In its answer to question no. 798 of 3 December 2021, the Inland Revenue has examined the case presented by an employer wishing to reimburse its employees the costs incurred for the performance of remote work.
Facts of the case
To facilitate its digital teaching transition, the requesting employer (a school) wanted to reimburse its staff for any documented and paid-in-advance expenses incurred to carry out teaching.
Such expenses included IT equipment, paper, toner and internet connection, and their reimbursement will be subject to a request by the entitled parties and not exceed a maximum of € 520 per applicant.
The answer to the question shows how “to determine the maximum reimbursement to be paid to its employees, the applicant has developed objective and analytical criteria to determine the share of costs saved by the employer and incurred by the employee for each type of expenditure.”
This method to determine the cost is based, partly on statistical data deriving from market research (for example, the quantification of the average useful life of IT devices and the average costs for the consumption of paper and network connection) and, collection of data concerning the hours spent by staff in distance teaching.
The all-inclusive principle of employee income
As for the taxation of these refunds, the Inland Revenue considers the sector legislation, under art. 51 of Presidential Decree no. 917 of 22 December 1986 no. 917 (“TUIR”).
This provision states that “general sums and, for whatever reason received during the tax period, including donations, as part of the employment relationship, constitute employment income. The general sums and values paid by the employer by the 12th January for the tax period following the one to which is referred, are considered to have been received during the tax period.”
This provision essentially rules on the “all-inclusive principle” of employment income, according to which “cash emoluments and values corresponding to goods, services and works offered by the employer to its employees constitute taxable income and are included in the calculation of employment income.”
The Inland Revenue observed – that “all sums that the employer pays to the employee, including as reimbursement of expenses, constitute employment income.”
The Inland Revenue added that reimbursements of expenses other than those incurred to produce the employer’s income, when advanced by the employee (for example, for the purchase of capital goods of low value, such as paper for the photocopier or printer, batteries for the calculator) might be excluded from taxation.
This approach is explained by the consolidated practice of tax authorities, particularly Resolutions 9 September 2003 no. 178/E and 7 December 2007, no. 357/E.
Methods of quantifying the reimbursement of the expenses
Institute practice is that expenses incurred by the employee and reimbursed by the employer in a lump sum are excluded from the taxable amount if the legislature has provided a criterion for calculating the portion which may be excluded from taxation. This is because it is used in the employer’s interest.
The Inland Revenue stated that under Resolution of 20 June 2017, no. 74/E, “if the legislator has not provided a criterion for calculating the portion excluded from taxation, the costs incurred by the employee in the employer’s interest must be identified based on objective elements and documentary evidence, to avoid that the relevant reimbursement contributes to the employment income.”
In this case, it emerged that the reimbursement granted by the school to employees to use IT devices is based on “objective parameters to determine costs saved by the institution that were incurred by the employee in the performance of their work.”
Because of the analytical method to calculate the amounts, the Inland Revenue has held that the amounts paid by the school to reimburse employees for costs incurred in the employer’s interest were not taxable for IRPEF purposes.