Pw C Main differences between operating leasing and

Pw. C Main differences between operating leasing and pure rental* Catalin Alexandru Lawyer, D&B David si Baias *connectedthinking

Contents Ø Preliminary comments Ø Distinction criteria between operating leasing and pure rental Ø Legal consequences Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 2 19 October 2005

Preliminary comments Ø Designed to satisfy similar economic needs Ø Similar CAEN codes Ø 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 Pricewaterhouse. Coopers D&B David si Baias Slide 3 19 October 2005

Distinction criteria Ø Title of the agreement – not binding on the court (merely indicative) Ø Option right Ø Essential element of any leasing agreement under Romanian law Ø Distinction between option right and the first refusal right occasionally included in rental agreements Ø The option right is compatible with pure rental Ø The lessor – always a leasing company in operating leasing Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 4 19 October 2005

Distinction criteria Ø Term of the agreement – minimum 1 year for operating leasing agreements Ø Scope of the agreement – restrictions for operating leasing Ø audio and video recordings, plays, manuscripts, patents and copyright, save for computer programmes Ø “durable assets” – property capable of being depreciated Ø Other criteria Ø The parties’ references to specific legal provisions Ø Computation of consideration Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 5 19 October 2005

Legal consequences Lessor’s obligations Ø Delivery obligation Ø 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 Ø Rental Ø – the landlord is liable for failure to deliver Warranties Ø 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 Pricewaterhouse. Coopers D&B David si Baias Slide 6 19 October 2005

Legal consequences Lessor’s obligations Ø Warranties (cont. ) Ø Operating leasing Ø Is the lessor liable for hidden defects in the leased asset ? Ø Rental Ø The landlord warrants both the quiet use of the assets and their conformity Ø Obligation to maintain the asset fit for use Ø Operating leasing – not applicable (the lessee may bring a court action against the supplier) Ø Rental – applicable Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 7 19 October 2005

Legal consequences Lessee’s obligations Ø Use of the asset Ø Operating leasing Ø Use in accordance with the supplier’s instructions Ø Rental Ø Use in accordance with the purpose of the asset Ø Return of the asset Ø Operating leasing– subject to lessee’s option right Ø Rental – mandatory unless the landlord agrees otherwise Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 8 19 October 2005

Legal consequences Other consequences Ø Writ of execution Ø Operating leasing Ø Writ of execution in respect of lessee’s obligation to return the leased asset Ø Writ of execution for movable assets under Law No. 99/1999 (Title VI) Ø Writ of execution if concluded before a notary public and ascertains a receivable that is documented, determined/determinable and due for payment (less practical) Ø Rental Ø Writ of execution for movable assets under Law No. 99/1999 (Title VI) Ø 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 Pricewaterhouse. Coopers D&B David si Baias Slide 9 19 October 2005

Legal consequences Other consequences Ø Contract risk Ø 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 Ø 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 Pricewaterhouse. Coopers D&B David si Baias Slide 10 19 October 2005

Legal consequences Termination Ø Bankruptcy proceedings against the lessee Ø Operating leasing – the lessor is entitled to terminate the agreement – leasing legislation departs from the bankruptcy legislation Ø Rental – the landlord is not entitled to terminate the agreement – the parties may stipulate automatic termination Ø Failure to pay the leasing installments / rent Ø Operating leasing – the lessee must have failed to pay the leasing rate for at least two consecutive months Ø Rental – the court may assess the extent of the breach Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 11 19 October 2005

Legal consequences Termination Ø Damages in the event of termination / breach Ø Operating leasing – liquidated damages in the event of lessor’s failure to observe the lessee’s option right Ø Rental – liquidated damages where the rental agreement is terminated as a result of the tenant’s breach Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 12 19 October 2005

Pw. C Leasing – Movable goods and means of transport * Cristian Radulescu Assistant Manager, Pricewaterhouse. Coopers *connectedthinking

Supply of services vs. delivery of goods Current treatment: EU Accession • Supply of services Ø Supply of services – main rule • Split of capital from interest Ø May be deemed as delivery of goods • 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 Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Ø Case by case analysis of the leasing contract Ø VAT Standard rated Ø Treatment unclear and varies between countries Slide 14 19 October 2005

Supply of services vs. delivery of goods in different EU countries Main differences between operating leasing and pure rental Pricewaterhouse. Coopers (*) VAT treatment for leasing D&B David si Baias of means of transport Slide 15 19 October 2005

Cross border leasing Current treatment EU Accession Cross-border leasing + option to buy => 1) within the Community Cross-border leasing + option to buy => importation by the beneficiary Ø Intra-Community acquisition by the leasing company Ø Obligation to register for VAT purposes 2) with parties outside the Community Ø Importation Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 16 19 October 2005

