Taxation of performance bonuses in the 2023 Budget law

Tax-free productivity bonuses: for employees in 2023 the rate drops to 5%.

Law 197/2022 has been published in the Official Gazette, containing the " State budget for the financial year2023 and the multi-year budget for the three-year period 2023-2025 ", the so-called 2023 Budget law. Among the many aspects relating toemployment relationships, the same intervenes in matters of taxation of productivity bonuses.

In detail, in art. 1, c. 63 Law 197/2022, it is envisaged that " For the bonuses and sums disbursed in 2023, the rateof the substitute tax on productivity bonuses, pursuant to art. 1, c. 182 Law 12.28.2015, n. 208, is reduced to 5% instead of the original 10% ”;

Wishing to provide a summary of the legislation on productivity bonuses , it is recalled that employers, throughcompany or territorial bargaining, can establish a bonus linked to increases in productivity, profitability, quality,efficiency and innovation, and that the legislation provides for these sums, in case of deposit of the contract through thespecial telematic channels of the Ministry of Labour, a substitute tax of 10% for employees in the sectorprivate holders of a fixed-term or open-ended employment contract and which they received, during the yearprevious tax, income from employment of an amount not exceeding 80,000 euros. The subsidized income limit isequal to 3,000 euros , to be raised to 4,000 euros where the company involves workers on an equal footing in the organizationof work.

With the new Budget law, the substitute taxation for the aforementioned emoluments is therefore halved from 10% to 5% , but only inprovisional measure for the year 2023.

The company or territorial collective bargaining is the only institutional source

As known, the prize, to be included in the tax concessions, must have been established by a corporate or territorial collective agreement.

Recently, the Revenue Agency (AdE), in agreement with the Ministry of Labor and Social Policies, with the response to question no. 176/2021, clarified that it is not possible to apply the preferential substitute tax on PdR if the criteria and methods for awarding the prizes are defined by a company regulation and not by a corporate or territorial collective agreement. The company regulation is in fact not comparable to a collective agreement where the parties jointly regulate the various aspects that affect the employment relationship within the company, but it is a unilateral instrument of the employer.

The express mention of company or territorial contracts excludes from the facilitation the remuneration elements paid in implementation of national collective labor agreements or contracts or individual agreements between the employer and the employee.

As regards the hypothesis of absence of company trade union representatives, it was clarified - in the aforementioned questioning - that, in the absence of RSA/RSU, the company will in any case be able to implement the territorial collective agreement of the sector and, consequently, to resort of the required conditions, apply the substitute tax on the performance bonuses paid in execution of this territorial contract.

If, on the other hand, a territorial contract for the sector has not been stipulated, the company will be able to adopt the territorial contract that it deems closest to its production reality, notifying the workers, which will be implemented not only for the facilitation provision , but also for the regulation of other aspects of the employment relationship existing between the company itself and the employees.

Alternatively, and always in the absence of RSA/RSU at the company, company contracts stipulated with comparatively more representative trade union associations at national level may also be valid.

Finally, the contracts must be filed together with the declaration of conformity within 30 days of signing, as required by the interministerial decree of 25 March 2016. 5 of 29 March 2018 - is to be understood as a regulatory without prejudice to the fact that the performance bonuses will be eligible provided that the company or territorial contracts have already been filed at the time of the award of the bonus, together with the declaration of conformity of the contract with the provisions of the law".

The right period

As the AdE has recently recalled with Interpello n. 265/2022, due to the provisions of the aforementioned paragraph 187 of the 2016 Budget Law, the increase in productivity, profitability, quality, efficiency and innovation achieved by the company will be measured on the basis of the indices identified in this company contract.

The art. 2, paragraph 2, of the Interministerial Decree of 25 March 2016 establishes that collective agreements must provide for criteria for measuring and verifying increases with respect to a reasonable period defined by the agreement; where by suitable period is to be understood the period of accrual of the bonus, ie the period of time identified by the contract at the end of which the increase in productivity, profitability, quality, efficiency and innovation must be verified.

However, the achievement of the objective at the end of the vesting period is not sufficient for the purposes of applying the advantageous tax regime: it is, in fact, necessary that the acquired result is incremental compared to the previous result at the beginning of the vesting period .

Furthermore, not only the disbursement of the bonus, but also the achievement of the incremental objective must take place after the signing of the contract. Consequently, the metrics must be determined well in advance of any future unrealized productivity. This circumstance is to be understood in an absolute sense, not necessarily anchored to a specific time reference which could also be half-yearly and not necessarily annual or multi-year.

Lorenzo Rogai

Chartered Accountant Auditor of the Accounts

For any other information, please contact Rogai & Partners stp Srl

www.studiorogai.it

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