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In an update to BOI-TVA-CHAMP-10-10-40-10 on July 8, 2026, the tax authorities have reaffirmed their long-standing position: the handover of an asset under a leasing or hire-purchase agreement does not constitute a supply of goods, but rather a rental, potentially followed by a supply of goods if the purchase option is exercised.
The same update removes, without comment, the paragraph regarding the taxation of compensation for the requisition of movable property.
This reaffirmation takes on particular significance in the current context.
Since 2017, the Court of Justice has held that a lease agreement with a purchase option constitutes a supply of goods upon physical handover when exercising the option is the "only economically rational choice" for the lessee (CJEU, Oct. 4, 2017, Case C-164/16, Mercedes-Benz Financial Services UK), and Article L. 211-36 of the Code of Taxes on Goods and Services (CIBS), resulting from the VAT recodification, precisely codifies this criterion.
This publication coincides with the entry into force of Book II of the CIBS, which was previously announced for September 1, 2026, but is now expected to be postponed to January 1, 2027.
An amending ordinance is expected in the coming days.
In this context, the unreserved republication of the traditional doctrine may not be mere inertia: it could signal that the Tax Legislation Directorate (DLF) intends to use the amending ordinance to revisit the codification of the Mercedes-Benz criterion, either directly within the CIBS or by providing taxpayers with protection that can be invoked through official guidance.
On July 8, 2026, the tax authorities published a new version of BOI-TVA-CHAMP-10-10-40-10 regarding the supply of tangible movable property.
Under the heading of "transactions not treated as supplies of goods", paragraph 100 confirms established French policy: the transfer of property, whether movable or immovable, under a leasing contract governed by Articles L. 313-7 et seq. of the Monetary and Financial Code or a hire-purchase agreement is not considered a supply of goods.
According to the authorities, these contracts are analyzed as "a lease accompanied by a simple option for the lessee to purchase at an agreed price that takes into account, at least in part, the payments made as rent" .
The transaction is therefore treated as a lease followed, where applicable, by a supply occurring at the time the option is exercised, with the authorities specifying that the purchaser is not necessarily the former lessee.
Upon sale, the lessor is deemed to be disposing of a used asset that was used for business purposes. In the case of real estate, the transfer is subject to VAT by default, except when it involves a building completed more than five years ago or land other than building land, in which case it benefits from the exemption under Article 261(5) of the French General Tax Code (subject to the option provided for in Article 260(5 bis) of the same code).
Note: the same update removes the paragraph stating that "indemnities received in consideration for the requisition of movable property by public authorities are subject to VAT, even if the amount of these indemnities does not correspond exactly to the commercial value of the goods in question".
This removal, made without explanation, deprives the doctrine of a long-standing assertion whose alignment with Article 14(2)(a) of Directive 2006/112/EC (transfer of ownership by virtue of a requisition made by public authorities in return for compensation) remained rudimentary. We can cautiously conclude that the authorities no longer wish to commit to this position in this commentary.
Article 14(2)(b) of Directive 2006/112/EC treats as a supply of goods "the actual handing over of goods pursuant to a contract for the hire of goods for a certain period or for the sale of goods on deferred terms which provides that ownership shall pass at the latest upon payment of the final instalment".
In other words, a lease can be treated as a supply of goods as soon as the asset is handed over: this classification triggers VAT liability at the time of delivery.
When asked about the scope of these terms, the Court of Justice ruled that they apply "to a standard hire-purchase agreement where it can be inferred from the financial terms of the contract that exercising the option appears to be the only economically rational choice the lessee will be able to make at the appropriate time if the contract is performed to its term, which it is for the national court to verify" (CJEU, 1st Chamber, Oct. 4, 2017, Case C-164/16, Mercedes-Benz Financial Services UK Ltd).
Two cumulative conditions emerge from the ruling:
Conversely, the Court preserved the classification of a supply of services for contracts that leave the lessee with a genuine alternative: in the main proceedings, the "Agility" contract, for which the lease payments represented only about 60% of the vehicle's price and for which the option, amounting to about 40%, was exercised by only half of the lessees, thus avoided being classified as a supply of goods.
National case law has adopted this interpretation without it being taken up by the tax authorities.
In a judgment dated June 16, 2020, the Bordeaux Administrative Court of Appeal ruled, regarding a lease for a ship, that since the sum of the installments exceeded the market value of the asset, exercising the option constituted the lessee's only economically rational choice, such that the provision of the ship in France had to be regarded as a supply of goods, making VAT payable upon physical delivery with the associated territoriality consequences (CAA Bordeaux, June 16, 2020, No. 18BX02182, Sté Bonita).
The tax authorities, for their part, have never commented on the Mercedes-Benz ruling: not in 2017, not during the successive updates of the BOFiP, and not in the version dated July 8, 2026.
This results in a well-known asymmetrical situation: taxpayers can rely, on the basis of Article L. 80 A of the Tax Procedures Code, on doctrine that is more favorable than hard law, while EU case law " enters the discussion " when the classification of a supply of goods serves their interests instead.
Ordinance No. 2025-1247 of December 17, 2025, which recodifies VAT within Book II of the CIBS, includes a substantial innovation on this point.
Under the terms of Article L. 211-36 of the CIBS:
When a transfer of ownership is deferred until full payment of the consideration, the supply of goods is deemed to take place upon the physical delivery of those goods.
Such a deferral also includes the acquisition of ownership upon payment of the final installment of a contract for the provision of goods, where such acquisition results automatically from the terms of the contract or from the absence of any economically rational alternative.
The first paragraph refers to installment sales subject to a retention of title clause.
The second paragraph faithfully transposes the Mercedes-Benz ruling. Goods made available under a contract where the transfer of ownership results either automatically from its terms or from the absence of an economically rational alternative for the lessee would be deemed supplied upon their physical delivery.
For certain leasing and hire-purchase contracts (particularly where the option price is nominal or the cumulative rent payments cover most of the asset's value), physical delivery would thus trigger a taxable supply on the total price.
The consequences would be significant:
This is where the timeline becomes critical.
The entry into force of Book II of the CIBS, initially set for September 1, 2026, by Article 49 of the ordinance, has now been publicly announced as postponed to January 1, 2027, and an amending ordinance (intended to correct certain elements) is expected in the coming days.
The recodification was presented as being carried out "at constant law": substantive rules were not intended to be changed.
It is clear that the second paragraph of Article L. 211-36, by reclassifying as a supply of goods contracts that established administrative doctrine and market practice treat as leases, alters a practice accepted by the Tax Legislation Directorate (DLF).
In this context, the reaffirmation on July 8, 2026, of the traditional analysis of leasing and hire-purchase, without any reservation or reference to the CIBS, can be read as a signal:
This latter interpretation is the one to adopt: the tax authorities intend to secure ongoing operations whenever there are implications for the duration of existing contracts, such as in real estate or aircraft leasing (planes, helicopters).
Two interpretations of the July 8 update are therefore available to the reader.
The first views it as a simple renewal by inertia, eight and a half years after the Mercedes-Benz ruling, of a doctrine that codification would have rendered obsolete (and one might then regret the BOFiP's persistent silence on the EU criteria).
The second, which we believe is more plausible given the context, sees it as a deliberate act: by republishing its traditional doctrine on the eve of an amending ordinance, the administration is signaling its intention to maintain the current regime under the aegis of the doctrine to secure ongoing contracts until a genuine transitional doctrine is put in place to clarify the impacts on existing contracts.
Pending the amending ordinance, it is prudent to wait until the end of July to determine which VAT treatment will apply to leasing and hire-purchase contracts from 2027 onwards.
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