With Circular No. 1/E of 12 February 2020, the Italian Revenue Agency provided further clarifications regarding the new provisions introduced by article 17-bis of the 2019 Tax Decree (Law No. 157 of 19 December 2019) on procurement contracts.

Let us go into the details of the most important clarifications.

Subjective sphere

The Italian Revenue Agency, first of all, focuses on the definition of “client”. Specifically, it considers that this definition refers both to the original client and to the subcontractor, since, in relationships where there are customers, contractors and subcontractors (so-called “chain” relationships) each of them could individually play the role of client and thus fall within the sphere of application of the rules.

Objective sphere

The Italian Revenue Agency shall then provide clarifications as to the conditions under which a company must comply with the new obligations and the grounds for exemption.

In particular, the new obligations apply in the case of entrusting a company with the execution of one or more projects or services for a total annual amount of more than €200,000, within the framework of a tender contract, subcontract, entrusting to consortium members or trading relationships in any case known as prevalent use of labour.

On this point, the Italian Revenue Agency clarifies that it is not the legal namethat the parties attribute to the relationship but the actual prevalence of labour at the client’s premises that is important.

The reference to a “company” leads to the exclusion of art or profession practitioners from the mandated entities. Conversely, work contracts entered into with companies are included, provided that they use workers with the right to receive income from employment or similar for the execution of the work/service commissioned.

The determination of the €200,000 threshold refers to the individual contracts outstanding in the (calendar) year of reference (1 January to 31 December), any changes that have occurred and all contracts entered into during the year by each company.

If the contract is on an annual or multi-annual basis with a predetermined price, the calculation must be set according to a pro-rata-temporis mechanism.

If, on the other hand, contracts are signed without a predetermined price or expiry date, a cash basis will be followed and the obligations will commence with regard to income from employment and the like when the specified amount is exceeded and until the contract expires.

Furthermore, the services must be carried out at “the client’s places of business“, which include the registered and operational offices, representative offices and any other place attributable to the client and which is intended to carry out the activity through the use of “fixed assets owned by the client or attributable to it in any form“. If the use of fixed assets is occasional or in any case not indispensable for the performance of the assignment, this condition shall not be deemed to exist.

Supply contracts pursuant to Article 30 of Legislative Decree No. 81/2015 do not fall within the scope of application of this rule, since the supply agency “makes one or more employees available to a user who, throughout the duration of the mission, carry out their activities in the interest and under the direction and control of the user”. However, the illegal supply of labour is included in the scope of application.

As mentioned above, the client is relieved from fulfilling the new obligations if:

• they have been in business for at least three years;
• they are in compliance with its declaratory obligations;
• they have made the payments and recorded in the tax account an amount not less than 10% of the amount of the revenues or remuneration resulting from the declarations; and
• they have no entry in the taxpayers list [to pay tax arrears and fines] or enforceable assessments or debit notices relating to income tax, regional tax on productive activities, withholding taxes and social security contributions for amounts in excess of €50,000.00.

In order to prove the presence of the above mentioned requirements, it is necessary to attach a certification made available to the company or its representative, starting from the third working day of each month, by the territorially competent Provincial Directorate of the Italian Revenue Agency. The certificate shall be valid for a period of four months from the date of issue, after which the aforementioned companies must acquire a new certificate. If the client is a Public Administrator, the existence of the requirements must be self-certified.

Obligations

The Italian Revenue Agency clarifies that contractors, mandated entities or subcontractors are obliged to pay withholding taxes of the workers, with separate payment proxies for each client, without any possibility of offsetting.

However, it adds that by harmonising the prohibition with the other provisions of the Italian legal system, the withholding agents covered by that prohibition accrue credits which may be used as offsets solely by means of the F24 model for the purposes of payment of withholding tax charged to recipients.

On this point, the Italian Revenue Agency, by way of example, cites the credits that the withholding agents accrue for having advanced sums of money to employees on behalf of the State, such as refunds paid as a result of tax assistance, year-end adjustment or termination of employment, or credits arising from excess withholding tax payments.

According to the Italian Revenue Agency, the companies in question cannot, on the other hand, make use of the institution of compensation for the payment of social security and welfare contributions and compulsory insurance premiums accrued in relation to employees directly employed in the performance of works and services.

It is possible to prepare separate F24 models for each client or a cumulative F24 model for all contributions and premiums owed by the company. In the latter case, it will be the taxpayers’ responsibility to reconstruct the calculation methods used during the audit.

Mandated entities are obliged to issue to the client:

• a list of the names of all workers, identified by tax code, employed in the previous month directly in the execution of work/services entrusted by the client. If salaries are paid in the month following the reference month of the ‘pay slip’, reference should be made to the second preceding month;
• the detail of the hours worked by each recipient;
• the amount of remuneration paid to the employee (taxable for tax purposes as shown on the ‘pay slip’); and
• details of the tax withholdings made in the previous month, with separate indication of those relating to the service entrusted by the client.

The client, on the other hand, is obliged to suspend the payment of the fees accrued by the contractor if within five working days: (i) either the right to receive payments from the contractor or mandated entity has accrued but the latter has not forwarded to the client the payment proxies and the information relating to the employees referred to in paragraph two or (ii) the withholding tax has been omitted or insufficiently paid with respect to the data emerging from the documentation forwarded.

If the new obligations should fall on the contractor, the latter alone shall be entitled to suspend payments to subcontractors until they have fulfilled their obligations.

