Main differences betweenMain differences betweenoperating leasingoperating leasing
and pure rental*and pure rental*
*connectedthinking
Catalin AlexandruCatalin Alexandru
Lawyer, D&B David si BaiasLawyer, D&B David si Baias
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 219 October 2005
Contents
Preliminary comments
Distinction criteria between operating leasing and pure rental
Legal consequences
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 319 October 2005
Preliminary comments
Designed to satisfy similar economic needs
Similar CAEN codes
Do rules governing the rental agreement apply to operating leasing ?
– Broad definition of the rental agreement in the Civil Code
– Draft Civil Code
– Recommended approach - separate agreements with separate rules under the legislation in force
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 419 October 2005
Distinction criteria
Title of the agreement – not binding on the court (merely indicative)
Option right
Essential element of any leasing agreement under Romanian law
Distinction between option right and the first refusal right occasionally included in rental agreements
The option right is compatible with pure rental
The lessor – always a leasing company in operating leasing
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 519 October 2005
Distinction criteria
Term of the agreement – minimum 1 year for operating leasing agreements
Scope of the agreement – restrictions for operating leasing
audio and video recordings, plays, manuscripts, patents and copyright, save for computer programmes
“durable assets” – property capable of being depreciated
Other criteria
The parties’ references to specific legal provisions
Computation of consideration
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 619 October 2005
Legal consequences
Lessor’s obligations
Delivery obligation
Operating leasing – the lessor is not liable for failure to deliver – even though the law refers only to financial
leasing, it also applies to operating leasing
Rental – the landlord is liable for failure to deliver
Warranties
Operating leasing – the lessor warrants the quiet use of the leased asset, provided that the lessee has
observed all the clauses of the agreement
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 719 October 2005
Legal consequences
Lessor’s obligations
Warranties (cont.)
Operating leasing
Is the lessor liable for hidden defects in the leased asset ?
Rental
The landlord warrants both the quiet use of the assets and their conformity
Obligation to maintain the asset fit for use
Operating leasing – not applicable (the lessee may bring a court action against the supplier)
Rental – applicable
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 819 October 2005
Lessee’s obligations
Use of the asset
Operating leasing
Use in accordance with the supplier’s instructions
Rental
Use in accordance with the purpose of the asset
Return of the asset
Operating leasing– subject to lessee’s option right
Rental – mandatory unless the landlord agrees otherwise
Legal consequences
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 919 October 2005
Legal consequencesOther consequences
Writ of execution
Operating leasing
Writ of execution in respect of lessee’s obligation to return the leased asset
Writ of execution for movable assets under Law No. 99/1999 (Title VI)
Writ of execution if concluded before a notary public and ascertains a receivable that is documented, determined/determinable and due for payment (less practical)
Rental
Writ of execution for movable assets under Law No. 99/1999 (Title VI)
Writ of execution if concluded before a notary public and ascertains a receivable that is documented, determined/determinable and due for payment
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 1019 October 2005
Legal consequences
Other consequences
Contract risk
Operating leasing – under the law, the lessee should bear the risk of loss, destruction and damage to the leased asset and continue to pay the leasing installments – inconsistent with the definition of financial leasing
– should not apply to operating leasing
Rental – the tenant is no longer required to pay rent for the period following destruction of the rented asset
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 1119 October 2005
Legal consequences
Termination
Bankruptcy proceedings against the lessee
Operating leasing – the lessor is entitled to terminate the agreement – leasing legislation departs from the
bankruptcy legislation
Rental – the landlord is not entitled to terminate the agreement
– the parties may stipulate automatic termination
Failure to pay the leasing installments / rent
Operating leasing – the lessee must have failed to pay the leasing rate for at least two consecutive months
Rental – the court may assess the extent of the breach
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 1219 October 2005
Legal consequences
Termination
Damages in the event of termination / breach
Operating leasing – liquidated damages in the event of lessor’s failure to observe the lessee’s option right
Rental – liquidated damages where the rental agreement is terminated as a result of the
tenant’s breach
Leasing – Movable goods and Leasing – Movable goods and means of transportmeans of transport * *
*connectedthinking
Cristian RadulescuCristian Radulescu
Assistant Manager, PricewaterhouseCoopersAssistant Manager, PricewaterhouseCoopers
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 1419 October 2005
Current treatment:
• Supply of services
• Split of capital from interest
• VAT applies to capital element at the VAT rate for goods
• VAT does not apply to the finance element
• VAT is deductible
• Account for VAT at time of instalments
EU Accession
Supply of services – main rule
May be deemed as delivery of goods
Case by case analysis of the leasing contract
VAT Standard rated
Treatment unclear and varies between countries
Supply of services vs. delivery of goods
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 1519 October 2005
Country Supply of services Delivery of goods Austria Leasing – VAT under reverse charge Belgium Operational and financial leasing Purchase and rental contracts Czeck Republic
Operational leasing (the user does not have the option to buy)
Financial leasing (the user has the option to buy)
France Leasing with/without option to buy The selling of vehicles and the transfer of ownership (including the case where that transfer occurs at the moment of the final payment)
Germany Leasing – when the vehicle is part of the lessor’s assets
Leasing – when the vehicle is part of the lessee’s assets
Hungary If the transfer of ownership to the vehicle is optional and occurs as a result of a mutual agreement between the parties
If ownership will be automatically transferred in the future
Italy Financial and operational leasing The Netherlands
Operational leasing Financial leasing contracts and rental – purchase contracts
Spain Leasing with an option to buy at the end of the contract up to the moment the vehicle is actuallybought
Leasing with a mandatory option to buy at the end of the contract. The exertion of the option to buy the vehicle, mentioned in the leasing contract.
