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Finance leases and hire-purchase agreements: French VAT guidance stands firm… Pending the 2027 CIBS

Finance leases and hire-purchase agreements: French VAT guidance stands firm… Pending the 2027 CIBS

Published on : 13/09/2026 13 September Sep 09 2026
Focus

On 8 July 2026, the French tax authorities updated paragraph 100 of BOI-TVA-CHAMP-10-10-40-10, reaffirming that, in the case of finance leases and hire-purchase agreements, the handing over of the asset does not constitute a supply of goods for VAT purposes, but merely the making available of the asset under a leasing arrangement. This position is fully consistent with the authorities’ previous guidance, but conflicts with the case law of the Court of Justice of the European Union (CJEU) and the Bordeaux Administrative Court of Appeal, which treat the handing over of the asset as a supply of goods where exercise of the purchase option is economically inevitable.

From 1 January 2027, Article L. 211-36 of the French Code of Taxes on Goods and Services (CIBS) will enshrine this economic approach in domestic law. CFOs, in-house tax professionals and chartered accountants should therefore already be assessing the practical implications for the classification of transactions and the timing of VAT becoming chargeable.


Administrative guidance confirming the “lease followed by a sale” approach

The French tax authorities had already stated, in their previous guidance on finance leases of movable property, that the handing over of an asset under a finance lease did not constitute a supply of goods. Instead, the transaction was treated as a supply of leasing services, with any subsequent sale occurring only when the purchase option was exercised.
This approach is based on the view that a finance lease is a single, complex contract combining elements of both a lease and, where applicable, a sale, but whose legal and economic core remains the making available of an asset in return for periodic lease payments.

The update of 8 July 2026 to paragraph 100 of BOI-TVA-CHAMP-10-10-40-10 broadens and clarifies this analysis:
  • it confirms that, for both movable property and immovable property, the handing over of an asset under a finance lease or hire-purchase agreement does not constitute a supply of goods for VAT purposes, but forms part of a leasing transaction taxable as a supply of services;
  • where applicable, the supply of goods occurs only when the purchase option is exercised, whether by the original lessee or by a third party;
  • in the case of immovable property, the guidance reiterates that the subsequent sale is subject to the VAT rules applicable to property sales (mandatory taxation for new buildings, exemption with an option to tax for old buildings or land other than building land), consistently with the general rules governing VAT on immovable property;
  • where the subject matter of the contract is not tangible property—for example, a business as a going concern or a bundle of intangible rights—the transaction is classified as a supply of services for VAT purposes.


Growing tension with CJEU case law and the Bordeaux Administrative Court of Appeal

The French administrative guidance does not address the CJEU judgment of 4 October 2017 in Case C-164/16 concerning Article 14(2)(b) of the VAT Directive. The Court held that a lease agreement containing a purchase option must be classified as a supply of goods upon the physical handing over of the asset where, having regard to the financial terms of the agreement, exercising the option appears to be the only economically rational choice available to the lessee when the agreement comes to an end.
This judgment expressly challenges the French administrative position, which excludes, as a matter of principle, classification as a supply of goods upon the handing over of movable property under a finance lease.

French case law has taken this development into account. In its judgment of 16 June 2020, No. 18BX02182, Sté Bonita, the Bordeaux Administrative Court of Appeal applied the principles established by the CJEU to a finance lease relating to a vessel:
  • having found that the total present value of the lease payments exceeded the asset’s market value excluding VAT, the Court held that exercising the purchase option was the only economically rational choice available to the lessee;
  • it therefore concluded that the initial making available of the vessel had to be treated as a supply of goods within the meaning of Article 14 of Directive 2006/112/EC, with VAT becoming chargeable upon the physical handing over of the asset;
  • consequently, the sale occurring two years later did not constitute a new supply for VAT purposes. This made it possible to establish that the transaction was located in France for VAT purposes and that the VAT initially invoiced was deductible, even though the asset was outside the European Union when the purchase option was exercised.

This case law therefore directly challenges the proposition that the handing over of an asset under a finance lease is, by its very nature, outside the concept of a supply of goods. Where exercise of the purchase option is economically inevitable, the transaction must be classified as a supply of goods from the time the asset is handed over, with the lease effectively constituting a means of financing the acquisition.

By reaffirming in paragraph 100 of BOI-TVA-CHAMP-10-10-40-10 that the handing over of the asset does not constitute a supply of goods, the French administrative guidance therefore stands in tension with this economic interpretation of the VAT Directive.


Article L. 211-36 CIBS: future statutory recognition of the economic approach

From 1 January 2027, Article L. 211-36 CIBS will introduce into French domestic law a rule governing the classification of supplies of goods that reflects the approach developed by the CJEU:
  • a supply of goods will be deemed to take place upon the physical handing over of the asset where the transfer of ownership is deferred until full payment of the consideration; or
  • where acquisition of ownership following payment results automatically from the terms of the contract or from the absence of any economically rational alternative for the lessee.

Applied to finance leases and hire-purchase agreements, this provision will, in many cases, result in the transaction being treated as a supply of goods from the time the asset is made available where the economic structure of the agreement makes exercise of the purchase option virtually inevitable—for example, where the aggregate lease payments and residual purchase price are such that failure to exercise the option would make no economic sense.

This approach is consistent with the analysis adopted by the Bordeaux Administrative Court of Appeal and, more broadly, by the CJEU in relation to leases containing a purchase option. It nevertheless departs from the current French administrative guidance, which continues to treat a finance lease as a lease followed, potentially, by a separate sale.

For practitioners, there are two key issues:
  • upstream, the contractual structuring of finance leases and hire-purchase agreements will need to take account of this “economically rational option” test in determining whether the transaction constitutes a supply of goods upon the handing over of the asset or a genuine supply of leasing services;
  • downstream, the timing of VAT becoming chargeable, the determination of the place of taxation and, where applicable, the scope of input VAT deduction rights will need to be reassessed in light of this new statutory definition, particularly for cross-border transactions or transactions involving high-value assets such as vessels, aircraft and immovable property.


Practical Conclusion – Key Points for Practitioners
 
  • Assess the economic substance of the agreement: for each finance lease or hire-purchase agreement, determine whether the purchase option is genuinely optional or whether, having regard to the lease payments and residual purchase price, exercising it appears to be the only economically rational choice.
  • Anticipate the impact of the CIBS from 1 January 2027: the rule under which a supply is deemed to occur upon the handing over of the asset where the transfer of ownership is economically inevitable should already be factored into contract drafting and VAT cash-flow modelling.
  • Secure the VAT chargeability timeline: for high-value transactions involving vessels, aircraft, immovable property or heavy equipment, document the economic analysis supporting—or rejecting—classification as a supply of goods upon the handing over of the asset, so that the position adopted can be defended in the event of a tax audit.
  • Monitor developments in administrative guidance: the reaffirmation of the French tax authorities’ position in paragraph 100 of BOI-TVA-CHAMP-10-10-40-10 does not preclude subsequent updates to reflect CJEU case law and the entry into force of the CIBS. Continued monitoring is therefore essential.
  • Assess litigation risks: in cross-border or complex arrangements, the divergence between French administrative guidance and EU law may result in reclassification, particularly as regards the place of taxation and input VAT deduction rights. A case-by-case analysis is therefore recommended.

We remain at your disposal to review your particular circumstances and advise you on this complex issue.
 
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