Tax settlement and good faith in negotiations for financial advisors

Note on the analytical structure of Legislative Decree of 12 February 2024. Clarification from the Agenzia delle Entrate is needed, so be careful not to present as absolute certainty what is only a mere possibility.

By Marco Da Villa* and Manlio Marucci**

A lively and interesting debate has recently opened up around the two-year advance settlement[1] and its usefulness for financial advisors who are considering changing employer; a debate further fueled by the different interpretations of the rule by the Agenzia delle Entrate, by Anasf and Assoreti, and one that is certainly not about to die down. The main issue revolves around whether the settlement includes or excludes signing bonuses, the so-called "entry bonus", much loved by Financial Advisors and Managers.

The issue has not yet been resolved, and the silence of the Agenzia delle Entrate on this point continues. Despite the uncertainty surrounding the rule and its interpretative aspect, a practice has become established whereby, during the recruiting process, the candidate is told that now is the perfect time to change sides—as perfect as it has never been in past years—since, by joining the settlement, entry bonuses and portfolio transfer bonuses would be handled more favorably, essentially avoiding the tax due on them. It is also added that there would be an inevitable positive impact with regard to any amounts owed to the previous employer (missing notice, unearned advances, penalties for unfulfilled loyalty agreements, etc.). All such costs would, thanks to the benefits obtained through the tax savings arising from joining the settlement, be more easily absorbed by the financial advisor required to pay them.

The new mantra can therefore be summed up as follows: by joining a new network, one would pocket the tax-free entry bonus and, with the money saved, more easily settle any outstanding liabilities with the previous intermediary. The opportunity was and is too tempting; operators in the financial advisory networks—especially those involved in selecting and onboarding advisors—have immediately turned the opportunity offered by the settlement into a new and potentially very effective persuasive tool to encourage the recruitment of new financial advisors. However— in the view of the writer—because of the uncertainty mentioned above, there is today no guarantee that the tactic will work.

The problem lies in the nature of entry bonuses, which in fact are always commissions but "extraordinary" ones, that is, tied to a special, non-repeatable event such as bringing over the client book from the previous firm; moreover, these are non-recurring payments, as they are paid for a limited period of time. It should also be said that these features of signing bonuses are more akin to the category of extraordinary income components than to income components arising from the ordinary activity of the advisor; with the result that, if they were truly interpreted as extraordinary income, these bonuses would be excluded from the settlement.

On the basis of our reflections, the advice can only be to act prudently and to carefully assess the consequences of having, in the future, to face litigation with the tax authorities, which could challenge the inclusion in the settlement of amounts that in fact fell outside its scope. Moreover, if at the time of entering the new network "stability agreements" and/or "long-term target agreements" are signed, all accompanied by heavy penalties, it should be remembered that such commitments would remain in force even if the tax-saving plan were to fail.

One good safeguard could be to insist on the inclusion in the "side letter" of a "safeguard clause" in the event that the settlement ultimately proves inapplicable to the specific case, just to have cover for economic imbalances and the consequences of a tax strategy that turns out to have been wrong. In truth, it would be enough—so that the candidate can make a well-considered and informed decision—that the information provided during the recruiting process always be truthful, not misleading or confusing, in full respect of the highest standards of intellectual honesty and transparency, including as regards the risks for the financial advisor arising from the so-called "change of sides".

In legal terms, the well-known and fundamental principle of speaking clearly must be applied. Good faith requires the parties to act loyally, honestly and correctly during pre-contractual negotiations, avoiding deceptive conduct or omissions that could lead the other party to enter into the contract on mistaken grounds or in any case as a result of defects in consent. Consequently, with regard to the opportunity to make use of the two-year settlement to obtain the tax break on entry bonuses, it would be necessary to convey to the candidate the idea that at present we are not dealing with a certain and absolute fact, but with a mere possibility still subject to an objective interpretation of the final rule by the Agenzia delle Entrate itself.

*Lawyer at the Frame Lex law firm and consultant to Federpromm

** President of Federpromm

[1] The two-year advance settlement (CPB) is an agreement between the company and the Agenzia delle Entrate that establishes in advance the taxable base on which taxes will be paid for a two-year period. In practice, the company and the Agenzia delle Entrate agree on an amount that the business will have to pay, regardless of the actual income generated during that two-year period. A solution that promises stability and simplification, but which could also lock taxes in at high levels, limiting the business's tax flexibility.