The VAT treatment of secondment of staff

On the 11 March 2020, the European Court of Justice (ECJ) issued its judgement in C-94/19 (Italian Tax Authorities v. San Domenico Vetraria S.p.a.) in relation to the VAT treatment of secondment of staff provided by a parent company to its subsidiary.

Facts of the case

In 2004 Avir seconded one of its directors to its subsidiary, San Domenico Vetraria, so as to act as a director of one of its establishments. In return Avir issued invoices to its subsidiary requesting a reimbursement of the costs incurred in relation to the seconded director. On reimbursing such amounts, San Domenico Vetraria applied VAT, which subsequently allowed them to exercise the right to the deduct.

The Italian Tax Authorities (ITA) argued that those reimbursements fell outside the scope of VAT as these did not constitute supplies of services between the parent company and its subsidiary and therefore, carried out a tax adjustment so as to recover the VAT deducted. San Domenico Vetraria challenged this and brought an action against such an adjustment which was dismissed by the courts at first instance and on second-degree proceeding. The subsidiary then appealed to the Supreme Court of Cassation which referred the question to the ECJ for a preliminary ruling.


The ECJ made reference to the scope of VAT, in that, supplies of goods and services effected for a consideration within the territory of a particular country by a taxable person acting as such, are subject to VAT. Following on settled case-law, the ECJ recalled that a supply of services is effected ‘for consideration’ and resultantly is taxable, if it is carried out on the basis of a legal relationship between the provider of the services and the recipient of the same and thus, in which context there is reciprocal performance, that is, the provision of a service by one party and the payment of a remuneration specifically for that service by the other party.

Having regard to the above and to the documents presented before the Court, the ECJ stated that in the case at hand, there was a contractual legal relationship between the parent and the subsidiary in relation to the secondment carried out and in the context of that relationship, there was reciprocal performance between the parties, whereby Avir provided the secondment of the director to San Domenico Vetraria and the latter reimbursed the costs in relation to that same secondment to the former. The ECJ confirmed that the amount of consideration being equal to, greater or less than the actual secondment costs incurred, is irrelevant in determining a direct link between the service provided and the respective payment made. What is indeed relevant in determining a direct link is whether the service rendered and the amount paid are mutually dependent on each other, that is, one is only made on condition that the other is also carried out and vice versa.

The ECJ concluded that the lending and secondment of staff between group companies in return for only a reimbursement of the related costs are within the scope of VAT given that, the amounts paid by the subsidiary on the one hand and the lending or secondment of staff by the parent on the other, are interdependent.

VAT Implications

From a local perspective, the ECJ judgement in question should not, in reality, result in any changes to the current situation but it only serves as a reaffirmation of what was already fact through the previous case-law. Nonetheless, in light of the above, one should still reassess the intercompany agreements currently in place in relation to supply and/or sharing of staff, so as to ensure these are in line with VAT legislation.

Should you need further clarifications about the above case, please do not hesitate to contact us.