In circular no. 87/2021, INPS clarified the total exemption from social security contributions for first-level apprenticeship contracts signed in 2020-2021 by employers who hire up to nine employees.
Before analysing the circular’s provisions, we provide a brief overview of this type of contract and its features.
Apprenticeships for professional qualification and diploma, upper secondary education diploma, and higher technical specialisation certificate (“first-level apprenticeship”) integrate work and training within the education, training and vocational qualification system.
This type of apprenticeship is designed to ensure a better link between school and the labour market. It can be stipulated by public and private sector employers with young people aged between 15 and 25.
The contract duration, under art. 43 of Italian Legislative Decree no. 81/2015 is defined based on the qualification or educational qualification to be obtained and cannot exceed three years (or four years for a four-year professional diploma).
However, the above article in paragraph 4 allows cases in which the contract duration may be extended by a further year, namely for:
The same article, in paragraph 5, introduced some exceptions to the duration of the first-level apprenticeship contract allowing the signing of:
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There is much case law on the remuneration of the time spent by the worker for changing in and out of their uniform (uniform time).
Please note that Article 1, paragraph 2 of Legislative Decree no. 66/2003 defines working time as “any period during which the worker is at work, at the employer’s disposal and in the exercise of their activity or duties.”
Based on this definition, the case law has expressed different orientations depending on whether the “uniform time” was preparatory to the work performance or an integral part of it.
Recently, the Court of Cassation returned to the matter in ruling no. 15763 of 7 June 2021, denying the workers concerned the right to be paid for the “uniform time.” This is because in the employment relationship, the time necessary to put on the service clothing constitutes working time “only if qualified as hetero-directed.” According to the Court of Cassation, in the absence of this requirement, dressing falls within “the preparatory diligence included in the main work obligation” and does not give rise to any independent consideration.
In this case, it was found that the workers were not required to wear their work clothes on the company’s premises but were free to go to work and return home wearing them. The employer’s changing, showering and laundry services were facilities granted to employees for their needs, with no obligation to use them.
In another ruling, the same Court of Cassation has considered the dressing operations to be part of the preparatory phase and strictly functional to the workers’ performance, and as such to be remunerated as they are effectively hetero-directed (ruling no. 19358 of 10 September 2010). In this case, workers had to comply with a precise procedure before starting work; specifically, they were required to
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The Court of Cassation, in ruling no. 11644 of 4 May 2021, stated that it is legitimate to dismiss an employee who unlawfully uses a company car and tries to “hide a real accident and report a false one.”
In this case, a medical director of a local health unit (“AUSL”) concealed an accident, which occurred on the evening of 11 January 2017, while driving his company car, to hide its improper use, by declaring in the company’s report that it had occurred the following morning, in different circumstances, when he was using the car for company purposes.
This constituted further violations of the company internal rules concerning the use of company vehicles and the requirement that they are used exclusively for office duties, a prohibition against keeping the car at a private home and the obligation to fill in the logbook, etc.
As a result of this conduct, the employer terminated the contract immediately. This was based not so much by the irregular use of the company car, but by the fact that the employee had kept the company in the dark about the accident, trying to conceal the facts by reporting a false accident.
On this point, the local court held that it was undisputed that the only accident involving the employee was that of the evening of 11 January, since it was unlikely that two accidents could have occurred on the same vehicle just 12 hours apart. Furthermore, this possibility was ruled out by an investigation.
Following the employee’s appeal against the second instance ruling, the Court of Cassation – in its examination of the facts analysed in the first two instances – noted that the “unlikely” statement used by the Court of Appeal could be interpreted in two ways. The Court could have held that it was impossible for the two accidents to have occurred, or that it was improbable that they had occurred.
“Since such an impossibility is not predictable” – the Supreme Court observed – “it is evident that the interpretation of the reasoning must be the other, namely that the Court considered it unlikely that the worker had two accidents with the same vehicle in such a short time frame.”
Such a probabilistic construction, however brief, cannot be said to be illogical, therefore “it goes without saying that there was no violation of the rules on the burden of proof, the Court having essentially considered it proven that the accident had been only that specific one, which had unquestionably occurred, on the previous day.”
As for the dismissal, the local Court held that the offence was not to be included among the cases of the disciplinary code referred to the mere “concealment by the director of facts and circumstances relating to the unlawful use, tampering, diversion or misappropriation of sums or assets pertaining to the administration or entrusted to him”, but to the more serious case that contemplates ” acts and conduct […], albeit unrelated to the work performance, carried out including against third parties, which are so serious as not to allow the continuation of the employment relationship under Article 2119 of the Italian Civil Code.
The Supreme Court noted that, “the mere concealment of vehicle damage” is one thing, while “disguising facts, reporting a false accident is much more serious.”
On this factual reconstruction – according to the Court of Cassation – the local Court has focused its assessment on the incident seriousness and proportionality compared to the penalty applied by the company. The employee conduct could damage the trust relationship.
The Court of Cassation rejected the appeal submitted by the employee, and ordered him to pay court costs.
Source: Sintesi
Answering to question no. 449/2021, the Inland Revenue expressed its opinion on the duties of a foreign entity without a permanent establishment in Italy as a withholding agent.
Answering the question, the Inland Revenue stated that elements such as an entity’s permanent establishment or fixed base in Italy, and its possible recourse to the tax representative and direct identification, have become important
The facts
The requesting company arrived in Italy in 2020 to carry out its business.
To quickly start its business, the organisation hired about 30 people under an occasional service contract and paid them through a bank current account opened by a company official. The requesting company declared that it paid agreed net fees, which, in most cases, did not exceed €5,000.
The foreign entity did not know that it had to appoint a person as an Italian tax representative. Given its intention to directly pay tax related to the service providers and settle any outstanding amounts, the company asked the Inland Revenue for instructions about fulfilling the tax obligations under Italian law.
Appointment of a tax representative and direct identification in Italy
The requesting company first suggested it retroactively appoint, “a tax representative in Italy (art. 17 of Italian Presidential Decree 633/72) who was the same person who opened the bank account, an individual of non-EU nationality with an Italian tax code but not resident in Italy, or assigning this office to another person resident in the country.”
As an alternative, the company identified the need to “identify itself directly in Italy by requesting a tax code as per Form AA5/6, a non-resident entity […] with tax domicile in the city of […] where it has carried out […], with the qualification of withholding agent […] limited to income paid by a permanent establishment or fixed base in Italy.”
