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.