In circular no. 115 of 2 August 2021, INPS has provided the first practical operating instructions for employers benefiting from the contribution exemption under the re-employment contract introduced by art. 41 of Decree Law 25 May 2021, no. 73, converted with amendments, by Law no. 23 July 2021, no. 10 ( “Support Decree-bis”). This Circular will be followed by a further provision explaining the procedures for requesting and using the benefit.

INPS replied that, on 28 June 2021, the Italian authorities notified the European Commission of this measure. Accordingly, in Decision C(2021) 5352 final of 14 July 2021, the Commission authorised the exemption applicability under the above legislation.

The re-employment contract has been established as an open-ended employment contract. Its formalisation entitles the employer to benefit from a contribution exemption of all social security contributions due at its own expense, excluding premiums and contributions due to INAIL, up to a maximum limit of €6,000 annually, prorated and applied monthly, for a maximum of six months. The calculation rate of pension benefits remains unchanged.

The exemption is available to private sector employers, excluding domestic and agricultural employers, who make open-ended recruitments with a re-employment contract between 1 July 2021 and 31 October 2021.

According to the legislator’s intention, this new type of contract and the related exemption meet the need to facilitate and promote the reinstatement of unemployed workers into the labour market and resume activities after the epidemiological emergency.

An employment condition to be hired under a re-employment contract is for an individual project to ensure the worker’s professional skills meet the new work situation. This is subject to the worker’s consent. The individual project lasts six months during which the sanctions on unlawful dismissal provided for by current legislation apply.

During reinstatement, only dismissal for just cause or justified reason is allowed; at the end of the project, ad nutum dismissal is permitted, as in an apprenticeship contract. If neither party terminates the contract, the relationship continues as ordinary open-ended employment. Please note that dismissal during or at the end of the reinstatement period entails forfeiture of the contribution exemption right.

The right to use the measure is subject to the following conditions at the date of recruitment:

• on the date of new recruitment, the worker must be unemployed under Article 19 of Legislative Decree no. 150/2015;
• In the six months preceding the recruitment, the employer must not have made any individual dismissals for objective reasons, in the same production unit where the recruitment takes place;
• Single insurance contribution payment certificate (DURC) compliance
• absence of serious violations of labour and social legislation;
• compliance with the agreements and collective contracts signed by the most representative trade unions.

The exemption will be forfeit, and the amount received will be refunded for employers who:

• dismiss the worker for whom the benefit is granted during or at the end of the employment period referred to in Art. 41, paragraph 3, of the Support Decree-bis;
• collective or individual dismissal for objective reasons of a worker employed in the same production unit and classified at the same level and legal category as the worker hired with the exemption, in the six months following the recruitment subject to the benefit.

INPS clarified that the benefit involves “portability” which means the worker for whom the benefit has been partially used has the same exemption for the remaining months due in case of any new recruitment by the same or another employer.

INPS specified that the benefit for the residual period for subsequent re-employment by the same worker could be applied only to open-ended recruitments with a re-employment contract from 1 July 2021 to 31 October 2021.

If the employee resigns, the contribution exemption is applied for the actual employment relationship duration.

For the cumulation with other contributory benefits, the benefit can be used “in sequence.” Once the six-month exemption of the re-employment contract has ended, it will be possible for employers to benefit from further contributory exemptions. INPS clarified that the maximum duration of these exemptions must be calculated net of the contribution exemption period of use linked to the re-employment contract.

Source: Sintesi

Answering question no. 458/2021, the Inland Revenue expressed its opinion on tax on remuneration paid to employees posted to China who, due to the Covid-19 health emergency, continued to smart work from Italy.

The facts

In its capacity as a withholding agent, the Company requested clarification from the Inland Revenue about the correct tax payments to be applied to its employees originally seconded to China who returned to Italy in January 2020 due to the Covid-19 epidemic. The applicant specified that the same employees continued to smart work for the exclusive benefit of the Chinese host company.

The applicant asked whether:

1. the remuneration received for the days worked in Italy can be considered as income produced in Italy by non-residents and to be taxed locally for employees who spent less than 184 days in Italy during 2020 (leap year);
2. the stay in Italy for more than 184 days during 2020 entails a change in the tax residence status of the workers concerned.

