TAX AUTHORITY: TAX REGIME APPLICABLE TO BONUSES PARTIALLY EARNED ABROAD
With response no. 81 of March 25, 2025, following a query from a German company with a permanent establishment in Italy and part of a multinational group, the Italian Tax Authority expressed its opinion on the possibility for the withholding agent to apply taxation to the employee only on the portion of the bonus earned in Italy, regardless of the employee's tax residency status in Italy at the time of receipt
In this response, the Authority stated that if during the vesting period, the employee performed work activities in a foreign country and is considered a tax resident in that country, the related income must be taxed only in that country, regardless of any subsequent transfer of residence to Italy. Instead, only the income attributable, on a pro-rata basis, to the work activity carried out in Italy should be taxed in Italy, even if the income beneficiary is a resident abroad in the relevant tax year.
This is due to the rules of the Double Taxation Conventions.
