With circular letter no. 56 of April 12, 2021, INPS has provided the first clarifications regarding the exemption from contributions for employers who hire employees under the age of 36 with an open-ended term employment contract or change from a fixed term to an open-ended employment, according to the 2021 Budget Law provisions.
The amount of the exemption is equal to 100% of the social security contributions due by the employer, up to the maximum amount of € 6,000 per year and for a maximum of 36 months.
For companies with a production unit located in the regions of Abruzzo, Molise, Campania, Basilicata, Puglia, Sicily and Sardinia, the exemption is benefitable for a maximum of 48 months.
Furthermore, as a general requirement, employers must not only be compliant with the social contribution duties but they also must not have carried out, in the six months prior to the hiring and over the following nine months, individual dismissals for justified objective reasons and/or collective redundancies.
The Court of Cassation, in its order no. 1759 of 27 January 2021, clarified the double contribution to be paid by those who are, simultaneously, partners and directors of limited liability companies having a corporate purpose classifiable under the tertiary sector.
According to INPS practice and the prevailing case law since 2011, the managing partner must pay contributions twice: (i) to the INPS Retailer Management scheme, as partner, for the business income produced by the company and (ii) INPS Separate Management Scheme for the income deriving from any remuneration received for the director’s office.
Under its order, the Supreme Court did not deny the general principle of the managing partner double registration in the above INPS management schemes but assumed the partner’s registration in the Retail Management scheme can be excluded.
Judicial Appeal to the payment notice served by INPS
The Court of Appeal of Bologna upheld the judgement of the Court of first instance upholding the opposition brought by the chairman of the board of directors and partner of a limited liability company against an INPS payment notice. This tax payment concerned contributions due to the Retailer Management Scheme for the activity carried out by the chairman of the board of directors as a partner who, as a remunerated director, was registered under the INPS Separate Management scheme.
The Court of Appeal held that the double registration was admissible and stated that for INPS Retailer Management Scheme registration purposes, the activity carried out as a partner had to be different and distinct from that of director.
In this case, supervision, and the position of contact person for customers and suppliers or hiring an employee by the chairman of the board of directors, fell within the director’s duties.
INPS appealed to the Court of Cassation against the second instance ruling, relying on a single detailed ground of appeal.
Unlawfulness of INPS’s actions according to the Court of Cassation
The Supreme Court noted that Article 1 paragraph 208 of Law 662/1996 did not introduce any principle of alternation between registration in the Retailer Management Scheme and the Separate Management Scheme under Article 2, paragraph 26 of Italian Law 335/95.
The Court reiterated that, following the authentic interpretation of this rule made by Article 12, paragraph 11, of Decree Law 78/2010, converted into Law 122/2010, the legislator excluded the single scheme registration rule. A single scheme registration “is possible (and for the prevailing activity) only for self-employed work exercised by retailers, craftsmen and farmers.”
The Court pointed out that “for the case of business carried out by retailers, artisans or farmers simultaneously with the self-employed work for which enrolment in the separate social security management scheme is mandatory, as provided for by art. 2, paragraph 26 of Law 335/1995, the unification of contributions based on the prevalent activity parameter, as provided for by art. 1, paragraph 208 of Italian Law 662 of 1996.”
According to the Court of Cassation, the above principle of double contribution, referred to in the case law, has led to the INPS practice of automatically registering the managing partner of a limited liability company: (i) in the INPS Retailer Management Scheme, for the business income produced as partner and (ii) at the INPS Separate Management Scheme for the income deriving from the remuneration received for the director’s office.
In their order, the judges did not question the principle of double contribution, but rather the social security institution practice. The judges ruled that “the performance […] of the sole activity of director, without participating in the company’s material and executive activity” cannot be sufficient to justify the registration to the Retailer Management Scheme, and that “nor the status of partner of a joint stock company (with liability limited to the subscribed capital and with participation in the achievement of the corporate purpose exclusively through the contribution of such capital) per se, can mean the exercise of direct commercial activity in the company.”
Director’s duties include carrying out supervisory activities, being the contact person for customers and suppliers or hiring an employee. These are not a partner’s duties.
Based on these considerations, the Court of Cassation rejected INPS’s appeal, confirming the unlawfulness of the automatic registration of the managing partner in the Retailer Management Scheme since the social security institution had not proved the “direct participation in the company’s material and executive activity” to register the partner in the above Scheme.
Conclusions
With its order, the Supreme Court questioned the automatic registration of the managing partner of a limited liability company in the Retailer Management Scheme. According to the Court of Cassation, it is INPS’s responsibility to demonstrate direct participation in the company’s material and executive activity that will generate the obligation to register the managing partner of a limited liability company in the Retailer Management Scheme.
This direct participation of the partner in the company’s activity can be demonstrated by the institute in cases where the company carries out business with a corporate purpose classifiable in the tertiary sector without the use of employees or contracted personnel.
Source: Agendadigitale.eu
On the 23rd March the so called “Support Decree” entered in force and introduced additional measures to support businesses following the protracted epidemiological emergency COVID-19.
In particular, the wage subsidies have been extended for additional 13 weeks for the so called CIGO (applied, for example, to companies of industrial sector) covering the reduction or suspension of the business for the period from 1st April to 30th June 2021.
On the other hand, as regards the FIS and CIGD wage subsidies (applied, for example, to companies of trade sector), additional 28 weeks of subsidy have been introduced to cover the period from 1st April to 31st December 2021.
No additional INPS contributions in charge of the employer are due for the new weeks of wage subsidies provided by the new Decree.
INPS applications to access to the above subsidies must be submitted by the end of the month following the one in which the suspension or reduction of business began.
