Oy itself: the service is a sharing of vaaranvastuu between lessor and lessee, not separate insurance or reinsurance business, even though it matters to the lessee much as taking out insurance would. The leasing service and the device-protection service therefore form one single taxable supplyFinlex, and splitting them apart would be artificial.

The distinction from the Court of Justice's BGZ Leasing judgment (C-224/11) is decisive. There the lessor took out the insurance and charged the costs on to the lessee unchanged, so the insurance performance reached the customer unaltered. Here the device-protection terms have no connection to the terms A Oy agreed with the insurer, and the insurance costs are not invoiced as such but absorbed into the rental coefficient. The Court's reasoning, which assumes pass-through of identical costs, cannot be applied where the amount charged to the lessee exceeds what the insurer charged the lessor.

Because the device-protection service is part of taxable service sales, the costs of repairing a device damaged during the lease term or acquiring a new replacement device relate directly and immediately to taxable supplies within the meaning of section 102(1)(1) of the ArvonlisäverolakiFinlex. A Oy may therefore deduct the VAT included in those costsFinlex. Selling the devices and the taxable leasing contracts to the financing bank does not change this: costs arising only after the sale are still attributed to the taxable sale price of the devices, so the sale does not affect the deduction right.

Legal basis: Arvonlisäverolaki (1501/1993) 1 section 1 subsection paragraph 1, 44 section 1 subsection and 102 section; Council Directive 2006/112/EC, Article 135(1)(a); Court of Justice judgment in C-224/11, BGZ Leasing; cf. KHO 2000:20.