Luxembourg Tax Alert 2022-01

Italian court grants withholding tax refund to a Luxembourg SICAV UCITS

Italian court grants withholding tax refund to a Luxembourg SICAV UCITS

On 7 February 2022, the Italian Provincial Tax Court of Pescara (“the Court”) issued a decision confirming that a Luxembourg SICAV UCITS (“the claimant”) is entitled to a refund of the withholding tax (“WHT”) imposed on dividends distributed by Italian companies. It is the first positive decision in favor of a foreign investment fund in Italy and comes in line with past rulings of the Court of Justice of the European Union (“CJEU”).


The claimant submitted a request in December 2017 to claim the refund related to WHT levied on dividends received in the years 2014, 2015 and 2016, considering the incompatibility of national Italian provisions with the freedom of movement of capital under the EU Treaty.

The decision

UCITS SICAVs, pursuant to art. 73, paragraph 1, letter c) of Presidential Decree no. 917 of 22 December 1986 (TUIR - Italian Income Tax Code) are considered taxable entities for corporate income tax purposes (IRES). The same article, in paragraph 5-quinquies, establishes that UCITS set up in Italy are exempt from IRES, under the condition that they are subject to prudential supervision. Consistently, art. 27 of Presidential Decree no. 600/1973 does not provide for the application of any WHT on dividends paid to domestic UCITS.

Contrarily, Luxembourg SICAVs, even if subject to prudential supervision by their own State, did not enjoy any tax exemption before 1st January 2021 and were subject to taxation, by means of withholding tax.

The exclusion from tax exemption derives exclusively from the different location, given that the SICAVs set up in Italy and the claimant are comparable, since they are all subject to forms of prudential supervision and the law does not provide for a particular ”capillary and stringent“ form.

By granting an exemption regime to Italian UCITS (including SICAVs therefore) and at the same time imposing a WHT on outgoing dividends, the Italian tax legislation has introduced a typical restriction on the free movement of capital, dissuading non-residents from investing in the country.

In fact, according to the orientation of the CJEU, the violation of the fundamental freedom may occur not only when the tax system of a member state provides for discriminatory treatment based on the tax residence of the subjects involved, but also when the requirements for access to certain favorable regimes are so stringent for foreign subjects, that it may dissuade them from investing in the member state, thus limiting the free movement of capital guaranteed by art. 63 TFEU.

As a reminder, the national legislator also introduced with paragraphs 631 and 633 of Law no. 178 of 30 December 2020 a provision aimed at standardizing the tax regime of dividends from Italian sources. Further to this change, dividends distributed by IRES subjects (e.g., Italian companies) and received by foreign UCITS should be entitled to the same favorable treatment previously available only to UCITS established in Italy, thus remedying the previous discrimination.

Consequently, the Court decided that the claimant was legitimately entitled to the reimbursement requested.

KPMG Comment

Considering the above, we strongly recommend continuing filing WHT reclaims in Italy and to initiate court proceedings. WHT reclaims are currently subject to a tacit rejection if no answer of the tax authorities is issued within 90 days after the filing of said reclaim. Taking into consideration that the Italian tax authorities do not reply to the WHT reclaims, the sole way forward to obtain a refund is an appeal before the Court. Considering this positive decision, we believe now is the best time to move forward and launch the court proceedings with the Italian court.

Please be aware that your WHT reclaim may be lost if no court proceedings are launched within a time frame of 10 years after the filing of the WHT reclaim. As consequence, for all WHT reclaims filed in 2012 it is important to act immediately.

It should be noted that in case of success, an annual interest of 2% should normally also be granted by the Italian tax authorities.

A team of tax specialist and project managers can assist you with filing these WHT reclaims.

Should you have any questions/comments, do not hesitate to contact us.