The Court of Rome, in its 26 February 2021 order, stated that the prohibition of dismissal on financial grounds, introduced by the emergency legislation, applies to executives.
Facts of the case
The facts of the case concern a worker, classified as an executive under the National Collective Agreement for Executives in the Tertiary Sector, who was dismissed on 23 July 2020 for justified objective reasons due to a company reorganisation resulting from a drop in business caused by the Covid-19 health emergency.
The Executive challenged the dismissal invoking the violation of art. 46 of Decree Law 18/2020, converted into Law 27/2020, and art. 81 of Decree Law 34/2020, converted into Law 77/2020, which prevented the dismissal for justified objective reasons under art. 3 of Law 604/1966, as of 23 February 2020.
The Court’s decision
In upholding the Executive’s appeal, The Court of Rome stated that the reason behind prohibiting dismissals under the emergency legislation was for “public order” and “social solidarity.” It consists of “temporarily preventing the pandemic’s economic consequences from resulting in the loss of jobs”, thus preventing the damage caused by the pandemic from being borne by workers. The protection need was “common to executives who were more exposed to that risk given the greater flexibility of their contractual-collective arrangements for protection against arbitrary dismissal (‘justifiability’) than those laid down by Art. 3 of Law No. 604/66.”
According to the judge, extending this prohibition was based primarily on the principle of “no unequal treatment”: excluding executives from the emergency protection introduced by legislation during the pandemic would be unreasonable as in open contrast with Article 3 of the Constitution according to which “all citizens have equal social dignity and are equal before the law.”
The judge based their ruling on the concept of “justified objective reason” under Art. 3 of Law No. 604/66, which, in their opinion, must be understood as including the notion of “objective justifiability” (related to executives), which “substantially shares its nature” with the dismissal for a justified objective reason. According to the Court, that makes it possible to consider that the reference made by the legislation on dismissal prohibition in Art. 3 of Law No. 604/66 “is intended to identify the nature of the impassible reason for termination, and not to delimit the subjective scope of application of the prohibition.”
On these grounds, the Court of Rome declared the Executive’s dismissal null and void, ordering
◊ ◊ ◊ ◊
The order concluded that the dismissal prohibition rules for justified objective reasons introduced by the legislator during the Covid-19 health emergency applied to executives even if they do not fall within the scope of application of Law 604/66 referred to by the emergency legislation.
In circular no. 32 of 22 February 2021, INPS provided the first clarifications on using the contribution exemption, introduced by the 2021 Budget Law, to recruit female workers carried out in the two years 2021-2022.
Regulatory framework
Article 1, paragraph 16, of Law 178 of 30 December 2020 (the “2021 Budget Law“) states that the contribution exemption for hiring women workers in the 2021-2022 period under Article 4, paragraphs 9 to 11, of Law no. 92 of 28 June 2012 (the Fornero Reform), is 100 per cent up to €6,000 yearly.
Paragraph 17 of the same article specifies that the exemption application is subject to the requirement of a net increase in the employer’s employment, calculated based on the difference between the number of workers employed in each month and the average number of workers employed in the previous 12 months.
According to the EU law conventional criterion, to identify the employment increase, the number of employees is calculated in Annual Work Units (AWU).
The circular does not provide any operational instruction since the benefit application is subject to the European Commission authorisation. After this authorisation, a new message will be issued concerning the compilation of the contribution declarations by employers who intend to access the benefit.
Employers entitled to the benefit
All private employers, including non-entrepreneurs and employers in the agricultural sector, are eligible for the benefit.
The exemption from social security contributions does not apply to Public Administrations, which can be identified by referring to Article 1, paragraph 2, of Legislative Decree of 30 March 2001 no. 165.
Workers entitled to the exemption
An express reference made by the 2021 Budget Law indicates that the incentive is a natural extension of the Fornero Reform regulations.
The concept of “disadvantaged women“, for whom the exemption is applicable if hired, includes the following categories:
To receive the benefit, either a long-term state of unemployment (more than 12 months) or compliance with the inactivity requirement (the woman must be “unemployed“) is required, along with other conditions.
The late submission of the compulsory electronic communications relating to the establishment and modification of an employment or staff leasing agency relationship entails the loss of a part of the incentive related to the period between the relationship’s starting date and late communication date.
Types of incentivised employment relationships and exemption duration
The incentive is available for:
As for its duration, INPS specified that the incentive would be available for
The incentive can be suspended when there is a compulsory absence from work due to maternity, allowing for a period of temporal deferment.
Incentive requirements
The right to benefit from the incentive is subject to a net increase in employment and compliance with incentives’ general principles established by Article 31 of Legislative Decree no. 150/2015, under the following conditions laid down in Article 1 paragraph 1175 of Law no. 296/2006, namely:
Under Article 2 paragraph 32, of Regulation (EU) no. 651/2014, the net increase in employment is “the net increase in the number of employees in the establishment compared to the average for a reference period. Jobs eliminated during that period are to be deducted, and the number of workers employed full-time, part-time or seasonally is to be calculated, taking into account fractions of annual work units.”
As already clarified in question no. 34/2014 of the Ministry of Labour and Social Policies, the employer must verify the actual workforce present in the 12 months following the facilitated hiring and not “estimated” employment.
If the employer should find a net increase in employment in terms of Annual Work Units at the end of the year following the hiring, the monthly quotas of the incentive already received are “consolidated.” Otherwise, the incentive cannot be legitimately applied, and the employer must return the individual quotas of the incentive already received in the absence of compliance with requirements through the relevant procedures.
