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Italy: Withholding tax refund; dividends distributed by Italian companies to tax-exempt foreign entities

Italy: Withholding tax refund

A provincial tax court (Pescara) concluded that Italian withholding tax imposed on dividends paid to foreign foundations is discriminatory because Italian foundations benefit from lower taxation on the same dividends.

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The case identifying information is: decision no. 115/2019 

Summary of court's decision

In the case before the Italian provincial tax court (Pescara), Italian companies paid dividends to a German foundation and applied the rate of withholding tax pursuant to an income tax treaty. The German foundation filed a claim for refund of the difference between the withholding tax rate under the income tax treaty and the rate of tax imposed on Italian foundations. The Italian tax authorities rejected the refund claim, on the basis that the German foundation was tax-exempt.

The Italian provincial tax court held that the German foundation was entitled to a refund.

The court’s decision is another example of the application in domestic case law of the principle established by the Court of Justice of the European Union (C 540/07):

…the difference in treatment between dividends distributed to companies established in other Member States and those distributed to resident companies does not totally disappear unless the tax withheld at source under national legislation can be set off against the tax due in the other Member State in the full amount of the difference in treatment arising under the national legislation.

KPMG observation

This decision is seen as being important for entities that are exempt from tax in their country of residence and that file a claim to recover the withholding tax paid on dividends distribute to them by Italian companies.

  • For foundations and non-profit entities, the conclusion of the provincial tax court is applicable only with respect to the withholding tax on dividends distributed before 31 December 2014 and for which a refund claim has already been submitted to the Italian tax authorities. If there is no action on such a refund claim (that is, the tax authorities have been silent on the claim), a judicial refund suit can be filed with the tax court within 10 years from the date when the refund claim is filed.
  • For all other tax-exempt entities, it is possible to submit a refund claim within 48 months from the withholding tax payment date, or to seek judicial review of the refusal (silent or explicit) of a previous claim for refund.


Read an October 2019 report [PDF 168 KB] prepared by the KPMG member firm in Italy

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