New income tax surcharge on stock option payments and variable compensation for managers of financial entities and clarifications on scope issued

January 7, 2011

To the extent that bonuses awarded to certain employees of financial institutions exceed one third of the employee’s fixed compensation, the excess is liable to an additional 10% surcharge.

Art. 33 of the Law Decree no. 78 of May 31, 2010, has introduced this 10% surcharge (on top of the personal income tax rate) on variable compensation (bonuses) awarded to managers of financial entities.  The Italian tax authorities have issued some clarifications on the new regime in Circular Letters no. 4/E of February 15, 2011, and no. 20/E of May 13, 2011.

The Italian tax authorities have confirmed that the 10% surcharge applies to employees of banks and other financial entities, including management companies and financial intermediary companies, as well as holding companies owning shares in banking, financial and industrial companies.  Individuals subject to the 10% surcharge are those qualified under Italian labour rules as employed managers (“dirigenti”) or self-employed workers having a relationship of continuous collaboration with the enterprise.  The surcharge applies to both Italian tax resident individuals working for domestic or foreign employers and to non-Italian tax resident individuals working for domestic or foreign employers (provided that, in the latter case, employment income qualifies as Italian-sourced and is subject to tax thereon).

The Italian tax authorities have also clarified that the comparison between fixed compensation and variable compensation should be made based on an “accrual” basis and not on a “cash” basis.  Should the employee work abroad and benefit from the forfeiture regime for determining the taxable basis, provided by Italian tax rules, the comparison should still be made with reference to compensation actually received.  In cases where the same employee has several employment contracts with the same employer (for instance, one employment agreement as manager and another agreement of coordinated and continuative collaboration), the comparison should be made severally and separately for each of the contracts.  Variable compensation would also include remuneration in the form of stock options or phantom stock.

Specific further clarifications have been provided for the procedural aspects relating to the declaration and payment of the surcharge.


Art. 33 of the Law Decree no. 78 of May 31, 2010

For further information or to discuss any of the issues raised, please contact Riccardo Michelutti and Luca Formica on +39 02 776931 and +44 (0) 20 73740299.


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