Penalties

In the event of a breach of the obligations examined, a non-fiscal administrative penalty has been imposed on the client. Should the latter fail to make correct payments of withholding tax or do so late without the possibility of offsetting, they shall pay a sum equal to the penalty imposed on the contractor, mandated entity or subcontractor.

However, the penalty shall not be due if the contractor, mandated entity or subcontractor proves that it has correctly fulfilled its obligations or has resorted to effective remedial action, thereby remedying the breaches committed before the supervisory bodies proceed with a complaint.

In any case, and in any event until 30 April 2020, the contractor will not be charged with any infringement provided that the necessary documentation required by law is provided.

Law 157/2019 converting, with amendments, Decree Law 124/2019 was published in Official Journal 301 dated 24 December 2019. “Tax Decree“). Therefore, as of 1 January 2020, companies that entrust one or more works or one or more services for a total annual amount of more than €200.00 to a company – through “a contract of tender, subcontracting, entrusting to consortium members or negotiating relationships, however denominated, characterised by the prevalent use of labour at the headquarters of the client with the use of capital goods owned by the latter or traceable to it in any form” – must request the same copy of the payment proxies relating to the payment of withholding tax for employees directly employed in the execution of the work/service. The payment of withholding tax is made, with separate powers of attorney for each client, without the possibility of remuneration. In order to allow the client to acknowledge the total amount of the sums paid, the companies, within 5 working days after the due date of payment of the withholding tax, are required to send it: (a) the payment proxies and (b) a list of the employees directly employed in the execution of the work/service in the previous month, identified by means of a Tax Code, with details of the hours worked by each employee involved, the amount of remuneration paid to the same and details of withholding taxes made in the previous month, with a separate indication of those relating to the service entrusted by the client. In the event of non-transfer by the undertakings or if it is established that withholding tax has not been paid or is insufficient, the client shall suspend, for as long as the default persists, the payment of the fees accrued. This is up to 20% of the total value of the work/service or for an amount equal to the withholding tax not paid but resulting from the documentation submitted. The client is also required to notify the relevant Italian Revenue Agency within 90 days. If the client fails to comply with the obligations in question, it shall incur a penalty equal to the penalty imposed upon the contractor/subcontractor. These obligations do not apply if the companies have informed the client, attaching the relevant certification, of the existence, on the last day of the month preceding the expiry date, of the following requirements: (i) that they have been in business for at least 3 years, in compliance with their declaration obligations and that they have made, during the tax periods to which the tax returns submitted in the last three years refer, total payments recorded in the tax account for an amount of no less than 10% of the amount of revenues and income or remuneration resulting from such returns; (ii) that they have no entries or executive assessments or debit notices entrusted to collection agents relating to income tax, IRAP (Corporate Income Tax), withholding tax and social security contributions for amounts in excess of €50,000, for which the payment deadlines have expired and payments are still due or no suspension measures are in place.

By laws no. 136 of December 17^th, 2018 (so called “Fiscal Decree”) and no. 145 of December 30^th, 2018 (so called “2019 Budget Law”), several news in the field of labour and social security law have been introduced.

The main changes in the two laws mentioned above are as follows:

• the tax credit for the training costs of employees in the technology sector, provided for in the National Industry 4.0 Plan (“Piano nazionale industria 4.0”), has been extended to 2019;
• the special social shock absorber (“Mobilità in deroga”) has been extended, up to a maximum of 12 months, in favour of workers who (i) have terminated the special lay-off fund (“Cassa integrazione guadagni in deroga”) in the period from December 1^st, 2017 to December 31^st, 2018 and (ii) do not benefit from the unemployment benefits;
• it has been provided an exemption for the two-year period 2018-2019 to the maximum duration limits of the extraordinary lay-off fund (“Cassa integrazione guadagni straordinaria”) and it has been granted an extension of the extraordinary lay-off fund having its reason in the short time work contract (“contratto di solidarietà”) up to the maximum limit of 12 months, under certain conditions;
• the criminal and administrative sanctions for illegal work and those related to safety at workplace have been increased, respectively, by 20% and 10%. Both above percentages are doubled where, in the three years preceding the ascertainment of the violation, the employer has been subject to administrative or criminal penalties for the same offenses.
• it has been introduced the obligation of the employer to give priority to requests for smart working made by working mothers, in the three years following the conclusion of the period of maternity leave, and by workers with disabled children;
• the National Institute for Insurance against Accidents at Work will reimburse to the employer the 60% of the remuneration paid – up to a maximum of 12 months – to the disabled worker who is the recipient of a reintegration project, aimed at the job retention;
• it has been introduced an annual decrease of the social security contributions burden- up to a maximum of € 8,000 – for companies that will hire by open-ended contracts young people, graduates by June 30^th, 2019, with a mark of 110 cum laude and before the age of 30. The same scheme is also applied to those who had to obtain a PhD before the age of 34 as well as for the transformation of fixed-term contracts or part-time contracts;
• the incentives for apprenticeships for the qualification, the diploma and the higher technical specialization certificate have been extended in the following measure: € 5 million for the 2018; € 5 million for the 2019 and € 5 million from 2020;
• it has been introduced a reduction of the compulsory insurance rates of the employees provided by the National Institute for Insurance against Accidents at Work.

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The Fiscal Decree entered into force on December 19^th, 2018, while the Budget Law on January 1^st, 2019.

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