It is common practice in many industries to share staff between related companies. When I was working in a management role, a couple of years ago, the company that was paying my wages and social security costs was used to recharge part of this to the other companies of the group. In Luxembourg and many other Member States of the EU, such a situation (the VAT Directive refers to this as a "supply of staff" in article 59) triggers a VAT liability. When the companies of the group can recover the VAT, this is not an issue. However, for insurance companies, banks and investment funds, adding VAT to the mere refund of the salary costs and the social security contributions automatically creates a an additional cost, in the form of the irrecoverable VAT.
Thanks to a friend of mine, an eminent VAT lawyer, I learnt that the situation is a little bit different in Italy. The Italian Supreme Court seems to be of the view that only the mark-up on such a recharge (if any) should be subject to VAT. If the subsidiary only reimburses the costs for instance, this refund appears to be irrelevant for VAT purposes in Italy.
Such a position would be very much appreciated by many professionals of the financial industry in other countries....
This particular standpoint in Italy is now brought to the Court of Justice of the European Union (Case C-94/19 - Request for a preliminary ruling from the Corte suprema di cassazione (Italy) lodged on 6 February 2019 – San Domenico Vetraria SpA v Agenzia delle Entrate).
In many European countries, when incurring the cost of the irrecoverable VAT, operators shall seek to apply sophisticated solutions such as a VAT Group (a legislation recently implemented in Luxembourg) or putting in place a split payroll. The Court will tell us whether Italy was right in offering an alternative and simplest way.
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