ITALIAN SUPREME COURT: TAX CREDIT ON FOREIGN-SOURCE DIVIDENDS

With Sentence no. 25698 of 1 September 2022, the Italian Supreme Court recognized to individuals (non-entrepreneurs) residing in Italy the credit for taxes paid abroad on dividends distributed by non-resident companies, despite the fact that they are subject in Italy to a withholding tax or a substitute tax (condition that, by internal legislation pursuant to art. 165 TUIR, thus not contributing to the formation of the total income, they could not benefit from it), confirming the prevalence of the Convention against double taxation with respect to the domestic legislation.

Thus the Supreme Court: "if the taxation by withholding tax - as in the hypothesis referred to in Presidential Decree n. 600 of 1973 art. 27, paragraph 4, or by substitute tax, entirely superimposable to the first due to the identity of the function, referred to in Presidential Decree n. 917 of 1986 art. 18, paragraph 1, - takes place not "at the request of the recipient of the income" but obligatorily, since the taxpayer cannot request ordinary taxation, the income tax paid in a foreign country (in the case, United States of America) must be considered deductible".

In this sense, it should be specified that the principle in question applies only to Conventions which specify in the form "at the request of the recipient of the income" and not to those, more recent, which specify "EVEN at the request of the”, a condition that, on the contrary, would exclude the benefit of the tax credit.

The taxpayer who wants to claim the credit for foreign taxes will have to file a specific request for reimbursement to the Italian Revenue Agency.

The firm is available to assist its Clients in analyzing the double taxation agreement, quantifying the foreign tax levy on dividends paid and determining the amount potentially subject to reimbursement, and assisting in the preparation of the reimbursement request to the Revenue Agency.