In addition, the company stated that it planned to hire an employee in Italy in 2021. Therefore, the company asked whether the tax identification number obtained based on one of the two alternatives as mentioned above was sufficient to act as a withholding agent, allowing the correct performance of tax operations.
Inland Revenue conclusions
Given the above, the tax authority pointed out that the applicant does not appear to carry out any relevant activity for VAT purposes in Italy, and reference to Art. 17 of Presidential Decree no. 633 of 26 October 1972 ( the “VAT Decree”) is irrelevant, particularly, the tax representative (third paragraph of the above art. 17) and direct identification (art. 35-ter of the same Decree).
On this point, the tax authority said that non-EU parties intending to carry out VAT-relevant transactions in Italy, if they do not have a permanent establishment, fulfil the obligations and exercise the rights arising from the application of such tax, may identify themselves under Art. 35-ter of the VAT Decree only “if they carry out a business, art or profession in a third country where there are legal instruments governing mutual assistance in the field of indirect taxation.” Otherwise, they must appoint a tax representative resident in the country.
In this case, should it be necessary to acquire a VAT position in Italy, the tax representative could not be the person who opened the Italian bank account as that person was not resident in Italy, as reported by the requesting company.
According to the Inland Revenue, the remuneration paid to approximately 30 people hired under an “occasional services” contract constitute occasional self-employment income for the recipients, which is taxable under Article 67, paragraph 1, letter l) TUIR -Consolidated Law on Income Tax.
The permanent establishment requirement
For withholding tax purposes to be levied on such remuneration, it was clarified that non-residents in the country might be a withholding agent, limited to the income paid by a permanent establishment or fixed base in Italy. In the absence of this requirement, the above obligation does not apply.
“only where the foreign entity has set up a permanent establishment or a fixed base in Italy will be required to apply for the tax code and fulfil the consequent obligations as a withholding agent, “consisting of making and paying withholding taxes, certifying payments and submitting Form 770.
To fulfil these obligations, the Inland Revenue has referred to the instructions for the compilation of Form AA5/6 – “Application for assigning a tax code, communication of data changes, merger, concentration, transformation, closure (parties other than natural persons)” – with attention to the instructions for non-resident entities.
Suppose the foreign entity does not have a permanent establishment in Italy, it may fulfil the necessary tax obligations for the remuneration paid only after having become a withholding agent. Failing that, it will be the responsibility of the staff hired under an “occasional service” contract to independently make the appropriate tax return in Italy.
In its answer to question no. 447/2021, the Inland Revenue examined the question raised by an Italian football club playing in the top league, which asked for clarifications on the requirements and application scope of the special regime for repatriated workers applied to professional sportsmen.
The company hires its players under employment contracts governed by Law 91/1981, which regulates the relationship between clubs and professional sportsmen.
At the same time, the club acts as a withholding agent, for tax on the remuneration it pays to the players.
Players who meet the requirements request the application of the repatriated workers regime (art. 16, paragraph 5-quater, Legislative Decree no. 147/2015), withholdings are made on 50 per cent of the taxable income.
According to the requesting company, to access the repatriated workers regime by nationals of non-EU countries, it is sufficient to meet the requirements of the first paragraph of Art. 16 of Italian Legislative Decree no. 147/2015, since it is not necessary to meet further requirements set out in the second paragraph of that article.
Regulatory references
Under Legislative Decree no. 147/2015, employment income, similar income and self-employment income produced in Italy by workers who transfer their residence to the country under Art. 2 of Presidential Decree no. 917/1986, is included in the total income limited to 30 per cent under certain conditions.
Workers must not have been resident in Italy in the two tax periods preceding the transfer and must agree to reside in Italy for at least two years.
At the same time, work must be carried out mainly in Italy.
This provision was subject to regulatory changes made by art. 5 of Decree Law no. 34 of 30 April 2019 (converted into Law no. 58 of 28 June 2019), in force since 1 May 2019.
To obtain the benefit referred to in the above art. 16, in force from 1 May 2020, the worker must
The tax benefit is available to EU citizens or non-EU if the country has an agreement against double taxation or on the exchange of information in tax matters, who:
Taxpayers may benefit from this relief for five years, starting from the tax period in which they transfer their tax residence to Italy.
Paragraph 5-quater – introduced in Art. 16 following the amendments made to Art. 5 of Decree Law no. 34 of 2019 when it was converted – extended the range of benefit beneficiaries to professional sportsmen, providing that they contribute to the creation of income limited to 50 per cent of their taxable amount.
In circular no. 33/E of 28 December 2020, the Inland Revenue clarified that the regime applies to workers who have transferred their tax residence in Italy as of 30 April 2019, under legal conditions.
Later, the Inland Revenue Director’s order of 3 March 2021, established that to access the benefit, it is necessary to pay an amount equal to 5 or 10 per cent of the income received in the previous year. Professional sports workers, whose income is 50 per cent tax-free and provided they pay a contribution of 0.5% of their taxable income, intended for the development of youth sectors, are excluded.
Using tax leverage is an aspect that is not overlooked by other European countries. Art. 16 reflects a process that has been underway for years in several EU countries.
Similar tax regulations in favour of repatriated workers have been established in France, Spain, the Netherlands and Portugal, not to mention the “remittance basis” system in place in Ireland and the United Kingdom.
The question’s answer
Based on the clarifications provided and the above regulatory developments, the Inland Revenue, in its answer to the question, clarified that a worker who transferred their tax residence in Italy in 2020 might benefit from the tax relief for repatriated workers for the employment income produced in Italy starting from the 2020 tax year (and the four subsequent periods). This is because it is sufficient to meet the requirements set out in the first paragraph of Art. 16 of the above Legislative Decree, i.e. that the person has not been resident in Italy in the two previous tax periods, that they agree to reside in Italy for at least two years and the work is carried out mainly in the country.
The Italian Inland Revenue was asked about the reimbursement of expenses paid to “smart working” employees. In answer to question no. 371 of 24 May 2021, clarifications were provided on the tax treatment of the sums paid by the employer to its employees as a reimbursement of internet connection costs.
The taxpayer’s question
In formulating the question, the employer informed the Inland Revenue of an intention to implement a smart working programme involving the reimbursement of the cost of connection using an “internet key” or a subscription to the domestic internet service.
