Skip to content With Ruling No. 1/2026, the Italian Revenue Agency provides important clarifications on the taxation of amounts paid upon termination of employment, with specific reference to executives posted abroad and fiscally non-resident in Italy.
The ruling fits within the framework of administrative practice aimed at clarifying the criteria for determining the source of income and the interaction between domestic tax law and double taxation treaties, in cases involving international mobility and intra-group relationships.
In particular, the ruling is significant insofar as it addresses the taxation of a payment in lieu of notice paid to a non-resident executive, distinguishing between the portion attributable to work performed in Italy and the portion relating to employment carried out abroad.
The case
The ruling request was submitted by an Italian company which, as of 1 January 2019, employed an executive under an open-ended employment contract, contractually recognising seniority accrued with another Italian company within the same group.
As of 1 January 2022, the executive was seconded to Finland to a related company, for the exclusive benefit of that company. The secondment, initially scheduled to end on 31 August 2024, was subsequently extended to 31 August 2025. In 2025, the executive was fiscally resident in Finland.
On 31 October 2024, the applicant company dismissed the executive due to the elimination of the position. The dismissal was challenged and subsequently settled by means of a settlement agreement executed on 9 May 2025.
Pursuant to the agreement, the executive accepted the dismissal with effect from 31 October 2024, and a payment in lieu of notice was agreed in the amount of EUR 420,000, of which EUR 362,880 related to work performed in Italy and EUR 57,120 to work performed in Finland. The full cost of such payment was borne by the Finnish company, with no recharge to the Italian company.
The agreement further provided for the payment by the Finnish company of an additional amount of EUR 930,000 as consideration for the termination of the employment relationship and the secondment. This amount, agreed between the parties, was entirely borne by the Finnish company and subject to taxation in Finland.
The question submitted
The applicant company sought clarification on the correct tax treatment of the payment in lieu of notice, with specific reference to the withholding obligation of the Italian company pursuant to Article 23 of Presidential Decree No. 600/1973.
In particular, the applicant argued that the portion attributable to work performed in Finland should not be subject to taxation or withholding in Italy, as it was paid by a non-resident company with no permanent establishment in Italy, related to a period during which the executive was fiscally resident in Finland, and taxable exclusively in Finland pursuant to Article 15 of the Italy–Finland Double Taxation Convention.
For further analysis of tax residence issues, reference is made to the relevant article available on our website.
The response of the Italian Revenue Agency
The Italian Revenue Agency first outlines the relevant legal framework, referring to Article 17(1)(a) of the Italian Income Tax Code (TUIR) concerning the separate taxation of one-off termination payments, Article 3 of the TUIR on the taxation of non-resident taxpayers, and Article 23 of the TUIR defining Italian-source income.
With regard to non-resident individuals, the Agency emphasises that termination payments qualify as Italian-source income insofar as they are attributable to work performed in Italy, even where they are paid after termination of the employment relationship.
From a treaty perspective, the Agency reiterates the principle that double taxation conventions prevail over domestic law and notes that the Italy–Finland Convention, in line with the OECD Model Convention, does not contain a specific provision governing termination payments.
Accordingly, such income (consistent with the interpretations set out in Rulings No. 343/2020 and No. 783/2021) must be brought within the scope of Article 15 of the Convention, relating to dependent personal services. Under the OECD Commentary, remuneration paid in connection with the termination of employment is attributable to the State in which the employment was effectively exercised.
The Agency’s conclusions
In light of the above, the Italian Revenue Agency concludes that:
- the portion of the payment in lieu of notice attributable to work performed in Italy, amounting to EUR 362,880, constitutes taxable income in Italy;
- the Italian company, acting as withholding agent, is required to apply withholding tax on such amount pursuant to Article 23 of Presidential Decree No. 600/1973;
- the allocation of the payment based on the periods of employment performed in the different States is consistent with treaty principles and with the interpretation provided by the OECD Commentary.
Final remarks
Ruling No. 1/2026 confirms the position of the Italian Revenue Agency whereby, even where the employee is fiscally resident abroad and the payment is made by a non-resident company, termination-related payments are taxable in the State in which the employment was effectively carried out.
This clarification is particularly relevant for multinational groups and international secondment arrangements, highlighting the importance of a correct temporal and territorial allocation of termination payments for tax purposes, as well as the role of the Italian withholding agent with respect to Italian-source income.
In this context, Studio A&P provides specialised tax advisory services on individual tax residence, assisting companies and employees in the correct qualification of employment income in situations of international mobility and in the coordination between domestic legislation and double taxation treaties.