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Italy: Withholding tax refund, dividends distributed to Spanish pension funds

Italy: Withholding tax refund, dividends distributed

The Italian Supreme Court (Corte di Cassazione) concluded that Spanish pension funds—subject to tax in Spain at a rate of 0%—are entitled to a refund of the withholding tax imposed at a rate of 15% on dividends distributed to the pension funds by Italian companies in 2006.


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The case identifying information is: decision no. 1967 (filed 29 January 2020)


A Spanish management company, as a legal representative of 11 Spanish pension funds, requested a refund of the 15% withholding tax applied on dividends distributed to the pension funds by Italian companies in 2006.

The 15% rate of withholding tax had been applied pursuant to a provision of the income tax treaty between Italy and Spain.

The original refund claim was based on the premise that dividends distributed to Spanish shareholders are to be taxed on the same basis as those distributed to Italian companies (which for the year at issue were subject to tax at a rate of 1.65%).

The Italian high court held that even though the income tax treaty withholding tax rate of 15% was lower than the “standard” 27% withholding tax rate applied under Italian law, the 15% withholding tax rate was still in violation of EU Treaty rules. As the Supreme Court continued to explain, the Spanish pension funds were subject to a 0% rate of tax in Spain, their country of residence, and that the refund of withholding tax must be granted since the pension funds were liable to tax in Spain.

The Supreme Court continued to note that the EU Parent-Subsidiary Directive was not applicable, and that EU Treaty rules thus prevailed over the provisions of the Italy-Spain income tax treaty. Accordingly, dividends distributed to the Spanish pension funds must be taxed in the same manner as those distributed to Italian entities starting from the 2004 tax year (the period from which the participation exemption was in force in Italy).

KPMG observation

The Supreme Court decision may present opportunities for entities, such as pension funds, that have been subject to withholding tax in Italy even though they may be exempt from tax in their country of residence. These entities may entitled to refunds of the difference between the withholding tax levied (27% or 15%) and the tax imposed in Italy on dividends distributed to Italian entities (1.65% from 2004 to 2007; 1.375% from 2008 to 2016; 1.2% from 2017).

Taxpayer entities may want to consider judicial review by the Italian tax court of the “silent rejection” by the Italian tax authorities of previously filed claims for refunds of withholding tax. In particular, pension funds that have not yet filed refund claims may want to consider submitting a claim for refund of tax withheld on dividends distributed from 2016 onwards (the statute of limitations is 48 months from the payment date of the withholding tax).

Read a February 2020 report [PDF 167 KB] prepared by the KPMG member firm in Italy

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