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Italy: Withholding tax exemption, dividends paid by Italian subsidiaries

Italy: Withholding tax exemption, dividends paid

The Italian Supreme Court and the Italian tax authority have different views of application of the withholding tax exemption available under the EU Parent-Subsidiary Directive for dividends paid by Italian subsidiaries to European parent companies.

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Supreme Court’s position

The Italian Supreme Court in December 2018 held that the EU Parent-Subsidiary Directive did not apply to allow a Luxembourg parent company to claim an exemption from withholding tax for dividend payments received from its Italian subsidiary.

In that decision (no. 32244), the high court upheld a decision of the Italian regional tax court that had found that under provisions of Luxembourg corporate income tax law, the dividends were not subject to “local” income tax (as required by the directive) although the Luxembourg company was generally subject to local income tax. The high court explained that the directive was not applicable because the Luxembourg company had already benefitted from a separate dividend exemption under Luxembourg tax law, and the two claimed benefits (i.e., the withholding tax exemption under the directive and the exemption for dividends under the Luxembourg domestic rules) could not be combined. The fact that the Luxembourg company was subject to direct tax in Luxembourg did not, in the view of the high court, invalidate or provide a basis for overturning the regional court’s conclusion.

According to the Italian Supreme Court, dividends received by an EU shareholder must be taxed at least partially in order to benefit from the withholding exemption under the directive, and the dividend exemption regime provided by Luxembourg tax law was sufficient to avoid double taxation.

Tax authority’s position

The Italian tax authority in February 2019 issued a ruling (no. 57) addressing whether a withholding tax exemption was available under a provision of the EU-Switzerland agreement—that is, a provision that corresponds to the withholding tax exemption provided by the EU Parent-Subsidiary Directive.

The situation in the ruling was that an Italian subsidiary paid dividends to its Swiss parent company—dividends that were eligible for benefits from the Swiss dividend exemption regime. The Italian tax authority concluded in its ruling that the withholding exemption under the directive applied even if the dividends were excluded from tax in Switzerland pursuant to a regime that was similar to the Italian participation exemption.

Thus, the Italian tax authority took a different approach from that of the Italian Supreme Court in the December 2018 decision.


Read a March 2019 report [PDF 170 KB] prepared by the KPMG member firm in Italy

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