Based on the provisions issued by the OECD on the subject with a note dated 3 April 2020 and subsequently updated on 21 January 2021, the applicant suggested not to consider the income produced in Italy by the workers as Italian income. This can be done by not considering the impact of returning to the country when defining the workers’ tax residence. The OECD recognised that each jurisdiction might adopt its unique guidelines to avoid double taxation during health emergencies.

Inland Revenue guidelines

On the first point, the Inland Revenue ruled that the analysis guidelines from OECD Secretary had been  accepted by Italy based on administrative agreements interpreting the provisions contained in the Conventions to avoid double taxation with Austria, France and Switzerland. Based on those agreements, income is considered produced where the service would have been provided if the Covid-19 emergency had not happened.

The tax authority observed that it is necessary to refer to the Agreement between the Government of the Italian Republic and the Government of the People’s Republic of China signed on 31 October 1986 and ratified by Law no. 376/1989.

Based on the combined provisions of Article 15 of the above Italy-China Agreement and Art. 23 of the Consolidated Income Tax Law (TUIR), according to the Inland Revenue, those who have spent less than 183 (184 in a leap year) days in Italy are subject to taxation for income earned while working in Italy even though they are not resident.

Under the Convention, the resulting double taxation is resolved by recognising a tax credit by China, the country of employees’ tax residence.

On the second question, the Inland Revenue recalled that “for individual tax residence identification purposes, based on domestic law and without a regulatory provision which considers the COVID emergency, reference should be made to the criteria set out in Article 2 of the TUIR, which applies regardless of whether an individual’s stay in our country is dictated by the pandemic. Under Article 2, paragraph 2, of the TUIR, persons who for most of the tax period are registered in the registers of the resident population or have their domicile or residence in the country under the Civil Code are considered to be residents”.

On this point, the Inland Revenue confirmed the need to consider the days of physical presence in Italy and the conditions provided for by the treaty signed with China. The treaty mentions the “tie-breaker rules” in paragraph 2 to settle possible conflicts of residence between the contracting States. These rules give precedence to the “permanent residence” criterion followed, in hierarchical order, by the centre of vital interests, habitual residence and nationality.

The Inland Revenue agreed that to identify a smart worker tax residence following their return to Italy from where they were posted, without prejudice to any provisions in ad hoc bilateral agreements, reference should be made to Article 2 of the TUIR without considering the Covid-19 pandemic’s impact.

Following the withdrawal of the United Kingdom and Northern Ireland from the European Union and applying the Trade and Cooperation Agreement (TCA) and the Protocol on Social Security Coordination (PSSC), with circular no. 98 dated 8 July 2021, INPS has provided operating instructions on social security and how to exchange information between social security institutions.

Clarifications were provided on the applicability of the Withdrawal Agreement (WA) referred to in INPS circular no. 16 of 4 February 2020.

The legislation development

This circular explains the development of the complex regulatory situation, most recently described by the Institute in Circular no. 53 of 6 April 2021.

The United Kingdom’s withdrawal from the European Union was achieved in a first phase by an agreement, called Withdrawal Agreement or “WA”, signed on 24 January 2020 and entered into force the following 1 February.

The WA provided for a transitional period during which EU social security law continued to apply to the UK. The regulatory and operational features of this transitional period, which ended on 31 December 2020, were described by INPS in Circular no. 16 of 4 February 2020.

At the end of the transitional period, on 24 December 2020, the parties signed a Trade and Cooperation Agreement (“TCA”) supplemented by the Protocol on social security coordination (“PSSC”).

It is worth noting that – in addition to what is stated in Circular no. 16/2020 – INPS specified that “the WA continues to protect those falling within its scope, even after 31 December 2020. The WA continues to apply to EU citizens resident in the United Kingdom by 31 December 2020 and to UK citizens resident in a Member State by the same date. As a result, the TCA and PSSC, which is part of it, generally apply to situations not covered by the WA.”

The TCA thus constitutes the legal basis on which future cooperation between the European Union, the United Kingdom and Northern Ireland will be based, once the legal effects of the WA have been exhausted.

