San Domenico Vetraria – ECJ finds that a secondment was a taxable supply for VAT purposes

Although the European VAT Directive provided that supplies of services (or goods) for consideration were taxable for VAT purposes, Italian VAT legislation provided that the secondment of staff where only the payroll costs were reimbursed was to be ignored for VAT purposes. In finding that this Italian legislation was contrary to the VAT Directive, so that VAT was applicable to the payments made by an Italian subsidiary (San Domenico Vetraria) to its Italian parent (Avir) to reimburse the latter for the payroll costs of a staff member who had been seconded to San Domenico Vetraria, the 7^th Chamber of the European Court of Justice stated:

[A] supply of services is effected ‘for consideration’ … if there is a legal relationship between the provider of the service and the recipient pursuant to which there is reciprocal performance, the remuneration received by the provider of the service constituting the value actually given in return for the service supplied to the recipient. … .

[T]he secondment was carried out on the basis of a legal relationship of a contractual nature between Avir and San Domenico Vetraria … [and] there was reciprocal performance, namely the secondment of a director from Avir to San Domenico Vetraria, on the one hand, and the payment by San Domenico Vetraria to Avir of the amounts invoiced to it, on the other.

This is consistent with the CRA position that the payroll reimbursement payments (in the absence of a s. 150 or 156 election) would generally be taxable unless the remuneration was paid by the one company as agent for the other company (see 15 May 2012 Ruling 142436 and 25 February 2016 CBA Roundtable, Q. 7).

Neal Armstrong. Summary of San Domenico Vetraria SpA v. Agenzia delle Entrate, Case C-94/19 (ECLI:EU:C:2020:193) (7^th Chamber) under ETA, s. 123(1) – supply.