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Italy: VAT on staff secondment, incompatible with EU VAT directive (CJEU judgment)

Italy: VAT on staff secondment (CJEU judgment)

The Court of Justice of the European Union (CJEU) issued a judgment finding that the Italian rules regarding the value added tax (VAT) treatment of staff seconded by a parent company to its subsidiary are incompatible with the EU VAT directive.


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The case is: San Domenico Vetraria SPA, case C-94/19 (11 March 2020)


The parent company seconded one of its directors to a subsidiary company to manage one of the subsidiary’s establishments. Under Italian VAT provisions, VAT was added to the costs of the secondment payment as reimbursed by the subsidiary. A claim for refund of the VAT was filed, but the Italian tax authorities denied the refund on the basis that the reimbursements fell outside the scope of VAT because they did not relate to supplies between the parent company and the subsidiary.

The Italian Supreme Court referred to the CJEU the question whether the secondment of staff in return for reimbursement of costs must be regarded as a taxable supply of services.

The CJEU held that a supply of services is made for consideration if, between the provider of the service and the recipient, there is a legal relationship that involves reciprocal payments. Thus, the CJEU concluded that the Italian VAT rules providing that the secondment of staff is outside the scope of VAT if conducted only in return for the reimbursement of costs are contrary to provisions of the EU VAT directive.

KPMG observation

The judgment is viewed as having implications on the treatment of staff secondments, and in particular, implications for the financial sector in instances when the “host company” carries out exempt activities with limited or no right to recover input VAT.

Read a March 2020 report [PDF 173 KB] prepared by the KPMG member firm in Italy

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