Fund Taxation Alert 2020-03

Fund Taxation Alert 2020-03



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Italian Supreme court grants WHT refund to Spanish pension fund

On January 29th 2020, the Italian Supreme Court (Corte di Cassazione) issued their decision that Spanish pension funds are entitled to a refund of the withholding tax (WHT) imposed on dividends distributed by Italian companies, on the basis of the double tax treaty between Italy and Spain (DTT), notwithstanding that such Spanish pension funds are subject to tax at the rate of 0% in Spain.


The 11 Spanish pension funds, on whose behalf the claim was filed, received dividends from Italian companies in 2006, which were subject to WHT at the rate of 15% in Italy, based on the DTT. The claimant, a Spanish management company, acting as the legal representative of these Spanish pension funds, claimed that the above-mentioned dividends distributed in 2006 should have been subject to the same WHT rate as those distributed to Italian companies, which at the time of the distribution were subject to tax at 1.65%. Thus, in accordance with the double tax treaty concluded between Spain and Italy, the claimant requested a refund of the 15% WHT applied.

The decision

Although the WHT rate in terms of the DTT (i.e. 15%) was lower than that under Italian domestic law (i.e. 27%), the Italian Supreme Court recognized that it was still in violation of the Treaty on the European Union (EU Treaty). Considering that Spanish pension funds are liable to tax in Spain, albeit subject to a 0% tax rate, the Italian Supreme Court rules that such pension funds must be treated as being entitled to benefit from the reduced WHT rate on Italian outbound dividends, applicable to EU-resident companies and entities. 

Although the EU Parent-Subsidiary Directive was not applicable in the present case, the Italian Supreme court held that the EU Treaty rules prevail over the provisions of the relevant DTT. As a consequence, dividends distributed to the Spanish pension funds should be taxed in the same manner as those distributed to Italian entities starting from the year from which the participation exemption came into force in Italy (i.e. 2004).

KPMG Luxembourg comments 

The Italian Supreme Court’s decision bears great importance, particularly in the case of entities which, as a result of their exemption from taxation in their countries of residence, are unable to recover the WHT imposed in Italy, such as pension funds or even Luxembourg-resident investment funds. Such tax-exempt entities should therefore be entitled to a refund of the difference between the WHT levied in Italy (whether the 27% WHT under domestic law or the applicable WHT rate based on the relevant DTT) and the WHT rate applied on dividends distributed to Italian entities (since 2017, 1.2%). 

It also shows that Italian courts are taking EU law into account when rendering their decisions. In the case under review, this was even done pro-actively by the court which went beyond the initial request of the claimant that was only referring to the DTT. 

Recommended actions 

Based on this decision of the Italian Supreme Court, it would be important for pension and investment funds investing in Italy to consider the impact on their own investments. In particular, we recommend the following courses of action: 

  • Where a WHT reclaim application has already been filed, an appeal should be filed before the Italian Tax Court in respect of the “silent rejection” of the WHT reclaim application
  • Where a WHT reclaim application has not yet been filed, funds may wish to consider submitting a claim for a refund of tax withheld on dividends distributed from 2016 onwards, taking into consideration the 48-month statute of limitations in Italy (applicable from the payment date of the WHT).

KPMG can support pensions and investment funds for the filing of tax reclaims and launching of court proceedings as specified above. 


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