The employer asked for clarifications on the relevance of the reimbursement of expenses for defining the:
According to the taxpayer’s interpretation, based on resolution no. 357/E of 7 December 2007 on the reimbursement of expenses under “teleworking.” The reimbursement of the internet connection cost paid to the employee, being instrumental to working performance, does not constitute employment income and is fully deductible from business income.
The Inland Revenue’s opinion
In formulating its opinion on the first question, concerning the IRPEF profiles, the Inland Revenue stated that employment income is governed by the all-inclusiveness principle, under Article 51, paragraph 1, of the Consolidated Income Tax Act, approved by Presidential Decree no. 917/1986 (TUIR).
Based on this principle, employment income is considered to be “all of the general sums and valuables, received for any reason during the tax period, including donations, related to employment.”
Apart from the exceptions provided for in the cases of travels and transfers (referred to in paragraphs 5 et seq. of Article 51), sums paid to the employee as reimbursement of expenses constitute employment income and are subject to taxation and social security.
Without prejudice to the general principles of the tax system outlined above, the Inland Revenue refers to the circular of 23 December 1997, no. 326, according to which certain reimbursements may be excluded from taxation. Reimbursements for expenses other than those incurred to produce income are exempt and are the employer’s responsibility but advanced by the employee for operational streamlining purposes. For example, expenses incurred to purchase capital goods of a nominal value (such as paper for a photocopy machine or printer, batteries for a calculator, etc.).
In the case presented by the taxpayer, the reimbursement granted by the employer does not relate to the cost attributable to the employer’s exclusive interest. The applicant would reimburse all the expenses incurred by the employee for the activation and subscription fees for the internet connection service, allowing them full and unlimited access to all the functions available and offered by the technology on the market.
The relationship between the internet use and the employer’s interest is doubtful since the data traffic contract is not chosen and entered into by the employer who reimburses the costs, and is external to the negotiated relationship established with the operator selected by the employee.
The Inland Revenue concluded that the reimbursement of internet costs incurred by the smart working employee, without objective and documented elements and parameters, cannot be excluded from defining the employment income and, will be fiscally relevant to the employee under Article 51, paragraph 1, of the TUIR.
For the IRES profiles, Article 95 of the TUIR provides that “The expenses for employee services deductible for defining the income include those incurred in cash or in-kind by way of donations in favour of employees, without prejudice to Article 100, paragraph 1.”
In this case, the reimbursement granted to the employee for the activation and subscription fees for the internet connection service meets an employee need and is linked to smart working, contributing to the payment of remuneration for the employee’s needs.
Reimbursements may be deductible for IRES purposes under Article 95, paragraph 1, of the TUIR, only to the extent that the activation of the internet connection is an implicit obligation of the agreed service, through the individual agreement under Law 81/2017, signed between employer and employee, as they are similar to “Expenses for work services.”
The severe repercussions for the economy and employment relationships caused by the Covid-19 epidemic emergency have made it necessary to introduce specific provisions on fixed-term contracts. These measures are mainly exceptions to the regulatory provisions under Decree-Law 87/2018 ( Dignity Decree) to encourage open-ended contracts, it has profoundly redefined fixed-term contracts by introducing specific reasons and reducing their maximum duration from 36 to 24 months.
Regulatory references and practice
The law converting Decree-Law 18/2020 (Cure Italy Decree), had introduced two important exceptions.
The possibility of entering fixed-term contracts as an exception to the prohibition on fixed-term contracts or temporary work contracts was introduced in production units with simultaneous recourse to social shock absorbers (art. 20, par. 1, letter C) and Art. 32, par. 1, letter c), Legislative Decree. no. 81/2015).
At the same time, the possibility to stipulate fixed-term contracts as an exception to the obligation to allow a suspension period to elapse between a fixed-term contract and its renewal with the same employer (stop&go, art. 21, par. 2 of Legislative Decree 81/2015) was introduced.
To further relax the emergency regulations on fixed-term contracts due to the essential need to safeguard employment relationships, the “Relaunch Decree” introduced an exemption from the obligation to provide reasons for renewal or extension of fixed-term contracts in progress as of 23 February 2020, by 30 August 2020.
The August Decree subsequently reformulated this exception, providing for the possibility to extend or renew fixed-term contracts without giving a reason for up to 12 months, only once and in compliance with an overall maximum of 24 months.
Contrary to the exception introduced by the Relaunch Decree, the renewed fixed-term contract did not need to be in place on 23 February, increasing the possibility to extend or renew contracts by 31 December 2020, for contracts expiring after that date.
The Support Decree extended the access window for extensions and renewals without reason until 31 March and, later, until 31 December 2021.
In the evolutionary sequence of the legislation providing the exception to the obligation to give reasons, the clarification contained in Art. 19bis Cure Italy Decree) clarified that fixed-term contracts could be extended or renewed even where social safety nets were in place.
The National Labour Inspectorate (INL), with its note no. 762 of 12 May 2021, specified that the exception concerns the emergency wage subsidies provided by the Covid-19 legislation, for “workers on the date of entry into force” of the Support Decree (see Art. 8 OF DECREE LAW 41/2021
According to current law, fixed-term contracts may be extended or renewed until 31 December 2021, without reason, only once and for up to 12 months provided that the overall duration did not exceed 24 months.
At the same time, there is no prohibition on stipulating fixed-term contracts in production units where there is the simultaneous use of the social shock absorbers provided for by the Covid-19 legislation (Art. 20, par. 1, letter C), Italian Legislative Decree 81/2015) and, finally, there is no stop&go obligation for renewals (Art. 21, par. 2 of Legislative Decree 81/2015).
The Labour Inspectorate note
Following a request for guidelines by the Genoa Local Labour Inspectorate (ITL), the INL, with note no. 804 of 19 May 2021, reconstructed the framework of the rules for the succession of fixed-term contracts.
INL pointed out that art. 19, paragraph 2 of Italian Legislative Decree no. 81/2015, limits the maximum succession of fixed-term contracts between the same parties to a total duration of 24 months, or a different limit provided by collective bargaining assuming that the contracts are for tasks of the same level.
Once this threshold has been reached, the parties may sign a further “assisted” exception at the ITL for a maximum of 12 months.
