Temporary assignment of an employee: provision of service for VAT purposes
The Court of Justice of the EU (CJEU) dealt with the Italian San Domenico Vetraria SpA case (C-94/19) where a parent company assigned one of its directors to its subsidiary on a temporary basis. For this, they ‘only’ charged their costs incurred for the employee, without any mark-up. In the court’s opinion this constitutes a supply subject to VAT, regardless of the setting of the price to be charged.
In 2004, Avir, an Italian company, seconded one of its directors to its subsidiary, San Domenico Vetraria, to hold the position of director of one of their establishments; for this, they only invoiced the costs incurred for the seconded manager, without any mark-up. Avir applied VAT on the invoices, which San Domenico Vetraria claimed to deduct in its VAT return. The Italian tax authorities took the view that those reimbursements fell outside the scope of VAT as they did not concern supplies of services for VAT purposes: under Italian legislation valid at the time, a temporary assignment or secondment of employees where only the related costs were reimbursed was not relevant for VAT purposes.
The Italian Supreme Cassation Court referred a prejudicial question to the CJEU in this respect. The CJEU concluded that a temporary assignment or secondment of employees provided for the reimbursement of related costs shall be considered a supply relevant for VAT purposes, if the amounts paid on the one hand and the lending or secondment on the other are interdependent; the CJEU thus opposed the Commission’s arguments that there was no direct link between the supply and the consideration. The CJEU concluded that Italian legislation under which a temporary assignment or secondment of employees where ‘only’ the related costs are reimbursed is not relevant for VAT purposes was incompatible with the EU VAT directive.
Since the current approach of Czech VAT payers and established practice additionally confirmed by the Coordination Committee differ from the above (and are in fact identical with the challenged Italian legislation), we recommend reviewing cases of temporary assignment of employees considering the above judgment and applying its conclusions correctly. Generally, temporary assignments of employees can no longer be viewed as supplies outside the scope of VAT, regardless of how the invoiced amount is calculated. The judgement is thus expected to have a crucial effect on the future treatment of the temporary assignment of employees as a taxable supply for VAT purposes by tax administrators.