The article examines the Italian Revenue Agency’s surprising reversal in Ruling No. 199/2025, which abandons the pro rata approach to cross-border deferred compensation.
Under the older approach, Italy would not tax the part of a bonus which accrued when the taxpayer was resint n another country in connection with services performed in that country.
Under the new interpretation, Italy taxes the entire bonus if the employee is resident at the time of payment, even when part (or all) of the services were performed abroad (in the employee’s former country of residence).
The key takeaways are the following:
1) Residence at the time of payment is now decisive for Italy’s taxing rights.
2) Foreign service years no longer shield income from Italian tax.
3) Double taxation relief is available only through foreign tax credits, not exclusion.
4) Treaty language (notably, Article 18(3) of the Italy–U.S. treaty) can still tip the balance.
This development has significant implications for mobile employees, multinational employers, and cross-border executive compensation incentive planning.