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Following the webinar held on November 26, 2021, regarding tax aspects of support administration, I briefly summarize the issue of the tax relevance of the fair compensation paid to the lawyer-administrator.
Given that the activity of the support administrator is presumed to be carried out with gratuitous intent, and that any compensation, if awarded, is determined based on an equitable parameter (art. 379, civil code), it should be noted that many courts have signed, with their respective Bar Associations, specific protocols for the “liquidation of fair compensation” based on various parameters, including the beneficiary’s liquid assets (thus determining the compensation based on a sort of value “brackets”).
On this point, I recall that the Resolution of the Revenue Agency of January 9, 2012, no. 2/E intervened, according to which “if the guardianship judge directly chooses a lawyer as administrator, the related indemnity, even if determined on an equitable and lump-sum basis, still represents compensation for the performance of a professional activity and, for this purpose, must be taxed both for Irpef purposes and subject to VAT”.
The space available here does not allow for a discussion of all the criticisms that have been and were raised against the position taken by the Tax Administration, including its apparent conflict with the order of the Constitutional Court no. 1073/1998. In any case, what is important to note is that many have considered that the aforementioned Resolution missed the mark and, in fact, was in clear conflict, among other things, with the constitutional principle of equality.
The matter has become further complicated, so to speak, with the judgment Cass. civ., Sez. V., 13 July 2020, no. 14846, which established that the indemnity in question would not have a remunerative nature, that is, “it is not intended to serve as a remuneration, or as an actual consideration for the service provided”, but would simply have “the nature of simple compensation, although appreciable and not merely symbolic, with the purpose of compensating for costs and expenses that are not easily documented”.
Therefore, according to the Supreme Court, no tax relevance should be attributed to the fair compensation of the support administrator except in cases where the management activity of the beneficiary's assets is actually aimed at generating stable income or, in any case, carried out by a professional for a fee, that is, for the production of income.
The framework is then completed by the recent ruling of the Court of Justice (case C-846/19 of 2021), according to which the service provided by a lawyer who carries out an activity (similar to that of) a support administrator must be subject to VAT because it is an economic activity, provided for consideration, and because it cannot be considered an exempt activity pursuant to art. 132, para. 1, letter g), Dir. 2006/112.
So? Is the fair compensation received by the lawyer in the performance of the activity as support administrator taxed or not?
From the point of view of Irpef, I believe there can only be one answer: yes.
Let us start with the alleged non-remunerative nature of the fair indemnity, which alone could be sufficient to exclude the income nature of the items under discussion. The indemnity, it is said, serves as compensation, as reimbursement for expenses not easily documented that were incurred by the administrator, and, if necessary, it restores “the time dedicated” to such an assignment, time that was not used to carry out other activities, which could potentially be remunerated.
In my opinion, the arguments are not acceptable.
Given that one of the characteristic features of self-employment income is the habitual nature of the income-generating activity, it should be noted that the absence of this requirement, however, is not, in itself, sufficient to exclude the income nature of the compensation, because under the legal system, other income arising from occasional self-employment activities is also taxable. Likewise, among other income, those deriving from the undertaking of obligations, including, among others, to do something, are included.
The argument regarding the nature of “reimbursement” of the expenses incurred by the administrator is not decisive: expenses for the care of the beneficiary are covered by the latter’s assets; moreover, the lawyer-administrator seems to have little room regarding “expenses not easily documented,” given the strict accounting obligations imposed on his role as support administrator.
Let us also not forget that the legal system provides for the rule of taxation of income earned in place of other income and of compensation received as damages consisting of the loss of income.
On this point, the strongest argument in support of the non-taxability of the indemnity seems to me to be that of D. Stevanato in “Indemnities constructed «ex lege» as mere reimbursements: the case of support administrators” in Dialoghi Tributari, no. 1, January 1, 2012, p. 57, according to which, for the “substitution of income” to operate, it would be necessary that “the substituted or lost income has already ‘matured’, that is, that they are concrete situations, to the point of being legally relevant by constituting grounds for a claim of an obligatory nature, and not mere expectations and hopes linked to future profitable activities which the subject could have hopefully pursued had they not been engaged in supporting the administered person”.
The argument, in general terms certainly acceptable, does not take into account, perhaps also due to the time when it was formulated (2012), the practices that have been adopted in many national courts for the recognition of compensation based on very precise and, certainly, certain, concrete and reliable parameters.
In light of this, therefore, this argument is also not sufficient to exempt from Irpef taxation the fair compensation received by the lawyer-administrator.
For VAT purposes, the issue is a bit more complex but, nevertheless, can be resolved based on similar arguments to those used in matters of income.
The case analyzed by the Court of Justice—which concerned a Luxembourgish lawyer who, apparently as an activity if not the main one, at least a very significant one, carried out the legal representation of adults in conditions of diminished capacity, acting on behalf of the judicial authority as a proxy, curator, and guardian administrator, receiving a “fee” that the law charges either to the assisted person or to the State, depending on whether the former is able to bear the cost or not—offers us the opportunity to see how the role of support administrator (in a general sense) is increasingly becoming “professionalized”, also due to the difficulty of the (among other things) fiscal obligations that the administrator is called upon to face.
We are therefore increasingly witnessing the emergence of a new professional figure within the legal profession, which requires not only a certain commitment but also a certain degree of specialization and knowledge of the institution.
Well, in these cases, according to the Court of Justice, we are dealing with economic activities consisting of services rendered for consideration which, in general, could be considered exempt because they are provided within the scope of social assistance but which, in reality, when carried out in connection with the specific competences of a lawyer, do not fall within the concept of exemption even if provided as part of aid given to legally incapacitated persons.
In essence, therefore, in these cases, according to the aforementioned case law, the services in question are subject to VAT.
It will be different in the case, as previously mentioned, of a purely occasional service, as in these cases the relevance for Irpef purposes may differ from that for VAT.
I conclude this brief report with a reference to the principle of equality and its alleged violation by the approach outlined above. It should be noted that this constitutional principle essentially requires treating identical cases in the same way and different cases differently.
It goes without saying that the position of a lawyer earning income from self-employment is different from that of a relative of the beneficiary-administrated person who, on the other hand, does not carry out this type of activity. I therefore wonder whether the principle of equality would not be violated if lawyer "Tizio" had to subject his fees from "ordinary" activities to taxation, while lawyer "Caio" did not because he receives "fair compensation" deriving from the activity of support administrator.
The answer, as seems evident to me, in this case would be positive and, therefore, I believe that subjecting to Irpef the fair compensation received by the lawyer-support administrator, determined based on parameters established by a protocol signed with the competent Court, does not violate the principle of equality in relation to the compensation that can be recognized to the beneficiary's relative who does not have self-employment income, also because the latter, in relation to the activities carried out in favor of the recipient of the measure, will not deduct from their Irpef taxable base the costs incurred in carrying out the function. As for VAT, similar considerations apply insofar as the service is performed habitually and allows the lawyer to rely on a certain and stable income.
Lucca, there on November 26, 2021
Jacopo Lorenzi
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