Partly as a result of the epidemiological pandemic caused by Covid-19, Law 83/2021 of December 6 was enacted, modifying the teleworking regime.
As such, Article 165(1) of the Labor Code now states that teleworking is considered to be “the provision of work under the legal subordination of the worker to an employer, in a place not determined by the employer, through the use of information and communication technologies”.
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With regard to expenses, article 168 of the Labor Code, as amended at the time, states that the employer is responsible for providing the employee with the equipment and systems needed to carry out the work and the employee-employer interaction, and any additional expenses that the employee proves to incur as a direct consequence of acquiring or using the computer or telematic equipment and systems needed to carry out the work are fully compensated by the employer. - see paragraphs 1 and 2
In this context, additional expenses are considered to be “those corresponding to the acquisition of goods and/or services which the employee did not have prior to the conclusion of the agreement referred to in article 166, as well as those determined by comparison with the employee's homologous expenses in the same month of the last year prior to the application of that agreement.” - cfr. no. 3.
With regard to tax effects, and so that there is no doubt, paragraph 5 of the aforementioned article states that the compensation mentioned above and provided for in paragraph 2 of article 168 of the C.T. is considered, for tax purposes, to be a cost for the employer and does not constitute income for the employee.
As such, and under the terms set out above, it will not be taxed as income tax.
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However, in order to avoid constant control, justification, analysis and provision of documents, namely invoices/receipts, it is common for employers to simply pay a certain amount, previously agreed, without the need for documentary proof, so that it is paid whether or not the expenses actually occur.
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Now,
Exempting such payments/compensations that are disconnected from an actual proven reality of taxation under the I.R.S. (and at the same time allowing them to be considered as company expenses/costs) would be a way of allowing a clear “tax evasion”, thus unjustifiably benefiting these taxpayers, camouflaging actual income in supposed expenses so as not to be considered for I.R.S. purposes.
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According to Article 2(1) of the C.I.R.S., “Income from dependent work is considered to be all remuneration paid or made available to the holder from (...) employment as an employee under an individual employment contract or another legally equivalent contract.”
Article 2(2) of the C.I.R.S. states that “The remuneration referred to in the preceding paragraph includes, in particular, wages, salaries, gratuities, percentages, commissions, shares, allowances or prizes, attendance fees, emoluments, shares in fines and other ancillary remuneration, even if periodic, fixed or variable, whether contractual or not.”
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In order to clear up any doubts on this matter, the Tax and Customs Authority provided the following clarification in Circular Letter no. 20249 of 18/01/2023:
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d) The payment of an amount by way of cash compensation to cover the increased costs of teleworking, without there being a direct connection to the actual “additional costs” incurred by the employee, is subject to IRS taxation, in accordance with Article 2(2) of the IRS Code. Consequently, the employer must reflect the cash compensation paid in the DMR, within the scope of taxable income.
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