Under Article 32, paragraph 3, of Regulation (EU) no. 651/2014, is applicable if the net employment increase is not realised because the previously available job(s) became vacant due to:
Combination with other incentives
The exemption can be combined with other exemptions within the limits of the social security contribution, and if there is no express prohibition to combine with different schemes for additional exemptions.
If the exemption can be combined with another benefit, for applying the second benefit it is necessary to refer to the “due” contribution or “due” residual contribution because of the first exemption applied.
The sequence which allows combinations of exemptions under the rules approved, in chronological order, on the assumption that the last exemption introduced in the system is combined with the previous on the residual “due” contributions.
The Italian Tax Authority, in its answer to question no. 42 of 18 January 2021 provided guidance on the special regime’s applicability for repatriated workers under Art. 16 of Legislative Decree no. 147/2015, “Internationalisation Decree”, particularly returning from posting abroad.
By introducing an ad hoc tax regime, the decree provided self-employed workers and employees with an incentive to return to the country and allowed them to benefit from a significant reduction in their taxable income following the transfer of residence to Italy under art. 2 of the Consolidated Income Tax Law (TUIR) varies according to the date of transfer and the applicable regulations.
To benefit from this regime, considering the various changes that have taken place over the years, under paragraph 1 of art. 16 of the decree, it is necessary that the worker (i) transfers the residence to Italy under art. 2 of the Consolidated Income Tax Law (TUIR), (ii) has not been resident in Italy in the two tax periods preceding the transfer, undertaking to reside in Italy for at least two years, and (iii) carries out the work mainly in Italy.
Under paragraph 2 below, the tax benefit is available to a European Union or non-EU country citizen with which a double taxation convention or agreement on the exchange of information on tax matters is in force, who (i) have a university degree and have been “continuously” employed, self-employed or engaged in a business outside Italy for at least 24 months or (ii) have been “continuously” studying outside Italy for at least 24 months, obtaining a university degree or a postgraduate degree.
The case involved an Italian worker, who was a graduate and employed with a permanent contract by an Italian company since 2013. Since 15 February 2016, the worker was seconded to an international group company, based in the People’s Republic of China (“PRC”), under a local employment contract, regulated by the foreign country’s legislation.
In his application, the worker declared he had been employed again – as of 1 January 2021 – by the same Italian company, with a permanent contract, and that he registered on the Register of Italians Resident Abroad (AIRE) in June 2016, given his financial and personal interests in the PRC.
The applicant asked whether he could benefit from the special regime for repatriated workers under Article 16, paragraph 2, of Legislative Decree no. 147/2015, as from the 2021 tax year.
After examining the application received, the Inland Revenue first provided a general overview of the rule, defining its scope and conditions. In detail, the tax authority explained that the tax benefit is available to taxpayers for five years starting from the tax period in which they transfer their tax residence to Italy and for the following four tax periods (under Article 16, paragraph 3 of Legislative Decree no. 147/2015). To access the special regime, the above art. 16 presumes that the person has not been resident in Italy for two tax periods preceding the re-entry.
For taxpayers returning following a posting abroad, the Inland Revenue cites the recent Circular 33/E of 28 December 2020 (paragraph 7.1), which specifies, that “the tax benefit is not applicable to the posting abroad with subsequent return, if there is the same contract, with the same employer. On the contrary, if the work carried out by the repatriated constitutes a “new” work activity, after signing a new employment contract, different from the one in place in Italy before the posting, and assuming a different business role, they can access the benefit from the tax period in which they transferred their tax residence to Italy. The benefit does not apply when the subject, although in the presence of a “new” recruitment contract for a “new” company role at the time of repatriation, falls into a situation of “continuity” with the previous work position held in the country before the expatriation.
This happens when, regardless of the “new” company role and related remuneration, the contract terms and conditions remain unchanged upon return to the employer under agreements of a different nature, such as the signing of clauses included in secondment letters, or agreements where a new company role is conferred where it is clear the original contractual conditions in force before the expatriation continue to apply.”
This circular lists some examples of “substantial continuity”:
On the contrary, “where the new contract objective conditions (work, term, remuneration) require a new obligatory relationship to replace the previous, with new and autonomous legal situations followed by a substantial change in the service subject and relationship title, the repatriated may access the tax benefit.”
In this case, the tax authority held that the applicant worker could benefit from the favourable regime “only if the “new” work was not in continuity with the previous position, as defined in the circular. This circumstance cannot be verified as part of the question and is not subject to control here, and provided that all other legal requirements are met.”
The Inland Revenue, in its answer to question no. 123 of 22 February 2021, clarified the tax and social security payment for meal vouchers received by smart working employees.
The tax authority expressed a favourable opinion on exempting meal vouchers for employees working remotely.
The question addressed
A bilateral organisation asked the Inland Revenue to clarify whether the meal vouchers provided as canteen replacement service to its smart working employees counted as employee income, for direct taxation purposes under Article 51, paragraph 2, letter c), of the TUIR (Consolidated Law on Income Tax).
The organisation has made a general use of smart working because of the pandemic and the new requirements related to the containment of the COVID-19 epidemiological emergency that have prompted the legislature to encourage this employment method to stem the spread of the virus and limit contagion within the workplace and companies.
The organisation asked the Inland Revenue whether, as withholding agent, it is required “to withhold IRPEF on the canteen replacement service value using meal vouchers to its employees under smart working”, under Article 23 of Presidential Decree no. 600/1973.
The applicant suggested the following interpretation
The applicant, suggested that for contribution purposes, Article 6, paragraph 3, of the Decree-Law no. 333/1992 “excludes meal vouchers from representing a part of the employee’s remuneration, unless collective agreements and contracts, including company agreements, provide otherwise.”
