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03.062021

Performance bonus tax relief: objective recalculations based on the pandemic (Corriere delle Paghe de Il Sole 24 Ore, 3 giugno 2021 – Andrea Di Nino, Antonello Gerardi)

The Inland Revenue, in its answer to question no. 270/2021, returned to express an opinion on the favourable tax regime reserved for the performance bonus (“PDR”) paid following a specific trade union agreement and consisting of applying a 10% rate, replacing IRPEF and the relevant regional and municipal surtaxes to the taxable amount of such bonus, under Art. 1, paragraphs 182 to 189, of Law 208/2015.

Behind the question was a concern about the possible tax relief of the performance bonus paid by the employer following the redetermination of the company objectives due to the COVID-19 pandemic.

The applicant company, which operates in the “legal games and betting” sector, signed a supplementary company agreement with the trade unions on 29 March 2019, with effect from 1 January 2019 to 31 December 2019, to establish an annual performance bonus.

The performance bonus was established on a variable basis and not determined beforehand. It was payable following an increase in EBITDA (or gross operating margin) for the year being monitored compared to the previous year.

Due to the 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 on 31 December 2020.

In addition to the extension, to compare the EBITDA of 2020 with that of 2019 consistently, the applicant company and the trade unions recalculated the 2019 EBITDA, reducing it in proportion to days of inactivity during the 2020 lockdown.

Considering the shorter period that the business was open, the parties agreed to a corresponding reduction of the performance bonus amount. Therefore, this maximum gross amount was fixed at € 2,000 instead of the previous € 2,800.

The applicant provided an interpretative doubt that applying the tax relief to the performance bonus despite the recalculation of the 2019 EBITDA led to an artificial redefinition of parameters useful to verify the company’s performance to make the 2019 EBITDA figure consistent with that of 2020.

The applicant company said that the comparison is made, using periods of forced business closure and, consequently, “is not made for the entire year, but a shorter period in which the activity was carried out (i.e. net of the days in which the shops were inactive).”

The Inland Revenue replying to the question, gave an overview of the sector’s legislation, stating that the payment of such bonuses, in the legislator’s intention, must be “linked to increased productivity, profitability, quality, efficiency and innovation that is measurable and verifiable” based on specific criteria. 

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