Working from anywhere v national employment and tax rules: the Italian experience in the EU context

Wednesday 15 December 2021

Silvia Tozzoli
Legance Avvocati Associati, Milan

In the current pandemic scenario, it has become extremely common for companies and employees to move over to remote working as a new organisational system. This is because it can help to cope not only with health and safety concerns, but also with new personal and managerial needs.

Italy represents a paradigmatic example of this trend: Italian companies are benefiting from remote work to attract global talents without requiring them to move from their countries of residence; at the same time many employees (and among them Italians who stayed abroad in the past) are asking employers if they can perform their activity remotely from Rome rather than from the outskirts of London.

However, if technological and even cultural walls have been easily overcome in the last couple of years, the Italian legal framework still remains anchored to the traditional principle of the ‘physical presence’ to determine the rules applicable to the remote employment relation.

This is firstly confirmed in tax matters: an employment income is subject to Italian taxation when it is ‘produced’ in the country, that is, it is related to a work activity performed there and even when the employee is not a tax resident (see rticle 3 of the Italian Tax Code). The rule has not been bended to consider where the final output of the working activity is realised, and so an employee who works remotely from Italy – even if they interact exclusively with an organisation based abroad, which remains the sole recipient of their activity – will become part of the Italian tax system.

The same principle has  been followed recently by the Italian legislator to introduce a very favourable tax regime for employees who had been resident abroad in the previous couple of years and then decide to move to Italy to perform their working activity (see Legislative Decree 147/2015). The requirement is, indeed, satisfied with the physical presence of the employee, even when the duties are then performed remotely.

While this traditional principle finds its justification in the need for the employee to contribute to the public services that they receive for simply being physically present in the country, the same cannot be so easily argued for social security burdens.

The Italian pension system, in particular, is based on the so-called ‘territoriality’ rule (see Article 37 of Law Decree 1827/1935). This means that pension contributions are due for any working activity that is performed in the country, even remotely and for the benefit of a foreign company, which does not have any presence in the territory. Exceptions to this rule are based on the notion of ‘temporary secondment’, that allows an employee to remain enrolled only with the home social security system for a limited period under bilateral agreements or under EC regulations (see Regulation 2004/883 and later amendments). Such exceptions are, however, strictly interpreted in the practice of Italian social security authorities, making it difficult to fall within the definition of ‘secondment’ when the employee is not assigned to a specific client, subsidiary or project to be completed in Italy, but simply performs the activity there on a stable basis.

The ‘territoriality’ rule can therefore represent the main practical obstacle to the freedom to work remotely from everywhere, as it forces employers and employees to enrol with a new social security system and to pay the relevant charges, which cannot always, and be fully, transferred into the home pension fund in the country of residence. This lack of a sound justification for the rule in the eyes of the parties to the employment relation is probably the reason for its somewhat limited effectiveness. During the first waves of the pandemic, it was hard for the social security inspectors to check and enforce its application. In addition, the Italian legislator, aiming at increasing the amount of contributions to a chronically-underfunded pension system, is not envisaging introducing further exceptions that could make it easier to depart from the above principles.

The same traditional approach is followed when it comes to determining the employment legislation applicable to remote working activity. The place where the activity is habitually performed (lex loci laboris) triggers the application protections considered mandatory in that country, irrespective of the laws that the parties have chosen to regulate the employment relationship (see EC Regulation 2008/593, and Article 57 of Law No 218/1995, which makes reference to the Rome Convention of 1980). In Italy’s case, the legal decisions, however, tend to limit those mandatory protections to the more sensitive areas of the employment relationship (eg, fundamental rights, termination and working time), and therefore it might occur that the parties of the relationship do not come across domestic legislation for the entire period of remote work in Italy.

The Italian legal framework does not differ from that of other European countries, and from the approach adopted by the European Union. The European Parliament adopted a resolution at the beginning of 2021 to recommend the creation of a directive on remote working, but the focus remains on the employment protections (in particular in the area of working time and right to disconnect) rather than on the social security side, which remains dominated by the notions of ‘country of residence’ and ‘country where the work is performed’.

Therefore, working from everywhere remains possible in technological and organisational terms, but still somehow limited by national borders purely in legal terms.