If the contracts signed concern classifications of legal level and category that do not coincide, different counters would be established for calculating the maximum of 12 months. Even if the maximum 24-month threshold was reached between contracts, there will be no need to proceed with the assisted exception at the ITL.
The INL pointed out that when there is a significant succession of contracts formally linked to different classifications, the ITL will check them by focusing on the classification’s effectiveness for the evolution of the tasks and related classification.
In several answers to questions, the Italian Inland Revenue has expressed its opinion on the tax treatment of sums paid as reimbursement of expenses to smart working employees.
Notably, there were three answers to the question at hand – i.e. no. 314/2021, no. 328/2021 and no. 371/2021. The tax authority reviewed the legislation that defines employment income and examined individual cases in these answers.
The answer to question no. 314/2021, covered the reimbursement of expenses paid by the employer to its smart working employees. This reimbursement corresponds to € 0.50 due to each employee for each day of remote work. This amount – quantified by comparing the daily savings of the company and the daily costs incurred by the workers – is, in the employer’s intentions, functional to “holding the employees harmless from the expenses they will incur for work reasons when they work from home.”
On this point, the Inland Revenue said how – considering art. 51, paragraph 1 of the TUIR, which enshrines the employment income all-inclusiveness principle – “as a general rule […] all amounts that the employer pays to the employee, including by way of reimbursement of expenses, constitute employment income.”
As an exception to the above principle, “reimbursements may be excluded from taxation if they relate to expenses, other than those incurred to produce income, which are the employer’s responsibility and are advanced by the employee. An example would be the purchase of capital goods of nominal value, such as paper for photocopies or printers, batteries for calculators, etc.” (AE Circular no. 326/1997). The tax authority pointed out that “expenses incurred by the employee and reimbursed on a flat-rate basis are excluded from the taxable base only if the legislature has provided a criterion for determining the portion which may be excluded from taxation because it refers to the use in the employer’s interest.”
In the absence of such a definition made by the legislature, it is clarified that costs incurred by the employee in the employer’s exclusive interest must be identified based on “objective” and “documentary evidence” criteria to benefit from the exemption.
In the case presented by the applicant, the Agency pointed out that the company used such criteria to determine the portion of reimbursement due to each employee. Therefore, the tax exemption regime typical of reimbursement of expenses may be applied to the daily flat rate of €0.50.
Answer to question no. 328/2021 deals with the case of a company wishing to agree with smart working employees on reimbursement of 30 per cent of the cost of domestic consumption incurred by them for Internet connection, electricity, air conditioning, heating, etc.
For the same reasons explained in the previous question, the Inland Revenue has denied its favourable opinion in applying the exemption to such reimbursements. A reimbursement generically identified as 30 per cent of the costs incurred by workers does not derive from applying those “objective and documentary evidence” criteria that must guide the employer in defining the reimbursements.
The Agency explained: “To avoid making the reimbursement of expenses part of employment income, it is necessary to adopt an analytical criterion that allows defining […] the share of costs saved by the company for each expenditure type, which have been incurred by the employee. This will lead to the same portion […] of costs reimbursed to employees being considered as referable to consumption incurred in the employer’s exclusive interest.”
Finally, in answer no. 371/2021 the tax authority examines the question submitted by a company wishing to reimburse each smart working employee the cost of the home internet connection, to facilitate the remote performance of work.
In this case, the Inland Revenue noted that “the reimbursement by the employer does not relate only to the cost attributable to the employer’s exclusive interest, since the applicant would reimburse the expenses incurred by the employee for the internet service activation and subscription fees.”
The relationship between the internet use and the employer’s interest is doubtful since the data traffic contract is not chosen and entered into by the employer who reimburses the costs, and is “external to the negotiated relationship established with the operator.” Nor does the case description reveal the precise cost which the employer would reimburse to the employees.
Even in the latter case, defining the reimbursement is flawed in terms of the objective and documental evidence parameters, which are helpful to allow the tax and social security exemption of such sums.
Based on the above, the Inland Revenue believes that “the data traffic costs the company intends to reimburse to the employee, not being supported by objective and documented elements and parameters, cannot be excluded from the calculation of employment income and, will be fiscally relevant to the employees under Article 51, paragraph 1, of the TUIR.”
The Inland Revenue, in its answer to question no. 270/2021, returned to express an opinion on the favourable tax regime reserved for the performance bonus (“PDR”) paid following a specific trade union agreement and consisting of applying a 10% rate, replacing IRPEF and the relevant regional and municipal surtaxes to the taxable amount of such bonus, under Art. 1, paragraphs 182 to 189, of Law 208/2015.
Behind the question was a concern about the possible tax relief of the performance bonus paid by the employer following the redetermination of the company objectives due to the COVID-19 pandemic.
The applicant company, which operates in the “legal games and betting” sector, signed a supplementary company agreement with the trade unions on 29 March 2019, with effect from 1 January 2019 to 31 December 2019, to establish an annual performance bonus.
The performance bonus was established on a variable basis and not determined beforehand. It was payable following an increase in EBITDA (or gross operating margin) for the year being monitored compared to the previous year.
Due to the healthcare emergency and consequent infection containment policies, resulting in the closure of many businesses, the contract underwent numerous postponements until reaching the final expiration established by the parties on 31 December 2020.
In addition to the extension, to compare the EBITDA of 2020 with that of 2019 consistently, the applicant company and the trade unions recalculated the 2019 EBITDA, reducing it in proportion to days of inactivity during the 2020 lockdown.
Considering the shorter period that the business was open, the parties agreed to a corresponding reduction of the performance bonus amount. Therefore, this maximum gross amount was fixed at € 2,000 instead of the previous € 2,800.
The applicant provided an interpretative doubt that applying the tax relief to the performance bonus despite the recalculation of the 2019 EBITDA led to an artificial redefinition of parameters useful to verify the company’s performance to make the 2019 EBITDA figure consistent with that of 2020.
The applicant company said that the comparison is made, using periods of forced business closure and, consequently, “is not made for the entire year, but a shorter period in which the activity was carried out (i.e. net of the days in which the shops were inactive).”
The Inland Revenue replying to the question, gave an overview of the sector’s legislation, stating that the payment of such bonuses, in the legislator’s intention, must be “linked to increased productivity, profitability, quality, efficiency and innovation that is measurable and verifiable” based on specific criteria.
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The Inland Revenue was asked to express its opinion following a question submitted by a retail clothing company that entrusts production to third parties.
