Benefits of TFM

1. Tax optimisation: The TFM allows the company to set aside annual amounts deductible for IRES purposes, pursuant to Article 105 of the TUIR. This makes it possible to reduce the tax burden year by year, provided the legal requirements are met.
2. Accrual Deduction: TFM provisions follow the accrual principle established by Article 109 of the TUIR. The amounts are deductible in the year in which the director’s entitlement accrues, even if they are not actually disbursed, thus alleviating the immediate tax impact.
3. Supplementary pension: the administrator may benefit from the TFM as a form of supplementary pension, accumulating a sum that may be useful to meet future expenses at the end of the mandate.
4. Financial management: For the company, the TFM allows for financial planning of the amount to be paid, reducing the economic impact at the end of the mandate.

How to Manage TFM to Avoid Tax Problems

To ensure the deductibility of TFM provisions, it is crucial to comply with precise formal and timing requirements:

• Shareholders’ meeting resolution: The TFM must be resolved by the shareholders’ meeting prior to the commencement of the director’s term of office. The resolution must clearly specify the amount or criteria for calculating the allowance.
• Date certain: The Court of Cassation, in its judgment No. 26431 of 19 October 2018, reiterated that the right to the TFM must be documented by a deed having a date certain prior to the beginning of the directorship. The methods for obtaining the certain date include:
  • Registration of the deed with the Inland Revenue Agency
  • Sending via PEC
  • Affixing of time stamp
  • Notarial authentication
• Written contract: The TFM must be governed by a written contract specifying the terms of the provision. If the director is already in office, it is possible to formalise the TFM during the term of office, but the deductibility will only be valid from the certain date onwards.
• New appointment of director: If the TFM was not provided for before the start of the mandate, the company may consider making a new appointment with the TFM included in the contractual terms. In this case, the entitlement to the indemnity would be properly formalised with a date certain before the new term of office.
• Clause in the statutes: Although not mandatory, a clause in the statutes authorising TFM may strengthen the legitimacy of the resolution and reduce the risks of tax challenges. Any amendment of the statutes requires an extraordinary resolution.
• Complete documentation: Keeping all documentation related to TFM, including shareholders’ resolutions, contracts and any amendments to the articles of association, is essential to defend oneself in case of tax audits.

Implementation Arrangements for Directors Already in Office

If the TFM has not been formalised before the start of the mandate, there are two options:

1. New appointment of the director: Making a new appointment allows the TFM to be included with all the necessary formal requirements, thus ensuring deductibility.
2. Ad hoc resolution during the term of office: It is possible to introduce the TFM with a resolution and contract, but in this case the deductibility of the provisions will only apply from the certain date of the resolution onwards.

Risk of Deductibility

Failure to comply with formal and timing requirements may lead to tax disputes. The most common errors that lead to the non-deductibility of provisions include:

• Lack of a valid and timely shareholders’ meeting resolution
• Informal agreements or undocumented minutes
• Absence of a statutory clause when recommended
• Inappropriate provisions in relation to the company’s economic performance

Conclusion

The TFM is an effective tool for optimal fiscal and financial management, but must be implemented carefully. Turning to experienced advisors, such as the professionals at Taxdry, can ensure compliance and maximise tax benefits.

Contact us to find out how we can help you manage TFM correctly and profitably.