Place of supply Current treatment EU Accession Leasing of: New rules: Ø movable tangible property – where the beneficiary is located Ø movable tangible property except means of transport – where the beneficiary is located Ø immovable property – where the property is located Ø means of transport – where the supplier is located Ø immovable property – where the property is located Ø Use & enjoyment for leasing transactions with non-EU parties Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 17 19 October 2005

Place of delivery Current treatment EU Accession Ø No transport – where the goods are put at the disposal of the client Installation – where the installation is carried out Ø Distance sales 1. where transport ends (>threshold / option) 2. Ø No transport – where the goods are put at the disposal of the client Ø Ø Ø Transport – where the goods are when the transport begins Where transport begins (<threshold) Ø Ø Installation – where the installation is carried out Ø Excise goods & new means of transport– where transport ends Second-hand scheme – MS of origin Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 18 19 October 2005

Compliance Current treatment EU treatment Ø VAT return Ø Register of non-transfers Ø VAT purchase ledger Ø Recapitulative statement for intra – Community deliveries and acquisitions Ø VAT sales ledger Ø A list of capital goods subject to adjustment (e. g. fixed assets) Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 19 19 October 2005

Local Leasing – movable goods ROMANIA LOCAL SUPPLIER L – LOCAL LEASING COMPANY service supply of goods ROMANIAN CLIENT 2 operations: Ø Leasing – service: VAT on each installment § VAT both on principal and interest; § Ø Financial Operational NEW VAT on lease installment; Local supply of goods at the end of the leasing contract (if option exercised) VAT on residual value. Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 20 19 October 2005

Local Leasing – movable goods RO HU EU SUPPLIER Delivery ICD ICA L – LEASING COMPANY service supply of goods CLIENT 3 operations: NEW Ø Intracommunity acquisition (ICA) in RO / VAT R/C; Ø Leasing - service: VAT on each installment Ø Local supply at the end of the contract (if option exercised) VAT on residual value. Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 21 19 October 2005

Local Leasing – movable goods TR FOREIGN SUPPLIERS (outside EU) RO export import L – LEASING COMPANY service supply of goods CLIENT 3 operations: Ø Import by L Import duties (import VAT, customs duties) at the moment of import Ø Leasing - service: VAT on each installment Ø Local supply at the end of the contract (if option exercised) residual value. Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias VAT on Slide 22 19 October 2005

Cross Border Leasing – Means of transport HU EU SUPPLIER L’ L – LEASING COMPANY RO service supply of goods ROMANIAN CLIENT 3 operations: Ø Leasing - service (except MS where leasing = supply of goods!) NEW always VAT of country of origin (HU) VAT registered person Client refund on 8 th Directive, subject to limitation in the country of origin Non-registered person NEW no refund If option exercised: Ø Intracommunity acquisition (ICA) in RO by L / VAT R/C L registration in RO (L’) Main differences between operating leasing and pure rental Pricewaterhouse. Coopers Ø D&B David. Local supply (no transport) si Baias NEW Slide 23 19 October 2005

Cross Border Leasing – Means of transport HU MOVABLE GOODS (except for means of transport) RO L – LEASING COMPANY L’ service supply of goods ROMANIAN CLIENT 3 operations: Ø 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: Ø Intracommunity acquisition (ICA) in RO by L / VAT R/C - L registration in RO NEW Main differences between operating leasing and pure rental Ø Local supply (no transport) Pricewaterhouse. Coopers D&B David si Baias Slide 24 19 October 2005

Cross Border Leasing – Means of transport TR MEANS OF TRANSPORT L’ RO service L – LEASING COMPANY supply of goods ROMANIAN CLIENT 3 operations: Ø Import performed by L NEW L registration in RO by FR Ø NEW Leasing service Always VAT in RO Ø Local supply of goods (no transport) Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 25 19 October 2005

Cross Border Leasing – Means of transport excepts means of transport TR RO L’ MOVABLE GOODS (except for means of transport) L – LEASING COMPANY service supply of goods ROMANIAN CLIENT 3 operations: Ø Import performed by L L registration in RO by FR NEW Ø NEW Leasing service VAT in RO if Romanian client is a taxable person R/C if Romanian client is a VAT registered person Ø Local supply of goods (no transport) Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 26 19 October 2005

Pricewaterhouse. Coopers services Ø Training Ø Pre-accession review (tailored training included) Ø Pre-accession Forum Main differences between operating leasing and pure rental Pricewaterhouse. Coopers D&B David si Baias Slide 27 19 October 2005

Your worlds Main differences between operating leasing and pure rental © 2005 Pricewaterhouse. Coopers. All rights reserved. Pricewaterhouse. Coopers refers to the network Pricewaterhouse. Coopers of member firms of Pricewaterhouse. Coopers International Limited, each of which is a separate and independent legal si Baias D&B David entity. * connectedthinking is a trademark of Pricewaterhouse. Coopers. Our people Pw. C Slide 28 19 October 2005