The company believes it is essential to involve its employees in the sales of marketed products. Accordingly, it undertook a series of initiatives involving staff to strengthen its brand and market presence.
The company’s question
The company wanted to give its employees a “discount card” (or “card”) which allowed them to buy products at a discount compared to the list price. The card would be registered in the person’s name, non-transferable, usable only by the employee and not combinable with similar initiatives adopted on the market (for example, when the company carries out discount campaigns for all customers).
The discount would be about 25 per cent of the product final sale price.
– the products would be sold to the beneficiary employees at a price higher than that charged by the company to others, and higher than the cost incurred by the company;
– at certain times of the year, the discount granted to employees could be equal to that given to other customers.
With this question, the company asked the Inland Revenue whether granting the “card” to its employees could represent a taxable payment in kind and subject to taxation.
The Inland Revenue’s opinion
The Inland Revenue, in its answer to question no. 221 of 29 March 2021 – noted that Art. 51, paragraph 1 of the Consolidated Law on Income Tax (TUIR) defines the employee income as “all sums and valuables in general, received for any reason during the tax period, including in the form of donations, related to employment.”
In the Agency’s view, this provision establishes the principle of all-inclusiveness of employment income, i.e. the general taxation of everything that the employee receives during employment.
The Agency pointed out that this legislative provision includes, in addition to normal remuneration, those “financial benefits” that employees may receive as a supplement, such as compensation in kind consisting of works, services, and goods, including those produced by the employer.
On this point, the tax authority said that the same art. 51 of the TUIR clarifies, in paragraph 3, that “to define the values referred to in paragraph 1 in money terms […] the provisions to establish the normal value of goods and services shall apply […] Accordingly, the normal value of goods in kind produced by the company and sold to employees is determined to an extent equal to the average price charged by the same company in sales to wholesalers.”
The tax legislation requires that “to define the normal value, reference shall be made to the price lists or tariffs of the party who supplied the goods or services and, failing that, to the market statements and chambers of commerce lists and professional tariffs, taking into account customary discounts” (art. 9 of the TUIR).
Based on this, the Inland Revenue – given the reference in the legislation to “customary discounts” – stated that any income deriving by the employer marketing and selling goods or services to its employees at a discounted price, must be calculated based on the all-inclusiveness principle. As clarified by the Ministry of Finance in Circular 326/1997 – the Agency explained that the income to be taxed is equal to the normal value “only if the goods are sold free of charge. However, if the employee pays for the sale of the goods, the value to be taxed is equal to the difference between the goods normal value and the sums paid.”
The tax authority noted that the price paid by employees for goods purchased with the discount card is higher than that paid by parties linked to the employer, for example, under franchising or supply agreements. The price paid by the employee cannot be regarded as a symbolic consideration that “disguises” the provision of remuneration.
The discount granted to employees does not exceed the discount applied, at certain times of the year, to other customers and cannot be cumulated with other similar commercial initiatives adopted in favour of customers.
Conclusions
Based on these considerations, the Inland Revenue did not see any tax-relevant “discount” or taxable matter since the employee pays the normal value of the goods net of the customary discounts. According to the tax authority, “the tax relevance of the discount applied to the price of the clothing purchased by the company employees would generate […] a disparity in treatment between the customers who could purchase the goods at a discounted price and the employees of the same company who would see the financial benefit taxed.”
Finally, the fact that the discount is granted to the employee using the card does not constitute a “financial benefit” since the “card” features – i.e. registered in the person’s name, non-transferable, usable exclusively by the employee and not combinable with similar initiatives adopted on the market – allow it to be configured as a “mere technical tool through which the use of the discount is permitted.”
In conclusion, it can be said that the “discount card” does not constitute a benefit that generates taxable income where the final price paid by them for the purchase of the good (or service), net of customary discounts, is not lower than that practised on the market.
Source: Agendadigitale.eu
The Court of Cassation, in ruling no. 5547 of 1 March 2021 stated that an employee who cannot use the company canteen for service reasons is entitled to a meal voucher instead of a meal if they work more than six hours a day.
The facts of the case involved a shift worker employed by a hospital who applied to establish his right to receive meal vouchers for each shift exceeding six hours and requested compensation from the employer.
The Court of Appeal of Messina, confirming the first instance ruling, upheld the worker’s claim with ruling dated 18 December 2018 no. 906.
The employer appealed this ruling at the Court of Cassation.
The worker worked seven hours in the afternoon shift and 11 hours in the night shift. He could not have used the company canteen service since the care service could not be suspended and there was no evening canteen service. The employee was entitled to meal vouchers as a substitute for the company canteen service and compensation for the damage he was owed for providing the meal at his own expense.
According to the employer, the local Court’s ruling incorrectly identified the right to a break with the canteen rights. The Court observed that Article 29 paragraph 3 of the supplementary national collective labour agreement for the health sector of 20 September 2001 should be interpreted in conjunction with Legislative Decree 66/2003, Article 8. It concluded that the worker was entitled to meal vouchers.
The subject of the employer’s appeal was the observation that the worker could “provide for the consumption of the meal before starting the afternoon shift and the night shift.” The legislation does not confer the canteen right but regulates “exclusively the right to a break since it provides the possibility to eat a meal during the break.”
On this subject, the Court of Cassation pointed out that Art. 29 of the National Collective Labour Agreement of 20 September 2001, supplementing the National Collective Labour Agreement of 7 April 1999, provides the canteen right for all employees “on days when they are at work, based on their working hours.” “Based on their organisational structure and compatibly with available resources, companies may set up service canteens or guarantee the exercise of the right to a meal as a substitute. The organisation and management of these services are part of the management autonomy of companies. At the same time, the National Collective Labour Agreement defines the rules on the accessibility and exercise of the canteen right by workers.”
Based on the National Collective Labour Agreement, the Supreme Court shows that the consumption of the meal – and the related canteen or meal voucher right – is provided within an unworked break. The judges agreed that “the specific working time organisation was linked to the use of a work break.” Hence the relevance of Article 8 of Legislative Decree 66/2003, according to which “the worker must benefit from a break when the daily working time exceeds six hours, to recover his mental and physical energy and, if necessary, eat a meal.”
