Insights

Tax treatment of exit bonus granted to target’s CEO and CFO

Francesco Cardone 02 Dec 2022

An analysis by Led Taxand

In the context of a Private Equity transaction, incentive plans were granted to Target’s CEO and CFO, to align their interests with those of shareholders. Specifically, CEO and CFO were entitled to receive a cash bonus upon Target’s change of control (Exit Bonus), whose amount was also linked to Target’s performance.

With reference to the Exit Bonus, Italian tax authorities clarified that:

• It is deductible for CIT (24% IRES) purposes, since it represents an additional remuneration for the CEO and CFO’s activity
• Only the CFO’s Exit Bonus is deductible for Regional CIT (3,9% IRAP) purposes, not being the CEO a Target’s permanent employee
• In case of tax audit, Italian tax authorities could challenge the quantification of the Exit Bonus

Francesco Cardone and Marcello Mazonni from our Italian firm, Led Taxand, provide an analysis of this decision.

Read the full article here.

For more Italian M&A news, please refer to the Italian chapter of our global M&A Tax guide 2022.

Article tags

Italy | Tax | Tax Law