VAT Treatment Under Undisclosed Agency Arrangements Depends on the Underlying Supply

Summary

The Italian Supreme Court held that services supplied or received through an undisclosed agent retain their objective nature in the relationship between the principal and the agent. This follows Article 3(3) of the Italian VAT Act, implementing Article 28 of the EU VAT Directive.
Retaining the nature of the underlying service does not automatically mean that an exemption also applies. Each statutory condition for the exemption must first be satisfied in relation to the underlying transaction.
The case has been returned to the lower court to determine whether the bulk postal services met the conditions for the postal-services exemption, particularly in light of CJEU Case C-785/23, Bulgarian Posts.

Extended article

The Italian Supreme Court has clarified the VAT treatment of services acquired through an undisclosed agency arrangement. The ruling concerns the relationship between the fiction created by Article 28 of the EU VAT Directive and the conditions governing VAT exemptions.

The case involved an Italian company that provided large-scale printing, enveloping and mailing services, primarily to public authorities and banks. Because the company did not qualify as a postal consolidator, it could not purchase certain bulk postal services directly from the postal operator. Its parent company therefore acquired the services in its own name and recharged the costs to the subsidiary.

The postal operator invoiced the parent company without VAT on the basis of the Italian exemption for qualifying postal services. When the parent company recharged the costs to the subsidiary, however, it applied VAT at the then applicable 20% rate. The subsidiary deducted that VAT.

The Italian tax authorities regarded the transaction as an undisclosed agency arrangement under Article 3(3) of Presidential Decree No. 633/1972. They argued that the recharge between the parent and subsidiary should receive the same VAT treatment as the service supplied by the postal operator. Approximately EUR 620,000 of input VAT deducted by the subsidiary was consequently challenged.

The Supreme Court confirmed that, where a taxable person acts in its own name but on behalf of another person, two supplies are deemed to occur for VAT purposes. The services nevertheless retain their objective nature in both relationships. The fact that VAT was charged and paid, and that there was no evidence of tax avoidance, was not in itself sufficient to establish the subsidiary’s right to deduct that VAT.

The Court nevertheless rejected the view that the agency fiction automatically transfers the exemption to the second transaction. It was first necessary to determine whether the underlying postal services were genuinely exempt.

Referring to CJEU Case C-785/23, Bulgarian Posts, the Court noted that the exemption in Article 132(1)(a) of the VAT Directive does not cover postal services designed to meet the particular requirements of specific customers, not offered to users generally and supplied under individually negotiated conditions differing from the universal postal service.

If the postal services did not satisfy those conditions, both deemed supplies under the agency arrangement would be taxable. The case was therefore returned to the second-instance court for a factual determination of the status of the underlying postal services.

The ruling is relevant for commissionaire models, procurement hubs, shared-service arrangements and other structures in which an intermediary contracts in its own name for another party. Businesses cannot assume that an exemption follows automatically through the transaction chain. The conditions governing the particular exemption must be examined independently.

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