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

In Judgment No. 22700 of 2024, the Italian Supreme Court confirmed that secondment arrangements are the supply of services subject to VAT, even if the compensation is limited to covering the costs associated with the employee (such as wages and social charges) without any profit margin.

In Italy, according to the provision of Art. 8, par. 35, Law No. 67/1988, such arrangements were qualified as transactions outside the scope of VAT. However, following the ECJ ruling in case C-94/19, it has been clarified that VAT applies to the supply of personnel if there is a reciprocal relationship between such supply and the payment received, regardless of the existence of a markup.

Thus, according to the Supreme Court, the aforementioned Italian provision must be disapplied by the judge due to its incompatibility with EU VAT law. Italian Supreme Court Judgment No. 22700 overrules a previous decision of the same (Judgment No. 16234/2024) which took a different view and thus sets out the proper EU-compliant approach.

As of today, Art. 8 provision is still in place and it is not clear if the secondment/supply of personnel arrangement can be considered out of scope of VAT, every time the recharge is limited to the pure employment costs supported. Such rebate, indeed, can be qualified as consideration if it is a condition for the supply of personnel.

Key takeaway

VAT on the supply of personnel remains a key issue and should be closely monitored by businesses. Judgment No. 22700 of 2024 reaffirms the proper VAT principle and aligns Italy with EU law. However, businesses should remain vigilant for further guidance from the Italian Supreme Court and Tax Authority clarifying the conditions for VAT exclusion in secondment arrangements. In fact, different and opposite Supreme Court trends expose operators to the risks of omitted application of VAT or, in the opposite case, to the non-recoverability of VAT charged.

Reference

Italian Supreme Court, Judgment No. 22700 of 12 August – 22700/2024