Edited by Luca Lavazza – Alessia Angela Zanatto
Secondment of staff occurs when an employer, to satisfy their own interest, temporarily makes one or more employees available to another entity for the execution of a specific work activity (art. 30, paragraph 1, Legislative Decree no. 276/2003).
From January 1, 2025, the VAT treatment of secondments of staff will undergo significant changes.
As a result of art. 16-ter, Decree-Law no. 131/2024 (added by conversion law no. 166/2024), the current reference legislative provision, i.e., art. 8, paragraph 35, Law no. 67/1988, will be repealed starting from personnel loans and secondments stipulated or renewed from January 1, 20251.
According to art. 8, paragraph 35, Law no. 67/1988, “loans or secondments of staff for which only the reimbursement of the related cost is paid are not considered relevant for VAT purposes.” As clarified by the United Sections of the Court of Cassation in judgment no. 23021/2011, this legislative provision applies only in cases where the amount paid by the seconding party exactly corresponds to the wages and social security charges of the seconded personnel, which are legally borne by the seconding party.
Regarding the compatibility of the aforementioned article with Directive 2006/112/EC (hereinafter “VAT Directive”), the European Court of Justice (hereinafter “CJEU”) intervened with the judgment of March 11, 2020, in case C-94/19, San Domenico Vetraria (hereinafter “San Domenico Vetraria judgment”). In this judgment, the EU judges ruled that a national legislation under which loans or secondments of staff from a parent company to its subsidiary, for which only the reimbursement of the related cost is paid, are not considered relevant for VAT purposes, is not compliant with the VAT Directive. This is provided that the amounts paid by the subsidiary to the parent company and such loans or secondments are mutually conditional. The EU judges referred to the referring court to verify this circumstance2.
The repeal of the mentioned article followed discussions with European institutions to avoid an infringement procedure for failure to implement the aforementioned CJEU judgment3.
The new legislation stipulates that secondments and loans of staff stipulated or renewed from January 1, 2025, will be taxable for VAT purposes, regardless of whether the seconding company pays an amount equal to, less than, or greater than the personnel cost.
The repeal of the legislative on secondments presents interpretative and practical application uncertainties.
One aspect concerns the determination of the VAT taxable base for secondments and personnel loans. The decree law that repealed the aforementioned art. 8 does not provide any provisions regarding the legislative provision that stipulates that the taxable base for labor supply under Legislative Decree no. 276/2003 is represented by amounts exceeding the reimbursement of wage and social security charges.
Specifically, art. 86, paragraph 4, of the mentioned Legislative Decree no. 276/2003 refers to the provisions of art. 26-bis of Law no. 196/1997 for the determination of the VAT taxable base for labor supply.
According to art. 26-bis, “Reimbursements of wage and social security charges that the user of temporary workers is required to pay (…) to the supplying company, actually incurred by the latter in favor of the temporary worker, must be considered not included in the VAT taxable base under art. 13 of the Presidential Decree of October 26, 1972, no. 633”4.
It should be noted that, under Legislative Decree no. 276/2003, secondment is a particular type of labor supply, provided for by art. 30 of the same decree. It could be inferred that, even after the repeal in question, the taxable base for secondment would be the amount exceeding the mere reimbursement of wage and social security charges. However, the legislator’s intention is to subject even mere reimbursements to VAT in the case of secondment. The technical report to the decree notes that “the taxability for VAT purposes of such reimbursements results in VAT payable by the seconding party”5.
Regarding the different VAT treatment between secondment and the provision of labor, in the San Domenico Vetraria case, according to the referring judge, the national legislative provision seemed “is of the view that the national rule appears to give rise to unjustified unequal treatment, which may affect the principle of fiscal neutrality, between the secondment of staff and the making available of labour, since the latter always constitutes a taxable supply”.
This aspect was not explicitly addressed by the CJEU; however, the EU judges reiterated the irrelevance, for VAT purposes, of whether the consideration amount was equal to, greater than, or less than the costs incurred by the taxable person in providing their service. This could suggest that art. 26-bis has compatibility profiles with the VAT Directive. In this regard, if the Italian tax authorities intended to consider art. 26-bis inapplicable, this would be a clear violation of the so-called reverse direct effect prohibition mentioned above.
Another aspect to consider concerns the effective date of the repeal of the mentioned art. 8. It is provided that the legislative provision is considered repealed for personnel loans and secondments stipulated or renewed from January 1, 2025. There is no reference to the execution of supplies, provided by art. 6, Presidential Decree no. 633/1972.
In the past, regarding new legislative provisions whose entry into force was linked to the stipulation or renewal of the contract, the Italian tax authorities clarified that the changes applied also with reference to renewals – both express and tacit – as well as extensions that occur after the aforementioned date of December 31, 2015, even if referring to contracts concluded between the parties before that date. For the purpose of identifying, from a temporal perspective, the applicable discipline, reference is made to the date of stipulation, renewal, or extension of the contracts in question.
- Article 16-ter also provides that the actions taken by taxpayers before January 1, 2025, in accordance with the judgment of the Court of Justice of the European Union (“CJEU”), case C-94/19, or in accordance with Article 8, paragraph 35, of Law No. 67/1988, for which no final assessments have been made, are preserved. ↩︎
- With various decisions (see, among others, judgments nos. 539/2021, 5601/2021, 20589/2021, 5874/2022), the Court of Cassation seems to have deemed the principles of the San Domenico Vetraria judgment directly (and retroactively) applicable to pending disputes, referring in some cases to the second-tier judge for verification regarding the existence of “direct link” between the supplies. For completeness, it is noted, in any case, that the Italian State, due to the prohibition of the so-called “reverse direct effect,” cannot assert the effectiveness of a CJEU judgment in the presence of national legislation that is not compatible with the VAT Directive. ↩︎
- Urgent provisions for the implementation of obligations arising from acts of the European Union and from pending infringement and pre-infringement procedures against the Italian State, Provisional Edition, Decree Law No. 131/2024 – A.C. 2038-A. ↩︎
- In the past, the Italian tax authorities and the Court of Cassation, in various decisions, have confirmed the different VAT treatment between secondment of personnel and temporary employment agency work. ↩︎
- For completeness, VAT taxable persons who apply the pro rata deduction and who provide secondment services could have an increase in the mentioned deduction percentage (a situation to be examined on a case-by-case basis). ↩︎
Let’s Talk
For a deeper discussion, please contact