Corporate Welfare Bonus-related Plans – Inland Revenue Resolution
With Resolution no. 55/E/2020, of 25 September, the Inland Revenue responded positively to a request submitted by a Company intending to activate a Welfare plan using two separate company regulations under which employees would be granted a Welfare credit to be used through a specific web platform, upon achievement of a minimum turnover target.
The Company asked:
- If by adopting a bonus and incentive-related Welfare plan, would Welfare credits be excluded from employees’ income under art. 51 paragraphs 2 and 3 of the Consolidated Income Tax Law (TUIR) and
- if costs incurred by the Company for its Welfare plan were fully deductible for IRES purposes under art. 95 of the TUIR.
Inland Revenue Considerations
- Taxation of amounts paid as Welfare credit
For tax regime applicability under art. 51 paragraphs 2 and 3 of the TUIR, the Inland Revenue stated that the amounts granted as Welfare credit were not considered as part of income if the benefits were made available to all employees or categories of employees.
This was confirmed by Circular no. 28/E/2016, when the Inland Revenue had underlined the possibility of bonus-related welfare plans, even if provided to all or similar employee categories.
The expression “categories of employees” is to be understood broadly and not limited to the categories provided for by the Italian Civil Code. For example, employees of a certain “level”, “classification” or with a certain “seniority” are considered “categories.”
According to the Inland Revenue, the regime under art. 51 paragraphs 2 and 3 applies to bonus or incentive-related Welfare plans where the provision goods and services is linked to the achievement of a company objective, and when goods and services are provided as employee bonuses.
In this case, the Agency has considered employee “loyalty” as a prevailing aspect, which does not cease to apply when the distribution of benefits “is not based on the evaluation of the employee’s work, either individually or collectively, i.e. on evaluations strictly related to the work performance.”
According to the Inland Revenue resolution, a welfare plan must follow paragraphs 2 and 3 of article 51 of the TUIR, reward employees if the company’s turnover increases, with benefit payments based on the gross annual salary of each employee and ensure benefits do not replace the fixed or variable salary.
- Deductibility of the Welfare Plan costs for IRES purposes
The Inland Revenue has not shown any issues in applying art. 95 of the TUIR for deductibility of the Welfare Plan costs for IRES purposes, if the welfare credits are provided to employees under a contract, an agreement or a company regulation which includes the fulfilment of a contractual obligation.
The Inland Revenue, with Circular no. 28/E of 15 June 2016, clarified that for a regulation to constitute the fulfilment of a contractual obligation, must not be revocable or modifiable autonomously by the employer. In this case, the welfare plan costs incurred by the employer are fully deductible for IRES purposes and not only limited to the five per thousand provided for by art. 100 of the TUIR.