Secondment of personnel subject to VAT even in the absence of a profit – Update

As highlighted in a previous VAT Alert, Art. 8, par. 35 of Law No. 67/1988, which excluded from the scope of VAT the secondment involving mere reimbursement of employment costs, was deemed incompatible with EU VAT principles as expressed in CJEU Case C-94/19.

In fact, the CJEU clarified that VAT must be applied to all secondments of personnel where there exists a reciprocal relationship between the service and the remuneration, irrespective of whether a profit margin is charged.

Although Italian judges were requested to disapply the domestic provision due to its inconsistency with EU VAT law, the Italian Supreme Court did not always adopt this approach uniformly.

This divergence created uncertainty for taxpayers and potential risks of non-compliance.

To prevent infringement proceedings for violating EU principles, the abovementioned domestic provision is repealed with effect from 1 January 2025.

This alignment with EU principles clarifies the matter in respect of secondments agreements, but it does not clear the doubts regarding other similar arrangements, that follow the same path from a VAT perspective.

This is the case for the supply of labour, where the reimbursement of salary and social security costs paid by the recipient of the temporary employees to the supplier is excluded from the VAT taxable amount.

Key takeaway

This change will require businesses to thoroughly review their current secondment arrangements before the 1 January 2025 deadline. Nevertheless, certain uncertainties remain. It is therefore recommended that businesses closely monitor developments in this area, as further clarifications and practical guidance from the Italian Tax Authority are expected to shed light on the conditions for VAT exclusion in secondment and similar arrangements.

Reference

Law No. 166 of 14 November 2024 – Gazzetta Ufficiale