Revirement of the Supreme Court: the 10% surcharge on remuneration paid in the form of bonuses and stock options to executives in the financial sector also applies to persons not directly belonging to the sector

Edited by F. Tironi, M. Scaglioni, A. Ferrari, L. Rguibi

The recent revirement of the Supreme Court concerning the scope of application of the special tax regime provided for by Article 33 of Decree-Law No. 78/2010 arouses few perplexities, insofar as it affirmed “the general referability of the additional tax ‘to the financial sector understood in its entirety and complexity, so as to also include entities that are not necessarily subject to supervision and/or that carry out activities aimed at the public, given the socio-economic reason for an intervention aimed at including all those players that, being active on the financial scene, are able, directly or indirectly, to induce prejudicial torsions due to the effect of abnormal remuneration incentives”.

In this regard, it should be noted that the rules relating to the surcharge (of 10%) on compensation paid in the form of bonuses and stock options to executives in the financial sector was introduced in 2010 in response to the considered distorting effects on the financial system and the world economy caused by the recognition of bonuses and stock options linked to market performance to managers (i.e., executives and directors) of banks and financial institutions, and – although initially applicable on remuneration, by way of bonuses and stock options exceeding three times the fixed part of the remuneration – it was subsequently amended with the addition to Article 33 of paragraph 2-bis (providing that the additional tax would be applied “on the amount exceeding the amount corresponding to the fixed part of the remuneration”).

Moreover, the additional tax is calculated on the difference between the fixed part of the salary and the variable elements such as bonuses and stock options paid in respect of each tax year.

Now, with respect to the subjective scope of application of the rule, the Italian Tax Agency had occasion to explain (with the Circular n. 4/E of 2011) that within the financial sector addressee of the particular regulation “banks, as well as, for example, management companies (SGR), securities brokerage companies (SIM), financial intermediaries, institutions that carry out electronic money issuance activities, companies engaged in the financial activities indicated in Article. 59(1)(b) of the Consolidated Banking Act, holding companies that take and/or manage shareholdings in financial, credit or industrial companies” must be included.

The Constitutional Court, which was called upon to assess the legitimacy of the surtax in light of the principles of equality and contributory capacity under Articles 3 and 53 of the Constitution, in the Judgment n. 201/2014 – while not dwelling on the definition of the “financial sector” – explained that “the limitation to the financial sector alone of the number of taxpayers subject to the surtax is not unjustified“: consistent with this approach, in identifying the perimeter of the “financial sector” within which the persons liable to be affected by the surcharge fall, the Supreme Court expressed its opinion with the rulings n. 22692/2020 and n. 3913/2022, which excluded the applicability of the surcharge to the managers of an industrial holding company.

Coming, finally, to the revirement in question, with judgments n. 16875 dated June 13th 2023 and n. 18549 dated June 30th 2023, the Supreme Court changed its opinion (in the terms set out above), raising – 13 years after the enactment of the challenged rule – a conflict of orientations that is likely to end up before the Supreme Court – Joint Sections (if not resolved differently, and more quickly, with a response to a parliamentary question).

Well, the affirmation of this contrasting case-law is destined to create significant application problems in view of (i) the vagueness of the subjective requirements for the application of the said surcharge; and (ii) the circumstance that the new orientation could give rise to a dispute for the recovery, by the Italian Tax Authority, of the payments already made under the legislation and managed in accordance with the (restrictive) interpretation that had been prevalent in case law.

It should also be noted that this additional tax is subject to the ordinary rules of substitution at source (see Presidential Decree 600/73 Article 23 et seq.), therefore it is primarily the employers, in their imperative role as withholding agents, who will have to discern the presence of this additional tax obligation; naturally, this must be done by informing the “substituted” (manager or director) to whom the additional tax at source would be applied in the payroll in the month in which the variable payment is paid or, at most, at the time of the tax adjustment.

These deductions will then be duly certified to the “substituted” in the Single Certification for the relevant period.

The substitution at source made by the withholding agent, in any event, does not affect the right of appeal by the substituted party who would consider the higher tax withheld to be unlawful.

Apart from the subjective scope of application of the rule (which remains uncertain, in view of the last case-law approach adopted, which, indeed, arises some perplexities when the Supreme Court judges as correct the reference to a “socio-economic” notion of the financial sector in an area such as taxation, which instead requires clear and unambiguous formulations, since, for example, recourse to analogy is not permitted), it is difficult to not consider the high risk of litigation in the matter, also in view of the “remuneration items” that may be included within the scope of the cited Art. 33.

Indeed, as explained by the Italian Tax Authority (in its ruling n. 11/2022), “given the generic wording of the rule, all forms of incentive paid in the form of stock options fall within bonus emoluments: in this sense, with regard to the income components on which to apply the surcharge, taking into account the evolution of remuneration policies that have been consolidated over the years, the concept of bonus referred to in Article 33 under review includes remuneration the disbursement of which is subject to the occurrence of certain conditions that may concern both the achievement of certain objectives and compliance with certain parameters”, and “…must also be included those paid for the conclusion of non-competition agreements referred to in Article. 2125 of the Civil Code and covenants for the extension of notice”.

In short, if on the one hand the recent case-law revirement creates even more interpretative uncertainty with respect to the subjective scope of application of the aforementioned rule, which would extend well beyond the financial sector, it is equally clear that, also taking into account the remuneration policies probably adopted by the companies under the previous case-law approach, the risk of litigation with the Italian Tax Authority concerning the applicable tax regime is to be considered, at present and unless further judicial reversal, high.

For a deeper discussion, please contact:

Francesca Tironi

PwC TLS Avvocati e Commercialisti


Marzio Scaglioni

PwC TLS Avvocati e Commercialisti