Contributions due to the transaction if connected to the employment relationship

The Court of Cassation, with judgement No. 27933 dated 23 November 2017, returned to issue its ruling on the issue concerning the taxation applicability of the amounts paid by the employer as part of a settlement agreement signed with the employee within the employment relationship. In particular, according to the Court of Cassation, in order to assess whether the transaction occurred between the parties is extraneous to the social security relationship, it is necessary to check that (i) there is no specific connection of payment and (ii) there is a title independent and different from the employment relationship that justifies its payment. The present case concerned the right of three former employees of a banking company to have their contributions credited by Inps in relation to the amounts received during conciliation following the outcome of a previous dispute. The Court of Appeal of Rome set aside the judgement at first instance, ruling in favour of the appeal of INPS, and confirmed that these amounts were not subjected to taxation because they were not connected to a remuneration function pursuant to article 12 of Law 153/1969 as amended by article 6 of Legislative Decree No. 314/1997. The Court of Cassation, which was called to decide upon this issue, aligned its decision with the consolidated orientation according to which, in the case of social security obligations, if a judicial settlement took place that can be ascribable to the employment relationship shown below, the settlement agreement signed by the parties has novative effect, constituting the sole and original source of the rights and obligations subsequent to the termination of the relationship. Therefore, in the Court opinion, it is essential to understand when the amounts paid as a settlement are directly connected to the employment relationship, and when they arise directly from the settlement agreement.