Without a contractual provision classifying meal vouchers as an element of remuneration, the applicant considers that, “regardless of the way work is carried out (in presence or smart working), meal vouchers fall within the scope of canteen replacement services, for direct taxation purposes and are partially exempt from being considered part of employee income under Article 51, paragraph 2, letter c), of the TUIR.”
Ultimately, the applicant suggested that, for the periods when employees are smart working “no IRPEF withholding tax should be applied to the allocated meal vouchers.”
The Inland Revenue’s opinion
In its answer, the Inland Revenue stated that as an exception to the all-inclusiveness principle that governs employee income, Article 51, paragraph 2, letter c) of the TUIR, “the provision of food by the employer including canteens organised directly by the employer or managed by third parties; services replacing meals up to a total daily amount of €4, increased to €8 if they are provided electronically; allowances replacing meals paid to workers on construction sites, other temporary work facilities or production units located in areas where there are no catering facilities or services up to a total daily amount of €5.29” do not count as part of the employee’s income.
The logic behind this favourable tax regime is inspired by the legislator’s desire to exempt payments to employees that are linked to the employer’s need to “provide for the food requirements of staff who have to eat a meal during working hours.”
The tax authority goes on to examine the rule and related practice, highlighting how Article 4 of the Ministry of Economic Development Decree no. 122/2017 states that meal vouchers:
The provision contained in the ministerial decree “considers that work is increasingly characterised by flexibility” while it noted that tax law does not provide “a definition of canteen replacement services, but gives a general description as not being part of income within the limits described.”
Since there are no provisions which limit employer disbursement of meal vouchers in favour of its employees, the Inland Revenue confirms that for such canteen replacement services the partial taxation regime of letter c) of paragraph 2 of Article 51 of the TUIR is applicable, regardless of the working time and method.
Conclusions
In this case, the Inland Revenue established that meal vouchers granted to employees – regardless of the working method – do not count as employee income, under Article 51, paragraph 2, letter c), of the TUIR. Based on the above, employers will not be required “to apply the IRPEF withholding tax to smart working employees, under Article 23 of Presidential Decree no. 60/1973, on the meal vouchers value up to € 4, if paper, or € 8, if electronic.”
Source: Agendadigitale.eu
The Supreme Court of Cassation, by Order no. 28141 of 14 December 2020, stated that a selection procedure used by an employer to fill professional positions constituting career advancement represents a “contractual offer” to potentially interested recipients.
As part of private employment relationships, the employer must manage the selection procedure and identify the employees deserving the promotion by complying with the rules set out in the call for applications. This is under the principles of fairness and good faith underlying any contractual obligation, including employment relationships.
The facts of the case were that a healthcare management company launched an internal selection procedure for the head nurse position assignment. The selection procedure had two distinct phases – one concerning the examination of applications and related curricula; the other, consisting of an aptitude interview with the candidates carried out by a specialised third-party company.
An employee who had taken part in the call for applications took legal action to obtain a ruling that the internal selection procedure for the position’s award was unlawful. She requested that the employer be ordered to pay compensation for financial loss in the form of differences in salary due, recalculated based on the resulting classification level, and damage to her professionalism.
The Court of Appeal of Caltanissetta, overturned the first instance decision, and rejected the request made by the employee excluded by the aptitude test. It pointed out that she was unsuitable and lacked the necessary requirements for the company selection procedure. It was found that, based on the correct application of the selection procedure set out in the notice, the employer had legitimately awarded the head nurse position to another candidate.
The Court of Cassation confirmed the decision of the local court, pointing out that the procedure notice is correctly exercised if the employer has managed it correctly, in good faith, and following the predetermined selection procedure.
The Court stated that the recruitment procedure notice, the notice of a promotion to a higher position, or the notice for recognising remuneration and benefits for personnel were technically equivalent to an offer to the public. This gives rise to an obligation towards the employees who are the recipients of the selection procedure.
If the notice contains the essential elements of the employment contract for which it is intended, it constitutes an offer to the public under Article 1336 of the Civil Code. The code states that the offer to the public is valid as a contractual proposal unless the circumstances or custom dictate otherwise.
Such an offer binds employers and once the procedure has been initiated, they cannot modify the content outlined in the procedure notice to the detriment of those to whom the offer was addressed.
On this basis, which was emphasised on several occasions by the case law on the subject, the Supreme Court stated that this principle applied to this case and rejected the employee’s claims.
In its message no. 406 of 29 January, INPS provided the instructions for the 12 weeks of wage subsidies for 2021, allocated by the 2021 Budget Law.
Employers interested in the new periods can submit electronic applications for FIS, ordinary and exceptional redundancy fund payments, using the appropriate reason on the INPS institutional portal.
The deadline for submitting applications is the end of the month following the month in which the period of work suspension or reduction began.
For work suspension or reductions that began in January, applications must be submitted by 28 February.
Pease note that the 12 weeks of wage subsidies can be used until 31 March 2021 for the ordinary redundancy fund and until 30 June for the FIS and exceptional redundancy fund.
The Court of Mantua, in its ruling no. 112/2020, has declared the dismissal of an apprentice for justified objective reason invalid, because it is contrary to the COVID-19 pandemic emergency legislation.
Facts
The plaintiff was employed by a company operating in the clothing and jewellery retail sector under a professional apprenticeship contract, with “assistant salesperson” duties and classified at level VI of the Commerce National Labour Collective Agreement.
Between March to May 2020, the apprentice had been placed under a redundancy fund due to the decrease in work because of the pandemic. Following the use of social security benefits and after having been formally placed on leave for of June, the apprentice received a letter dismissing her effective from 30 June 2020 in compliance with the contractual notice period.
