On 11 March 2020 the European Court of Justice gave its judgment in case C‑94/19 (San Domenico Vetraria SpA). The case concerns the VAT treatment of the secondment of staff by a parent company to its subsidiary.
Article in the EU VAT Directive
Articles 2 and 6 of Sixth Council Directive 77/388/EEC
In 2004, Avir seconded one of its directors to its subsidiary, San Domenico Vetraria, to hold the position of director of one of San Domenico Vetraria’s establishments. In that context, San Domenico Vetraria received invoices from its parent company showing amounts corresponding to the costs incurred for the seconded manager. When reimbursing Avir for the costs relating to the secondment, San Domenico Vetraria applied VAT for the purposes of the subsequent exercise of the right to deduct.
The tax authorities took the view that those reimbursements fell outside the scope of VAT since they did not concern supplies of services between a subsidiary and its parent company, with the result that it made an adjustment in order to recover the VAT deducted in that regard.
Must Articles 2 and 6 of Sixth Council Directive 77/388/EEC of 17 May 1977 and the principal of fiscal neutrality be interpreted as precluding national legislation under which the lending or secondment of staff by a parent company in respect of which the subsidiary merely reimburses the related costs is regarded as irrelevant for value added tax purposes?
Article 2, point 1, of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes — Common system of value added tax: uniform basis of assessment must be interpreted as precluding national legislation under which the lending or secondment of staff of a parent company to its subsidiary, carried out in return for only the reimbursement of the related costs, is irrelevant for the purposes of VAT, provided that the amounts paid by the subsidiary to the parent company, on the one hand, and that lending or secondment, on the other, are interdependent.
In the present case, it is not disputed that Avir is a taxable person and that the secondment of a director of Avir to its subsidiary, San Domenico Vetraria, was made within the country concerned.
It therefore remains to be determined whether that supply of services was effected ‘for consideration’ within the meaning of Article 2, point 1, of the Sixth Directive.
In that regard, it is settled case-law that, within the framework of the VAT system, taxable transactions presuppose the existence of a transaction between the parties in which a price or consideration is stipulated. Thus, where a person’s activity consists exclusively in providing services for no direct consideration, there is no basis of assessment and the services are therefore not subject to VAT.
In the present case, it appears from the documents before the Court that the secondment was carried out on the basis of a legal relationship of a contractual nature between Avir and San Domenico Vetraria.
Furthermore, it appears that, in the context of that legal relationship, 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.
Similar ECJ cases
How did countries implement the case? Your feedback appreciated! Let us know