Secondment of personnel and VAT treatment – Judgment of the Court of Justice of the
E.U. 11/03/2020 n. C-94/19
“San Domenico Vetraria S.p.A.”
Introduction
This circular provides information on the contents of the sentence indicated in the epigraph, as well as some considerations on the effects that the ruling could have on the contracts of secondment in existence and on those that will have to be concluded in the future.
Judgment of the Court of Justice of the EU 11/03/2020 n. C-94/19
The Court of Justice has ruled that paragraph 35 of art. 8 of Law n. 67/1988, which excludes from being subject to VAT “[…] loans or secondments of personnel for which only the refund of the relative cost is paid”, when the loan or secondment constitutes an exchange of services between the parties.
The Luxembourg judges ruled on a case in which the recharging for the posting of personnel coincided with the cost of the posted worker and VAT was applied on that recharged amount . The relative right of deduction, claimed by the seconding company, was contested during the assessment, by the Italian Financial Administration, pursuant to the aforementioned art. 8, co. 35. This provision expressly states that “[…] the secondments of personnel for which only the refund of the relative cost is paid are not relevant for value added tax purposes “.
The subsequent action, promoted by the Italian company, led to the intervention of the Court of Justice. The judgment C-94/19 established that the Italian provision in that case was incompatible with EU law; in their argumentative path, European judges have investigated whether the posting could constitute a “provision of services” for VAT purposes. In the case of an affirmative answer, in fact, this shop must be qualified as taxable VAT.
Briefly, the Court states that ‘there shall be provision of services’ where, by virtue of a shop for consideration, there is an exchange of services between them; therefore it concludes that this exchange can well be seen in the present case where one party undertakes to carry out the secondment of staff, the other party undertakes to pay, in return for the secondment, an amount of money (which incidentally coincides with the ‘cost price’ incurred by the seconding party).
Having considered this , the Court declares that: “art. 2, point 1, sixth Council Directive 77/388 / EEC of 17 May 1977 […] must be interpreted as meaning that it precludes national legislation under which they are not considered relevant for the purposes of value added the loans or secondments of personnel of a parent company to its subsidiary, against which only the refund of the relative cost is paid, provided that the amounts paid by the subsidiary in favor of the parent company, on the one hand, and these loans or secondments, on the other hand, are mutually dependent ”, that is to say they constitute respectively the performance and the consideration of a synallagmatic relationship.
The aforementioned sentence introduces elements of significant novelty regarding the applicability of VAT to secondments of personnel with refund at mere cost. In fact, it effectively replaces the regime of irrelevance for VAT purposes (envisaged by article 8, paragraph 35 of Law no. 67/1988) with taxability, obviously on condition that the posting qualifies as a contract for consideration.
On the basis of the foregoing , this judgment has, according to the doctrine, limited direct effects in our legal system, as the Italian tax authorities are not allowed to apply it directly; in fact, they cannot exceed the literal normative data of art. 8, 35 co. of L. n. 67/1988, which continues to be applicable in favor of the taxpayer.
Therefore , the concrete relevance of this judgment must be assessed, from a de jure condendo perspective. In fact, as soon as article 8, co. 35, of the L. n. 67/1988 will be repealed, this ruling will guide the interpretation of loan agreements or secondment of personnel for VAT purposes.
In conclusion – even in the current state – it seems in any case appropriate to verify whether the loan agreements or the secondment of personnel in place are configured as a contract with corresponding services. In fact, in case of sudden repeal of art. 8, co. 35, these contracts would violate the VAT rules (from the moment of the repeal, obviously). As for future loans or secondments, it might be useful to try to formulate agreements that do not provide for synallagmatic services.
Furthermore, as in the case subject to the judgment, the taxpayer could immediately (that is, withoutthe need to wait for the above mentioned repeal) subject the loan or the secondment of staff to VAT, disregarding domestic regulations, which was declared by the Court of Justice does not comply with the Sixth Directive.
LDP remains at your disposal for any further information or in-depth study of the above topics.