In support of the termination, the employer mentioned the closure of the workplace where the apprentice worked and the consequent cessation of the company’s activities.
The apprentice appealed against her dismissal for financial reasons, arguing that the company’s activities had not ceased and that the obligation to repechage had been breached. The apprentice claimed that the dismissal was invalid as it was in breach of Article 46 of Decree-Law no. 18/2020.
Dismissal prohibition as a safeguard for public order
In its ruling, the Court of Mantua noted that the general dismissal prohibition for justified objective reasons was introduced by Decree Law 18/2020 ( Cure Italy Decree) until 17 May 2020, and then extended, initially, until 17 August 2020 by Decree Law 34/2020 ( Relaunch Decree) and, subsequently, throughout 2020 by Decree Law 104/2020 ( August Decree) for employers who had not completely used the weeks of wage subsidies available at that date.
According to the Judge, this prohibition is configured as “a temporary protection of the stability of relationships to safeguard the stability of the market and the economic system and is a labour market and economic policy measure linked to public order requirements.”
Invalid dismissal
The ruling highlighted that “from the imperative and public order nature of the discipline preventing dismissals, it follows that dismissals adopted in contrast to the rule are invalid, with reinstatement under art. 18, paragraph 1, Law 300/1970 and under art. 2, Legislative Decree 23/2015”, i.e. with the reinstatement of the dismissed employee.
On these grounds, since the employer did not “prove that it had ceased operations as stated in the letter of dismissal”, the Court of Mantua declared the dismissal invalid and upheld the apprentice’s appeal, ordering the employer to reinstate her and pay her salary and contributions from the date of dismissal to the date of reinstatement.
With answer to question no. 42 of 18 January 2021, the Inland Revenue has expressed its opinion on the application of the favourable regime introduced by art. 16 of Italian Legislative Decree no. 147/2015 for repatriated workers. The Inland Revenue focused on the possibility for workers returning to Italy, following a posting abroad, to benefit from the above regime.
The taxpayer’s question
In formulating his question, an Italian citizen stated that:
The taxpayer asked the Inland Revenue whether it was possible to benefit from the special regime reserved to repatriated workers starting from the tax year 2021.
The Inland Revenue’s opinion
The Inland Revenue summarises the tax benefit conditions, considering the latest regulatory changes, pointing out the possibility for the worker to benefit from the abatement of the taxable income up to 70 per cent if:
The benefit is available starting from the tax period in which the worker transfers their tax residence to Italy and for the following four tax periods.
However, as already expressed in the previous Circular no. 33/E/2020, the Inland Revenue specifies that, for taxpayers returning to Italy following a posting abroad, the tax benefit cannot apply:
The Inland Revenue provides an example, and identifies the following as indicators of “continuity” which determine the worker inability to access the tax benefit including:
These indicators suggest a substantial continuity with the employment relationship established before the posting in which the original contractual terms and conditions before the posting abroad continue to apply and exclude the applicability of the favourable regime.
If work carried out by the worker, after their return to Italy, constitutes a “new” activity which involves signing a new employment contract for a company role completely different from the original it would be a different case. In this situation, the worker would be entitled to benefit from the favourable regime.
Since it is unable to verify the applicant’s employment situation, the Inland Revenue outlines the principle according to which the taxpayer could benefit from the favourable regime starting from 2021 only if the work carried out in Italy after the posting abroad is completely “new” and does not have continuity with the previous employment relationship existing before the expatriation.
The Supreme Court of Cassation, by Order no. 25225 of 10 November 2020, affirmed that, if there is an unlawful infringement of a right to be employed by a public administration, the injured employee is entitled to compensation for loss of remuneration, but not for the loss of their social security position with the general compulsory social security.
The facts of the case involved an employee who challenged a decision declaring her disqualified from the minimum hiring percentage for civil invalids, which she had claimed at the time of her registration on the list of substitute teacher applicants at the nursery school.
The employee’s legal action was based on the belief that the measure was based on a medical assessment which unlawfully declared she was not invalid.
The employee’s appeal was upheld by the relevant Court of Appeal, which ordered the Ministry involved to pay compensation for the pecuniary and non-pecuniary damage and updated her contribution and social security position for the period she had been unemployed. This had to be carried out by paying the social security contributions due for that period.
The dispute was brought before the Court of Cassation, which stated that if the unlawful act by the Public Administration resulted in the infringement of the employment right, the employee could not claim compensation. Such claims presume “the establishment of the bilateral relationship”, a circumstance which did not occur. According to the Supreme Court judges, the employee is entitled “to claim compensation for damages under Art. 1218 of the Italian Civil Code.”
If the employee is in a position to demonstrate that she has been “deprived of employment or has worked in deteriorating conditions” as a result of the unlawful act, she may claim compensation for loss of earnings, i.e. for the loss of earnings resulting from the loss of wages.
The Court judges’ view was that the interested party could not request her social security position updated by way of compensation, since “the social security relationship, which is unavailable, arises only if the necessary legal requirements are met and the Social Security Institute could not accept undue contributions.”
The Supreme Court explains that employment is an essential prerequisite for the social security relationship, which is independent but unavoidably related. “The employer’s obligation to pay contributions due is part of the employment relationship, and is an obligation to do something, not an employee right to claim contributions.”
The existence of an employment relationship is a necessary condition for an employer to be ordered to pay contributions.
The Supreme Court partially accepted the appeal filed by the Ministry involved and declared that the social security position of the employee illegally removed from the compulsory employment lists should not be updated.
