Taxation on expenses reimbursement paid to employees and collaborators

I. Travelling expenses

I.I The concept of travel

Under the rules governing reimbursement of expenses in the company, legal definition of transfer assumes a particular rilevance. The identification of the concept of travel is closely related to the place where the employee is called to perform its job performance. That place is determined by contract or, failing that, is determined according to the nature of the work to be done. As under art. 2103 of the Civil Code, the employee can not be transferred from one unit to another productive one if not for technical, organizational and productive proven reasons. In relation to this rule, therefore, a "transfer" can be defined if the employer intended to guide the worker to another production unit, meaning that as the autonomous structure with its own financial and technical-functional indipendence. A "trip" can be defined if the employer moves the employee to another workplace only on a transitional and temporary base. Trip is, therefore, a temporary command to perform an activity in a different place of work.

I.II Reimbursement forms

After having explained the legal definition of "travel", we review the various forms of reimbursement in which the employer compensates the worker suffered discomfort during travel. These forms are essentially three: 

the travel subsistence in a fixed amount is paid to the worker for the inconvenience caused by commands to temporary and unexpected activities performed in another place of work other than the usual one. As compensation paid in a fixed amount, the employee should not worry about reporting costs to the employer; 
the reimbursement defined as "footer list" requires the employee setting up of a detailed and documented request for reimbursement of expenses incurred during a given trip. The reimbursement is considered as a restitution and is mainly affected by meals, accommodation and travel costs;
the reimbursement defined as "mixed" happens when the food costs are reimbursed with a daily flat rate (no costs report is required) and costs of accommodation and travel are reimbursed after presentation of a "footer list".

II. Taxation of reimbursements for travel expenses for the worker

The reimbursement of travel expenses incurred by the employee requires the respect of tax law specifically provided for, considering the effects that such payments have on the business income of the firm. The text of the "Taxes on Income", Dpr. No 22 December 1986 n. 917, considers the question of reimbursement of expenses and allowances to employees in travel, ruling in section 5 of the Article 51 that:
"The allowances paid for travel and missions outside the municipality participate in the formation of the employee income for the excess of EUR 46.48 per day, raised to EUR 77.47 for travel abroad, net of travel and transport expenses; in case of reimbursement of lodging or meals costs that are provided for free, the limit is reduced by one third. The limit is reduced by two thirds in case of reimbursement of lodging and meals expenses. In case of analytical reimbursement for travel expenses or missions outside the municipality does not partecipate to the formation of the eployee income refunds of expenses related to food, lodging, travel and transport, as well as refunds of other expenses, including non-documented, possibly incurred by the employee, in connection with such transfers or assignments, up to a maximum daily value of EUR 15.49 raised to EUR 25.82 for travel abroad. The allowance or refunds for travel within the municipality, except the reimbursement of transportation costs, supported by documents from the carrier, partecipate to the formation of income."
The art. 52 treats of incomes assimilated to those of employees, and provides, in terms of compensation and reimbursement of expenses, a reference to the rules contained in art. 51. Rules described above affect the generality of employees and the generality of workers whose incomes are similar to those of employees. The list of subjects is contained in art. 50, Dpr. 917/1986 that among the subjects addressed, provides: 

• Employees,
• Employees members of cooperatives for job production , service cooperatives, agricultural cooperatives and primary processing of agricultural products and cooperatives of small-scale fisheries, 
• Final users of sums paid by anyone in anyway for study purposes, 
• Administrators, auditors of companies, associations and other institutions with or without legal definition, 
• Employees of newspapers, magazines, encyclopedias and similars, 
• Members of boards and commissions. 

To determine expenses tax treatment (for the worker and the firm) it is necessary to distinguish travels that occur within or outside the municipality office. Regarding the term "municipality", the Ministry of Finance with subsequent circular has repeatedly clarified that must be considered as "town" the entire territory of the municipality where the employee habitually carries out its activities, including any sub-municipal entities ( as the fractions), and nothing matters the distance between place of work and the place of travel. With specific reference to different categories of workers provided in Art. 50, Tuir, it must be concluded that the habitual place of work for employees is that stated by the employer in the letter of recruitment sent to the worker and the competent Directorate of the provincial work. For newspapers, magazines or encyclopedias employees, for members of boards or commissions and other holders of relationships, work place will be specified in the nomination letter. Finally, with regard to companies, associations and institutions administrators work place will be fixed in the nomination act. We can now examine travels tax treatment. Travels within municipality or around the base of the routine work of the employees, are always IRPEF taxable. Are excluded from taxation only the reimbursement of transportation expenses incurred and documented (bus tickets, tram, taxi receipts ..) Expenses for travel outside the municipality where the headquarters of the usual work of the employees are placed are excluded from IRPEF. Taxation of the reimbursments paid by the firm to the travelling worker depends on, however, the payment mode used. As mentioned above, there are 3 different systems among which the firm may choose, with the only imposition to use the same system for each day under the same travel. In case of fixed amount allowances, allowances are excluded from IRPEF taxable amount up to EUR 46.48 per day, raised to EUR 77.47 for travel abroad, regardless of the length of travel itself. All documented expenses, other than travel expsenses, paid in addition to fixed amount are subjected to taxation. In case of mixed refunds, refunds that include a fixed amount and a reimbursement of lodging and food expenses substained within a travel, the reliefs of EUR 46.48 and EUR 77.47 shall be reduced to: 

