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. 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 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 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.