The VAT treatment on reimbursements has always presented challenges as to whether reimbursements are subject to VAT or whether these fall outside the scope of VAT since this matter is not directly addressed in the VAT Act.

Recently, the Court of Justice of the EU (CJEU) issued its decision in case C-94/19, San Domenico Vetraria SpA v Agenzia delle Entrate, providing guidelines on the VAT treatment on the reimbursement of employee costs.  In its judgement, the CJEU essentially confirmed that the lending or secondment of staff by a parent company to its subsidiary, carried out in return for the mere reimbursement of the related costs, generally constitutes a taxable supply for consideration falling within the scope of VAT.  Case C-94/19 concerned the secondment of an employee by one company (Avir) to a subsidiary (San Domenico Vetraria). The secondment was carried out on the basis of a legal relationship of a contractual nature between Avir and San Domenico Vetraria, in the context of which there was reciprocal performance, namely the secondment of an employee (a Director) from Avir to San Domenico Vetraria, on the one hand, and the payment by San Domenico Vetraria to Avir of the amounts invoiced to it, on the other.  This was considered as being a transaction to be carried out for consideration, thus deemed a supply of a service which was subject to VAT.

It is understood that unless staff (employee or holder of an office) are in effect jointly employed by two or more companies forming part of the same corporate group where employee costs are being shared on a pure cost basis, reimbursement of staff costs is regarded as giving rise to a supply of service for Malta VAT purposes and therefore subject to VAT in Malta.