Italy’s Supreme Court (“Court”) issued Decision no. 4761/2026 on 3 March 2026, confirming that applying a higher Italian withholding tax (WHT) to outbound dividends than the effective tax burden on comparable domestic corporate recipients is discriminatory under Article 63 TFEU. The Court expressly rejected curing such discrimination by reference to “compensatory advantages” (for example: foreign tax credits, exemptions, or other benefits available in the investor’s State of residence), holding that the Italian Revenue Agency may not reduce or deny WHT reclaims on the basis of extraterritorial or unrelated advantages — the assessment must be made in Italy, tax‑by‑tax and item‑by‑item. The Court also clarified the proof requirements for WHT reclaims; claimants need only demonstrate corporate residence in an EU Member State or a non‑EU State and that they are subject to corporate income tax there. There is no need to provide proof of actual foreign taxation of the specific dividends in the recipient’s country of residence.
Recent development
KPMG comment
The Court’s clear application of the non‑discrimination principle to outbound dividends as well as its rejection of “compensatory advantages” as a cure for discriminatory treatment, strengthens the legal basis for WHT reclaims where funds were subject to higher Italian WHT than comparable domestic Italian investment funds.
This decision is also relevant to funds with pending court cases applying the same non‑discrimination principle, bringing a positive signal of their probable outcome. In this regard, it is worth highlighting that an appeal needs to be filed at the latest 10 years after the filing of the WHT reclaim.
KPMG recommends that foreign investment funds that have filed withholding tax reclaims for taxes suffered before 1st of January 2021 initiate court proceedings, if not done yet. Currently this is the only available legal remedy to obtain a refund of Italian withholding taxes.
Our team of tax specialists and project managers can assist you with filing WHT reclaims and / or court proceedings.
