After nearly four years, Italy is at last bringing itself into compliance with European Union law by fully implementing the notable judgment of the Court of Justice of the European Union in the “San Domenico Vetraria” case (ECJ case no. C-94/19). First, the domestic rule excluding VAT for personnel lending and secondment was repealed (Art. 8, par. 35, Law of 11 March 1988, n. 67). Recently, Circular 5/E from the Italian Revenue Agency provided initial operational clarifications on the new rules.
What changes from 1 January 2025
Article 16-ter of Decree-Law of 16 September 2024, no. 131 (“Salva-infrazioni Decree”) states that for secondment or personnel lending contracts entered into or renewed from 1st January 2025, the previous VAT exclusion, which applied to secondments concluded only with the reimbursement of the “pure” costs of personnel, will no longer be applicable.
Effective from this date, the secondment or lending of personnel, even if only involving reimbursement of costs without any mark-up, is regarded as a supply of services for VAT purposes, provided that the subjective, objective, and territorial requirements stipulated by VAT law are met.
However, this rule maintains the conduct previously adopted by taxpayers before this date, whether it was in alignment with the “San Domenico Vetraria” judgment or pursuant to the previous Article 8, paragraph 35.
Main clarifications from Circular 5/E
On 16 May 2025, the Italian Revenue Agency issued Circular no. 5/E, clarifying new personnel secondment rules introduced by the Salva-infrazioni Decree. Key points include the following.
Subjective scope
The transaction will be subject to VAT if the seconding entity is a VAT taxpayer, which includes companies, self-employed individuals, or non-commercial entities engaged in business activities. However, if the secondment occurs within the institutional activities of non-commercial entities, the transaction will not fall under the scope of VAT.
Objective scope
The secondment or lending of personnel constitutes a supply of services "for consideration" when there is a direct connection between the provision of personnel and the payment of a fee, even if this fee is limited solely to cost reimbursement. The presence or absence of a mark-up is not a relevant factor.
The Circular states that "free secondments" – personnel seconded without any payment or cost reimbursement – are outside VAT scope, as they do not qualify as a supply of services for consideration.
Territorial scope
Territoriality adheres to the standard VAT regulations for “generic” services, as outlined in Article 7-ter of Presidential Decree 633/1972. An exception exists for secondments to non-EU recipients who are not VAT taxpayers, where the provisions of Article 7-septies, paragraph 1, letter e) of Presidential Decree 633/1972 apply.
Other cases: Joint Employment and Avvalimento
The Circular also addresses the secondment of personnel in cases of “joint employment” (relationships between companies that have signed a network contract, pursuant to Art. 3, para. 4-ter, of Decree-Law no. 5 of 10 February 2009 – referred to as “Reti d’imprese”) and “Avvalimento” (contracts governed by the Public Contracts Code).
In the first case, where there is a mere pro-rata allocation of costs among co-employers, this does not constitute a supply of services subject to VAT.
As regards Avvalimento, the Circular clarifies that, according to Article 104 of the Public Contracts Code, the Avvalimento contract is normally for consideration, except in cases where the arrangement also serves an interest of the auxiliary company providing the resources. Therefore, if the arrangement is for consideration, it constitutes a supply of services relevant for VAT purposes, provided that all other VAT requirements are also met.
Operational implications
Companies and entities involved in secondments or personnel lending will need to update their administrative and contractual processes to account for VAT application, including for simple cost reimbursement, with exceptions as noted. It is important to accurately identify the taxable base and manage invoicing correctly. |
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