VAT treatment of certain secondments of staff to companies established in the State from related foreign companies

For VAT purposes, the provision of staff is a supply which is taxable where received-paragraph (vi) of the Fourth Schedule to the Value-Added Tax Act 1972, as amended, refers.

For example, where a company not established in the State seconds staff to an Irish-established company and the staff seconded remain employees of the former company, then VAT is chargeable on the Irish-established company at the rate of 21% on the total consideration for the supply. This would be so even where both companies are connected and members of an international group. The charge cannot be avoided through the Irish VAT grouping facility as a company not established in the State is precluded from membership of an Irish VAT group.

Other EU countries have recognised that in such situations, the combination of local employment taxes and reverse charge VAT adds significantly to the costs of placing senior executives with local entities, particularly within a group context where the local entity may have VAT recovery restrictions. Many EU countries have sought to address this situation by treating the local entity as the de facto employer, notwithstanding that the executives remain under contracts of employment with the foreign employer company. As there is no “Vatable supply” as between employer and employee, there is then no basis for a reverse charge liability.

In the circumstances, with effect from 1 January 2007, Revenue is prepared to sanction the following concessionary treatment:

1. The treatment outlined in paragraph 2 below applies only in the case where the secondment of staff is from a company not established in the State to an Irish-established company or to an Irish branch of a foreign company, and where the companies concerned are within the same group structure. For this purpose, two companies will be treated as members of a group of companies if one company is a 51% subsidiary of the other company or both companies are 51% subsidiaries of a third company. Whether a company is a 51% subsidiary of another company will be determined as it would be for corporation tax purposes under section 9 of the Taxes Consolidation Act 1997.
2. In the cases refered to in paragraph 1, where–
• during the period of secondment, the company/branch to which the employee of the employer company is seconded exercises day to day control over the allocation and performance of the employee's duties or that employee effectively has managerial responsibility for the operation of that company/ branch, and
• the PAYE and PRSI (both employer and employee) liabilities relating to the emoluments paid to the employee in respect of work done in that period are discharged correctly and on a timely basis, whether by the employer company, the company/branch to which the employee is seconded or any other person,
• then, to the extent that the emoluments mentioned in paragraph (b) above form the consideration, or part of the consideration, for the secondment of the employee to the company/branch, they shall be disregarded in determining the value for VAT purposes of seconding the employee.