• EUR 30.99 per day for travel in Italy and EUR 51.65 for abroad travels when lodging and meals are refunded or when lodging or meals are provided free of charge, 
• EUR 15.49 per day for travel in Italy and EUR 25.82 for abroad travels when lodging and meals expenses are reimbursed entirely (or when both are provided free of charge). 

Travel and transportation refunds, however, does not contribute to forming the income when they are made on the basis of adequate documentation;any other costs or expenses (other than food, lodging, travel and transport) is fully subject to taxation. In case, finally, analytical reimbursement of travel expenses, board, lodging, travel and transport costs would not contribute to form the income of the worker. Remains excluded from taxation the reimbursement of other expenses, including non-documented, if analytically certified by the employee in travel, up to an amount of EUR 15.49 per day, raised to EUR 25.82 for abroad travels. The mileage distance reimbursement is to be considered separately in relation to other reimbursements or allowances, as provided by the legislature in art. 51, paragraph 5, of TUIR. Mileage distance reimbursement remains excluded from the deduction only if is related to the recognition of a transfer formalized by the employer, for missions carried out by common place of work. Travel costs are under a different tax treatment depending on whether they were made in the municipality work place or outside that territory. The costs for travel within the same municipality of the headquarters of the usual work is always subject to IRPEF except reimbursement for transportation, carrier documented, costs (train, bus .. ). The expenses for travel outside the municipality is excluded from IRPEF because they are not considered as a remuneration but as a refund. Travel expenses incurred by car owned by the employee are considered expenses, provided that the use has been previously authorized by the employer.

III. Enterprise taxation aspects of travel expenses reimbursements

The reimbursed costs incurred in travel by the employee or by anyone who receives an income equivalent to that of employees (eg coordinated and continuous employees, as explicitly stated in Res. Min. 21 March 2002, n. 95 / E) are negative components of income taxation deductible amount of the enterprise if properly documented. In particular, the TUIR provides specific rules according to whether or less the travel has taken place in the municipality where the headquarters of the company are settled. The costs for meals and lodging incurred in the municipality where the employer has established its business are fully deductible and, as argued above, are for the employee an income. The cost for meals and lodging incurred outside the town of residence are deductible to the daily maximum extent of EUR 180.76 if the transfer took place in Italy or EUR 258.23 if it is done abroad. These limits do not cover the repayments and mixed flat, which, as provided in Circ. Min No 16 July 1998 188 / E, are fully deductible. Refunds for tickets are also fully deductible.

IV. Documentation of expenses

Until 31 December 1997, to consider properly documented travel expenses reimbursed to employees under the IRPEF exclusion , it was necessary a written permission by the employer with the information concerning the location to reach, the route to follow and the transportation modes to use. The authorization letter for to travel, is no longer necessary for taxation purposes , but it is still recommended its use for reasons of convenience of staff management. The request for reimbursement is an essential document in order to take advantage of the IRPEF exemption and to deduct from the company income amount the paid expenses. The request for reimbursement must be completed by the worker for each travel beyond the boundaries of the municipality where the headquarters of the enterprise are settled down, based on the model given in Appendix. The employee shall attach to the request for reimbursement appropriate documentation to demonstrate the effective incurring of expenditure (receipts, taxi receipts, invoices). The deductibility of costs, in fact, is always permitted provided that they are inherent and documented. Alternatively, the following documents are valid: 

• Invoices; 
• Taxation Receipt integrated with data identifying the customer; 
• Taxation Receipt integrated with taxation identification number of the employee or client, and data relating to the nature, quality and quantity of the transaction; 
• Footer list letterheaded to the employee, with attached receipts and taxation receipts, even if not integrated with the information referred to above, as well as tickets for transport bus, metro, tram, taxi, etc. .. 

Regarding board and lodging costs, they shall be considered properly documented if certified by the employee and, even if not letterheaded, coincide with the dates and places of travel (refer the Circular Revenue No 188 of 16 July 1998).