On the subject of demotion and loss of chance, the sums liquidated by the Court following the impairment of the employee's professional capacity are considered non-taxable since they can be classified as compensation for damage to the economic loss suffered by the employee's assets. According to the clarification provided by the Italian Fiscal Agency with the Note No. 185 of 2022, the sums paid to the employees following the ascertainment, in court, of the impairment of their professional capacity (so-called loss of chance damage) are to be considered non-taxable as they can be classified as compensation for damage to the economic loss suffered by the employee's assets. To understand the scope of this indication, it should be recalled that, in general, Article 51 of the Consolidated Income Tax Law (TUIR) states the principle that everything the employer pays to its employees in connection with the employment relationship must be taxed and the income produced is classified as employees’ income. The provision described above must, however, be coordinated with the provisions of Article 6(2) of the Income Tax Consolidation Act, which provides that 'sums earned in place of income, also by assignment of the relevant credits, and indemnities obtained, also in insurance form, as compensation for damages consisting in the loss of income, excluding those dependent on permanent disability or death, constitute income of the same category of the one replaced or lost'. The rule mentioned above states that any compensation, to be considered income, must have produced wealth for the recipient; thus, what is purely compensation for lost assets cannot be considered income. Based on this principle, compensatory indemnities paid to restore the employee's assets and compensate the economic loss suffered (so-called “emerging damage”) are, therefore, not taxable, whereas the sums paid to replace lost earnings (so-called loss of profit) are relevant to the personal income. With particular reference to demotion, it can cause either pecuniary damages, such as failure to acquire professional skills, impoverishment of the same and loss of professional opportunities, or non-pecuniary damages, such as possible injury to psycho-physical integrity, existential damage and injury to the professional image. The Italian Fiscal Agency, concerning damages for loss of chance, i.e. related to the deprivation of the possibility of development or progress in the work activity, quotes the Supreme Court’s recent ruling with order no. 3632 of 7 February 2019, stating that "(...) indeed, the title to compensation for damages, connected to the "loss of chance", is not of income, since it compensates the damage arising from the loss of a current possibility; it follows that the chance is also a juridically and economically assessable asset, the loss of which produces a current and compensable damage, if it is ascertained, also using presumptive elements, the reasonable probability of the existence of said chance meant as a current attitude" (Italian Supreme Court no. 11322/2003). Fundamental to the compensability of the damage is, in any event, the element of proof of the damage, both as to its existence and its extent. With decision No. 6572 of 2006, the Italian Supreme Court further stated that the compensation ‘could not be recognised unless there is an adequate allegation, for example, by inferring the exercise of activity (of any type) subject to continuous evolution, and in any event characterised by advantages connected to professional experience destined to be lost as a consequence of their non-exercise for a reasonable time. Similarly, proof must also be provided of the loss of chance, i.e., of further employment potential or additional earning possibilities.”. The Italian Fiscal Agency's remarks must, therefore, be considered to be in line with previous case law on the matter, having confirmed that the sums paid to the employee for impairment of professional capacity due to loss of chance, the existence of which has been ascertained in a previous case, are not taxable, since they are intended to compensate the economic loss suffered by the demoted employee.
2024 - Morri Rossetti
