Employee benefit packages have a growing impact on companies’ management of their resources and local tax authorities have to deal with the fiscal impact of these packages more and more. The Italian Tax Authority (Risoluzione n. 55/E of 25 September 2020) recently issued important clarifications both confirming general principles already expressed in previous rulings and outlining new and clearer limits on the use of benefits packages to reward employees.
‘Rewarding’ benefit plans provide for the replacement (even partial) of performance bonuses with fringe benefits that are not included in the employees’ income. They are distinct from so–called ‘traditional’ benefit plans providing employees with goods and services on top of their normal salary to support their purchasing power and improve the quality of their private and family life.
On the one hand, the Italian Tax Authority has reasserted that benefit plans cannot be used as a substitute for employees’ fixed or variable remuneration and employers cannot allow employees to choose between payments in cash or goods and services, or provide cash payment to compensate for unused benefits.
On the other hand, the Tax Authority affirmed that benefit plans whose main purpose is to reward and incentivise employees (i.e. ‘rewarding’ benefit plans) are permitted, in addition to plans with a purely social purpose. It also specified the permitted scope of this kind of plan.
In particular, a rewarding benefit plan can only be used to reward employees following the achievement of company results or to retain them. The company cannot give awards for different value to different employees based on an evaluation of employees’ activity and/or work performance. This means, for example, that, it would not be possible to use an employee’s presence in the office as a criterion for establishing the value of his or her benefit package.
In other words, the company can provide goods and services to employees to reflect the value created by a company’s positive results, but it is not possible to link benefit packages to an individual employee’s performance. Employers must take this principle into account when reviewing or introducing benefit plans.