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Italy: “Net taxation” of royalties paid to foreign companies

Italy: “Net taxation” of royalties paid

A regional tax court (Pescara) concluded that Italian withholding tax imposed on royalties paid to foreign companies is discriminatory because the amount of the tax is calculated based on the gross amount of the royalties whereas Italian resident companies are able to deduct the costs directly related to the acquisition of the royalty-producing asset or activity.


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The Italian regional tax court’s decision is the first application in domestic case law of the principle established by the Court of Justice of the European Union (CJEU) in the Brisal case (C-18/15) that held:

Article 49 EC precludes national legislation . . . which, as a general rule, taxes non-resident financial institutions on the interest income received within the Member State concerned without giving them the opportunity to deduct business expenses directly related to the activity in question, whereas such an opportunity is given to resident financial institutions.

Identifying information of the Italian court’s decision: no. 363/2019 


In the case before the Italian regional tax court, an Italian company paid royalties for television rights to a Spanish company that, in turn, incurred costs related to these licenses. The Italian withholding tax (under the applicable income tax treaty) was applied on the gross amount of the royalties without deducting the costs that the Spanish company had incurred by granting the television rights.

The regional tax court (Pescara) cited the Brisal case, and noted the impossibility for the foreign company to deduct costs directly related to the use of television rights was a form of tax treatment that penalized this Spanish entity because an Italian resident company could reduce the amount of its taxable base by deducting these costs.  

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