Italy: Withholding tax exemption, interest paid to UK banks during Brexit transition period

Italy: Withholding tax exemption

The Italian tax authority on 9 April 2021 clarified that an exemption from withholding tax for interest and other amounts related to certain loans paid by Italian resident companies to banks established in an EU Member State also applies with regard to banks established in the United Kingdom for interest and amounts paid during the Brexit transition period.


The withholding tax exemption is available in Italy under article 26 (5-bis) of Executive Decree no. 600/1973.

The 2019 Brexit agreement established that, after 31 December 2020, the United Kingdom would no longer be part of the customs and tax territory of the European Union. The agreement included a transition period—from 1 February to 31 December 2020—during which time, EU legislation and procedures relating to the free movement of persons, services, capital and goods remained in force with regard to the UK.

Thus, until the end of the Brexit transition period, the tax rules relating to UK membership in the European Union continued to apply, including those connected with an EU directive. According to the clarification, for purposes of applying article26 (5-bis), the Italian tax authority concluded that the UK must be considered to have been as part of the EU for the entire transition period and that the withholding tax exemption for interest and amounts paid to UK banks applied during this period.

KPMG observation

There may be possible refund opportunities for UK banks regarding tax withheld on interest payments during the Brexit transition period (1 February to 31 December 2020).

Read an April 2021 report [PDF 151 KB] prepared by the KPMG member firm in Italy

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