Following the continuation of the state of emergency, the 2021 Budget Law extended the COVID wage subsidies for a further 12 weeks.
These 12 weeks must be between 1 January 2021 and 31 March 2021 for Temporary Redundancy Fund payments and (ii) 1 January 2021 and 30 June 2021 for Ordinary Allowance and Exceptional Redundancy Fund payments.
All workers employed on 1 January 2021 are eligible, including those hired after 25 March 2020.
Using these 12 weeks is free of charge for employers. They do not have to pay any additional contribution.
The deadline for submitting applications is the end of the month following the activity suspension or reduction period. We are waiting for the Inps instructions to submit the application once the trade union phase (if any) has been carried out.
With its circular no. 33/E/2020 of 28 December 2020, the Inland Revenue, provided new instructions regarding the favourable tax regime granted to repatriated workers and recently governed by the “Growth Decree” (Decree Law no. 34/2019) and Tax Decree linked to the 2020 measures (Law no. 124/2019).
Regulatory reference
The “Growth Decree” has broadened the range of beneficiaries of the five-year favourable tax regime as from the 2020 tax year.
The Decree no longer requires that the “repatriate” worker has a top-management role and possesses “high qualification or specialisation requirements.” It is sufficient to have spent a period of residence abroad of at least two years before entering Italy and a commitment to remain in Italy for at least two years.
The incentive is increased by raising the taxable income reduction percentage from 50 to 70 per cent, with a possibility of a further increase up to 90 per cent with certain conditions (such as the transfer of the employee to a region in Southern Italy).
The benefit’s duration is extended for a further five tax periods for those who: (i) have a minor or dependent child and (ii) have purchased a residential property in Italy in the 12 months preceding the move or by the end of the first five-year period. In these cases, the taxable income would be reduced by 50 per cent, or 90 per cent for repatriates with at least three minor or dependent children.
To complete the regulatory framework described above, the Tax Decree linked to the 2020 tax measures has extended the start of the new tax regime as of 2019 to workers who had transferred their tax residence in Italy between 30 April 2019 and 2 July 2019.
Inland Revenue clarifications
This last “extension” required an Inland Revenue measure which, with its circular no. 33/E/2020, clarified that the reduction of taxable income from 50 to 70 per cent is not yet applicable.
It is necessary to wait for the Ministry of Economy and Finance to issue an implementing decree that will shed light on the criteria to access the new favourable regime for 2019, considering the limited resources available.
According to the circular, pending the implementing decree issuance, those who “have transferred their tax residence in Italy from 30 April 2019 to 2 July 2019, and meet regulatory requirements, may use the benefit in the lower measure of 50 per cent.” There is no mention of regime extensions for cases under the new description.
It is understood that “for those who have returned during the 2020 tax period, the favourable regime is operational regardless of the decree issuance.”
All that remains is to wait for the implementing decree.
The 2021 Budget Law continues to focus on social security contributions, to generate employment and ensuring greater company liquidity. Below is a brief overview of the main legal exemptions.
Social security contribution exemption for companies that do not apply for COVID-19 emergency wage subsidies.
The August Decree introduced a social security contribution exemption, available until 31 December 2020, for private employers, excluding the agricultural sector, who:
This exemption was calculated up to double the hours of wage subsidy already obtained in May and June 2020, excluding INAIL premiums and contributions.
The 2021 Budget Law grants the same employers an exemption from the payment of social security contributions up to eight weeks. This must be used by 31 March 2021, up to the hours of wage subsidies already obtained in May and June 2020, excluding INAIL premiums and contributions.
This exemption is exactly half of the exemption under the August Decree.
New contribution exemption for permanent hires under 36 years of age
To reduce social security contributions to be paid by employers when hiring, a contribution exemption has been introduced for permanent hires of those under 36 years of age for the 2021-2022 two-year period.
Managers or domestic workers are excluded. In addition to the age requirement, those hired must not have had permanent employment relationships with other employers.
The contribution exemption is 100 per cent of the contributions due by the employer up to a maximum of €6,000 annually, excluding lNAIL premiums and contributions.
The exemption’s duration is 36 months, which is increased to 48 months for employers with headquarters or production units located in the regions of Abruzzo, Molise, Campania, Basilicata, Sicily, Puglia, Calabria and Sardinia.
Employers who have dismissed employees with the same qualifications as the hired employee for justified objective reasons in the six months prior to recruitment are not eligible for the exemption.
The period during which the exemption may not be granted for individual redundancies for justified objective reasons or collective redundancies of persons in the same production unit with the same qualifications as the hired employee is increased from six to nine months after hiring.
Tax exemption for hiring women
The 2021 Budget Law modified the existing exemption for hiring women. This included some features and enhanced its benefits.
Two essential changes have been introduced (albeit experimental because they are limited to the 2021-2022 two-year period), namely:
Similar to the exemption for those under 36 years of age, the contribution exemption for hiring female workers is 100 per cent and up to a maximum amount of €6,000 annually.
The exemption’s duration is 12 months for fixed-term hires, which can be increased to 18 months for permanent hires or change from fixed-term to permanent contracts.
A necessary and sufficient condition to benefit from the exemption is that the hiring results in a net increase in employment calculated based on the difference between the number of employees recorded in each month and the average number of workers employed in the previous twelve months.
Contribution reduction for Southern Regions
Following the provisions of the August Decree, the legislator is looking at the contribution reduction for Southern regions again. The European Commission gave its authorisation and INPS already provided some initial operational clarifications with circular no. 122/2020.
The measure’s objective is to ensure employment levels in some regions of central and southern Italy (Abruzzo, Molise, Puglia, Campania, Basilicata, Sicily and Sardinia) during the pandemic crisis.
