Arbitrage Chris Colford

1. ArbitrageChris Colford 17 February 2011

2. Germany United Kingdom finance lease, not quite an HP agreement Lessor RBS GmbH Lessee Vinci Plc lease covered company cars located in the UK RBS Deutschland Holdings GmbH (C-277/09)

3. A VAT advantage arises because . . . • EU rules granting taxing rights to member states (simplified): • goods are taxed where they are located at the time they are supplied; but • (until 1 January 2010) services default to being taxed where the supplier is located • Leases normally give rise to supplies of services • But HP agreements are treated as sales of goods (plus a provision of credit) • Germany’s definition of HP agreement differed from the UK definition • Possible to design a lease which Germany would see as goods (taxable in the UK) but the UK would see as services (taxable in Germany)

4. United Kingdom Germany finance lease, not quite an HP agreement Lessor Lessee lease covers company cars located in Germany Mirror image of RBS Deutschland Holdings GmbH

5. Other jurisdiction United Kingdom payment is deductible (left) but treated as Payer Recipient of payment capital contribution (right) and so not taxed as income Deliberately vague direct tax example (I am a VAT specialist!)

6. United Kingdom Other jurisdiction ? payment is not deductible (left) because capital contribution Payer Recipient of payment ? and is taxed as income (right) Mirror image of direct tax example