1.What are reversible compensations

 

Reversible compensations are payments due to an employee or coordinated and continuous collaborator of a controlling company, appointed as a member of the administrative body of a controlled company, with the obligation to transfer the compensation back to the controlling company. This regulation does not apply if the administrator receives the compensation as self-employment income. Additionally, this regulation is applicable when the administrator of the controlled company is also an administrator of the controlling company, provided that their employment relationship generates dependent or assimilated income.

The introduction of reversible compensations takes place in multiple phases:

• Appointment by the controlling company of its employee/collaborator as an administrator of the controlled company;

• Agreement of compensation reversibility between the administrator and the controlling company;

• Payment of the compensation received by the administrator to the controlling company and documentation of the actual payment.

 

2.Direct Taxes

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The tax profiles for the various actors are as follows:

• Administrators: Reversible compensations do not constitute income assimilated to that of dependent work under Article 50, para. 1, letter b) TUIR, and therefore are not subject to taxation under Article 51, para. 2, letter e) TUIR; additionally, as emphasized by Ministry of Economy and Finance Circular No. 326/1997, they must be excluded from the withholding tax at source.

• Controlled Company: The compensation paid does not fall within the normal category of compensations for administrators, as it is paid directly to the controlling company as compensation for the benefit received, and thus, it is subject to the general rules for determining business income as costs for services rendered. The compensations will be recognized for accrual (the provisions of Article 95, para. 5 TUIR do not apply) and will be deductible for IRES purposes but not for IRAP.

• Controlling Company: Similar to what was seen for the controlled company, the controlling company recognizes for accrual the compensations received as revenue for services rendered, which will be taxable for IRES but not for IRAP purposes.

 

3.Indirect Taxes

 

The VAT regulation divides into two distinct scenarios depending on the status of the administrator:

• If the service is performed by someone who does not habitually engage in self-employment activities, the service is not subject to VAT as it is excluded from the scope of the tax (Article 5, para. 2 of Presidential Decree 633/1972);

• If the service is performed by a collaborator who habitually engages in self-employment activities, they must invoice the controlling company for the reversible compensation, subjecting it to VAT, but only collecting the tax and any supplementary social security contributions.

 

4. INPS Contributions

 

Regarding INPS social security contributions, it is believed that the administrator is not required to pay contributions on the amount of reversible compensations, as the amounts received are not classified as income for the administrator.

In particular, when the compensation:

• does not enter the administrator's possession,

• but is paid directly by the company to a different party (e.g., to the controlling company),

the contributory assumption requiring the actual receipt of income by the obligated party is no longer present.

As a result, in the absence of actual possession, there is no obligation for registration and contribution to the INPS Separate Management concerning these compensations.

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5.Cross-border Reversible Compensations

 

The recent response to ruling No. 330/2023 by the Revenue Agency examined the case of reversible compensations paid by an Italian company to its board member, appointed by a foreign controlling company, where the same individual also holds the status of employee at the foreign company.
The Revenue Agency noted that this payment should be classified under Article 7 of the OECD Convention as business income, thus taxable only in the controlling company’s country (unless the company has a permanent establishment in Italy) and, symmetrically, deductible for the Italian company according to the general accrual principle.

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