The Southern Regions’ contribution reduction includes an exemption from private employer contributions other than those in the agricultural sector or using domestic work contracts, without prejudice to pension benefit calculation rate.
The exemption concerns private employers (including professional firms, moral and religious bodies, and associations), other than those in the agricultural sector or using domestic work contracts.
All subordinate employment relationships are included provided that the geographical requirement is met, i.e. work must be carried out in one of the following regions: Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia and Sicily.
Since this measure will be operational until 2029, the exemption during the different years is:
The exemption from social security contributions is cumulative with other benefits up to the total social security contribution rates owed by the employer.
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The 30 per cent contribution exemption for Southern regions will be granted for hires until 30 June, in compliance with the European Commission’s “placet” which already took place for the exemption that concerned the last months of 2020, under art. 27, paragraph 1, of the August Decree.
The effectiveness of the above exemptions and benefits for subsequent periods is subject to a new decision of the European Commission, under art. 108, of the EU Treaty.
In circular no. 133 of 24 November 2020, INPS provided clarifications for the correct management of the contribution exemption under art.6 of Decree Law no. 14 August 2020 no. 104 ( “August Decree”), converted, with amendments, by Law 13 October 2020 no. 12.
Regulatory references
Art. 6 of the August Decree introduced an exemption from the payment of social security contributions by employers, except for those in the agricultural sector, when hiring employees under a permanent contract (including part-time) between 15 August and 31 December 2020. Workers must not have had a permanent relationship with the same employer in the six months before their recruitment.
The exemption applies when a fixed-term employment contract is made permanent during the above period, and for hires under a permanent contract for employment agencies. The exemption does not apply to workers under an apprenticeship or a domestic work contract, or with an intermittent employment contract.
The incentive is available for a maximum of six months from the date of recruitment/contract modification and is equal to the social security contribution payable by the employer, excluding INAIL premiums, and other minor contributions such as any due contributions to the funds referred to in articles 26-29 of Legislative Decree 148/2015 and the contribution of 0.30% for the financing of interprofessional funds.
The maximum monthly exempt contribution is € 671.66 (to be re-proportioned for part-time employment). This means that the maximum amount is the lower amount between the normal monthly exempt contribution due and the monthly benefit limit.
INPS clarifications
In its circular, INPS specifies that the right to benefit from the exemption is subject to the possession of the requirements provided for by Article 1, paragraph 1175, of Law 296/2006, namely: (i) the possession of the single insurance contribution payment certificate; (ii) the absence of violations of the fundamental rules for the protection of working conditions and compliance with other legal obligations; (iii) compliance with collective national, regional, local and company bargaining agreements signed by the employers’ and workers’ trade unions that are nationally comparatively more representative.
The circular specifies that, as other social security contribution exemptions, it is necessary to meet the conditions set out in art.
31 of Italian Legislative Decree no. 150/2015. The social security contribution exemption is granted if the employment (i) does not violate the entitlement to recruitment priority established by law or collective agreement, to rehiring a worker and (ii) does not concern workers dismissed, in the previous six months, by an employer who, at the date of dismissal, had a control or subsidiary relationship with the hiring employer.
For the employer, to use the benefit, must electronically apply to the Institute, using the benefits portal (former Diresco).
In the application the following must be indicated:
Once an admission request has been received, the formal requirements and the availability of the allocated financial resources are checked. INPS will then calculate the incentive amount and authorise the exemption for the relevant period.
Under Article 6, paragraph 3, of the August Decree INPS, stated that this exemption can be combined with other social security contribution exemptions provided by the legislation within the due social security contribution’s limits.
The National Inspectorate of Labour, with the note no. 1057/2020, has provided clarifications on the conditions to enter and reside in Italy as part of “Intra-Corporate Transfers” or “ICT”) for non-EU workers, under art. 27-quinquies of Legislative Decree no. 286/1998, also known as the “Consolidated Immigration Act.”
Specifically, this provision, with Legislative Decree no. 253/2016 introduced into our legal system the implementing Directive 2014/66/EU, which governs the entry into Italy of executives, specialised workers or workers undergoing training to perform their work under employment contract following intra-corporate transfers, outside the quotas under Art. 3, paragraph 4, of the Consolidated Immigration Act.
Definition of intra-corporate transfer
The Inspectorate wishes to clarify intra-corporate transfer, which is defined as “the temporary transfer of a foreigner by a company established in a third-party country to the host entity, understood as:
It has been clarified how the host entity may coincide (i) with the headquarters, branch or representative office located in Italy which belongs to the company for which the employee works, or, alternatively, (ii) with a company belonging to the same group, given that the employee is required to have a minimum seniority at the parent company.
Conditions imposed on the host entity
The Inspectorate notes how the system requires the Italian host entity to be subject to “a series of conditions, in the absence of which the authorisation is refused or revoked, including the commitment to comply with social security and welfare obligations under Italian law, unless there are social security agreements with the country of origin (paragraph 5, letter h).”
According to the Inspectorate, it is necessary to carry out checks on the host and the parent company’s financial capacity and check that the latter can make up for the branch’s social security and welfare obligations financial failure. The Inspectorate mentions that the group’s consolidated balance sheet, translated into Italian, is a useful document to confirm the group’s adequate financial resources.
The underlying aim is to confirm that the host company has not been created “for the sole purpose of facilitating the entry into Italy of workers under intra-corporate transfer,” or if it is subject to liquidation proceedings, or has been liquidated, or does not carry out any actual financial activity.
