VAT deductibility of corporate welfare services at risk

The answer to the ruling provided by Regional Tax Authority of Lombardy (protocol 956-3420/2021, not yet published) issued useful clarifications regarding the tax treatment of the provision, as part of a company welfare plan, of digital platforms or apps that offer a service for seeking medical services according to the time and place preferences of each employee.

From the point of view of employee income, in view of the health care purpose of the service, full exclusion from the employee’s taxable income was recognized pursuant to article 51, paragraph 2, letter f), of Presidential Decree 917/1986 (Consolidated Income Tax Act).

On the VAT side, on the other hand, the deductibility of the employer’s costs incurred for the service was ruled out, based on two rulings by the Court of Justice of the EU:

• The first linked to the absence of a “direct and immediate link” between the purchase of the service and a specific transaction, on the basis of which, therefore, the VAT on this purchase cannot be deductible since the provision of the service free of charge would constitute an operation excluded from the scope of application of the tax pursuant to article 3, paragraph 3, of the VAT Decree (Presidential Decree 633/72);
• The second, given the costs incurred by the company cannot be included among the overheads and therefore cannot be considered as constituent elements of the final price of the downstream transactions (sale of goods or provision of services) carried out in the course of the economic activity carried out by the employer.

However, the interpretation of the Revenue Agency leaves important doubts, especially regarding the second point: in the jurisprudential pronouncement of the Court of Cassation, order 13/09/18, no. 22332, it was in fact recognized the right to deduct VAT for the purchase of services as part of a corporate welfare program for employees (summer stay children of employees, training also staff of employees of other group companies and transportation of staff), and also the same Agency has in the past recognized the deductibility of VAT on costs for welfare services, considered as costs in any case incidental and inherent to the needs of the company, so it is not clear why it cannot be recognized the deductibility of VAT for health care granted to employees.

It is therefore necessary an immediate response from the Revenue Agency to these important doubts, for the benefit of both providers of welfare services and businesses.

LDP remains at your disposal for any further clarifications