From the legislative text, the Court deduced the assumption that “eating a meal is linked to the work break and takes place during the break.” This interpretation shows a consistent link between the canteen right under Article 29 paragraph 2 of the supplementary national collective labour agreement for the health care sector of 20 September 2001 and the right to a break.
A meal voucher is due to an employee who works more than six hours if they cannot use the company canteen.
Confirming the second instance ruling, the Court of Cassation rejected the employer’s appeal and ordered it to pay the costs and additional sums required by law.
With answer to question no. 270/2021 the Italian Internal Revenue Agency ruled on application of the favourable tax regime – consisting of the application of a rate of 10%, replacing the IRPEF and relative regional and municipal surtaxes (article 1, paragraphs from 182 to 189, of Law no. 208/2015) – to the performance bonus paid following a recalculation of company objectives for the COVID-19 pandemic.
The objective facts of the question
The requesting employer, on 29 March 2019, signed a supplementary company agreement with the trade unions to establish an annual performance bonus. The agreement was from 1 January 2019 until 31 December 2019
In detail, the established bonus, on a variable basis and not determined beforehand, was payable following an increase in EBITDA (or gross operating margin) for the year being monitored compared to the previous year.
Due to the COVID-19 healthcare emergency and consequent infection containment policies, resulting in the closure of many businesses, the contract underwent numerous postponements, until reaching the final expiration established by the parties at 31 December 2020.
In addition to the postponement, the company and unions, in order to be able to compare 2020 EBITDA uniformly with that of 2019, thought it reasonable to recalculate the latter, reducing it in proportion to the number of days the business was closed in 2020 due to the “lockdown”.
In consideration of the shorter period of time that the business was open, the parties also agreed to a corresponding reduction of the amount of the performance bonus, whose maximum gross amount was fixed at 2,000.00 euro, instead of the previous amount of 2,800.00 euro.
Application of detaxation to the bonus in the case in question
Given these premises, the requesting company raised a question on the interpretation of the possibility to apply detaxation to the performance bonus despite the recalculation of 2019 EBITDA, useful for making it uniform with that of 2020, taking into consideration the periods of forced closure. Therefore, according to the request, the comparison “is not made with reference to the entire year, but with reference to a shorter period in which the business was performed (i.e. net of the days the points of sale were closed)”.
In its answer the Italian Inland Revenue Agency outlined the laws on the issue citing how the 2016 Budget Law intended to reserve a favourable tax regime for performance bonuses, by applying a substitute tax of 10% (article 1, paragraphs 182 to 189, of Law no. 208/2015).
According to the Agency, the payment of these bonuses, as the government intended, must be “linked to increasing productivity, profitability, quality, efficiency and innovation that is measurable and verifiable” based on certain criteria.
The tax authority stated that, at the end of the bonus vesting period, the result achieved by the company must be “incremental” compared to that of the previous period. Given that “it is […] not sufficient that at the end of the bonus vesting period, the objective set by the second level bargaining is achieved since the result achieved by the company must be incremental compared to the result before the beginning of the bonus vesting period.”
Moreover, the Authority explained that “the favourable tax regime can be applied if the incremental objectives underlying the bonus vesting period, defined in the contract and measured after a reasonable contractual period and not just its disbursement, takes place after the contract signing. Therefore, the measurement criteria must be established reasonably in advance of any future productivity which has not yet been achieved.”
The conclusion of the Italian Inland Revenue Agency related to application of the tax benefit
The tax authority believes that in this case, the “redetermination of the appropriate period due to the epidemiological emergency caused by COVID-19 […] does not preclude the application of the favourable regime, since […] the duration of the bonus vesting period is left to the parties’ agreement.”
Likewise, the Agency did not encounter any criticalities with the recalculation, performed by the employer, of the reference value of the profit indicator constituted by EBITDA of 2019, because “such recalculation, given the business suspension period recorded in 2020, allows a current increase in profitability, as it is not compared to a remote figure.”
Lastly, Inland Revenue pointed out that the company may apply the 10% rate to the bonus “if the company/local contract certifies that the achievement of the incremental objective is […] uncertain at the date of its signing because the trend of the parameter adopted at the time of negotiation is susceptible to variability.”
According to the Agency, by signing the union agreement, the applicant company had not intended to change the criteria for measuring the incremental objective, but rather to extend the 2019 supplementary contract until 31 December 2020, redefining the duration of the appropriate bonus vesting period, based on a mathematical and non-discretionary calculation, i.e. bonus vesting, in order to report an actual increase in profit, through a comparison of two uniform figures. The incentive function of the rules in question was not lost.
As a result of these considerations, Inland Revenue confirmed that “where, as of 31 December 2020, the applicant notes that the EBITDA value for 2020 is incremental compared to the EBITDA value for 2019, recalculated as described, it may apply the tax regime under Article 1, paragraph 182, of the 2016 Stability Law to the performance bonus for 2020.”
With answer to question no. 314 of 30 April 2021 the Italian Inland Revenue Agency provided explanations on the tax treatment for sums paid by the employer for expense reimbursement to its employees who perform their jobs in an agile procedure (so-called “smart working”).
The taxpayer’s question
In formulating its question, the applicant employer notified Inland Revenue of its intention to:
Specifically, the taxpayer conducted a detailed analysis to verify its daily savings and the daily cost incurred by the worker for certain expenses, such as: use of electricity to use a computer and light and costs to use a bathroom (water and consumables).
The performed analysis resulted in considering payment of an expense reimbursement for each employee of 0.50 euro per work day of smart working.
In light of the above, the taxpayer asked Inland Revenue if it was possible to exclude this daily sum from taxation, since it does not constitute employment income.
The Inland Revenue’s opinion
In formulating its opinion on the taxpayer’s question, Inland Revenue made an excursus to the regulations and practices on reporting expense reimbursements as income starting from the so-called all-inclusiveness principle of employee income ratified by article 51, paragraph 1, of the income tax consolidation act, approved by Presidential Decree no. 917/ 1986 TUIR (Italian Income Tax Consolidation Act).
Based on this principle employee income is considered to be “all of the sums and valuables in general, for any reason received during the tax period, including in the form of donations, in relation to employment. Even sums and valuables in general are considered received during the tax period, that are paid by the employer by the 12th day of the month of January of the tax period after the one they refer to.
Thus, generally, all of the sums paid by the employer to its employees, including for expense reimbursement, constitute employee income and are thus subject to taxation and social security.