Paragraph 15 of Article 27-quinquies introduces “cases of refusal or revocation of authorisation, for example, when the host entity has been established for the sole purpose of facilitating the entry of these workers.” It requires the necessary controls by the regional Inspectorates when the Immigration Office’s opinion is issued.
These checks cannot refer only to the analysis of the documentary data of the Italian host company turnover but must be extended to the inspections which ascertain “the effective carrying out of the company financial activities.”
The Italian Tax Authority, through its answer to question no. 550/2020 published last 23 November, provided its position, within the more general area of detaxation of the performance bonus, regarding achievement of increasing objectives set by the employer as a condition for distributing a detaxed performance bonus and, specifically the time to verify achievement of the same.
in terms of this specific favourable taxation regime that governs distribution of the performance bonus, the tax authority first stated that this procedure was introduced by Italian Law no. 208 of 28 December 2015 (2016 Budget Law), article 1, paragraphs 182 to 189. It introduced a procedure in the tax regime, starting from the 2016 tax period, for preferential tax treatment consisting of application of a substitute tax for IRPEF (Italian income tax) and relative surcharges of 10% for “performance bonuses of variable amount, with consideration tied to increases in productivity, profitability, quality, efficiency and innovation, measurable and verifiable based on criteria defined with the decree as per paragraph 188”, or with the decree issued by the Ministry of Labour and Social Policies on 25 March 2016.
Among other things this law established that level II collective contracts or trade unions agreements must include measurement and verification methods of increases in productivity, profit, quality, efficiency and innovation, by identifying some measurement criteria for incremental indexes that must be proportionate to the bonuses. In terms of the period included in the contract (so-called “adequate period”), or the maturity of the bonus, it is thus necessary that “an increase of one of the indicated objectives, constituting the requirement for application of the preferential tax treatment”.
Therefore, the Tax Authority underlines that it is not sufficient that the objective set by the company contract be reached, since it is also necessary that the result achieved by the company is “an increase compared to the result before the start of the bonus maturity period”: the increase requirement, measured by the “comparison between the value of the objective reported at the start of the adequate period and that resulting at the end of the same”, thus constituting an essential characteristic of the tax relief.
The facts described in the case in question involved an employer apply ordinary taxation to the performance bonus paid to employees, despite the fact that a regular company contract had been stipulated previously aimed at normalising the tax relief of the bonus and determining the necessary measurement methods for the indicators used. In detail the petition – employee of the company in question – informed the Tax Authority that the supplemental level II contract was stipulated on 1 October 2019, identifying in the sum of gross profit of two companies belonging to the same group as the parameter for measurement of the profit objective to reach in 2019, in order to pay the variable performance bonus and apply the tax benefit envisaged for the following year.
The claimant represented how this bonus, paid with the pay slip of July 2020, was subject to ordinary taxation based on the assumption that on the date the second level supplemental contract was signed (1 October 2019) there were no doubts about reaching the profit objective measurable with the parameter identified in the contract, or that the total gross profit at 31 December 2019 would be higher than that reported in 2018. In this regard, the worker felt that the companies, when the supplemental contract was signed, could only possess knowledge of the figures relative to the first half of 2019, which show a gross profit well below the annual objective set in the company agreement. Therefore, the claimant believed that the two companies, at the time the agreement was signed, could have presumed that the 2019 figure would be higher than the 2018 one was only their point of view. And, based on this, concluding that there is a right to detaxation of the sums paid by the company
In terms of the facts in question, the Tax Authority explained how the law – in addition to the abundant practices resulting over time – had envisaged how the measurement methods must “be determined with a reasonable lead time compared to a possible future productivity not yet realised”. This circumstance is to be considered in an absolute sense and not as necessarily anchored to a specific time reference.
Generally, the Tax Authority considered that the favourable tax regime is applicable only when the company agreement states that achievement of the increased objective is effectively uncertain on the date it is signed, for example because the trend of the adopted parameter at the time of negotiation was subject to variations.
If this does not occur, for example because the company – as in the case in hand – inferred the trend of the economic results thanks to reliable indicators “suitable for assessing the trend of the economic results achieved up to a certain time and to obtain projections for the end of the specific financial year”, then application of the tax relief on the paid performance bonus would not be legitimate, since it was lacking the requirement of uncertainty of achieving the company objective at the time the agreement was stipulated.
The Tax Authority concluded by affirming that such assessments, even if they are marked by a predictive nature and can be influenced by external or internal factors, have however been carefully estimated by the substitute tax, that thus – acting correctly – did not apply the 10% taxation to the amount of the bonus paid.
With the approach of the year-end adjustment operations, the tax treatment of policies entered into by employers to cover the risk of contracting COVID-19, in favour of their employees, represents a very topical issue.
On the point, it is noted that the Revenues Agency has intervened with circular no.11/E/2020.
The Agency clarified that premiums paid by the employer in favour of all employees or categories of employees, following the signature of policies to cover the risk of contracting COVID-19, fall within the scope of application of Article 51 of the Consolidated Law on Income Taxes. Therefore, those premiums do not contribute to forming taxable income from employment for the workers involved.
In circular no. 133 of 24 November 2020, INPS provided operating instructions for the exemption from social security contributions for hires under permanent employment contracts from 15 August 2020 to 31 December 2020.
The exemption applies when a fixed-term employment contract is made permanent during the same period. Apprenticeship contracts and domestic work contracts are excluded from exemption application.
The exemption, lasts up to six months from hiring or conversion into permanent contract. It is equal to the INPS contribution paid by the employer, up to an annual limit of € 8,060. INAIL premiums and any minor contributions are excluded.
The exemption is subject to the submission of an electronic application to INPS by the employer.