Conversion of the Performance Bonus: obligations to give notice to supplementary pension funds

In its Response to Application no. 154 of 15 July 2024, the Italian Revenue Agency ruled again on employees’ obligations to give notice to supplementary pension funds (hereinafter “Pension Fund”), following the decision to make additional Pension Fund contributions, which, in this case, derived from the conversion of performance bonuses.

The Application, submitted by a Pension Fund, follows previous clarification from the Italian Revenue Agency contained in Resolution no. 55/E of 2020. In that earlier resolution which related to employees choosing to pay amounts deriving from a company welfare plan to the Pension Fund, the Italian Revenue Agency stated that “as the payment is made directly by the employer to the Supplementary Pension Fund, as well as set out in the Certificate of Income issued to the employee, the latter is not required to give notice to the supplementary pension fund in relation to the welfare credit intended for this purpose”.

The Applicant’s question

On the basis of the Resolution cited, the Applicant requested confirmation that the employee was under no obligation to give notice of amount of contributions paid to the Pension Fund, even if they derived from the conversion of the performance bonus, notice of which was in fact given by the employer at the time of payment of the contribution, with subsequent registration of the amounts also provided in each worker’s Certificate of Income.

In the question the Applicant recalled the advantages identified by the legislation in the event of conversion of the performance bonus into additional contributions to the Pension Fund, such as: i) the recognition of the same as deductible charges under Article 10 letter e – bis) of the TUIR, (ii) their exclusion from the annual deductibility limit of EUR 5,164.57 of pension fund payments on the basis of an increase of this limit by a maximum of EUR 3,000 in cases of performance bonus conversion, (iii) the exclusion of such contributions from the taxable base at the time of payment of the pension benefit by the funds.

The obligation to give notice to the Pension Fund

With reference to the last preferential benefit set out above, namely the exclusion from taxation of the pension benefit of contributions paid to supplementary pension schemes in place of performance bonuses, the Italian Revenue Agency clarified that this benefit is subject to giving notice to the Pension Fund of the contributions, to be carried out by 31 December of the year following the year of payment.

As indicated in Italian Revenue Agency Circular no. 5/E of 2018, the notice must contain (i) both the amount of contributions not deducted in the reference year and (ii) the amount of contributions replacing performance bonuses, which, even if they were subject to taxation, will not be included in the taxable base of supplementary pension benefits, under Article 1, paragraph 184-bis of Italian Law no. 208 of 2015, introduced by the 2017 Budget Law.

The Italian Revenue Agency’s opinion on the Applicant’s question

In its Response, the Italian Revenue Agency accepted the Applicant’s interpretation, essentially confirming the position taken stated in the above-mentioned Resolution no. 55/E of 2020.

Employees who choose to convert the performance bonus into additional payments to the supplementary pension scheme are not required to give notice of such contributions to their pension fund if this is done by the employer, for example by sending, via a specific electronic form, the data relating to the payments divided between (i) “ordinary” monthly contributions to the fund, (ii) and contributions replacing the performance bonus.

In conclusion, the Italian Revenue Agency’s recent Response, which follows and supplements the 2020 Resolution, is particularly useful as it provides clarification to employers and workers with respect to the notice obligations, the fulfilment of which, in fact, is “in the taxpayer’s interest, to avoid taxation of contributions paid in place of bonuses, at the time the benefit is paid by the Fund”.