However, Inland Revenue referred to the circular of 23 December 1997, no. 326 according to which certain reimbursements may be excluded from taxation: i.e. reimbursements that regard expenses, other than those incurred to produce income, that are the responsibility of the employer but advanced by the employee. For example, expenses incurred to purchase capital goods of a minor value (such as paper for a photocopy machine or printer, batteries for a calculator, etc.).
The all-inclusiveness employee income principle was further examined in the resolution no. 178/E of 9 September 2003 as well as the later no. 357/E of 7 December 2007.
With the aforesaid resolution, Inland Revenue explained that sums that do not add to the employee’s wealth do not contribute to their taxable income (for example, this is the case of indemnity received to return cash outlaid) and “payments paid for an exclusive interest of the employer are not fiscally relevant for employees.”
Lastly, Inland Revenue then looked at the determination of the amount of the expense reimbursed to the employee on a flat rate basis.
To this end the tax authority, citing the principles expressed in the resolution no. 74/E of 20 June 2017, confirmed that, if the law does not indicate a method for determining the amount excluded from taxation (for example, that included in article 51, paragraph 4, letter a) of TUIR (Italian Income Tax Consolidation Act) regarding company cars granted to employees for mixed use), the costs incurred by the employee in the exclusive interest of the employer, must be identified based on objective elements, verifiable with documents. This is in order to prevent the relative reimbursement from contributing to determine income from employment.
In the hypothetical case, the taxpayer has correctly represented the method for determining the portion of the costs to reimburse to employees in smart working, based on parameters aimed at identifying costs saved by the company.
Based on all of the above, Inland Revenue decided that the sums paid by the employer to its employees to reimburse costs incurred through the represented procedures are not taxable for IRPEF.
With Circular 71 of 27 April last, INPS implemented the agreement on trade between the European Union, the United Kingdom and Northern Ireland published in the Official Journal of the European Union on 31 December 2020.
Pending its examination by the European Parliament, the acceding countries have agreed to apply the agreement provisionally from 1 January until 30 April 2021.
With regard to social security, the coordinating provisions are contained in the relevant Protocol, which forms an integral part of the agreement and is valid for 15 years from the entry into force of the agreement.
With regard to employee relocations, by way of derogation from the general provisions and as a transitional measure, the Protocol provides that the posted employee remains subject to the legislation of the State in which he habitually carries out his activity for a period not exceeding 24 months.
INPS has clarified that the provisions on posting set out in the Protocol only apply to States that have notified the EU of their intention to derogate from the general provisions.
Article 2125 of the Civil Code defines a non-competition agreement as restricting “the employee’s activities, after contract termination.”
The agreement is a valuable tool for the parties to mutually govern fundamental aspects of employment relationship termination in some circumstances (for example, for high professionalism and specialisation). This agreement restricts the employee’s right to carry out professional activities which compete with the previous employer for a given period after the relationship termination, extending the loyalty obligations under art. 2105 of the Italian Civil Code imposed on the employee during employment.
The Case law explained that “Non-competition clauses are aimed at protecting the employer from exporting the company’s intangible assets to rivals. This includes internal factors (technical and administrative organisation, work methods and processes, etc.) and external factors (goodwill, clientele, etc.). These assets ensure the company endurance on the market and its success compared to rivals.”(Court of Cassation no. 24662/2014).
The above article 2125 of the Italian Civil Code outlines non-competition agreement features, without which the contract will be null and void, namely:
Continue reading the full version in Italian on Corriere delle Paghe – Guida al Lavoro de Il Sole 24 Ore.
On February 5th 2021, the hypothesis of renewal agreement for the CCNL of Industrial Sector was signed and approved by the workers’ assemblies, as communicated by the trade unions on April 16th.
The trade unions and employers’ parties have made a breakthrough in sectoral collective bargaining, deeply improving certain specific rules of the CCNL.
In particular, the renewal has revised the rules on classification and level of employees and the apprenticeship contract, as well as minimum monthly salaries and corporate welfare.
The most important developments concern the rules on classification and level of employees and the apprenticeship contract.
In detail, the classification is expected to change from one based on “categories” to one based on “levels”, with the abolition of the “category 1”. Workers will need to be reclassified to their new levels by May 2021.
Apprenticeship contract, which until today was categorised by the so called sub-grading system, has been redefined on the basis of a gradual wage increase for the apprentice throughout the training course period.
With circular letter no. 63 of April 14, 2021, INPS has provided the first clarifications regarding the right for working parents in the private sector to benefit of the leave introduced by decree law 30/2021.
The leave, covered by a notional contribution, is aimed at workers with children under of 14 years of age or severely disabled children who are affected by Covid, in contact quarantine or, possibly, with suspended teaching activities.
For the periods of abstention, INPS grants the employee an indemnity equal to 50% of the salary.
The leave can only be taken in cases where the work duties cannot be carried out in a “smart working” mode and as an alternative to the other cohabiting parent, or even non-cohabiting parents in the case of a severely disabled child.
Furthermore, for parents with children aged between 14 and 16, the right to abstain from work has been stated, without, however, payment of the salary or allowances nor recognition of a notional contribution, with a prohibition on dismissal and the the right to retain a job.
The Court of Cassation, in ruling no. 701 of 18 January 2021, ruled on the employer’s power of dismissal, underlining that it is limited if the employee has previously signed a trade union agreement asking to be moved to a less senior job in order to keep his job.
In the case at hand, a worker was dismissed following the outcome of a mobility procedure under Law no. 223/1991. In particular, the worker – classified as a clerk – had been laid off under an extraordinary redundancy scheme due to the abolition of the function to which he was assigned, and had subsequently manifested his willingness to carry out tasks at a lower level, even with a reduction in the salary received.
This willingness was rejected by the employer, who started the mobility procedure for 15 employees and then concluded the trade union agreement to define its criteria. Finally, the employee was dismissed, with effects deferred to the end of the redundancy period.
The employee’s appeal against his dismissal was rejected by the first two instance courts, which held that the employee’s willingness to perform lower duties did not give rise to an obligation on the part of the employer to accept the employee’s request, rather only to the possibility of reaching an agreement.
The Court of Cassation, after receiving the employee’s appeal, noted that a clause in the trade union agreement signed with the employer established – in application of paragraph 11 of Article 4 of Italian Law no. 223/1991 – that “agreements concluded in the course of the procedures referred to in this Article, which provide for the total or partial re-employment of workers deemed to be redundant, may establish […] the assignment thereto of duties other than those performed”.
