When and how to use the End-of-Mandate Treatment (TFM)

The End-of-Mandate Severance Treatment (TFM) is now considered one of the most effective tools for tax-efficiently optimizing retirement planning for directors and company collaborators. Here are the key points to understand how it works and what the risks are without proper planning:

Advantages of TFM

– Full deductibility of company costs: If the TFM is properly structured, the company can fully deduct the accruals from its income, reducing taxable profit and the tax burden

– Separate taxation: The TFM is typically subject to separate taxation for the director, a mechanism that is often more favorable than the ordinary taxation applied to total income. Separate taxation is based on the average tax rate on income for the previous two years and can significantly reduce the effective taxation on the TFM received

Essential conditions for tax benefits

– Advance planning: The benefits described are guaranteed only if the entitlement to TFM:

  – Is provided for by a written instrument (for example, a shareholders' resolution or recording in the accounts) with a certain date prior to the start of the directorship or collaboration relationship.

  – Examples of a certain date are: notarized minutes, registered mail, registration with the Revenue Agency

  – The lack of advance planning with these requirements causes the right to both accrual-based deductibility (annual deduction) and separate taxation to lapse; in the absence of such conditions, the TFM will be deductible only on a cash basis (when actually paid) and taxed under the ordinary regime, with an additional tax burden for the company and the director

Additional benefits

– If the TFM is managed through insurance instruments (e.g., Class I or III policies), additional benefits arise in terms of asset protection and estate planning

Gazzani Firm Notes

According to Studio Gazzani – therefore – without proper and advance documentary and contractual planning, the main tax advantages of the TFM can be completely lost. Setting up a structured plan is therefore essential to fully take advantage of all the benefits provided for by current regulations