The Protocol on Social Security Coordination (“PSSC”)

The PSSC is relevant to the social security issue. On this point, INPS recalled that, as already stated in the above Circular no. 53/2021, the provisions on international aggregation for the assessment of entitlement and the calculation of benefits continue to be applied under the Protocol’s scope, under article SSC.7, entitled “Aggregation of periods.”

This applies to “insurance periods, facts or situations after 31 December 2020”.

The Circular clarifies that the above aggregation of insurance periods accrued in the United Kingdom and Italy can apply to sickness and maternity/paternity benefits, confirming the specific provisions of Title III of EC Regulation 883/2004.

Finally, it is specified that the PSCC does not include family benefits. In relations between Italy and the United Kingdom, these benefits find application in Article 2, paragraph 6-bis, of decree-law no. 69 of 13 March 1988, converted into Law no. 153, in relation to non-EU countries that have not entered into bilateral conventions or agreements with Italy on family benefits.

In circular no. 87/2021, INPS clarified the total exemption from social security contributions for first-level apprenticeship contracts signed in 2020-2021 by employers who hire up to nine employees.

Before analysing the circular’s provisions, we provide a brief overview of this type of contract and its features.

Apprenticeships for professional qualification and diploma, upper secondary education diploma, and higher technical specialisation certificate (“first-level apprenticeship”) integrate work and training within the education, training and vocational qualification system.

This type of apprenticeship is designed to ensure a better link between school and the labour market. It can be stipulated by public and private sector employers with young people aged between 15 and 25.

The contract duration, under art. 43 of Italian Legislative Decree no. 81/2015 is defined based on the qualification or educational qualification to be obtained and cannot exceed three years (or four years for a four-year professional diploma).

However, the above article in paragraph 4 allows cases in which the contract duration may be extended by a further year, namely for:

• workers who have obtained the three-year qualification or the four-year diploma, to acquire further technical-professional and specialised skills, needed to obtain the certificate of higher technical specialisation or the professional high school diploma at the end of a supplementary annual course;
• workers who have not successfully obtained the qualification, diploma, certificate of higher technical specialisation or State professional high school diploma after the supplementary year.

The same article, in paragraph 5, introduced some exceptions to the duration of the first-level apprenticeship contract allowing the signing of:

• a contract of a maximum of four years for students starting from the second year of upper secondary school to allow them to “acquire additional technical and professional skills to those already provided for by school regulations”;
• a contract of up to two years for young people attending the annual supplementary post-diploma course (Presidential Decree 87/2010).

Continue reading the full version published in Corriere delle Paghe of Il Sole 24 Ore.

There is much case law on the remuneration of the time spent by the worker for changing in and out of their uniform (uniform time).

Please note that Article 1, paragraph 2 of Legislative Decree no. 66/2003 defines working time as “any period during which the worker is at work, at the employer’s disposal and in the exercise of their activity or duties.”

Based on this definition, the case law has expressed different orientations depending on whether the “uniform time” was preparatory to the work performance or an integral part of it.

Recently, the Court of Cassation returned to the matter in ruling no. 15763 of 7 June 2021, denying the workers concerned the right to be paid for the “uniform time.” This is because in the employment relationship, the time necessary to put on the service clothing constitutes working time “only if qualified as hetero-directed.”  According to the Court of Cassation, in the absence of this requirement, dressing falls within “the preparatory diligence included in the main work obligation” and does not give rise to any independent consideration.

In this case, it was found that the workers were not required to wear their work clothes on the company’s premises but were free to go to work and return home wearing them. The employer’s changing, showering and laundry services were facilities granted to employees for their needs, with no obligation to use them.

In another ruling, the same Court of Cassation has considered the dressing operations to be part of the preparatory phase and strictly functional to the workers’ performance, and as such to be remunerated as they are effectively hetero-directed (ruling no. 19358 of 10 September 2010). In this case, workers had to comply with a precise procedure before starting work; specifically, they were required to

• pass, through a turnstile for the first time using a special badge, to gain access to the company’s changing room;
• wear the uniform provided by the company;
• clock in using the badge a second time before starting work;
• at the end of the shift, clock in a third time, enter the changing room;
• once finished undressing, clock in a fourth time and leave the company premises.

Continue reading the full version published in Corriere delle Paghe of Il Sole 24 Ore.