Therefore, the clause in the agreement set out the possibility for redundant employees to ask to be transferred to lower jobs and qualifications in order to avoid their dismissal. According to the Court of Cassation, the rationale of the rule referred to in the trade union agreement imposes a mandatory constraint on the employer, being this on the one hand a remedy to avoid dismissal and, on the other hand, a non-binding derogation for employees, who might refuse their demotion.
In fact, what prevails is “the interest of the employee in maintaining his job”: in this sense, the Court of Cassation also observes that trade union agreements that establish the criteria for choosing the employees to be laid off under a mobility scheme “do not belong to the category of normative collective agreements, so that they directly affect not the position of the employee, rather that of the employer, who must apply the agreed criteria in choosing the employees to be laid off under a mobility scheme“.
Therefore, the agreement is binding, for it is designed to protect the general interest and to safeguard employment levels.
Hence, the Court of Cassation upholds the worker’s appeal, concluding that the primary interest protected by Article 4, paragraph 11 of Italian Law no. 223/1991 is job preservation, rather than the stability of contractual economic conditions.
Source: Sintesi
With provision no. 60353 of 3 March 2021, The Inland Revenue provided operating procedures by which workers, employees and self-employed, beneficiaries of the special regime for repatriates, may opt for the extension of the tax benefit, under Article 1, paragraph 50, of Law 178 of December 30, 2020 (the “ 2021 Budget Law“), for an additional five years.
Regulatory framework
Article 1, paragraph 50, of the 2021 Budget Law – supplementing article 5, of Decree-Law no. 34/2019 – provided for the possibility for repatriate workers to opt for the extension of the tax benefit for an additional five tax periods. For the extension duration, employment (or similar) and self-employment income will be subject to reduced taxation, as we will see more fully below.
This option is permitted, from 1 January 2021 to workers who are already enrolled in the Registry of Italians resident abroad (AIRE), or have been citizens of European Union Member States. They must (i) have transferred their tax residence to Italy before 30 April 2019 and (ii) as of 31 December 2019 be beneficiaries of the special tax regime provided for by Article 16 of Legislative Decree no. 147/2015 for repatriated workers.
Under the above provision, the possibility of benefiting from the favourable tax regime is open to workers who
Employment (or similar) or self-employment income produced in Italy will be taxable only for 50 per cent of its amount. The taxability is further reduced to 10 per cent if the worker has at least three minor or dependent children.
The option, without prejudice to compliance with the above subjective requirements, may be exercised on condition that the worker pays:
The 2021 Budget Law required procedures for exercising the option be subject to a provision of the Inland Revenue, issued on 3 March.
Worker obligations and the withholding agent
Under the 2021 Budget Law, the provision describes the fulfilments that must be carried out by the worker (the employee) and the withholding agent.
A worker who meets the requirements for exercising the option must pay the amount referred to in the previous paragraph:
Employees who intend to benefit from the extension of the favourable regime must inform their employer that they have exercised the option by submitting a signed application containing:
Following the extension of the favourable regime made by the employee, the employer will operate the withholding taxes on the lower amounts and taxable values paid from the wage period following the receipt of the application signed by the employee.
At the end of the year or the employment relationship termination, the employer will make a settlement between the withholdings made and the tax due on the remuneration, reduced under the tax benefit for which the “repatriate” employee is a beneficiary, paid from 1 January of the reference year.
The Constitutional Court, with its ruling no. 59 filed on 1 April 2021, declared unconstitutional art. 18, paragraph 7, second sentence of Italian Law 300/1970 (Workers’ Statute), as amended by art. 1, paragraph 42, letter b) of Law 92/2012 (Fornero Law), since it is detrimental to the principle of equality under art. 3 of the Constitution.
Facts of the case
By its 7 February 2020 order, the Court of Ravenna, acting as employment tribunal, raised a question of constitutional legitimacy of art. 18, paragraph 7, second sentence of Italian Law 300/1970 in the “part in which it states that, if the judge ascertains the manifest lack of the fact underlying a dismissal for justified objective reasons, “may” and not “must” apply the remedy referred to in paragraph 4 of art. 18 (reinstatement)”.
According to the Court of Ravenna, the optional nature of the reinstatement of a worker unlawfully dismissed for justified objective reason violates the principle of equality (art. 3 of the constitution.) as “(…) it would result in an arbitrary inequality in treatment between completely identical situations, i.e. the dismissal for just cause and dismissal for justified objective reason of which groundlessness is established in Court.”
In the Court’s opinion, the Constitutional Court should restore equal treatment between the two types of dismissal regarding mandatory reinstatement. According to the Court of Ravenna, even in the case of dismissal based on financial grounds, the reinstatement should be mandatory once the manifest lack of the fact is established, and it should not leave the decision to judicial discretion.
The Constitutional Court’s ruling
The Constitutional Court, adhering to the Court of Ravenna thesis, states that the “merely optional nature of reinstatement reveals a conflict within the system outlined by Law 92/2012 and violates the principle of equality.”
By legislature conscious choice, the system assigns importance to the common assumption of the lack of the fact and connects the applicability of the reinstatement remedy to this assumption. This reveals that “the optional nature of the reinstatement remedy for dismissals based on financial grounds is conflicting and harmful to the principle of equality, in the face of the inconsistency of the alleged justification and the occurrence of a more serious fault than the lack of the fact.”
The Constitutional Court quoted majority case law on the subject that recognises the discretionary power of the judge to deny reinstatement in the case of manifest lack of the fact at the base of the dismissal for objective justified reason if “the reinstatement remedy is, at the time of adoption of the judicial measure, substantially incompatible with the organisational structure” of the company.
The Constitutional Court’s view was that “it is manifestly unreasonable to link the major consequences that impact the alternative between a more incisive reinstatement remedy or a mere indemnity, to contingent factors or factors determined by the choices of the person responsible for the offence (the entrepreneur).”
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Based on the above, the Court declared art. 18, paragraph 7, second sentence of Italian Law 300/70, as amended by the Fornero Reform, unconstitutional in the part where the judge is required to ascertain the manifest lack of the fact underlying the dismissal based on financial grounds, “may also apply” – instead of “also applied” – reinstatement remedy.