Assignment of the contractual position: a supply of services subject to VAT
According to the AT’s position, the onerous assignment of a contractual position under a financial lease agreement, without transfer of the property, constitutes a supply of services for VAT purposes, pursuant to Article 4(1) of the Portuguese VAT Code (CIVA).
Indeed, since it is a transaction carried out for consideration which does not constitute a supply of goods, an intra-Community acquisition or an importation, it falls within the residual definition of a supply of services provided for under the CIVA.
In this context, the assignment of the contractual position should not be confused with a transfer of ownership of the property covered by the financial lease agreement. What is transferred is the lessee’s legal position, whereby the assignee assumes the rights and obligations arising from the agreement, subject to the lessor’s authorization.
Taxable amount and VAT rate
Pursuant to Article 16(1) of the CIVA, the taxable amount of the transaction corresponds, as a rule, to the amount of the consideration received or to be received by the assignor.
The transaction is subject to the standard VAT rate, pursuant to Article 18(1)(c) of CIVA.
Therefore, the fact that the transaction is related to real estate does not determine the application of the exemption regime applicable to certain real estate transactions. In the case analyzed, the transaction concerns the assignment of the lessee’s contractual position, and not the transfer of ownership of the property.
Consequently, the assignment constitutes a supply of services subject to and not exempt from VAT.
Right of the assignee to deduct VAT
The AT also analyzed whether the entity acquiring the contractual position may deduct the VAT charged by the assignor.
Pursuant to Article 19(1)(a) of the CIVA, in conjunction with paragraph 2 thereof, taxable persons may deduct VAT due or incurred on the acquisition of goods and services from other taxable persons, provided, among other requirements, that such VAT has been legally charged and is stated on an invoice issued in accordance with the applicable legal requirements.
Furthermore, Article 20(1)(a) of the CIVA provides that only VAT incurred on goods and services used for the purposes of carrying out taxable and non-exempt transactions gives rise to a right of deduction.
In the case analyzed, the assignee carries out exclusive transactions subject to VAT which confers a right to deduction, and the property covered by the financial lease will be used during such activity.
In these circumstances, the AT concludes that the VAT charged by the assignor on the assignment of the contractual position is deductible by the assignee, provided that the VAT is legally due, is properly documented by an invoice issued in accordance with Articles 29 and 36 of the CIVA, and the other legal requirements applicable to the exercise of the right of deduction are met.
Key conclusions
The onerous assignment of a contractual position under a real estate financial lease agreement constitutes a supply of services for VAT purposes;
The transaction is, in principle, subject to VAT at the standard rate and is not exempt;
The taxable amount corresponds to the consideration received or to be received by the assignor;
The transaction does not constitute a transfer of the property, but rather the transfer of the lessee’s contractual position;
VAT incurred by the assignee may be deductible, provided that the assignee uses the property during taxable transactions that confer a right to deduction;
The exercise of the right to deduction is subject, among other requirements, to the VAT being legally due and stated on an invoice issued in accordance with the applicable legal requirements.
Belzuz Abogados, S.L.P. can assist you with the correct VAT qualification of transactions, which is essential to ensure proper compliance with invoicing and VAT charging obligations while, at the same time, safeguarding the exercise of the corresponding right to deduc