Sweden Leasing The purchase of the vehicle as a result of a leasing contract
Supply of services vs. delivery of goods in different EU countries
(*) VAT treatment for leasing of means of transport
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 1619 October 2005
Cross border leasing
Current treatment
Cross-border leasing + option to buy => importation by the beneficiary
EU Accession
Cross-border leasing + option to buy =>
1) within the Community
Intra-Community acquisition by the leasing company
Obligation to register for VAT purposes
2) with parties outside the Community
Importation
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 1719 October 2005
Place of supply
Current treatment
Leasing of:
movable tangible property – where the beneficiary is located
immovable property – where the property is located
EU Accession
New rules:
movable tangible property except means of transport – where the beneficiary is located
means of transport – where the supplier is located
immovable property – where the property is located
Use & enjoyment for leasing transactions with non-EU parties
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 1819 October 2005
Place of deliveryCurrent treatment
Transport – where the goods are when the transport begins
No transport – where the goods are put at the disposal of the client
Installation – where the installation is carried out
EU Accession
Transport – where the goods are when the transport begins
No transport – where the goods are put at the disposal of the client
Installation – where the installation is carried out
Distance sales
1. where transport ends (>threshold / option)
2. Where transport begins (<threshold)
Excise goods & new means of transport– where transport ends
Second-hand scheme – MS of origin
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 1919 October 2005
Compliance
Current treatment
VAT return
VAT purchase ledger
VAT sales ledger
EU treatment
Register of non-transfers
Recapitulative statement for intra –Community deliveries and acquisitions
A list of capital goods subject to adjustment (e.g. fixed assets)
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 2019 October 2005
LOCALLOCALSUPPLIERSUPPLIER
L – LOCAL L – LOCAL LEASINGLEASING
COMPANYCOMPANY
ROMANIAN ROMANIAN CLIENTCLIENT
service
supply of goods
ROMANIA
Local Leasing – movable goods
2 operations:
Leasing – service: VAT on each installment
Financial VAT both on principal and interest;
Operational VAT on lease installment;
Local supply of goods at the end of the leasing contract (if option exercised) VAT on residual value.
NEW
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 2119 October 2005
supply of goods
RO
EU EU SUPPLIERSUPPLIER
L – LEASINGL – LEASING COMPANYCOMPANY
CLIENTCLIENTservice
HU
ICD ICA
Delivery
3 operations:
Intracommunity acquisition (ICA) in RO / VAT R/C;
Leasing - service: VAT on each installment
Local supply at the end of the contract (if option exercised)
VAT on residual value.
NEW
Local Leasing – movable goods
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 2219 October 2005
RORO
FOREIGN FOREIGN SUPPLIERSSUPPLIERS(outside EU) (outside EU)
L – LEASINGL – LEASING COMPANYCOMPANY
CLIENTCLIENTservice
supply of goods
TRTR
export import
Local Leasing – movable goods
3 operations:
Import by L
Import duties (import VAT, customs duties) at the moment of import
Leasing - service: VAT on each installment
Local supply at the end of the contract (if option exercised) VAT on residual value.
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 2319 October 2005
ROMANIAN ROMANIAN CLIENTCLIENT
L – LEASINGL – LEASING COMPANYCOMPANY
RO
EU SUPPLIEREU SUPPLIER
service
supply of goods
HU L’
3 operations:
Leasing - service (except MS where leasing = supply of goods!)
always VAT of country of origin (HU)
VAT registered person refund on 8th Directive, subject to limitation in the
Client country of origin
Non-registered person no refund
If option exercised:
Intracommunity acquisition (ICA) in RO by L / VAT R/C
L registration in RO (L’)
Local supply (no transport)
NEW
NEW
NEW
Cross Border Leasing – Means of transport
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 2419 October 2005
3 operations:
Leasing - service (except for MS where leasing = supply of goods!);
VAT in RO if Romanian client is a taxable person
R/C if Romanian client is a VAT registered person
If option exercised:
Intracommunity acquisition (ICA) in RO by L / VAT R/C
- L registration in RO
Local supply (no transport)
L – LEASINGL – LEASING COMPANYCOMPANY
serviceMOVABLE GOODS MOVABLE GOODS (except for means(except for means
of transport)of transport)
ROMANIAN ROMANIAN CLIENTCLIENTsupply of goods
ROHU
L’
NEW
Cross Border Leasing – Means of transport
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 2519 October 2005
3 operations:
Import performed by L
L registration in RO by FR
Leasing service
Always VAT in RO
Local supply of goods (no transport)
L – LEASINGL – LEASING COMPANYCOMPANY
ROMEANS OF MEANS OF TRANSPORTTRANSPORT
ROMANIAN ROMANIAN CLIENTCLIENT
service
supply of goods
TR L’
NEW
NEW
Cross Border Leasing – Means of transport
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 2619 October 2005
service
L – LEASINGL – LEASING COMPANYCOMPANY
MOVABLE GOODS MOVABLE GOODS (except for means(except for means
of transport)of transport)
ROMANIAN ROMANIAN CLIENTCLIENTsupply of goods
ROTR
L’
NEW
Cross Border Leasing – Means of transport excepts means of transport
3 operations:
Import performed by L
L registration in RO by FR
Leasing service
VAT in RO if Romanian client is a taxable person
R/C if Romanian client is a VAT registered person
Local supply of goods (no transport)
NEW
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 2719 October 2005
PricewaterhouseCoopers services
Training
Pre-accession review (tailored training included)
Pre-accession Forum
Main differences between operating leasing and pure rental PricewaterhouseCoopersD&B David si Baias
Slide 2819 October 2005
Your worlds Our people
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