Reinvoicing of personnel expenses at cost. With or without VAT?

An Italian company seconds one of its directors to its foreign subsidiary to take up the position of director of one of the latter's establishments. The subsidiary receives invoices from its parent company for amounts corresponding to the costs incurred for the seconded director.

The question which then arises is whether the secondment of staff against reimbursement of the related costs can be regarded as a taxable transaction for VAT purposes?

European Court of Justice

The answer given by the Court of Justice is clear: a transaction is subject to VAT when it is carried out "for consideration", i.e. 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 constitutes the actual value of the service provided to the recipient. This is the case if there is a direct link between the service rendered and the consideration received.

In the case at hand, the secondment was performed on the basis of a legal relationship of a contractual nature between the parent company and its subsidiary. In the context of this legal relationship, there was reciprocal performance, namely the secondment of a director from the parent company to its subsidiary on the one hand, and the payment by the subsidiary to the parent company of the amounts charged. There is therefore a direct link between these two services, since they are mutually conditional, i.e. one is provided only on condition that the other is also provided, and vice versa.

Contrary to what the European Commission maintained, the Court points out that the amount of the consideration is irrelevant in that regard, in particular the fact that it is equal to, greater than or less than the costs incurred by the taxable person in connection with the supply of his supply,.

Source: EUCJ 11/03/2020, C-94/19