The VAT related decision of the recent CJEU case C-94/19 (San Domenico Vetraria SpA vs Agenzia delle Entrate), has raised a number of questions particularly concerning secondments of staff and the use of common employees within a group of companies.
Amongst such questions, indirectly it brought about changes to the local interpretation of what was formerly considered to be a "holder of an office".
Services provided by a “holder of an office”
In terms of Article 4 of the Maltese VAT Act an “economic activity” excludes, amongst others, the services of “an employee acting as such”. The VAT Act further defines the term “employee" as an individual bound by legal ties, creating the relationship of an employer and employee, and includes the "holder of an office".
To this effect, holders of an office, such as an individual appointed to act as Director of a company, should not be considered as undertaking an economic activity for VAT purposes. Consequently, the remuneration paid to the Director for the services provided, should not be treated as consideration falling within the scope of Maltese VAT.
VAT position prior to C-94/19
To date, local practice as well as unofficial guidelines had extended this interpretation to cover also situations where the fees for directorship services were paid to that entity which made available the individual Director to the respective customer as opposed to the latter paying the Director directly. For example, this scenario was common practice in service offerings by corporate services providers who provide one or more of their employees as members of the Board of a client. Therefore, in terms of this interpretation the fees paid to the entity covering directorship services were previously also regarded as not falling within the scope of VAT on the basis that such payment was in respect of the services provided by a "holder of an office".
What has changed?
Further to the decistin of the CJEU in San Domenico Vetraria SpA vs Agenzia delle Entrate, and further to discussions held with the local VAT authorities, we are aware that the provision of Directorship services when provided by an entity , should no longer fall outside the scope of VAT and within the remit of services by the "holder of an office”, but should instead constitute an economic activity subject to normal rules.
If you are party to arrangements similar to those described above or otherwise have arrangements whereby holders of an office are not employed/hired directly by the entities they serve and wish to discuss how this new interpretation may impact your business, please feel free to reach out to the undersigned or any of your usual PwC contacts.
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