The Italian Revenue Agency, in its answer to a request for ruling no. 428 of 12 September 2023, provided some clarification on the tax treatment applicable to remuneration paid to a worker posted abroad, in light of the provisions of Article 51, paragraph 8-bis of Italian Presidential Decree no. 917/1986 (Italian Income Tax Consolidation Act, Testo unico delle imposte sui redditi, ‘TUIR’).
The reference legislation applicable to the case in question which identifies the criteria for determining income from employment produced abroad is Article 51, paragraph 8-bis of the TUIR which, derogating from the provisions of the previous paragraphs of the same Article 51, provides that “income from employment, performed abroad on a continuous basis and as the exclusive purpose of the relationship by employees who over a period of 12 months stay in the foreign state for a period exceeding 183 days, is calculated on the basis of the remuneration agreed by convention identified annually by the decree of the Ministry of Labour and Social Policy referred to in Article 4, paragraph 1, of [Italian] Decree-Law no. 317 of 31 July 1987, converted by [Italian] Law no. 398 of 3 October 1987”.
That remuneration is fixed annually by 31 January of each year and is determined with reference to, and in any case not less than, the minimum salary provided for by the national collective agreements grouped by comparable sectors.
Applicant’s request for ruling
In the case examined by the Italian Revenue Agency, the applicant is a commercial business that, from 1 January 2022 and until 31 December 2023, has posted one of its employees, in charge of carrying out CEO functions, to its German subsidiary to ensure better coordination between the various operational activities. The employee was considered to be tax resident in Italy for the 2022 tax period as he/she had maintained his/her family and, therefore, his or her centre of interest in Italy.
In light of the managerial nature of the tasks entrusted to the employee and the consequent responsibilities, he/she, as also specified in the international posting letter, is to carry out the work activities on a continuous basis and as the exclusive purpose of the relationship with the German subsidiary for the entire duration of the posting; although the main place of work is identified at the secondee company, in addition, the worker makes occasional trips to various countries other than Germany, including Italy.
The applicant, therefore, asked whether, as a result of the trips made to Italy, the requirements of exclusivity and continuity of the employment relationship carried out abroad were no longer met and therefore raised interpretative doubts about the application of the rules for calculating the taxable base of income from employment using remuneration agreed by convention(retribuzioni convenzionali).
Italian Revenue Agency’s Opinion
In response to the applicant’s request, the tax authority specified that the criterion for calculating income for those workers who, while working abroad, continue to be classified as tax residents in Italy under Article 2, paragraph 2, of the TUIR, means that the income deriving from employment performed abroad is subject to taxation taking as the taxable base the remuneration agreed by convention fixed by the aforementioned decree of the Ministry of Labour and Social Policy, without taking into account the remuneration actually received by the worker.
On the basis of the conditions set out in the aforementioned legislation, therefore, the tax regime referred to in Article 51, paragraph 8-bis of the TUIR applies provided that:
It should be noted that, in relation to the first condition, it is necessary that the person who works abroad is classified in one of the categories for which the decree of the Minister of Labour and Social Policy, in agreement with the Ministry of Economy and Finance, sets remuneration agreed by convention. If the financial sector in which the employee carries out the work activity does not fall within the decree, then the specific regime does not apply.
The second[ED3] condition provided by the legislator is that the work carried out abroad is the exclusive purpose of the employment relationship and, as clarified by the circular of the Ministry of Finance no. 207/2000, it is necessary that a specific contract is entered into that provides that the work must be carried out abroad. As clarified by the Italian Revenue Agency with resolution no. 245/E/2007, “the work must be carried out entirely abroad” in order to exclude cases in which continuity and exclusivity of the work abroad is lacking.
With regard to the calculation of the days of actual stay of the worker abroad, as clarified in circular no. 207/2000, the period to be considered does not necessarily have to be continuous: it is in fact sufficient that the worker works abroad for more than 183 days in a 12 month period. The Italian Revenue Agency has clarified that in using the latter expression, the legislator is not referring to the tax period, but to the worker’s stay abroad established in the employment contract, which may also provide for a period of two calendar years. Circular no. 7/E/2001 specified that if the contract provides for a stay abroad of more than 183 days, the withholding agent is required to apply the taxation provided for in Article 51, paragraph 8-bis of the TUIR starting from the first salary paid.
Response of the Italian Revenue Agency to the specific case
As referred to above, in the case presented by the applicant, the worker, within the framework of the employment contract governing his/her work on his/her posting to the subsidiary in Germany, makes occasional business trips to countries other than Germany, including Italy, for business needs and in the exclusive interest of the subsidiary: this fact, according to the tax authority, is not sufficient to remove the exclusivity and continuity of the employment relationship with the foreign subsidiary.
Therefore, subject to performing the work abroad for a period of more than 183 days per year and assuming that, as stated by the applicant, all the other conditions provided for in the provision under discussion are met, it is believed that, in the present case, the income can be calculated in accordance with Article 51, paragraph 8-bis of the TUIR, i.e., according to the so-called remuneration agreed by convention.