Italy Tax Agency Clarifies Taxation of Settlement Payment Upon Employment Termination

The Italian Revenue Agency March 29 posted online Letter No. 222, clarifying the taxation of income paid to an employee in arrears and due under a court settlement after an employment termination. The taxpayer, a healthcare company, terminated an outpatient specialist doctor. The taxpayer was ordered to pay the terminated employee 50,000 euros (US$59,533), and inquired as to the whether the settlement amount is subject to withholding taxes. The agency clarified that the payment is subject to individual withholding taxes, as the payment was compensation for work performed, as opposed to a punitive damages settlement. [Italy, Revenue Agency, 03/29/21]

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